Why can’t it work? If a state requires you to have certain coverages then those states need to get together and decide why those coverages are needed and allow citizens to decide if they want to pay for them.
Because of this: "It's pretty hard to set up a network of doctors and hospitals that will work for patients in both Iowa and New York."
Insurance companies save costs by establishing a network of doctors, hospitals, and pharmacies that they negotiate with on how much they have to pay for services rendered. An insurance company in Iowa won't have a network established in New York, and they won't want to go to the expense of establishing a network for the occasional New York customer. So every bill they get from New York will be for the full cost of the service. Every visit you make you will pay the far higher out-of-network deductibles and co-pays. Considering the risks to them and the fact that they could never make money off of you I'd expect that they would just decline your business.
Hey, I have a plan. Let us buy and pay for the insurance coverage we want and need, sort of buying a new car. I can cross state lines and buy the things I need or want, why not insurance?