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ObamaCare: Immigration Reform's $10 Billion Hurdle

President Obama's biggest first-term success may present an obstacle on the path to citizenship for 11 million illegal immigrants, one of his highest second-term ambitions.

ObamaCare's Medicaid expansion and new subsidies to buy health insurance are among a number of factors that may raise a hurdle to immigration reform in 2013: the budgetary cost.

Now, amid signs that the political climate is more favorable for immigration reform, the economic and fiscal backdrop presents new challenges.

None of these issues looms so large as to distract from the central issue: Should the U.S. provide a legal embrace of 11 million residents who broke the law to make the U.S. their home? But the added fiscal costs, tied in large part to ObamaCare, could intensify the political battle over spending.

Back in 2007, the Senate's most recent effort to pass a comprehensive immigration bill, government number-crunchers envisioned a tax revenue bump in part from a flood of new guest workers to the U.S.

Now, with the jobless rate still at 7.8% and long-term unemployment at historic levels, politics may not allow for such a broad expansion.

Meanwhile, the 10-year cost of immigration reform may have risen substantially with ObamaCare. The 2007 bill would have made full Medicaid benefits available in five years, the usual waiting period for new legal permanent residents.

ObamaCare goes a few big steps further, expanding Medicaid eligibility to 133% of the poverty level and providing subsidized coverage to individuals earning up to 400% of poverty who lack affordable employer coverage.

Further, exchange subsidies under ObamaCare may be available to legal residents without delay. That could significantly increase the 10-year cost.

Border Budget Bulge Bottom line: With roughly half of illegal immigrants uninsured, reform might cover several million via ObamaCare. If so, the health law could add $10 billion, possibly more, to the annual cost of immigration reform within 10 years.

The Congressional Budget Office says that in 2022, the average Medicaid beneficiary will cost the federal government $6,000, while the average recipient of subsidies to buy insurance via ObamaCare exchanges will cost $9,000. Because the average age of illegal immigrants is lower than the population, and health costs rise with age, the cost per newly legalized immigrant would likely be lower.

CBO projected that the 2007 Senate immigration bill would have had a net 10-year cost of $28 billion. Back then, with the deficit dwindling to about 1% of GDP and debt at about half of current levels, no one seemed to mind.

The 2007 bill's price tag included $23 billion in direct outlays, primarily for earned income and child tax credits and Medicaid, and $43 billion in discretionary costs for manpower and technology to implement the legislation. Those costs would have been mostly offset by $48 billion in extra revenue, thanks in part to about a 1 million increase in guest workers and H1-B visas in the first five years.

The addition of ObamaCare to the cost side of the ledger could produce a much more expensive bill this time around.

The cost will depend on the path to legalization and citizenship that Congress aims to provide. For example, under Obama's deportation deferral program, which lets illegal immigrants age 16-30 apply to stay and work in the U.S. for two years, no ObamaCare subsidies are available. But such an approach would be inconsistent with making illegal immigrants permanent residents and eventual citizens.

Health coverage for illegal immigrants has been a politically sensitive issue that the White House tried to steer clear of in the push to pass ObamaCare.

Now Congress may find itself wrestling over how to pay for such coverage in a bill that would otherwise add to deficits.