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Will ObamaCare Foil Other Big Reforms?

Is ObamaCare the reform to end all other reforms

The massive health care law's problems are well known. Major tax hikes and Medicare cuts will fund a massive new government program rather than shore up the nation's finances. ObamaCare already is encouraging companies to cut jobs and work hours.

With the administration delaying the insurance exchanges that might help small businesses until 2015, even ObamaCare cheerleaders are growing worried. And the law will leave tens of millions of Americans without health coverage. That's the best-case scenario, the government's own estimates agree.

But ObamaCare doesn't just roil the health care system. It cre ates major obstacles to tax, entitlement and immigration reform.

As President Obama prepares to release his budget proposal Wednesday, the two parties already are far apart on taxes and spending. The bipartisan Gang of Eight senators hopes to unveil immigration plan Thursday, but similar plans in the past have withered in the public spotlight.

The health law makes bridging the parties' differences on these divisive issues that much harder.

Tax Reform ObamaCare has a direct impact on taxes, raising the burden on Americans and business, from an excise tax on medical devices to the 3.8% Medicare tax on investment income to the individual mandate tax. But the law also stymies efforts to craft pro-growth tax reform.

Economists generally agree that lowering rates while scrapping various breaks and loopholes could promote growth while maintaining or actually raising tax revenue.

The biggest single tax break is the employer exclusion for health care benefits. If Congress eliminated the employer exclusion now, the exchanges could swell by 22 million, according to a Lewin Group analysis for IBD, because ObamaCare subsidies would look more attractive. That would erase much of the revenue from ending the employer tax credit that could have gone to pro-growth tax reform.

Entitlement Reform ObamaCare makes entitlement reform far more difficult by taking $700 billion from Medicare to pay for a new entitlement. Assuming those Medicare cuts actually materialize, further cuts (and tax hikes) to handle baby boomer retirement costs will be that much harder.

And the health law throws up other roadblocks. If politicians decide to raise the Medicare eligibility age from 65 to, say, 67, many people would simply go on ObamaCare with its hefty taxpayer subsidies for the two years, eliminating much of the savings. With little reward for so much political risk, lawmakers likely wouldn't bother.

Also, ObamaCare says premiums for older, sicker patients can be no more than three times the rate for the young and healthy. So adding 65- and 66-year-olds to the exchanges would mean higher premiums for all, giving the young and healthy yet another reason to pay the individual mandate tax and drop coverage. That in turn would push up premiums further and so on.

ObamaCare is even blocking President Obama's own modest proposals. During the ultimately fruitless 2011 budget talks, Obama offered to trim Medicaid spending slightly. But that offer has been shelved. Why? Because of ObamaCare, and the Supreme Court ruling that states could opt out of the law's Medicaid expansion.

"The Supreme Court decision last June was a real game-changer, said Ron Pollack, executive director of the liberal Families USA. "The White House is well aware that the one clear inducement for states to expand is the generous federal funding. Cutting back Medicaid would undermine this inducement for governors and legislatures.

Immigration Reform ObamaCare directly affects taxes and health care entitlements. But what does the law have to do with reforming immigration

Plenty. Legalizing 11 million people would swell ObamaCare's Medicaid expansion and exchange rolls — and costs. Medicaid grants full benefits to legal residents after five years. Meanwhile, ObamaCare's subsidized exchanges may be open to legal residents immediately. So immigration reform could add millions of people to ObamaCare.

How many and how quickly would depend on the specific immigration legislation and how many states expand Medicaid.

But IBD recently calculated immigration reform eventually could add $10 billion to ObamaCare's annual cost.

The Gang of Eight senators reportedly have agreed to bar newly legalized people from ObamaCare for a decade or more to reduce the near-term cost to taxpayers.

Lawmakers might try to delay ObamaCare eligibility to reduce the near-term cost to taxpayers. But that could give businesses a perverse incentive to discriminate against American citizens. ObamaCare fines companies with at least 50 workers up to $3,000 for every worker who gets ObamaCare exchange subsidies. If newly legal residents are denied, then businesses will have an incentive to hire them over Americans.

The bottom line: ObamaCare likely would substantially raise the cost of immigration reform or make American workers less attractive.