Even if they can just pay for health insurance out of pocket, they’d be switching plans twice, and each time they’d reset their deductible and possibly need to find a new doctor.

When I was an actuary we used to do “intern to hire” for unemployed recent grads, but I can’t imagine leaving a full time position for a contract-to-hire position. I think for me personally the opportunity would have to be really interesting and the comp upon converting to FTE would need to be at least double my previous comp (meaning the contracted rate would probably be something like 4x my implied hourly).

I've only ever seen it done in legally dubious ways to skirt paying benefits for 3-6 months for new hires in entry level positions.