By Geoffrey Cowley

The last significant legal challenge to Obamacare suffered a setback today, when a Washington DC District Court rejected it. Plaintiffs backed by the conservative Competitive Enterprise Institute are seeking to block health-care subsidies to low- and moderate-income consumers in 34 states where the federal government is either running or facilitating new health-insurance exchanges. They say the law restricts that support to states that operate exchanges on their own. But in a sweeping and closely argued ruling, Judge Paul L. Friedman thrashed that notion, saying that Congress “clearly intended to make premium tax credits available on both state-run and federally-facilitated exchanges.”

The dispute centers on a single phrase in the health care law. As written, it says the federal government will extend tax credits to qualified consumers who buy health coverage through insurance exchanges “established by the state.”

Represented by Michael Carvin, the lawyer who unsuccessfully challenged the Affordable Care Act before the Supreme Court in 2012, the plaintiffs claim that the phrase was no mere drafting glitch. According to their legal complaint, Congress intended to use the consumer subsidies as “carrots” to motivate the states to create their own insurance exchanges. “States rejecting the offer got a stick instead: the imposition of a federally-established, federally-operated exchange in the state, with no subsidies at all.”

Four years later, only 16 states and the District of Columbia are running their own exchanges. The other 34 have left the job to the feds. “That choice has left the federal government with the burden of establishing exchanges in those states,” the plaintiffs argue, “but without the burden of paying for premium-assistance subsidies to the residents of those states.”

The DC lawsuit—and a parallel suit still pending in Virginia — focus specifically on an IRS rule that authorizes premium assistance to anyone who meets the law’s means test, regardless of state residence. The plaintiffs say the IRS rule violates “the clear limitations that Congress imposed on the availability of the federal subsidies.”

The trouble is, there is nothing in the language or history of the Affordable Care Act to suggest that Congress wanted to restrict affordability to certain states. Judge Friedman acknowledges that the disputed phrase (“established by the state”) could have that effect if taken out of context. But “one cannot look at just a few isolated words,” he writes. The law’s history, structure and language all suggest that Congress offered the states a federal exchange option to help them participate in Obamacare—not to punish or exclude them.

As enacted in 2010, the law says that each state “shall establish” a health insurance exchange by January 1, 2014. But it calls on the feds to “establish and operate such exchange” in any state that “elects” not to do the job itself. In effect, Friedman writes, the law authorizes the federal government to create an “exchange established by the state” on behalf of the state.

Friedman’s ruling won’t stop the quest to overturn Obamacare. The Virginia challenge may yield an opposing decision (the presiding judge, Henry E. Hudson, has vilified the health care law in the past), and both rulings will face circuit court appeals. The plaintiffs’ challenge, says Simon Lazarus of the Constitutional Accountability Center, is to get a case to the Supreme Court quickly, so that the justices could still gut the law without taking away health coverage that millions of Americans have come to depend on.

Families USA, a prominent health care advocacy group, was optimistic in the wake of Wednesday’s decision. “Today’s ruling is a win for common sense,” its director, Ron Pollack, said in a statement. “The plaintiffs’ argument was based on an implausible reading of the statute and a fabricated history of congressional intent. It is gratifying but unsurprising that the court rejected their claims. Should the plaintiffs decide to appeal, we expect their arguments will meet the same fate.”

That’s a reasonable prediction, especially now that President Obama’s nominees are joining the DC circuit court. But with two cases still on track, it’s too early for health care advocates to declare victory. The next few months could be a thrill ride.