Extract from free health cover web page
“Some confusion still exists, however, since non-EU citizens are needing to show proof of health insurance to be able to apply for residence, even though they will be covered by the State once they are legally resident –“
When people are applying for permission to live in spain that free cover is not accepted. That may be because that covers people living in spain, not applying to do so. A possible ‘ legal loop hole’
Mick, it would seem you either need to get a job, pay the private insurance or wait until you can get an S1
Best of luck
ps Brexit might change that