Also it creates a major incentive to disregard diseases.

What follows is that a dead patient, while not a source of income, is at the same time not a source of costs.

I don't see how such an arrangement could work long-term.

Right. I think I remember it used to be normal in some societies to pay the doctor only if he managed to cure you. That sounds much more plausible. Paying for the state transition from sick to okay should work just fine.

The problem is if you can't be cured but can be helped. Diabetes is an example of something where with medical care you can live a long life, even though we can't cure you; but without help you are dead quickly.