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If the individual contracted with the surgeon rather than the insurance company / government making the contract, then they could take all of the individual contingencies into account when doing the contract. And the individual would have a big financial incentive to reduce behaviors that would cost him more in medical expenses (like hip surgery).

In this case you have an individual who is a high risk for surgery. Take away the insurance companies and I still don't see why the doctor would want to take on the risk of liability on his own. Because of the patient's history of abusing his health, if he dies on the operating table or has complications following surgery then the doctor is still liable to be sued.

Sure.

But consider this: the doctor could remediate the contract for services and then mitigate the residual risk with money:

The doctor could take additional precautionary measures to reduce the patient's vulnerability to complications (charging the patient for those extra costs).
For those situations where precautionary measures are not practical, he could require an informed consent from the patient waiving the right to sue for specific complications.
He could require the patient to agree to arbitration rather than court.
In the most extreme cases, he could increase the cost of the procedure to cover the deductible for malpractice insurance as well as the extended costs for increased premiums.

In a free market world (a/k/a one not overly regulated by government), there are a whole lot of steps to reduce vulnerability and to reduce the potential exposure to risks.