I was part of an email discussion this morning on alternatives to the individual mandate. Here’s an idea: why not just implement a phased in tax increase (equal to the mandate penalty) for all Americans, and simultaneously implement a $695 tax credit for everyone who buys insurance. This would be, in effect, the same as a $695 penalty for not buying insurance. The difference is that raising taxes and giving tax credits for buying things is clearly not unconstitutional.
Why didn’t the administration just make this part of the tax deal currently being pushed? Problem solved.
UPDATE by Austin: For more details on the size of the ACA tax penalty, see this prior post. It isn’t $695 in all cases. Still, it could have been implemented as Aaron suggests.