Health Care Reform Tax Battle: Medical Devices
Policy + Politics

Health Care Reform Tax Battle: Medical Devices

iStockphoto/The Fiscal Times

The Senate vote last week seeking to eliminate a new tax on medical devices was prompted by a strong and well-financed lobbying effort by health care industry manufacturers.

However, it will take a lot more than a largely symbolic vote on an amendment to the 2014 budget resolution to knock out the 2.3 percent sale tax – one of many new taxes imposed by President Obama’s health care reform law.

The non-binding budget amendment was sponsored by Sens. Orrin Hatch, R-Utah, and Amy Klobuchar, D-Minn., who both represent states with large concentrations of medical device manufacturers. The sales tax on medical devices was added to the Affordable Health Care Act three years ago to insure that Obamacare would not add to the deficit.

Provided it survives, the controversial sales tax measure will generate an estimated $29 billion over the coming decade – or not quite a third of the $1 trillion of new tax revenues associated with enactment of the health care reform legislation.

“Today’s action shows there is strong bipartisan support for repealing the medical device tax, with Democrats and Republicans uniting behind our effort,” Klobuchar said last week following the 79 to 20 vote in favour of the budget amendment. “I will continue to work to get rid of this harmful tax so Minnesota’s medical device businesses can continue to create good jobs in our state and improve patients’ lives.”

During the debate over health care reform three years ago, device makers—like their counterparts in the pharmaceutical industry—agreed with reform proponents’ arguments that 27 million new paying customers would more than offset any tax losses or fees contained in the bill.

Since then, however, the hundreds of companies that make everything from tiny syringes to giant CT scanning machines have gone back on that pledge. Opponents contend that the levy would slow innovation in the medical device field and cost jobs.

The best known firms, headquartered in Midwestern states like Minnesota, Indiana, Ohio and Pennsylvania, manufacture artificial knees and hips, back discs, implanted heart valves, stents and defibrillators—devices whose escalating price and use are a major contributor to rising health care costs

Paul van de Water, a health care expert with the Center on Budget and Policy Priorities, has disputed many of the industry’s contentions. “The industry’s lobbying campaign against the medical device tax is based on misinformation and exaggeration,” he wrote recently.

The landmark Affordable Care Act enacted three years ago and upheld by the Supreme Court last June was designed to extend health care coverage to 27 million uninsured people. But the law continues to come under heavy political and industry fire.

The legislation will create health insurance exchanges in every state and provide subsidies and cost-sharing programs to help low-income people acquire insurance. It will also expand Medicaid and the Children’s Health Insurance Program (CHIP), help insurance companies assume the risk of insuring older people or those with pre-existing conditions, and assist some hospitals that get Medicare reimbursements that are disproportionately smaller than what hospitals receive in other regions.

Here is a list of major revenue sources of the Affordable Care Act over the coming decade, according to the Congressional Budget Office:

 Penalty payments by uninsured individuals -- $55 billion
 Penalty payments by employers that don’t provide coverage -- $106 billion
 Excise tax on high-premium insurance plans -- $111 billion
  Reinsurance and risk-adjustment fees on insurers and third-party administrators -- $184 billion
 Taxes and fees on certain health industry manufacturers and insurers -- $165 billion
 Additional Medicare Hospital Insurance payroll tax -- $318 billion
 Other revenue provisions -- $87 billion