WASHINGTON – Several Supreme Court justices Wednesday afternoon indicated skepticism that making states expand Medicaid coverage to more low-income individuals under President Obama’s health care law amounts to coercion, as states suing the federal government argued.

In the third and final day of hearings on the fate of Obama’s signature domestic achievement, Paul Clement, the lawyer representing 26 states opposing the 2010 law, argued that the Medicaid expansion is unconstitutional because Congress ties federal funding for the program with the condition that states enroll millions of new individuals who did not previously qualify.

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The federal government has said it will cover 100 percent of the states’ costs of coverage expansion starting in 2014, and gradually decrease the federal share to 90 percent by 2020.

Why is a big gift from the government – “a boatload of federal money” – coercive, asked Justice Elena Kagan less than a minute into Clement’s opening argument. “It doesn’t sound coercive to me, let me tell you,” she said.

States have no choice but to comply with the expansion because of the large amount of money at stake, Clement said. All previous federal money for Medicaid is at risk, not just money tied to the new program, he argued.

Justice Stephen Breyer challenged that premise on the spot, asking Clement to cite the statute that specifies that penalty. When he could not, Breyer himself dug out the statute and read it word for word, concluding that it would be up to the secretary of Health and Human Services to decide how much funding to cut. In Medicaid’s 47 year history, there has not been a single instance of the federal government withdrawing money from the program, he said.

Justice Ruth Bader Ginsburg pointed out that a number of states have filed briefs supporting the Medicaid expansion.

The program, created in 1965 to provide needy individuals health insurance and funded by both federal and state money, has undergone many expansions in recent decades. The program is optional but all states participate.

Currently only certain groups that meet certain poverty thresholds, including pregnant women, children, and the disabled, are covered by Medicaid.

The 2010 federal law would expand coverage to nearly everyone under 65 with household incomes at or below 133 percent of the federal poverty line. States have always been free to go beyond the federal minimum guidelines.

Today marks the longest day of hearings on the health care law, which requires most people to have insurance by 2014 or pay a penalty. While the Medicaid question has largely been overshadowed by the constitutionality of the insurance mandate that was argued yesterday, the future of insurance coverage for millions of uninsured low-income Americans hangs in the balance. According to the Congressional Budget Office, the expansion would cover about 16 million low-income Americans who are currently uninsured.

“The sleeper issue is Medicaid,” said Kevin Outterson, Boston University Law School professor who filed several amicus briefs in support of the law. “I think it’s the most dangerous issue for the Affordable Care Act. It’s the thing most likely to hurt it, not the individual mandate, which gets all the press.”

The states suing the federal government, as well as conservative think tanks that have filed briefs in support of the states, have argued that Medicaid is the second largest portion of the budget in most states and that they would have no choice but to accept the expansion requirement because of the amount of money at stake.

Outterson said opponents of the expansion have likened the federal government to a crack cocaine dealer that’s gotten the states addicted. “The first hit is free,” he said. “Opponents say the government is forcing states to take a deal they can’t refuse.”

Earlier today the court took up the issue of whether the rest of the law would still stand if the court strikes down the law’s mandate that individuals have health insurance by 2014. Most at risk would be the provision that bars insurers from discriminating against individuals with pre-existing medical conditions and charging them much higher rates.

Justice Elena Kagan posed the key question to lawyers: Is a half a loaf better than no loaf?

Clement argued that the entire law should go if the mandate falls and give Congress a clean slate to fix the country’s health care problem, which includes skyrocketing costs and tens of millions of uninsured. There are instances, he said, in which half a loaf is worse.

“You have to take the bitter with the sweet,” he said.

Deputy Solicitor General Edwin Kneedler, representing the government, argued that the key provision of the law linked to the insurance mandate – making insurance companies cover all patients, including those with pre-existing medical conditions – could not work without the mandate, but that the rest of the law should stand.

Ginsburg, as well as some of her colleagues on the bench, repeatedly pointed out the vast requirements of the law that have nothing to do with the individual mandate – everything from tax credits to small businesses to increase their subsidies for employees’ health insurance to making chain restaurants disclose the calorie counts of standard menu items.

“It’s a choice between a wrecking operating or a salvage job,” Ginsburg said. The more conservative position, she said, would be to let Congress, not the court, decide.

Justice Antonin Scalia said there is no way that the court’s decision is not going to distort the congressional process.

The atmosphere outside the court Wednesday morning was much more subdued compared to the previous two day of arguments, when demonstrators flooded the sidewalks in front of the court steps.