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First decision on healthcare reform lawsuit before Jan: Judge

By Lisa Lambert

RICHMOND (Reuters) - The first important decision in U.S. state lawsuits over federal healthcare reform will be announced in the next few months, a federal judge told a hearing on Monday.

The case involves arguments over government power, taxes, and if President Barack Obama mislead the American public.

Judge Henry Hudson of the U.S. District Court for the Eastern District of Richmond said he would reach a decision "by the end of the year" in the lawsuit Virginia filed over part of the health system overhaul that requires individuals to buy health insurance or pay a federal fine.

Virginia is suing because it passed its own law before the reform plan was approved prohibiting the U.S. government from compelling a citizen to buy insurance. Both the state and the U.S. government plan to appeal if Hudson's decision is not in their favor.

"This court is just one brief stop on the way to the Supreme Court," Hudson said.

During the hearing, the sides squared off on the Commerce Clause, a part of the U.S. Constitution allowing the federal government to regulate commerce among the states.

Virginia contends the federal government cannot regulate someone not buying a good or service under the clause. The U.S. government says everyone will some day participate in the healthcare market.

Under the U.S. government's "strained and extreme," position, "no one can opt out of the food market or clothing or shelter," said Virginia Solicitor General Duncan Getchell.

By buying health insurance, people essentially pay for services they will use in the future, said U.S. Department of Justice Department attorney Ian Gershengorn. The alternative is to charge people each time they see doctors, and refuse them if they cannot pay.

In recent weeks, as a similar lawsuit involving 20 states has advanced in Florida, arguments have shifted from the Commerce Clause to the fine those without insurance must pay. The states say it is a punitive fine, while the federal government says it is a tax that it is entitled to levy.

This is of particular concern because Obama had said it would not function as a tax.

"Why did the members of Congress and the President deny to everyone in America it was a tax?" Hudson asked Gershengorn.

"They denied it's a tax. The President did. Was he trying to deceive the people?" Hudson added.

Despite the lawsuit, Virginia will proceed with carrying out the many parts of the reform plan entrusted to the states because of the swift succession of deadlines for putting them in place, Virginia Attorney General Kenneth Cuccinelli told reporters.

Hudson could decide only to nullify the individual health insurance mandate and allow the rest of the law to stand. He will have to assess whether Congress would have passed the law without the provision, with little guidance on how to measure such a complicated piece of legislation.