The U.S. Supreme Court agreed to consider a challenge to the subsidies that are a linchpinof President Barack Obama’s health care overhaul, accepting a casethat suddenly puts the law under a new legal cloud.

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Two years after upholding much of the law by a single vote, thejustices today said they will hear a Republican-backed appealtargeting tax credits that have helped more than 4 million peopleafford insurance.

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A ruling blocking those credits might unravel the law, makingother provisions ineffective and potentially destabilizinginsurance markets in much of the country. The high court’s decisionto hear the case comes days before the start of the law’s secondopen-enrollment season Nov. 15. A decision will come by June.

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Read: Consumers think all subsidies should be legal

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The justices will consider an appeal filed by four Virginiaresidents seeking to block the subsidies in 36 states. The appealsays the Obama administration is engaging in a “gross distortion”of the law’s wording by granting billions of dollars in tax creditsto people in those states.

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The appeal, filed by Washington lawyer Michael Carvin on behalfof four Virginia residents, said immediate review was “imperative”given the money at stake and the steps being taken by employers,consumers and insurers to comply with the measure.

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The law, intended to provide coverage to tens of millions ofuninsured Americans, has been attacked by Republicans since it waspassed on a party-line vote in 2010.

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Anti-Obamacare ads

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More than 100,000 anti-Obamacare ads aired before the Nov. 4election as Republicans sought to exploit what they saw as aDemocratic liability. While many provisions are popular, a majorityof Americans say they disapprove of the law, polls show.

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The legal dispute centers on a four-word statutory phrase. Thelaw says people qualify for tax credits when they buy insurance onan online marketplace “established by the state.”

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Those words are significant because only 14 states have set uptheir own marketplaces, known as exchanges. The rest have left thejob to the federal government, as the law permits. The question iswhether people can collect the subsidies even if they buy policieson the federal exchange.

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Under a rule issued by the Internal Revenue Service, consumerscan claim tax credits no matter where they live. The Obamaadministration says the IRS approach is consistent with the law’saims.

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‘Functional’ markets

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“Congress determined that the tax credits at issue here areessential to the Affordable Care Act’s goals of making affordablehealth coverage available to all Americans and ensuring functionalinsurance markets,” U.S. Solicitor General Donald Verrilli arguedin court papers.

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Critics say Obama has adopted an interpretation that flies inthe face of clear statutory language.

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“Nothing in the ACA supports the notion that Congress meant tocreate the legal fiction that the federal government acts on behalfof a state when it establishes an exchange,” five Republicansenators led by John Cornyn of Texas argued in support of theappeal.

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In the case in front of the justices, a federal appeals courtbased in Richmond, Virginia, upheld the IRS regulation in July on a3-0 vote. On the same day a federal appeals court in Washingtonreached the opposite conclusion, rejecting the administration’sapproach in a 2-1 ruling.

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A Supreme Court ruling against the administration would open anew period of uncertainty about the future of American health care.It would mean that more than half of the 7.3 million people whohave bought Obamacare policies aren’t entitled to the subsidiesthey are receiving.

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Ripple effects

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The ripple effects might be even more dramatic. Without the taxcredits, many of those people would find insurance so expensivethat they would qualify for the law’s hardship exemption and nolonger have to obtain a policy.

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That would potentially leave only the sickest and most desperateseeking insurance through the individual market. That could raisecoverage costs for insurers, forcing them to raise rates. Hospitalswould be left to foot the bills for more uninsured patients.

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The question would then become how lawmakers would respond.States without exchanges would probably face new calls to set uptheir own marketplaces. One potential option is that a state could“establish” its own exchange and authorize the federal governmentto run it.

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States might also invoke an Obamacare provision that lets thempropose alternatives to the exchanges and get waivers from thefederal rules starting in 2017. Some Republicans have urged thatthe law be amended to let states seek waivers sooner.

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The case is King v. Burwell, 14-114.

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Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

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