There wasn't anyone in government that decided hospitals and insurance companies need to have record profits and price gouge their customers. It happened, because entrenched interests lobbied government officials to enact such legislature.
Business is the one that perverse incentives through pressure on government. It doesn't originate in government spontaneously.
> Some would say that crying "market failure" isn't a legitimate criticism.
Saying market failure isn't a criticism in and of itself, it's a statement of fact. It arises whenever the market is unable (for a multitude of reasons) to distribute the services to the end consumers (e.g. health care recipients) in an effective manner.
For example, saying that "tying health care to employment creates perverse incentives, because policymakers automatically assume that more people are covered than actually are, since policymakers themselves are employed" is a criticism (without judging how valid/accurate it is).
Broadly saying "market failure" is not.