This report by the Center on Budget and Policy Priorities explains why the individual mandate is an essential component of insurance market reform and keeping premiums affordable.

From the report:

New requirements for private insurers to cover anyone who applies for a policy and prohibiting insurers from charging higher premiums based on a person’s health or other factors are long overdue and necessary improvements to health insurance markets. But if instituted in isolation, these reforms would tend to drive up premiums and thus make health care coverage less, not more, affordable.

That is because the people most likely to enroll in health coverage after enactment of such reforms would disproportionately be older people and people with pre-existing medical conditions, who previously had been unable to purchase insurance (or to obtain insurance that covers those conditions) and are the ones most urgently in need of health care. Healthier people, knowing they could wait to buy coverage until they got sick, would be less likely to enroll. This effect would drive up premiums significantly, since less healthy people cost more to treat — and thus to insure.

Full report: http://www.cbpp.org/cms/index.cfm?fa=view&id=3147

Center on Budget and Policy Priorities. (2010). Key health insurance market reforms not achievable without an individual mandate.