Supreme Court appears split in challenge to Affordable Care Act

President Obama’s healthcare law once again stands in legal peril after Supreme Court justices appeared sharply split along ideological lines during oral arguments Wednesday in a case that threatens to end insurance subsidies for more than 7 million Americans.

The four liberals among the court’s nine justices seemed ready to side with the Obama administration in rejecting the latest challenge to the Affordable Care Act. But it was unclear whether they would get a fifth vote from the conservative side.

Chief Justice John G. Roberts Jr., who helped rescue the law three years ago, gave no hint about how he might rule this time.

And Justice Anthony M. Kennedy, another possible swing vote, voiced some reservations about the challenge, but also said he was troubled by how the Obama administration had implemented the law.

The lawsuit — brought by a group of conservative and libertarian activists — argues that a strict reading of the statute makes health insurance subsidies available only in a handful states (including California) that established their own insurance marketplaces, also known as exchanges.

But 37 states elected instead to have the federal government fully or partially operate their marketplaces using the HealthCare.gov website.

In 2012, the Internal Revenue Service issued regulations making subsidies available for both state and federally run exchanges. Critics challenged the rule as illegal, citing a provision in the law that limits subsidies to an “exchange established by the state.”

Obama administration attorneys accused opponents of taking the provision out of context and argued that the overall law clearly intends to make the subsidies available nationwide.

In a worrisome sign for the administration, Kennedy questioned whether the IRS could make that decision on its own.

“It seems to me a drastic step for us to say that the Department of Internal Revenue Service and its director can make this call one way or the other when there are … billions of dollars of subsidies involved here,” he told U.S. Solicitor Gen. Donald Verrilli Jr., who was defending the law on behalf of the Obama administration.

“It has to be very, very clear,” Kennedy continued. “It seems to me a little odd” that the IRS went ahead on its own.

At the same time, Kennedy offered some hope to Obama’s lawyers. Twice, he said he agreed with states’ rights advocates who complained they had not been warned that opting for a federal exchange could cause many thousands of their residents to possibly lose their subsidized health insurance.

“There’s a serious constitutional problem if we adopt your argument,” Kennedy told Michael Carvin, the lawyer representing the challengers.

But the administration may not be able to count on Kennedy. Three years ago, he criticized the health law and joined the four-member dissent that would have struck down the entire Affordable Care Act.

During the same argument, Roberts also vigorously attacked the law, leading many observers at the time to incorrectly predict that he would vote to invalidate it.

In the current King vs. Burwell case, the chief justice was far more guarded in his questioning. He mostly directed questions at Verrilli and his one substantive question was difficult to interpret.

In his closing argument, Verrilli told the court it should defer to the administration’s interpretation that the law made the subsidies available in all states. Verrilli cited the “Chevron doctrine” that calls for upholding an agency’s regulations if they adopt a reasonable interpretation of a law.

The chief justice has been critical of that doctrine, saying it gives agencies and bureaucrats too much power and allows the interpretation of a law to switch based on who is in power. “If you’re right,” Roberts told Verrilli, “a subsequent administration could change that interpretation.”

Other justices offered more predictable responses during Wednesday’s argument.

The four liberal justices defended the administration’s view and argued the law was written to bring affordable health insurance to all states, an interpretation backed by the law’s congressional authors and many legal experts.

Justice Stephen G. Breyer objected when Carvin said the law “in plain English” limited subsidies to states that established their own marketplaces.

Breyer said the law told Health and Human Services Secretary Sylvia Mathews Burwell to establish exchanges in states without one. She “set up such exchange, namely a state exchange.... So what’s the problem?” Breyer asked.

Justice Elena Kagan told Carvin his view of the law made no sense because it would mean that no one would qualify for coverage in federally run exchanges.

She pointed to one clause that says “qualified” shoppers are those who live in the state that established the exchange. Under Carvin’s interpretation, she argued, that would leave out states that use the federal exchange.

“You’re essentially setting up a system in which [with] these federal exchanges … there will be no customers and, in fact, there will be no products,” Kagan said.

The marketplaces allow Americans who don’t get health benefits at work to shop online among plans that must offer basic benefits and cannot turn away customers, even if they’re sick.

Consumers making less than four times the federal poverty level — about $47,000 for a single person or $97,000 for a family of four — qualify for subsidies to offset the cost of their premiums.

Justice Antonin Scalia said the court could not “twist the words” of the law to make it work. “If the only reasonable interpretation of a particular provision produces disastrous consequences in the rest of the statute, it nonetheless means what it says,” he said.

At one point, Scalia provoked laughter by insisting that Congress could fix the problem in the healthcare law. “It happens all the time. Why is that not going to happen here?”

“Well, this Congress …” Verrilli started to say, spurring laughter in the courtroom, including from Democratic lawmakers who attended the argument.

But Scalia was undeterred. “If the consequences are as disastrous as you say … yes, I think this Congress would act.”

david.savage@latimes.com

Twitter: @DavidGSavage

noam.levey@latimes.com

Twitter: @noamlevey