By David Ingram
NEW YORK, July 22 (Reuters) - U.S. judges have their work cut out for them untangling a legal knot created on Tuesday when two federal appeals courts released conflicting rulings hours apart going to the heart of the role the federal government will play in Obamacare.
The latest conservative challenge to President Barack Obama's healthcare overhaul will not necessarily land in the U.S. Supreme Court, although it could end up there as soon as this year if the two lower courts go on disagreeing.
At stake is how millions of Americans pay for private health insurance, or if they can afford it at all.
The 2010 Affordable Care Act authorized tax credits to subsidize private health insurance. Seeking to upend the law as it was going into effect, businesses and individuals filed lawsuits asking that the subsidies be declared unlawful except in states that established their own online insurance marketplaces.
Analysts estimate that as many as five million people could be affected if subsidies disappear from the federally created marketplaces. The federal government set up insurance marketplaces in 36 states that did not themselves establish exchanges.
Tuesday's conflicting rulings created what lawyers call a circuit split.
A three-judge panel in Washington, D.C., voted 2-1 to invalidate subsidies in the 36 states. Hours later, a three-judge panel in Richmond, Virginia, unanimously ruled the opposite, upholding the subsidies nationwide.
The courts divided on the meaning behind the law's words. The law says subsidies may be given "through an exchange established by the state," a phrase that conservative lawyers argue excludes the federal marketplace. The Obama administration counters that the exchanges were meant to be uniform.
Both cases had been pending for months, and both courts are on an equal level in the U.S. judicial system, just below the Supreme Court.
Their divide might not last, though. Some lawyers following the litigation said they expected the full U.S. Court of Appeals for the District of Columbia Circuit to vote to rehear the case and reverse its panel.
Since taking office in 2009, Obama has used his appointment power to reshape the D.C. Circuit and the Richmond-based 4th Circuit. Judges appointed by Democratic presidents were a minority on both courts, but they now have majorities.
"If the D.C. Circuit does away with the panel ruling that we saw from that court this morning, then every court will have ruled in favor of the government," Elizabeth Wydra, chief counsel of the Constitutional Accountability Center, a liberal legal group, told reporters on a conference call.
The suits were brought by a mix of individuals and businesses from Texas, Kansas, Missouri, Tennessee, West Virginia and Virginia.
In the Richmond case, the plaintiffs could ask for a rehearing before the full 4th Circuit, despite its Democratic-appointee majority, or they could petition directly to the Supreme Court.
The latter option would put the question quickly before the closely divided high court, where in 2012 conservative Chief Justice John Roberts joined the four most liberal justices to turn aside a challenge to Obamacare. The court has no obligation to hear the case.
"We just haven't made a decision yet on what we will be doing," said Sam Kazman, general counsel for the Competitive Enterprise Institute, a conservative group that helped to organize the suits.
Two lawsuits challenging the tax credits are pending in federal courts in Indiana and Oklahoma. They are at an earlier stage than the ones in Virginia and Washington, D.C.
Nicholas Bagley, a University of Michigan law professor, said that it was difficult to predict what judges would do but that a reversal of Tuesday's D.C. Circuit ruling appeared likely.
After that, "it's just too early to know what the Supreme Court in that context would choose to do," Bagley said on a conference call organized by the Federalist Society, a conservative legal group. (Additional reporting by Aruna Viswanatha; Editing by Howard Goller)