I'm not sure you understand what circular reasoning is. And anyways, i can show you an industry with enormous redundant costs that also has high margins - hollywood - but of course they achieve that through clever use of corporate law; the median hollywood company loses money but the wins all go to the margins of the major holding companies.
It seems like the argument you are making is that a sector cannot be wasteful because it has low margins. In order to accept that argument, one would have to agree in advance that the sector has a net positive value to society and should definitely exist. Agreeing that the sector should exist makes it impossible to seriously discuss whether the sector should exist.
The value of a sector to its host civilizaiton is the amount by which its externalities exceed its revenues. If the sector were eliminated, those revenues could be directed elsewhere.
In the case of Hollywood, the value of the movies produced is worth at least as much as people are willing to pay to see them. Solvency here is evidence of net positive value.
Even in a vilified industry like big tobacco, the value of the product is worth more to the people paying for it than their money is. Solvency here is evidence of net positive (perceived) value.
But in the case of the private medical insurance sector, the amount of benefit that all customers receive has to be less than the amount that all customers pay. Solvency is evidence of net negative value, unless there are some other externalities. So, what could those be? Fire insurance can prevent disruptions to a city. But can private medical insurance prevent public health hazards? I don't see why it would be better suited to do so than a single-payer alternative.
