The most contentious aspect of the Patient Protection and Affordable Care Act (ACA) is the individual mandate requiring that most documented U.S. residents obtain health insurance or pay a tax penalty. Many experts have long advocated a mandate as a central pillar of private-sector–based health care reform. Others, however, have argued that a mandate is not necessary for successful reform. Proponents of the mandate argue that it is necessary to reduce adverse selection in a reformed nongroup insurance market. Adverse selection occurs when a larger fraction of relatively unhealthy people than healthy people purchase health insurance. It is analogous to the purchase of car insurance only by high-risk drivers (or worse, only by drivers who have just had an accident). However, one of the most popular aspects of the ACA may encourage such adverse selection, since the law prohibits health insurers from discriminating against applicants on the basis of health, either by charging higher premiums for sick people or by excluding preexisting conditions from coverage. Absent other reforms, such regulations would theoretically increase premiums for healthy people and lead them to exit the nongroup insurance market, which would cause premiums to rise even more. Informal support for this hypothesis comes from the fact that the five U.S. states with such regulations (known as “community rating”) are among the states with the highest nongroup insurance premiums.
Chandra, Amitabh, Jonathan Gruber, and Robin McKnight. "The Importance of the Individual Mandate — Evidence from Massachusetts." New England Journal of Medicine 364.4 (January 2011): 293-295.