There's nothing inherently wrong with wanting or needing medical benefits; no one is getting anything for free. It's paid for -- or not -- by insurance. The insurance company can set rules about what they'll pay for, of course. Usually what happens is that one either sees a therapist and gets a letter certifying the condition, or you can sign a waiver that says essentially, "I understand the consequences of what I'm doing," and get a prescription for hormone therapy from a doctor (who can of course refuse to give such a thing). There are guidelines for gender therapists, published by an organization called WPATH, and I believe said documents are available online. Insurance companies can have further restrictions on what they'll pay for under what conditions, but hormone therapy is not appreciably more expensive than birth control.
There are fewer laws about gender than you seem to think, and the concept of gender equality has led to a trend of eliminating these distinctions. It's not illegal to be male, female, transsexual, or a polka dotted leprechaun. The biggest legal issues currently are with public restroom access. Clearly all males would run rampant raping restroom users if unisex bathrooms existed, but perhaps we can work on a system of highly visible tattoos to work out who gets to go into which bathroom.
There has been serious research and argument about criteria for transsexualism, but it hasn't really come to much. The WPATH guidelines are closest, but studies are hard to do for a number of reasons.
Transsexualism clearly wars with your ideas about gender. There's very little about how our society treats each gender that is in any sense logical, and fundamentally gender isn't something amenable to logic. We don't have to have a legal standard to cover someone's weird ideas about gender, we just have to have gender equality. Our societies haven't been terribly good at that to date; your confusion is normal. However, the fundamental issue is, if someone is going to stand up and say that they are a certain gender (and go through a kind of hell that I am beginning to doubt you can imagine (no offense intended) to be treated that way), then who are you to tell them differently? If you're not planning on having sex with some person, does it really matter what equipment they have or how they think of themselves?
The good news is, no one is interested in having people hurt themselves, and essentially the "safety check" you want exists. Further good news is the legal situation is not terribly complicated either. Between gay marriage and Title IX, we've been heading that direction anyway. And you may be pleased to hear that the therapies aren't terribly expensive either, even expensive plastic surgery (which would generally be paid for privately) pales in comparison to, say, cancer treatments. I think that probably with enough news stories like the ones you mention making people aware that the issue exists, things will probably work themselves out, with gender neutral public restroom facilities becoming more common over the next hundred years or so.
For the record, gender identification disorder aka gender dsyphoria is in the DSM, so it probably counts as a pathology, but the consensus is that the only morally and medically accepted treatment is hormone therapy.