WASHINGTON -- President Barack Obama's lawyers received a second chance to stop a lawsuit that has the potential to unravel the national health care law and its system of insurance subsidies.

The full U.S. Court of Appeals for the District of Columbia said Thursday that it will reconsider a 2-1 decision by a panel of the court in July that struck down the subsidies for health insurance provided under the Patient Protection and Affordable Care Act in 36 states.

Those states rely on insurance exchanges run by the federal government. In July, the two judges in the majority, both Republican appointees, said the law as written authorized subsidies for only state-run exchanges. The decision, if allowed to stand, could void insurance subsidies for about 5 million low- and middle-income Americans.

Thursday's brief announcement means the Supreme Court may not take up the issue this fall. Conservative activists who launched the lawsuit hoped to get it before the Supreme Court as soon as possible.

The appeals court said it will hear arguments Dec. 17, and the administration is expecting the full court to reverse the panel's decision. In the past year, Obama added four new judges to the D.C. Circuit Court, giving Democratic appointees a majority for the first time since the 1980s.

The legal dispute turns on a provision of the Affordable Care Act that says tax credits will subsidize insurance purchased on an exchange "established by the state." Currently, only 14 states operate their own exchanges. The rest rely on exchanges run by federal officials.

The administration's lawyers disputed the court panel's July interpretation, saying the law was intended to provide subsidies nationwide and that the law allows for federal exchanges to take the place of state exchanges.

Also Thursday, Obama administration officials said hackers in July breached security at the website of the government's health insurance marketplace, healthcare.gov, but did not steal any personal information on consumers, Obama administration officials said Thursday.

The attack was noticed by federal employees Aug. 25. Hackers downloaded malicious software onto a test server of healthcare.gov as part of a broader denial-of-service attack, intended to cripple other websites, officials said. The administration informed Congress of the violation.

"Our review indicates that the server did not contain consumer personal information, data was not transmitted outside the agency and the website was not specifically targeted," said Aaron Albright, a spokesman at the Centers for Medicare and Medicaid Services, which runs the website. "We have taken measures to further strengthen security."

Albright said the hacking was made possible by several security weaknesses. The test server should not have been connected to the Internet, he said, and it came from the manufacturer with a default password that had not been changed.

The security of healthcare.gov, which serves residents of the 36 states that rely on the federal exchange, has been a major concern for some members of Congress, particularly Republicans.

Congressional investigators found that administration officials, eager to begin enrollment Oct. 1, activated the website even though its security had not been fully tested and did not meet federal standards, creating what security experts called a potentially "high risk" for the exchange.

Since then, administration officials have repeatedly reassured consumers that the problems were fixed.

Meanwhile, after a report was released this week that projects a return to unsustainable levels of health care inflation, a group including former senior advisers to Obama and former President Bill Clinton unveiled a proposal Thursday to let states take the lead in controlling health costs.

Individual states would set their own targets to curb the growth of health care spending. If they succeed, they'd pocket a share of federal Medicare and Medicaid savings, ranging from tens of millions to $1 billion or more, depending on the state.

The plan comes from the Center for American Progress, a public policy think tank closely associated with the White House. The center's former president, John Podesta, currently serves as counselor to Obama.

Called "Accountable Care States," the new option would be voluntary, reflecting long-standing Republican preferences. To address Democratic concerns, participating states would have to maintain insurance coverage levels and enforce consumer quality standards to claim their financial dividends.

The state spending targets would encompass private spending, as well as Medicare, Medicaid, state and local employee insurance plans, and subsidized private coverage under the new health law. States would not have to expand Medicaid under Obama's health care overhaul to participate.

"Given the current political gridlock, it is unlikely that the federal government will take the lead on reforms to control health care costs systemwide," the proposal said. "States must therefore play a leadership role, with the federal government empowering ... them to act."

Authors plan to shop the idea around to top policymakers on Capitol Hill and in the administration. Congressional approval is needed to fully develop the concept.

Information for this article was contributed by David G. Savage of the Tribune Washington Bureau; by Robert Pear and Nicole Perlroth of The New York Times; and by Ricardo Alonso-Zaldivar of The Associated Press.

A Section on 09/05/2014