MARY AGNES CAREY:  Welcome to Health on the Hill, I’m Mary Agnes Carey. The lawyers have spoken and the Supreme Court’s deliberations on the latest challenge to the health law will begin. In question are the law’s tax credits that help residents of nearly three dozen states afford health care insurance. The challengers say that the law clearly states that those premium subsidies be available only to exchanges established by a state and not in states that have deferred to the federally run marketplace. The law’s proponents say Congress intended everyone, no matter where they live, be eligible for the subsidies. Julie Rovner, a senior correspondent for Kaiser Health News, attended oral arguments at the Supreme Court and is here to give us the latest. Julie, welcome back.

JULIE ROVNER:  Nice to be here.

MARY AGNES CAREY:  You know this court and you know this case. What did you hear today that surprised you?

JULIE ROVNER: Well, actually, one of the first things that happened was Justice [Ruth Bader] Ginsburg asked about standing, and we weren’t sure whether this was going to happen. Of course, you can’t have a court case unless the people who are suing have something at stake. And there are four plaintiffs in this case – they are all from Virginia – and they all charge that because the Internal Revenue Service is allowing tax credits in the states where the federal government is running the exchange that they are now subject to the individual mandate penalty. Well, it turns out that three, and perhaps all four of them – there’s some question about that – so they went back and forth a little about standing, but the government said they weren’t going to challenge it. They’re going to presume at least one person actually would be injured and therefore has the right to bring this case. So there was discussion that we weren’t sure it was going to happen.

MARY AGNES CAREY:  And that was right at the top.

JULIE ROVNER: Absolutely. The lawyer didn’t get six words out of his mouth before he got interrupted. [Ginsburg] said: “Back up. I want to talk about standing.” So people weren’t sure this was going to happen, because this came out fairly recently – that there was some question about whether these four plaintiffs actually would be hurt if the law continues as is.

MARY AGNES CAREY:  And Justice [Anthony] Kennedy, I believe, raised this concern about coercion, and the subsidies and constitutionality. Can you take us through that?

JULIE ROVNER: In some ways, this really was part two of the case that they heard in 2012, even though that really was a constitutional case and this really isn’t. In that case, they ruled that the part of the law that required states to expand their Medicaid programs couldn’t continue because it was coercive to the state. So what Justice Kennedy was saying today was that if they read this sentence in the law the way the challengers are saying, that basically states would be given a choice between either setting up their own exchange or having their health insurance market be seriously, badly affected. Because of course, all the other requirements would happen, but there wouldn’t be any tax credits. And he said that could be coercive and that could give them a constitutional problem if they read it the challengers’ way.

MARY AGNES CAREY:  Now the arguments seem to break down along partisan lines with the exception of Justice Kennedy, and we didn’t hear much from Chief Justice [John] Roberts. Do you take away any hints on how the court might actually rule on this?

JULIE ROVNER: You know, sometimes you can watch oral arguments and you get a pretty good idea of where they’re going. Last year when the court in the Hobby Lobby decision about contraception — pretty much what went on with oral arguments was what followed in the decision. That’s not usually the case and I think it really wasn’t the case today. Clearly the liberals were behind the government and the way the law is being implemented and the real conservatives were with the challengers. But the swing votes here are going to be — everybody assumes and they’ve assumed from the beginning —  to be Justice Roberts and Justice Kennedy. And as you mentioned Justice Roberts was uncharacteristically quiet and Justice Kennedy had really tough questions for both sides. He questioned whether it was allowable to give the Internal Revenue Service  so much power to basically be able to say: “Yes, we think that these tax credits should be available in the federal exchange.” So he could go either way, at least judging from what he said. You do really never know.

MARY AGNES CAREY:  Do you think Justice Roberts was intentionally quiet, because there has been so many stories with headlines like ‘Justice Roberts In The Hot Seat’? That everybody is looking at him; how is he going to rule? Do you think he intentionally just decided today to not ask too many questions?

JULIE ROVNER: I have no idea what Justice Roberts was thinking, but that’s what everybody wants to know. Which way is he going to go in this case? Although if Justice Kennedy goes with the liberals then they wouldn’t need Justice Roberts. Nobody is quite sure how it’s going to come out and won’t know until June when we see it.

MARY AGNES CAREY:  There’s a lot of concern among advocates for the law if the court decided to say people in federally run exchanges can’t get these subsidies, you’re going to have chaos in the insurance markets, it’s all or nothing. But, Judge [Samuel] Alito suggested an alternative today. What was that?

JULIE ROVNER: He did. He actually suggested that perhaps the Court could rule for the challengers but stay its ruling through the rest of the tax year, which would be another six months. That would give states, he said,  and Justice Scalia said this too, states could still go ahead and create exchanges. But the Solicitor General Donald Verrilli who argued the case for the government said that it would take a lot more than six months for states to set up exchanges and it would, there are all kinds of obstacles. Not the least of which that there’s no longer federal funding for states to set up their own exchanges.  And the states that did set up their own exchanges it took them, in most cases, at least a couple of years to do that. So, six months probably wouldn’t be sufficient whether the court would even do that.

MARY AGNES CAREY:  Right. And there are some state legislatures that, I think you’ve written this in one of your pieces, that have said we prohibit an exchange, period. So they would have to change their own laws on that.

JULIE ROVNER: Well, mostly what they said is we prohibit the governor from doing it without us. But most of those state legislatures won’t be in session, so they’d have to come into session.  You would need both the legislature and the governor to go along with it. They would need to spend their own money because there are no federal funds for it. It would be a big deal.  And while there are some states that might do it, there’s already some states leaning towards doing it, there would certainly be, you know, many, many other states that would not do it.

MARY AGNES CAREY:  How concerned is the court about Congress and/or the Obama administration stepping in to remedy a situation if the subsidies in the federal exchanges were struck down?

JULIE ROVNER: You know, in a case like this where they’re trying to interpret what Congress meant when it wrote this particular sentence, the court theoretically shouldn’t be looking at the possible outcome, but they all did.  Both the liberals and conservative talked about the possibility of real problems in the state insurance markets if the federal exchange is not allowed to offer tax credits.  And this is why I think the Republicans in Congress have wanted to reassure the court that something could be fixed. So as I mentioned Justice Alito said the states could create exchanges. Justice Scalia said, “Well, Congress can come in and fix this.” And the Solicitor General said, “This Congress, Your Honor?”  And everybody laughed. This Congress is not really, A. inclined to fix it and B. able to get a whole lot done right now.

MARY AGNES CAREY:  Thanks for the update, Julie Rovner with Kaiser Health News.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

For the second time in three years, the federal Affordable Care Act went before the Supreme Court Wednesday. And before a packed courtroom, a divided group of justices mostly picked up right where they left off the last time.

Once again, commentators and experts were left to wonder where Chief Justice John Roberts and Justice Anthony Kennedy, considered swing votes in the case, stand. A decision is expected by the end of June.

Unlike in 2012, the current case, King v. Burwell, doesn’t challenge the constitutionality of the law’s centerpiece that requires most Americans to have health insurance or pay a penalty. In a 5-4 ruling, the court that year decided the law could continue, albeit with a twist: states could elect not to expand Medicaid. But the latest case does challenge another piece that’s pivotal to making the law work: Whether tax credits to help moderate-income Americans afford coverage can be provided in the three dozen states where the marketplace is being run by the federal government.

The court’s most conservative justices seemed to side with the challengers, who say that a sentence in the law stipulating that tax credits are available only on health insurance exchanges “established by the state” means just that. In other words, credits would not be available in the three dozen states that are using healthcare.gov, the federal exchange.

“If Congress did not mean ‘established by the state’ to mean what it normally means, why did they use that language?” asked Justice Samuel Alito.

Liberal justices, however, seemed much more comfortable with the Obama administration’s argument that the phrase encompasses both federal and state-run exchanges — and that reading the text to allow tax help only on state exchanges runs counter to the rest of the law.

If they were to read the law the way the challengers argue, said Justice Elena Kagan, “there will be no customers and no products” on the federal exchange, because no one would be eligible. “When you’re interpreting a statute generally, you try to make it make sense as a whole,” she said.

But almost nothing could be gleaned from the questioning and comments of Roberts and Kennedy.

Kennedy had hard questions for both sides. He suggested at one point that withholding tax credits from states that failed to set up their own insurance exchanges could pose “a serious constitutional problem,” because it could disrupt insurance markets in states that do not set up their own exchanges. Giving states such an unpalatable choice would be unfair coercion by the federal government, Kennedy said.

But Kennedy also questioned whether, in the absence of more specific language, Congress intended to let the Internal Revenue Service decide how to distribute billions of federal tax dollars. “That’s a lot of responsibility,” he said. The question specifically before the court is whether the IRS overstepped its authority in interpreting the law to allow tax credits in both state-run and the federal exchange.

Roberts, meanwhile, was uncharacteristically quiet during the nearly hour and a half argument. In 2012, it was the chief justice who surprised many observers by joining the liberals to find the law constitutional because Congress was using its taxing power.

Outside the court, standing in a light rain, those on both sides predicted victory.

“It looks good for the plaintiffs,” said Michael Cannon of the libertarian Cato Institute. Cannon, who helped push the court case – and travelled the country working to persuade states not to set up their own exchanges – said he was pleased by questions about the IRS’ interpretation. “It’s absurd to give the IRS that kind of authority,” he said.

But Elizabeth Wydra of the Constitutional Accountability Center, which supported the administration’s position, said she thought the arguments leaned her side’s way. “If the court follows the plain text of the law and prior precedents, then it’s clear tax credits are available to all Americans no matter what entity runs the exchange,” she said.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Hospitals that treat many poor and uninsured patients were expected to face tough financial times in states that did not expand Medicaid under the federal law known as Obamacare.

That’s because they would get less Medicare and Medicaid funding under the Affordable Care Act, while still having to provide high levels of charity care.

But in some of the largest states that did not expand Medicaid, many safety-net hospitals fared pretty well last year — even better than in 2013 in many cases, according to their financial documents. KHN looked at the performance of about a dozen such hospitals in Florida, Texas, Georgia, Tennessee, South Carolina, Virginia and Kansas, which released their 2014 financial results.

An improving economy was the single, biggest reason shared by all of the strongly performing hospitals because it helped reduce the number of patients who couldn’t pay their bills and increased local property and sales tax revenues earmarked for publicly supported hospitals.

Another factor for some hospitals was the increase in insured patients who bought coverage through the health law’s insurance exchanges. For instance, Fort Lauderdale, Fla.-based Broward Health saw a 30 percent drop in charity care, which officials attributed to seeing more insured patients.

Still, the biggest fiscal challenges lie just ahead — with significant Medicaid funding cuts starting late next year under the Affordable Care Act. The health law’s drafters anticipated the number of uninsured Americans to decrease dramatically, in part because they expected a nationwide expansion of Medicaid. Therefore, beginning in October, 2016, the law calls for cuts to special Medicaid funding for hospitals that typically see a disproportionate share of the poor. In addition, other Medicaid funding that supports indigent care in certain states (and that predates the 2010 health law) is slated to expire in Florida in June and in Texas, next year.

“We are still very early in the Affordable Care Act, and one year does not make a trend,” cautioned Daniel Steingart, an analyst with Moody’s Investors Service. “Just because they got though this period, does not mean they do not have more financial pain to come.”

So-called safety-net hospitals, many of which are supported by local or county taxpayers, often struggle financially because they see a high proportion of patients that are either uninsured or enrolled in Medicaid, the state-federal program that pays less money than Medicare or private insurers.  The hospitals face added pressure from providing high-cost and traditionally money-losing services such as trauma and burn care. They also have the expense of training doctors.

Nonprofit hospitals need to make enough money to buy new equipment, expand programs and meet rising labor costs.  The average nonprofit hospital makes about a 3 percent profit margin, Steingart said.

In the past decade, two of the nation’s largest public safety-net hospitals — Grady Memorial Hospital in Atlanta and Jackson Memorial Health System in Miami — were on the verge of financial collapse but recovered after major management changes and increased public support.

Last year, the county-owned Jackson finished its second consecutive year with about a $51 million surplus on about $1 billion in revenue, in part as a result of increased county sales-tax revenue going to the health system and tighter expense management. Jackson’s operations are supported by a sales tax in Miami-Dade County.

Grady’s profit increased to nearly $30 million through November last year, up from $17 million for the same period in 2013.

Several other safety net facilities in states that did not expand Medicaid had profits in 2014, according to financial reports, including:

— Broward Health, which runs four hospitals, saw $69 million in profit in the 2014 fiscal year that ended June 30, compared to $59 million a year earlier, on about $1 billion in revenue. That included support from local taxpayers.

— Orlando Health, a six-hospital system in central Florida, saw its profit grow to $161 million in the fiscal year that ended in September, up from $32 million the year before, on about $2 billion in revenue. Its vice president of finance, Paul Goldstein, cited the improving economy, an increase in the number of privately insured patients and the financial performance of recently purchased doctors’ groups.

— Tampa General posted a $49 million profit last year, up from $31 million the year before, on $1 billion in operating revenue. Its operating margin was 4.5 percent.

— Chattanooga, Tenn.-based Erlanger Health posted a $20 million profit for the six months that ended Dec. 31, on revenue of $336 million, after factoring in local tax support, compared to losing $1.5 million in the same period a year earlier.

— Greenville Health System in South Carolina made a $63 million profit in the fiscal year that ended Sept. 30, down slightly from $80 million the prior year. The system had about $1.8 billion in revenues.

“Safety nets are doing everything they can to hang in there,” said Beth Feldpush, senior vice president at America’s Essential Hospitals, which represents about 250 safety-net hospitals.

Twenty-eight states have expanded Medicaid under the health law since the Supreme Court ruled the provision optional in 2012. Medicaid enrollment has increased nationally by almost 11 million since October 2013. Most of the drop in uninsured nationally is attributed to people gaining Medicaid coverage.

Not all safety-net hospitals did well last year.  County-run Harris Health System in Houston is facing a $14 million budget shortfall and recently announced plans to lay off 108 workers. Officials blame Texas’ decision not to expand Medicaid and decreased payments from other federal programs. Nearly two-thirds of Harris’ patients are uninsured— a far higher percentage than at most safety-net hospitals.

Chief Financial Officer Michael Norby said the hospital has seen a nearly 2 percentage point increase in privately insured patients as a result of the health law. Even so, only 3 percent of its patients are privately insured. “We are significantly challenged as we go forward,” Norby said.

Parkland Health and Hospital System, which is supported by Dallas County property taxes, managed to finish in the black, but saw its profits decline from $43.4 million in 2013 to $1.4 million in 2014.

Meanwhile, safety-net hospitals in Florida fear what will happen after June 30 when $2 billion in federal funding expires under an agreement between the state and the federal government. Under such agreements, the federal government supplies billions of dollars in special Medicaid dollars to certain states including Florida, Texas and California to support hospitals with large number of Medicaid and uninsured patients.

“Without those dollars we have an unsound system,” said Tony Carvalho, president of the The Safety Net Hospital Alliance Of Florida.

While Miami-based Jackson Health is financially healthy now, Chief Financial Officer Mark Knight worries about the end of that federal waiver funding in June, which contributed $160 million to his budget this year. “We could not continue to serve and maintain current capacity … without that money,” he said.

In 2014, Florida safety-net hospitals also benefited from a strong tourist season and lower unemployment rates, Carvalho said.

The improved economy also helped many safety-net hospitals that are supported through local property and sales taxes, such as Broward Health and Jackson Memorial, said David Gruber, managing director of research at Alvarez & Marsal consulting firm.

A recent report by the firm predicted the nonprofits would face major financial threats as a result of health law funding cuts, particularly in states that do not expand Medicaid. “Safety-net hospitals are now operating in the untenable crosshairs of economic distress and health care reform,” the report said.

Greenville Health has kept in the black partly by finding ways to trim charity care costs, said Chief Financial Officer Terri Newsom. The South Carolina hospital has hired case managers to oversee care to some of the uninsured patients who show up regularly at its emergency department.  It also launched a program to divert ambulances with patients who do not have medical emergencies to urgent care centers.

Though the hospital worked to get people signed up for Obamacare plans, it only saw a 1 percent drop in uninsured numbers last year. Nonetheless, administrators say the health system is in good shape. “We are in stable health and making the right investments,” Newsom said.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.