Health insurers have held their fire as Congress debates payment cuts, new fees and taxes and more regulation for their industry. Now the question is: Will they balk – or walk – if lawmakers continue to weaken a requirement that people carry insurance?

The individual mandate – under which most people would be required to have coverage or pay a penalty — is a key part of the architecture of the health overhaul legislation. In exchange, insurers have promised to stop denying coverage based on a pre-existing medical condition or canceling coverage once someone gets sick. The deal made sense for the insurers: If health legislation goes through, they stand to gain up to 30 million new customers. And requiring most individuals to purchase health insurance would add new, and likely healthier, people to the risk pool, which would help reduce health care costs for everyone. 

Now, though,  the mandate has become a target for both Democrats and Republicans, but not always for the same reasons. Some Democrats – as well as some Republicans – are worried that some Americans won’t be able to afford coverage, and are thus reluctant to impose a stiff penalty on people who feel that insurance is still too expensive for them. And many Republicans have challenged the insurance requirement as unnecessary government interference in citizens’ lives.

By a vote of 22 to 1, the Senate Finance Committee on Thursday made significant changes to the individual-mandate provisions in its overhaul bill. Sponsored by Sen. Charles Schumer, D-N.Y., and Olympia Snowe, R-Maine, the amendment would delay for one year any penalties for not having insurance and then phase them in over a four-year period. The fines would begin at $200 in 2014 and reach $750 in 2017.  The amendment would also decrease the level at which individuals were required to purchase coverage from 10 percent of income to eight percent of income.

Weakening the individual mandate — while at the same time requiring that health insurers take all applicants — will “make sure the health industry is not for profit,” said Joe Antos of the American Enterprise Institute, a conservative think tank.

“If you’re going to delay the penalty, then have a penalty that is essentially close to zero for a few years, that means you don’t have a mandate,” Antos said. “And if you’re going to require at the beginning of all that that all insurers take on all comers,  no questions asked,  then they’re going to guarantee that the health insurance industry is not for profit because they’re going to lose their shirts.”

The insurance industry is clearly worried about the mandate being defanged. As the Finance committee mulled changes to its health package Thursday, America’s Health Insurance Plans,  an industry trade  group, sent an emergency alert to its members at 9:17 p.m. It listed the phone numbers of Finance members’ offices and asked AHIP members to call committee members and urge them to vote against the amendment.

In the alert, AHIP said the amendment would “dramatically weaken” the coverage requirement. It added that states that have passed sweeping insurance market reforms without an individual insurance requirement have seen premiums rise for people with insurance and have failed to significantly reduce the number of uninsured.

Robert Zirkelbach, a spokesman for AHIP, said Friday that the changes in the requirement could mean that fewer people would have health insurance, creating higher costs for those who do.  “These changes are taking us in the opposite direction of where we need to go because unless we are able to have everybody in the system people are going to see their premiums increase,” he said.

Snowe, whom Baucus and President Obama have been courting for months in hopes that she will vote for the Democrats’ health bill, said during the committee meeting Thursday that overhaul legislation should not levy any penalties on individuals until it is clear they could buy affordable coverage. “I would prefer to have no penalties, frankly,” she said, adding that she hoped the bill could be changed further to ensure that the coverage was more affordable for individuals.

The weakening of the mandate isn’t the only thing that has insurers worried. Provisions that limit insurers’ ability to base rates on a customer’s age, place an excise tax on the most expensive health insurance plans and charge a new annual fee on the health insurance industry will increase costs, they warn. And the billions in cuts planned for private health insurers in Medicare, or Medicare Advantage plans, will cause cuts in benefits or fewer plans to choose from, insurers say.

But many lawmakers and interest groups think the new fees and tighter regulations are long overdue for an industry that has raised prices as it denied or canceled coverage for many Americans who need it.  “They’re getting away with banditry,” Sen. Jay Rockefeller, D-W.Va., said of insurers during Finance consideration of the bill. “I think they’re getting away with terrible things.”

Chart:  Late Friday the Senate Finance Committee released a revised version of its health care overhaul bill that includes changes the panel made during its consideration of the legislation. The committee is awaiting analysis from both the Congressional Budget Office (CBO) and the Joint Committee on Taxation to determine how much the bill will cost and the Finance panel is expected to vote the week of Oct. 5 to approve the measure.