Virginia, government square off over healthcare

RICHMOND, Virginia (Reuters) - The state of Virginia and the government were pitched in a legal battle in a federal courtroom on Thursday that could lead to the undoing of the massive healthcare reform law passed three months ago.

Judge Henry Hudson of the U.S. District Court for the Eastern District of Richmond heard the federal government's arguments to dismiss a lawsuit filed by Virginia that contends the healthcare law's requirement that all Americans have health insurance is unconstitutional.

Before President Barack Obama signed the radical overhaul of the multibillion dollar health insurance industry into law, Virginia's legislature passed its own law that took effect on Thursday that says no one could be mandated to buy health insurance.

While the judge will only decide if the suit can proceed -- a decision Hudson said he would render within 30 days -- the court heard the first airing of arguments that could make their way to the Supreme Court as some states resist implementing the law.

U.S. Department of Justice attorney Ian Gershengorn argued that the lawsuit should be dismissed because Virginia lacks standing to challenge the healthcare law. Instead, he said, a person having to pay a fine for not having health insurance as required by the new law would have to sue.

If the case is not dismissed, both sides will return to court on October 18 for a summary judgment. If it is dismissed, Virginia will likely appeal and keep the suit in the courts. Regardless, other lawsuits will proceed, including one filed in Florida by more than a dozen states. In July alone, the federal government will have to argue in court twice, once in California on July 16 and once in Michigan on July 21.

Legal analysts say there is a good possibility one of these cases will reach the highest court in the country, but most say there is only a slim chance that the Supreme Court will rule in the states' favor.

In its argument, the U.S. government said the requirement to buy health insurance falls under the Commerce Clause, the constitutional provision allowing the federal government to regulate commerce between states. Also, the Constitution says that the federal government's power is higher than the states'.

At the heart of the federal argument is the idea that all Americans participate in a healthcare marketplace even when they do not have insurance. Because they already engage in commerce, Gershengorn said, the Commerce Clause applies to their decision to purchase or not to purchase insurance.

Some $43 billion a year is spent on treating people who don't have health insurance, Gershengorn said.

Gershengorn warned that if Virginia's law is allowed to trump federal law, other states could decide to pass laws saying their citizens do not have to participate in other federal programs, such as the gas tax, U.S. census or military draft.

Virginia says the healthcare law would represent the first time the U.S. government forces its citizens to buy something.

"This is a radical, radical claim of power," said Virginia Solicitor General Duncan Getchell

Virginia's Republican Attorney General Kenneth Cuccinelli would not comment on the likelihood that Hudson will dismiss the suit, but said he was "cautiously optimistic we have a better than even chance of prevailing."

If the Supreme Court ultimately finds the "individual mandate" unconstitutional, it would undo the mammoth piece of legislation that has served as the cornerstone of Obama's presidency, Cuccinelli told reporters on Thursday.

"The whole bill falls if we prevail and the individual mandate is found unconstitutional," he said, adding that there is no way to severe the provision from the rest of the law.

Cuccinelli said the healthcare law was an example of the federal government extending its reach beyond the limits the Constitution places on its power.

Hudson seemed skeptical of the idea that everyone in the country participates in the commerce of healthcare, saying that this could establish the paradox that a form of economic inactivity - not buying insurance - would be considered an economic activity.

He did not question as much the federal government's other argument that Virginia cannot pass a law opting out of a federal law.

Although some provisions of the healthcare law came on-line on Thursday, including a tax on tanning salons intended to partially pay for the reforms and a centralized federal healthcare Web site, the individual mandate is set to go into effect in 2014.