These people still get indirectly subsidized when they receive healthcare they can’t pay for and providers have to collectively eat the cost. Removing the penalty simply enables inefficient freeloading on the system (as these folks are likely to be stuck with medical debt or have to declare bankruptcy from medical bills they will never be able to repay).
I don’t understand the idea of freeloading here. Insurance companies charge rates the market will bear. They are still going to charge these rates if insurance payouts to the freeloaders go away. This is not a perfect market where competitors will spring up overnight to provide insurance at lower rates if the cost of doing so goes down.
Health insurance rates are highly regulated. Everyone pays higher rates due to people who don’t pay, because providers build their uninsured costs into what they charge insurance payers. They’d go insolvent otherwise.
Additionally, "legally required" was a dubious way to describe the state of affairs even before then: you could continue to live freely your entire life without ever enrolling in an health insurance plan either by demonstrating participation in some other communitarian health share program or by paying a tax.
https://www.commonwealthfund.org/publications/fund-reports/2...