All eyes on Kennedy, Roberts as justices spar over ObamaCare

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All four of the Supreme Court’s liberal justices on Wednesday strongly defended the legality of tax subsidies under ObamaCare, potentially leaving Justices Anthony Kennedy and John Roberts as the swing votes in the critical case.

The justices sparred during oral arguments in the case King v. Burwell, which hinges on the question of whether ObamaCare subsides can legally be distributed to people in the 37 states that opted not to create an insurance exchange.

Kennedy warned that a decision siding with the challengers could lead to the collapse of insurance markets by creating an ultimatum for the states: "Either create your own exchange, or we'll send your 17 insurance markets into a death spiral."

"There's a serious constitutional problem if we adopt your argument," Kennedy told the attorney for the plaintiffs, Michael Carvin.

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The court’s liberal wing warned a decision against the healthcare law would strip federal aid from millions of people.

"This could have disastrous consequences," Associate Justice Ruth Bader Ginsburg said.

The decisive vote in the last ObamaCare case before the high court, Chief Justice Roberts, asked few questions of either side. Early on in the hour-long session, he interrupted Carvin as he referenced the previous ObamaCare case he argued before the Supreme Court in 2012.

“We’ve heard talk of that other case. Did you win that other case?” Roberts said sharply to Carvin, who represented the libertarian group the Competitive Enterprise Institute.

Conservative Justices Antonin Scalia and Samuel Alito appeared favorable to the challengers’ argument that a “plain English” reading of the Affordable Care Act stipulates the subsidies can only be distributed through exchanges “established by the state.”

The liberal justices argued that the context was more important.

"We look at the whole text. We don't look at four or five words," Justice Elena Kagan said.

Solicitor General Donald Verrilli Jr., who argued the 2012 case for the Obama administration, said the plaintiff’s reading of the law would “revoke the administration's promise” to provide affordable health insurance for all Americans.

“That cannot be the statute Congress intended.”

“Of course it could be,” Scalia retorted, prompting laughter in the gallery.

The plaintiff's attorney denied that the loss of subsidies would be a death blow to ObamaCare.

"There's not a scintilla of evidence that without the subsidies, there would be a death spiral," Carvin said.

Alito argued that there would be a way for the court to side with the law's challengers while limiting the fallout.

"It's not too late" for states to set up their own exchanges and be eligible for subsidies, Alito said. He suggested they could agree to wait to enforce the statute for several months, which  the court has done in other high-impact cases.

"Going forward, there would be no harm done," he said.

That argument was fiercely disputed by Verrilli, who said it would be "completely unrealistic" to assert that 34 states could create their own healthcare marketplaces in time for next year's enrollment.

Scalia said he believed Congress would address the fallout.

"You really think Congress is just going to sit there?" Scalia asked the solicitor general.

"This Congress?" Verrilli quickly replied to some laughter in the gallery. But Scalia remained firm.

"If the consequences are as disastrous as you say, then yes, I think this Congress will act," he said.

Republicans in Congress have made a concerted effort this week to show they are ready to act if the high court rules against ObamaCare, putting forward multiple proposals to help people who would lose their subsidies.

President Obama and administration officials have insisted they are not preparing a fallback plan, in part to signal confidence to the court in their argument that the subsidies should be upheld.

"If they rule against us, we'll have to take a look at what our options are. But I’m not going to anticipate that. I'm not going to anticipate bad law," Obama said this week.

The courtroom was filled to capacity for arguments in the crucial case, with the administration's Health secretary, Sylvia Mathews Burwell, sitting rows away from prominent Republicans including House Ways and Means Committee Chairman Paul RyanPaul RyanRyan has 'no idea' who will win election Sunday shows preview: Both sides gear up for debate FULL SPEECH: Obama celebrates African American museum opening MORE (R-Wis.).

Former secretary Kathleen SebeliusKathleen SebeliusRomney: Trump victory 'very possible' Fighting for assisted living facilities The chaotic fight for ObamaCare MORE was also in attendance, as well as House Minority Leader Nancy Pelosi and Senate Finance Committee ranking member Ron WydenRon WydenOvernight Finance: McConnell offers 'clean' funding bill | Dems pan proposal | Flint aid, internet measure not included | More heat for Wells Fargo | New concerns on investor visas US wins aerospace subsidies trade case over the EU Wells CEO Stumpf resigns from Fed advisory panel MORE (D-Ore.).

Both sides in the case expressed confidence after the arguments were over.

Michael Cannon, director of health policy studies at the Cato Institute and an architect of the challenge, said he was encouraged by the questions from Kennedy and Roberts. "They expressed skepticism of the government's claim that they should defer to the IRS's interpretation," he said.

He acknowledged Kennedy's concern about whether the challengers' interpretation would be unconstitutional coercion of the states to pressure them to adopt their own marketplaces.

But he said that such a ruling would actually be advantageous because while it would save ObamaCare, it would open other federal laws to challenge.

"If they then say that interpretation is coercive, those subsidies might stay in place, but that would create an opportunity to challenge all sorts of other federal programs where the federal government is creating incentives for states to do things, because they would be unconstitutionally coercive," Cannon said.

"The way to categorize that would be losing the battle but winning the war," he added.

Supporters of the law said they are hopeful.

"I left the court very optimistic," said Ron Pollack, executive director of the pro-ObamaCare nonprofit Families USA.

He pointed to Kennedy's question about the "serious constitutional issue" with threatening to withhold subsidies.  

"I think Justice Kennedy is in play in this case," Pollack said.

The case was the only argument scheduled for the day. The justices will meet privately Friday to discuss the case. 

Peter Sullivan contributed.

— Last updated at 1:04 p.m.