How Obamacare’s medical device tax became a top repeal target

September 28, 2013

(REUTERS/Jessica Rinaldi)

Republicans have two demands they want fulfilled to avoid a government shutdown. The first is a one-year delay of Obamacare. The other is the repeal of Obamacare's medical device tax.

The Obamacare delay, in a way, makes sense: Holding off on the implementing the health-care law would indisputably handicap it. But the medical device tax? The priority has risen to the top of Republicans' agenda despite the fact that repeal would have a relatively minor impact on Obamacare's success. Here's a look back at where the medical device tax came from--and how it has become a top issue for the GOP.

The medical device tax is part of a suite of fees imposed on the health-care industry. The Affordable Care Act is expected to expand health insurance coverage to millions of Americans, which amounts to a windfall for health-care providers. The previously-uninsured will, all of a sudden, have health plans that cover trips to the doctor and hospital. That's expected to increase the consumption of health care.

When legislators drafted the Affordable Care Act, they asked each health industry to essentially give something up in return for the increased volume of patients they would now see. Health insurers, for example, will pay an industry-wide fee that generates $60.1 billion in revenue over the course of a decade. Pharmaceutical companies had a higher assessment of $80 billion.

As for medical device makers, they ended up with a 2.3 percent tax on sales. This will, according to the Congressional Budget Office, generate $29 billion in revenue over the course of a decade--which the health law plows back into expanding insurance coverage. The tax applies to devices such as defibrillators or pacemakers. Anything sold over-the-counter directly to consumers (think hearing aids, contact lenses and eyeglasses) is exempt.

The medical device makers say the tax is killing jobs. This has been the key contention from companies that make medical devices, such as hip joint replacements or heart stents, ever since the health-care law passed. One study from industry group AdvaMed concluded that 43,000 jobs would be shipped overseas in response to the fee.

"The tax will stifle innovation and cost thousands of high-paying jobs," one coalition of 400 device manufacturers wrote in a 2011 letter to Congress. "It will increase the effective tax rate for many medical technology companies, thereby reducing financial resources that should be used for R&D, clinical trials and investments in manufacturing."

Device manufacturers contend that the tax will be especially hard on smaller companies that may have a more difficult time shouldering the burden. And, last but not least, they argue that the costs of the tax will be passed on to consumers in the form of higher health-care costs.

The White House doesn't buy it, and opposes repealing the medical device tax. The Obama administration has opposed previous congressional attempts to repeal the medical device tax. "This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion," the White House wrote in one repeal threat issued last summer.

Health law supporters have pushed back against the AdvaMed study and other arguments that jobs would go overseas. The left-leaning Center on Budget and Policy Priorities notes that the tax applies to medical devices manufactured both here and abroad, which would dampen incentives to move out of the country. The tax does not apply to medical devices that are exported outside the country.

Some Democrats have opposed the medical device tax from the start. Massachusetts and Minnesota have two things in common, aside from both starting with an M: They are home to many medical device firms and represented by Democratic senators. When Congress debated this part of the law back in 2009, Sens. Amy Klobuchar and Al Franken, both Democrats of Minnesota, pushed back. Their state is home to Medtronic, one of the country's largest device manufacturers.

"The issue here is that these are very good jobs in our state and in our country," Klobuchar said in a 2009 interview with the Washington Post. "You want to be very careful when you start assessing taxes on an industry like this."

After the Affordable Care Act became law, many Democrats haven't been shy about voicing their opposition to the medical device tax. Seventy-nine senators supported a symbolic resolution opposing the provision in July, including 30 Democrats. A bill in the House to repeal the medical device tax has 260 co-sponsors.

The medical device tax community has been pushing for repeal for years now. Pretty much since the law passed, medical device lobbyists have been pushing for repeal. In 2012, industry group AdvaMed launched a print and online ad campaign in support of medical device tax repeal. During the 2012 election campaign, the group sent Republican Congressional candidates a fact-sheet explaining why they should oppose the tax. All told the medical supplier industry has spent over $150 million lobbying Congress since 2008.

In the budget debate, repeal of the medical device tax is a nonstarter. While medical device tax repeal has gotten traction in previous congressional votes, don’t expect that to happen this time around. Senate Majority Leader Harry Reid (D-Nev.) put out a statement Saturday afternoon saying that Democrats would reject any changes to the Affordable Care Act that Republicans proposed.

“To be absolutely clear, the Senate will reject both the one-year delay of the Affordable Care Act and the repeal of the medical device tax,” he said in that statement. “After weeks of futile political games from Republicans, we are still at square one: Republicans must decide whether to pass the Senate’s clean CR, or force a Republican government shutdown.”

 

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Neil Irwin · September 28, 2013