U.S. District Judge Paul Friedman in Washington, in an oral ruling from the bench, rejected several Justice Department arguments on why the legal challenge should be tossed out of court.
The judge was expected to rule later Tuesday on whether to temporarily block the subsidies while the case continues.
The challengers, four individuals and three employers, argue that the insurance subsidies are barred by the actual language in President Barack Obama’s signature health-care law, the Affordable Care Act.
Under the act, individuals can qualify for subsidies, in the form of tax credits, if they buy health insurance through an exchange “established by the state.” A majority of states, however, chose not to set up their own marketplaces, leaving the federal government to run some or all of the exchanges in 36 states.
The challengers contend that the health law precludes subsidies for consumers who buy insurance through those federally run exchanges instead of state exchanges. They say the Internal Revenue Service contravened the text of the law when it promulgated a regulation last year making clear that the subsidies were available to individuals who bought insurance on either type of exchange.
The subsidy is available to households with incomes ranging from the federal poverty level up to four times that amount, or $78,120 for a family of three.
Government lawyers argued in response that Congress clearly intended for the subsidies to be available to consumers who bought insurance on either type of exchange.