By Jeremy Pelofsky and Lisa Lambert
RICHMOND, Virginia (Reuters) - A U.S. appeals court on Tuesday sharply questioned whether the state of Virginia could challenge President Barack Obama's signature healthcare law, which requires Americans to buy insurance in a bid to slow healthcare costs.
The Obama administration is trying to save the individual mandate after a Virginia federal judge agreed with the state it was unconstitutional and struck down that part of the law.
The Obama administration has vigorously defended the measure, set to go into effect in 2014. The president's Republican opponents are expected to make the issue a theme during his re-election bid by arguing it is a costly and unnecessary government expansion.
Virginia passed a law barring the federal government from making its citizens buy insurance and sued to strike down the federal law. That prompted tough questions by a three-judge panel of the Fourth Circuit Court of Appeals on Tuesday about whether states could pass a law to buck a federal mandate.
"A state could challenge any federal statute in court as long as the state passed a law?" asked Judge Diana Motz. All three judges hearing the case were appointed by Democrats, including two by Obama.
Another judge, Andre Davis, who was appointed by Obama, questioned whether it would open the floodgates to states challenging all sorts of laws, including the Social Security retirement program and sending troops off to war.
Lawyers for Virginia countered that it was well within the state's rights, arguing that the healthcare law threatened its sovereignty and that the state legislation was an attempt to protect its citizens.
"The flip side is that a state can't sue ever," Duncan Getchell, solicitor general for Virginia, told Motz, who was appointed by former President Bill Clinton. "I don't know why it's a low trick to pass a law."
The case is the first to reach oral arguments at the appeals court level, and experts have said a ruling -- expected in months -- could influence other pending challenges to the law, including a June 8 hearing by another appeals court.
The law passed by a narrow Democratic majority last year was a major victory for Obama, one that the Republican Party is working to undo in the courts, statehouses and Congress.
The Obama administration's top appellate lawyer, acting U.S. Solicitor General Neal Katyal, told the appeals court that permitting Virginia's lawsuit would inject the states into the federal courts over "abstract political disputes."
So far, two federal judges have struck down the so-called individual mandate, while several others have upheld it, including one challenge by Liberty University in Virginia which was founded by conservative evangelical Jerry Falwell.
The school appealed and the court also heard arguments in that case. They centered on whether Congress exceeded its authority by imposing a purchase mandate or whether lawmakers were simply regulating how they paid for healthcare.
"This is quintessentially economic," said Katyal, noting that at some point all Americans receive healthcare services and that the law was merely regulating when they paid. The penalty for not buying insurance is imposed on tax returns.
A lawyer for Liberty University argued that the mandate "goes far beyond the outer limits" of the U.S. Constitution because it tries to regulate economic inactivity -- a conscious decision by Americans not to buy insurance.
"They want to be left alone," lawyer Mathew Staver told the appeals court.
Judge Davis countered that people who do not have health insurance can be hit by accidents and illnesses.
"Is it your submission that Congress has no power to address, in the aggregate, what we know happens every day in this country?" he asked.
More than 50 million people in the United States do not have health insurance, and nearly 2 million of the uninsured are hospitalized each year, according to a report released on Tuesday by the U.S. Department of Health and Human Services.
The three judges kept close counsel on which way they were leaning in that case but questioned both sides vigorously.
The 11th Circuit Court of Appeals on June 8 will weigh the administration's appeal to a decision that struck down the entire healthcare law as sought by 26 states. The Supreme Court could hear one of the legal challenges as early as this year.
(Editing by Vicki Allen and Mohammad Zargham)