The U.S. Supreme Court opened its new term on Monday, first considering whether Medicaid recipients and medical providers may sue California for cutting reimbursement rates.
During the case, arguments centered around California's 2008 plan to slash Medicaid payments to doctors, hospitals and other health care providers, in an effort to reduce the state's large budget deficit.
California officials told reporters that the 10 percent cuts would save more than $700 million.
Medicaid, administered by states and paid for partially by the federal government, often accounts for a third of a state's spending.
The health insurance program provides health insurance to more than 55 million people.
Both the state and Obama administration argued that only the U.S. Health and Human Service Department can determine whether the rates a state uses to pay doctors and other providers complies with the federal Medicaid law, according to Businessweek reports.
Although, there was no consensus apparent among the justices after hearing the case on Monday.
Karin Schwartz, a deputy state attorney general, who argued on behalf of the Obama administration, agreed that only the government can enforce the federal law and private citizens have no right to sue.
We did not do an end run around anything, said Schwartz, according to Businessweek.
According to Reuters, earlier this month, the state reported its August revenue was $65 million below forecast, which could force California to slash spending more.
Carter Phillips, a Washington state attorney, who represents those who challenged the cuts, argued that an appeals court in California correctly ruled in blocking the cuts for violating federal law.
My people have a life or death problem, Phillips said.
Many states targeted Medicaid payment rates, as result of having to cut spending and hike taxes to a close a total of about $100 billion in budget gaps for the fiscal year that started in July.
A decision is expected by spring.