We didn't take health insurance through the school. The fees they are charging, even if not QEE for our 529 (though they do appear to be) are pretty minimal. We spent way more out of pocket than we used 529 funds for. So should be okay there.
But how are you arriving at $3700 for the standard deduction? Is it the combined $3350 for earnings (all on line 1) + $350?