Over at his health-care blog, the indispensable John Goodman <a href=”http://www.john-goodman-blog.com/do-we-need-an-individual-mandate/-5717″>explains simply and effectively why tax credits are a better solution to the free-rider isssue in health insurance than a government mandate:

Suppose we have a “play-or-pay” mandate, requiring people to obtain insurance or pay a fine, and consider three amounts of money:
A = The average amount of money society is willing to spend on uninsured individuals who cannot pay for their own care.
B = The minimum amount of money people are required to spend on health insurance if they “play.”
C = The amount of the fine imposed on people if they “pay.”
To solve the free rider without at the same time creating other problems, these three amounts must be equal. That is, we must have A=B=C.
Recall that A is the external cost the average uninsured person imposes on society as a whole because he is uninsured. So in order to prevent free ridership, we need to require him to buy A’s worth of insurance (A=B). If he fails to do so, we could impose a fine and put the proceeds in a pool — from which to pay the expected costs of this uncompensated care (C=A). Now here is the interesting thing. A mandated health insurance plan doesn’t help get A=B=C. In fact, it actually interferes.
The only way to make sure that we are solving the problem is to create a refundable tax credit, X, which applies dollar-for-dollar against spending on health insurance. If people spend at least X dollars on health insurance, they get the full credit. If they spend nothing on insurance, they pay X dollars in additional taxes. This solution works to a “t” so long as X=A.