The House of Representatives passed H.R. 160, the “Protect Medical Innovation Act of 2015,” in June and is now waiting for the Senate to act. The bill would repeal the 2.3 percent medical device excise tax on manufacturing and importing medical devices.
The tax, which took effect in January, was implemented through the Affordable Care Act and has proven to be highly unpopular, causing some Democrat lawmakers to question whether they should heed constituents’ concerns the tax kills jobs or remain loyal to party strategists who say removal of the tax could ultimately bring down Obamacare.
The tax is expected to bring in less than $3.2 billion in tax revenue each year over the next 10 years to help fund Obamacare.
President Barack Obama has promised to veto the bill if it passes the Senate, but there may be enough bipartisan support in Congress to secure the two-thirds majority needed to override the president and pass it into law without his assent, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.
According to the Advanced Medical Technology Association, the tax is expected to cost medical device manufacturers approximately $194 million per month and the loss of up to 43,000 jobs in the medical device industry.
Adverse Effects on Producers
Herrick says the bill’s bipartisan support is the result of both parties recognizing the tax’s adverse effect on medical device producers. Herrick says the tax causes increased prices and decreased availability of needed medical items.
“The [medical technology] industry has had to tighten its belt to absorb the tax,” Herrick said. “Because the medical device tax is calculated on gross revenue, rather than on taxable income, the device makers have not been able to raise prices enough to recoup the lost profits.”
The tax also disproportionately harms certain medical technology companies because it taxes gross sales instead of profits, Herrick says.
“A startup may suffer losses before turning a profit,” Herrick said. “For instance, some medical device firms produce consumable supplies that have razor-thin margins between net profit and revenue, yet pay the same gross revenue tax as implant makers with a margin of 75 percent.”
Harm to Consumers Cited
Herrick says the medical devices tax also harms consumers.
“When cash flow is tight, firms are tempted to cut research and development and quality compliance,” Herrick said. “Adding the tax encourages medical device producers to move jobs offshore.”
Matthew Glans, a senior policy analyst at The Heartland Institute, which publishes Health Care News, says the tax has the additional problem of being hidden from consumers.
“Consumers are not aware of the cost the tax adds to the product, because providers integrate the cost into the product price,” Glans said. “Coverage often comes through an insurance company, and consumers are unable to see the real costs of care, which means it might as well be a ‘phantom tax.’
“The will to repeal this burdensome tax already exists, and several votes have been taken supporting repeal,” Glans said. “Now is the time to finish the job.”
Danni Ondraskova ([email protected]) writes from Chicago, Illinois.
Matthew Glans, “Medical Device Tax Update,” Research & Commentary, The Heartland Institute, December 8, 2014: https://heartland.org/policy-documents/research-commentary-medical-device-tax-update