SCOTUSblog reports from the oral argument in King v. Burwell.

By Eric Citron. Excerpt:

[Justice Kagan... offered (something like) the following example:  Imagine I tell law clerk A to write a memo, and law clerk B to edit law clerk A�s memo, and then I tell law clerk C to write such memo if law clerk A is too busy.  And imagine that happens � law clerk A is too busy, so law clerk C writes it.  Should law clerk B edit it?... In response, petitioner�s counsel said that the context mattered, and it would depend on whether the Justice was indifferent between law clerk A and law clerk C writing the memo in the first instance.  But that seemed to play into Justice Kagan�s hand, who made clear that this was her point � that in understanding this text, the context obviously mattered....

[Justice Kennedy]... pointed out that, under petitioners� reading, the federal government would be all but forcing states to create their own exchanges.... not just [because otherwise] their citizens would be denied benefits... [but also because] state insurance systems will fail if the subsidy/mandate system created by the statute does not operate....  For Kennedy, that seemed to make this case an echo of the last healthcare decision, where the Court concluded that it was unconstitutional coercion for the federal government to condition all Medicaid benefits in the state on expanding Medicaid therein....  Justice Scalia attempted to respond on petitioners� behalf that such concerns do not enter if the statute is unambiguous, but Justice Kennedy reiterated his concern with adopting a reading that would create such a �serious unconstitutional problem.�

ADDED: I need to see the whole transcript � context matters! � but if this accurately portrays Kennedy's overall analysis, I think the government will win. This idea is that the challengers' interpretation asks the Court to read the statute to do something that would have to be stricken down as unconstitutional, because it would coerce the states to set up the exchanges. Congress lacks the power to commandeer the states and may only offer the states a choice. If the incentive to make the choice Congress wants is too heavy-handed � as it was with the Medicaid expansion in the 2012 Obamacare case � the would-be incentive is viewed as coercion. So if the provision is unconstitutional under the challengers' interpretation, in Kennedy's view, he will have reason to agree with the government's interpretation (that is, he would follow the doctrine of constitutional avoidance).

AND: SCOTUSblog has a second person, Tejinder Singh, also doing mid-argument reporting. Excerpt:

Justice Breyer [noted] that if the phrase �established by the state� is read to exclude exchanges created by HHS, then other provisions of the statute that also use that phrase would be rendered inoperative or nonsensical... The statute provides that insurance shall be made available on exchanges to �qualified individuals,� and further defines a �qualified individual� to mean, �with respect to an Exchange, an individual who� both wants to enroll in a qualified plan, and also �resides in the State that established the Exchange.� The government, as well as Justices Breyer and Kagan, argue that if the only way for a state to �establish� an exchange is to create it on its own, then there would be no �qualified individuals� in states that failed to do so, and therefore there would be nobody on the [HHS] exchanges (and, as Justice Kagan surmised, no product to sell on the exchanges).