The U.S. Supreme Court today will consider how much of PresidentBarack Obama's health-care law must be thrown out if the justicesdecide Congress can't require Americans to buy medicalinsurance.

The debate on so-called severability took on added significanceafter questions from justices yesterday indicated a majority mightstrike down the insurance requirement. Today's session willconclude three days of hearings, six hours in all, the longest in44 years.

The impact of the coverage mandate on the rest of the law isamong the most important issues for the health-insurance industry.If the court strikes down the requirement, insurers want thejustices to toss out provisions that forbid them from refusingcoverage or charging higher premiums to people with pre-existingconditions.

Invalidating only the individual mandate would be the“worst-case scenario” for insurance companies, said Paul Heldman, ahealth-policy analyst at Potomac Research Group in Washington.“That would create an unstable market for insurers in which theywould be stuck covering the most expensive people while leaving thehealthier people off the insurance rolls.”

In an afternoon session today, the justices will consider achallenge by 26 states that object to a section of the law thatexpands the federal-state Medicaid health-insurance program for thepoor.

Questions from the bench during yesterday's hearing on mandatoryinsurance coverage indicated the justices may split 5-to-4, withthe court's five Republican appointees joining to overturn thatpart of the law.

Justice Anthony Kennedy, who most often occupies the court'sideological middle ground, said that by requiring Americans to takeunwanted action, the law “changes the relationship of thegovernment to the individual in a very fundamental way.”

The Obama administration needs support from at least oneRepublican appointee on the nine-member court to uphold the 2010law. Four of them — Chief Justice John Roberts and Justices AntoninScalia, Samuel Alito and Kennedy — interrupted U.S. SolicitorGeneral Donald Verrilli repeatedly yesterday as he pressed his casefor upholding the law.

“I don't think the challengers could have hoped to have had abetter day, and I don't think the government realistically couldhave had a more distressing day,” said Tom Goldstein, an appellatelawyer whose Scotusblog website tracks the court. Bloomberg Lawsponsors the blog.

Revamping an Industry

The health law would extend coverage to 32 million people wholack insurance by 2016, and revamp an industry that accounts for 18percent of the U.S. economy, in part through the coveragemandate.

The court hasn't overturned legislation with such sweepingimpact since the 1930s, when it voided parts of Franklin D.Roosevelt's New Deal, the package of economic programs enacted inthe 1930s in response to the Great Depression.

The justices probably will rule in late June, months before theNovember election. A ruling against the measure would giveammunition to Obama's Republican challengers, who have said the lawshould be repealed.

This morning's hearing will review a decision by anAtlanta-based federal appeals court that found the health-insurancemandate unconstitutional and ruled that the rest of the law remainsvalid. None of the parties to the case wants the Supreme Court tofollow suit.

The government, agreeing with the insurance industry, says ifCongress can't make everybody have coverage, the justices shouldtoss out sections of the law known as the guaranteed-issue andcommunity-rating provisions. Those sections say insurers must issuepolicies and set rates without regard to pre-existing healthproblems.

Without mandatory insurance rules, the government says thoseprovisions would create an industry “death spiral,” in which onlypatients with costly health conditions would obtain insurance. Thatwould lead to higher premiums, which would prompt healthypolicyholders to drop coverage, causing more rate increases, thegovernment says.

“Premiums would increase significantly under that scenario, andthe availability of insurance would decline — exactly the oppositeof what Congress intended,” Verrilli argued in court papers.

Insurance industry groups, in a court brief, said Congressstructured new policy requirements in a “package deal” withmandatory coverage.

Industry Position

America's Health Insurance Plans, a trade group in Washington,and the Chicago-based Blue Cross Blue Shield Association, whichdidn't take a position on the insurance mandate'sconstitutionality, argued that the guaranteed-issue andcommunity-rating rules aren't practical by themselves.

“Congress would not have intended those insurance-market reformsto operate on their own, without the vital counterbalance of theminimum individual coverage mandate there to prevent theskyrocketing premiums that would otherwise arise,” the industrygroups' brief said.

The states, and a small-business group that sued to overturn thehealth-care law, say the court should invalidate the entire statuteif it decides the mandatory insurance section isunconstitutional.

The law “is a delicate balance of inextricably intertwinedprovisions, none of which can survive without the act's corecomponents,” the states' lawyer, Paul Clement, argued in courtpapers.

Because none of the participants supports the appeals court'sconclusion, the Supreme Court appointed an outside lawyer, H.Bartow Farr III, to argue that the rest of the statute — includingthe guaranteed-issue and community-rating sections — should be leftin force even if the justices strike down the individualmandate.

Those provisions “were put in place specifically to open thehealth insurance market to millions of people who had been unableto acquire affordable coverage because of their poor health,” Farrargued in a court brief.

If one part of the law is found to be unconstitutional, Farrsaid, “the court should have clear evidence” before presuming thatCongress would want any other section invalidated. “There is nosuch evidence here,” he said.

A 2010 Supreme Court ruling suggests the justices won't be eagerto strike down the rest of the statute, even if a majority declaresthe mandate unconstitutional. In that case, the court left intactan auditing industry oversight board, while voiding a provisionthat insulated its members from being fired.

'Problematic Portions'

“Generally speaking, when confronting a constitutional flaw in astatute, we try to limit the solution to the problem, severing anyproblematic portions while leaving the remainder intact,” ChiefJustice Roberts wrote in his majority opinion for the 5-4 court.His statement in part quoted an opinion written by Justice SandraDay O'Connor in a 2006 abortion case.

In the afternoon argument, the Medicaid issue may be an uphillfight for the states. No lower court judge has accepted theircontention that the law unconstitutionally coerces the states intospending their own tax dollars against their will.

The health law's Medicaid expansion is designed to cover 17million uninsured people by extending eligibility to those withincomes up to 138 percent of the federal poverty line. States thatdon't comply with the new expansion would lose all or part of theirshare of federal Medicaid funding.

The issue is an important one to managed-care companies withlarge Medicaid businesses.

Shares of St. Louis-based Centene Corp. have almost doubled, andthose of Wellcare Health Plans Inc. of Tampa, Florida, have morethan doubled since Obama signed the law in March 2010 on theexpectation that states with rising caseloads will turn to them tohelp control program spending.

“The overwhelming consensus among investors is that theexpansion is likely to be upheld,” said Heldman, the analyst. “Ifthere's any reason to believe that the conventional wisdom waswrong after the oral arguments on Wednesday, that would put heavypressure on Medicaid managed care stocks and also probablyhospitals as well.”

To get the federal portion of Medicaid funding, states mustabide by the rules of the health-care program for the poor orreceive waivers.

The Supreme Court in the past has given Congress broad latitudeto place conditions on federal funds. In 1987, the court upheld theuse of federal highway dollars to induce states to raise thedrinking age to 21.

The states in the health-care case point to the 1987 majorityopinion's statement that “in some circumstances the financialinducement offered by Congress might be so coercive as to pass thepoint at which pressure turns into compulsion.”

The states say that's what has happened with the health-carelaw. They contend the federal government is depending on increasedMedicaid participation to help meet the requirement that tens ofmillions of people get insurance.

“Congress created a mandate for all individuals to obtaininsurance while providing no alternative to Medicaid for the mostneedy to obtain the mandated insurance,” Clement argued in courtpapers. “A program that is necessary for the satisfaction of amandate is not voluntary.”

The Obama administration counters that the federal governmentwould pay the entire cost until 2017, when states begincontributing a share that will eventually rise to 10 percent.

“The extension of Medicaid eligibility in the Affordable CareAct is neither unprecedented nor likely to impose significantlyonerous burdens on the states,” Verrilli argued in courtpapers.

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