* At issue: Can Americans be required to obtain insurance?
* Hearings recall Bush v Gore, Watergate, other historic cases
* A test of US congressional power
By Joan Biskupic and James Vicini
WASHINGTON, March 26 (Reuters) - Two years after President Barack Obama signed into law a healthcare overhaul, the U.S. Supreme Court on Monday takes up a historic test of whether it is valid under the country's Constitution.
The sweeping law intended to transform healthcare for millions of people in the United States has generated fierce political debate. Republicans challenging Democrat Obama for the presidency in November and Republican members of Congress have vowed to roll back the March 23, 2010, law they say will financially burden states, businesses and individuals.
Now, the healthcare battle moves from the U.S. political arena to the less raucous world of its highest court.
At the law's core is the requirement that most people buy health insurance by 2014 or pay a tax penalty. Challengers, including 26 of the 50 states, say Congress exceeded its constitutional power to regulate commerce with this so-called individual mandate.
They argue that government should not meddle so deeply in people's lives and force them to pay for a product they have opted against. The Obama administration counters that virtually every person will need medical care and that those who shun insurance put a disproportionate burden on the system.
In the United States, annual healthcare spending totals $2.6 trillion, about 18 percent of the annual gross domestic product, or $8,402 for every man, woman and child.
The arguments to be held over three days, and a modern record six hours, recall past momentous sessions, such as the 2000 election dispute that allowed Republican George W. Bush to take the presidency over Democrat Al Gore and the 1974 Watergate tapes case that led to President Richard Nixon's resignation.
For sheer spectacle, the atmosphere outside the white columned court across from the U.S. Capitol is likely to rival what goes on inside. People began camping out for seats on Friday, and would-be spectators were likely to line up for days.
Families USA, a supporter of the law, said doctors and nurses planned to show up Monday in front of the court, wearing white coats and scrubs and carrying signs of support.
Republican state attorneys general, leading the challenge to the law, will be holding news conferences. Banks of news cameras and microphones set up on the sidewalk in front of the court were likely to draw more politicians and advocates to the scene.
A record 136 legal briefs have been filed by outside interests and demand for seats inside the white marble and red velvet courtroom has been overwhelming. It holds 400 people and most of the seats will be reserved for guests of court officials and people connected to the case, including lawmakers from Congress and top Obama administration officials.
Four distinct legal issues are before the nine justices, and the first question they will address is about the timing of any lawsuit against the individual insurance mandate.
Possibly the driest and most technical subject of the sessions, yet of great consequence, the issue is whether a longstanding law called the Anti-Injunction Act prevents people from challenging the individual mandate until after they have paid the tax and sought a refund, which would be in 2015.
Of the four U.S. appeals courts that have heard the healthcare dispute, only one has ruled the challenge to the individual mandate could not go forward because of the tax law.
Yet the justices plainly believe it important enough of a potential hurdle that they have scheduled the issue for their first session and appointed a special lawyer to argue the case.
As a result, the first day's arguments will not reach the more anticipated issue of Congress' power to dictate that individuals obtain insurance, a step that critics warn could lead to a wide range of other requirements such as eating broccoli, joining gyms, or buying American-made cars.
That test of congressional power will be aired on Tuesday.
On Wednesday, two questions will be heard. One is whether, if the individual mandate is declared unconstitutional, it can be severed from the rest of the law or all of it must be struck down. The other is whether Congress improperly put new burdens on states when it expanded eligibility under Medicaid, the joint state-federal program offering medical care for poor people.
On Monday, court-appointed attorney Robert Long will argue that no lawsuit against the individual mandate can go forward until after someone who refuses to buy insurance has paid the penalty and sought a refund.
The federal Anti-Injunction Act, dating to 1867, generally bars anyone from challenging a tax law until it has taken effect because such lawsuits would hinder the government's ability to collect revenues needed for the federal budget.
Under the terms of the 2010 healthcare overhaul, the penalty for refusing to buy insurance would be recorded on a person's annual tax form and collected by the Internal Revenue Service.
In his written court brief, Long emphasized that Congress could have carved out an exception from tax policy of "pay now, litigate later," to allow immediate judicial review of the individual mandate, yet it chose not to.
When Obama and Democratic sponsors of the healthcare law in Congress were urging approval of the individual mandate they insisted the penalty for failing to obtain insurance was not a "tax." The legislation more often used the word "penalty."
The Obama administration, which had briefly argued in lower courts that the lawsuits could not go forward until after 2014 because of the Anti-Injunction Act, will argue that the justices should not regard the sanction for no insurance as a "tax."
The word "penalty" is different from the term "tax," asserts U.S. Solicitor General Donald Verrilli in his brief to the court. He stressed that Congress merely wanted the insurance-related sanction to be collected by the IRS. It did not want "the full panoply of statutory rules governing 'taxes'" to apply.
Challenging the individual mandate with the 26 states are the National Federation of Independent Business and individuals who say they do not want to buy health insurance.
In the arguments Monday, the challengers will be represented by attorney Gregory Katsas, who will emphasize that their challenge is to the mandate, not the penalty that enforces it, and that the lawsuit should go forward.
Argument transcripts and audio are expected to be available each afternoon on the court's website: www.supremecourt.gov. (Editing by Howard Goller and Doina Chiacu)