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PPACA subsidy case divides U.S. Supreme Court justices

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(Bloomberg) — A U.S. Supreme Court argument over the Patient Protection and Affordable Care Act (PPACA) premium tax credit system divided the justices along ideological lines, potentially leaving two pivotal members to decide the law’s fate.

Chief Justice John Roberts, who cast the decisive vote to uphold PPACA’s individual coverage mandate penalty in 2012, asked only a handful of questions and gave little indication how he will vote on the case, King vs. Burwell (Case Number 14-114).

Justice Anthony Kennedy, who voted to invalidate the statute three years ago, asked questions of both sides in the one-hour, 20-minute hearing. He said limiting access to the tax credits to 16 states  — to states with PPACA exchanges established by the states, rather than the U.S. Department of Health and Human Services (HHS)  — would create a “serious constitutional problem.”

A decision halting the credits in the states with HHS exchanges might unravel the core PPACA commercial health insurance market provisions, potentially causing the market for individual insurance policies to collapse in much of the country. Hospitals could be left with billions of dollars in unpaid bills.

The King vs. Burwell fight centers on a four-word phrase that has become a linchpin of the law. Challengers say that phrase limits the tax credits to the 16 states that have set up their own marketplaces, or online exchanges, for people to buy insurance.

Wall Street has viewed an Obama administration loss on King vs. Burwell as a major threat to hospital stocks.

See also: 3 things hospitals are saying about PPACA.

After the King vs. Burwell oral arguments, hospitals rose more than all other stocks on the Standard & Poor’s 500 Index on Wednesday, as of 12:12 p.m. in New York. Tenet Healthcare Corp. (NYSE:THC) was up 5.1 percent to $49.45, and HCA Holdings Inc. (NYSE:HCA) rose 6.5 percent to $75.38. Community Health Systems Inc. (NYSE:CYH) advanced 5.4 percent to $52.28.

Kennedy raised the possibility that the court would have to allow nationwide subsidies to avoid trammeling the rights of the states, which he said would face a choice between setting up their own exchanges or seeing their insurance markets collapse. Kennedy mentioned the legal doctrine of “constitutional avoidance,” under which the court tries to interpret statutes so as not to render them unconstitutional.

More natural

At the same time, Kennedy indicated he saw the challengers’ reading of the law as the more natural one.

“It may well be that you’re correct as to the words,” he told Michael Carvin, the lawyer representing four Virginians seeking to block the subsidies.

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A ruling against the administration would put pressure on the states, most of them Republican-controlled, that have refused to set up their own exchanges.

See also: View: Insurers forced to balance more Obamacare risks.

Residents of those states would face the prospect of losing tax credits. Congress could step in, though it is riven by opposition to PPACA. The Obama administration says it can do little on its own.

State exchange

The measure says people qualify for tax credits when they buy insurance on an exchange “established by the state.”

The challengers say that phrase means subsidies aren’t available in the states that didn’t set up their own exchanges. Residents of the states that decided against cooperating with the PPACA exchange system, and some that were willing to help implement PPACA but were unwilling to spend the time and money to set up an exchange system, instead use the federal HealthCare.gov system.

Other justices challenged Carvin’s position. Justice Sonia Sotomayor told the lawyer that states will be “coerced” into establishing their own exchanges if the court decides in favor of those who sued.

Justice Elena Kagan suggested the court should consider the context that the law’s aim is to provide affordable health insurance.

Justices Antonin Scalia and Samuel Alito both indicated that they were inclined to vote against nationwide subsidies. Scalia said Congress would intervene if a ruling against subsidies had major consequences.

“You really think Congress is just going to sit there while all of these disastrous consequences ensue?” he asked.

See also: King vs. Burwell: 5 PPACA patch ideas.