Healthcare battle unfolds in Atlanta court

Devices used to take blood pressure, temperature, and examine eyes and ears rest on a wall inside of a doctor's office in New York in this March 22, 2010 file photo.

ATLANTA (Reuters) - Lawyers for President Barack Obama on Wednesday sought to stave off the biggest legal challenge yet to his landmark healthcare reform, telling a court that its key provision is grounded in Congress' right to regulate commerce.

Senior administration lawyer Neal Katyal argued that the Affordable Care Act does not violate the constitution, as 26 states seeking repeal of the law have argued. They contend that individuals cannot be required to buy health insurance as the law requires.

Katyal defended the 2010 law before the 11th Circuit Court of Appeals in Atlanta and said it is grounded in three separate constitutional principles.

"Those three findings set up three different independent constitutional bases for the act and each becomes even weightier still when viewed alongside the current standard rule that a strong presumption of constitutionality inheres to acts of Congress," Katyal said in his opening remarks.

The act requires Americans to buy health insurance by 2014 or face a fine equal to 2.5 percent of their income.

Former Solicitor General Paul Clement, representing the 26 states seeking repeal, said that provision punishes inactivity and exceeds the authority the constitution grants Congress to regulate interstate commerce.

"For 220 years, Congress never saw fit to use this particular power," Clement told a three-judge panel.

But Katyal said it was well within Congress's power to require people to buy health insurance because it affects interstate commerce. The uninsured shift $43 billion annually in medical costs onto the backs of other taxpayers, he said.

"(The) presumption of billions of dollars of cost-shifting in the health markets and the need to make health insurance available to the 50 million uninsured Americans are legitimate commerce clause ends," he said.

Chief Judge Joel Dubina, Judge Stanley Marcus and Judge Frank Hull peppered both sides with questions, as they presided over the appeal of a ruling by a Florida judge who in January declared the act unconstitutional.

Courtroom observer Walter Dellinger, who was solicitor general under President Bill Clinton, said judges homed in on the argument that the uninsured are already part of the health risk market.

"One of the judges made the point that you're just an instant away from being in the hospital when you step off the sidewalk in front of a truck," Dellinger said.

A Virginia appeals court heard a similar case in May, but this case is more significant because of the number of states backing it. No ruling is expected for months and Dubina ended Wednesday's session by saying the Supreme Court would likely consider the case.

PRESIDENTIAL CAMPAIGN ISSUE

The law aims to increase access to healthcare and slow the growth in costs. Republicans say it will send health costs soaring and represents intrusive government power. They plan to make their campaign for repeal a pillar of efforts to defeat Obama in next year's presidential election.

The 2010 law also allows young people to remain on their parents' health insurance into their 20s and prevents insurers from denying coverage or charging higher premiums for pre-existing medical conditions.

"We can't wait for this law to take effect," said Kathy McClure, a Georgia attorney demonstrating in favor of the measure outside the court building.

Another key issue is whether the entire package would be void if any one part is found to be unconstitutional.

U.S. District Judge Roger Vinson ruled in January the whole law was invalid because its requirement to buy insurance is unconstitutional, but put the ruling on hold pending appeal.

Dubina was appointed to the appeals court by President George H. W. Bush, a Republican, while the other two judges who heard the appeal were appointed by President Bill Clinton, a Democrat.

Outside the court building, Atlanta physician Scott Barbour was among those demonstrating against the law, which he described as "socialized medicine" that would put health care decisions in the hands of bureaucrats.

"This if the fight of our lifetime," said Barbour.

He said fostering competition among insurance companies and making it harder to sue doctors were the best ways to broaden health insurance coverage and maintain quality.

The case is State of Florida et al v. U.S. Department of Health and Human Services et al. Its number is 11-11021.

(Additional reporting by David Beasley in Atlanta and Tom Brown in Miami; Editing by Cynthia Osterman)