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By David Morgan
WASHINGTON, Feb 17 (Reuters) - Five Republican state governors say they will not rescue a crucial part of Obamacare if it is struck down by the Supreme Court, underlining the prospect for a chaotic aftermath to a ruling that could force millions of Americans to pay much more for coverage or lose their health insurance.
The Supreme Court is due to hear opening arguments in the case known as King v. Burwell on March 4, marking the second major challenge to President Barack Obama's Affordable Care Act (ACA) after the justices ruled in 2012 against a claim that it was unconstitutional. The latest case tests the tax-credit subsidies at the core of Obamacare.
In its ruling expected by June, the high court could bar the federally run insurance marketplace from providing the subsidies in at least 34 states. That could throw the insurance system into turmoil as states respond in starkly different ways.
In response to Reuters' queries, spokespeople for the Republican governors of Louisiana, Mississippi, Nebraska, South Carolina and Wisconsin said the states were not willing to create a local exchange to keep subsidies flowing. Republicans argue that Obamacare is unacceptable government intervention that raises costs for consumers and businesses.
"State exchanges are the federal government's way of sticking states with the cost and responsibility of a massive new bureaucratic program," said Chaney Adams, a spokeswoman for South Carolina Governor Nikki Haley.
"The right decision was made for South Carolina, and Governor Haley would make it again today."
State government officials in Georgia, Missouri, Montana and Tennessee - a mix of Republicans and Democrats - said that opposition by majority Republican state legislators could make it all but impossible to set up a new exchange.
Those nine states combined are home to 1.4 million people who have signed up for subsidized coverage in 2015, according to government data. The fate of 5.1 million residents in the remaining 25 states that have signed up for subsidized benefits on the HealthCare.gov exchange is also unclear.
Six states - Delaware, Maine, Ohio, Pennsylvania, South Dakota and Virginia - are discussing contingency plans to keep the subsidies but each faces substantial logistical or political barriers, according to officials.
Ten states did not respond to Reuters queries, while three others had no comment. Iowa, Wyoming, Oklahoma and West Virginia said they were not currently considering setting up exchanges; Alaska said it has not ruled it out; and Arkansas said it was moving toward creating a state exchange in 2017.
Republicans are opposed to Obamacare, but such a ruling could have a political cost in their states if hundreds of thousands of low-to-middle-income people are priced out of health coverage. Even if states say they don't plan to set up exchanges, that could change closer to the ruling or afterwards as they come under pressure to avert spiraling insurance costs.
"We can say with some confidence that the insurance markets are likely to melt down, because only the sick people will stay in them and the others will find it unaffordable," said Drew Altman, who heads the non-partisan Kaiser Family Foundation.
STATES WEIGH WORKAROUNDS
The plaintiffs in King v. Burwell contend that the Affordable Care Act allows subsidies to be distributed only through state-based exchanges. Thirteen states and the District of Columbia set up their own exchanges from October 2013.
The remainder of states either opposed the law or could not find ways to make their own exchanges work, so the federal government stepped in. Insurers including Aetna Inc, Cigna Corp and Humana Inc are major players in the HealthCare.gov markets.
About 87 percent of enrollees in those states qualify for Obamacare subsidies, which can reduce a family's healthcare bill by thousands of dollars annually. A Milwaukee family of four earning the median U.S. household income of $53,000, for example, could receive $7,800 a year in subsidies, according to the Kaiser Family Foundation. A ruling against Obamacare would raise their monthly premium payments by at least $652.
Congress could respond to a negative ruling with legislation to keep subsidies in place. But partisan gridlock would make any action a challenge.
Health policy experts say the most likely fix to a ruling against the administration would involve a new type of partnership with the federal government or between states.
Maine and Delaware have considered a model in which the state creates the exchange in name but still relies on the federal government's technology systems to run it. Marketplaces for Nevada, New Mexico and Oregon have operated in that fashion.
But experts say this model could be rejected by the Supreme Court, because the ACA does not list the federal government as an entity with which states can contract for exchange services.
Other workarounds that have been discussed include setting up regional exchanges that cover multiple states, or keeping the HealthCare.gov website operating as a place to sign up for insurance but allowing states to disburse the federal subsidies.
At the very least, states that are open to setting up their own exchange hope the Supreme Court allows for a transition period if it rules against the administration.
"A state-based exchange from scratch in six months is probably not doable. We're trying to see what other states are doing and what may work and may not work," said Eric Cioppa, Maine's leading insurance official.
(Reporting by David Morgan; Editing by Michele Gershberg and Stuart Grudgings)