GOP should repeal medical device tax

Published 9:30 pm Saturday, October 12, 2013

Defunding the Affordable Care Act was never a realistic goal — not with the Senate dug in, in defense of the White House’s signature legislative achievement. But that doesn’t mean there aren’t any realistic goals.

Now may be the time to repeal the ACA’s medical device tax, an unpopular measure that all sides seem to agree on.

“The tax is a 2.3 percent levy on all medical devices, a category that includes everything from hip implants to surgical gloves,” explains Jonathan Cohn in the left-leaning The New Republic. “Its primary purpose is to generate revenue — about $30 billion over ten years — in order to help pay for the expansion of Medicaid and creation of new tax credits that will help low- and middle-income Americans get health insurance.”

Frankly, that’s not very much revenue. It doesn’t go far at all to pay the tab for the ACA.

And there’s growing evidence the tax is already doing harm. It’s serving to stifle innovation.

“The medical device industry is being ravaged by unwise public policy, including a devastating 2.3 percent excise tax that took effect on Jan. 1 as part of Obamacare,” says Henry I. Miller, writing in Forbes. “This tax, which has already required the payment of more than $1 billion by device manufacturers, is especially pernicious because it is assessed on gross sales, not profits.”

In other words, companies pay the tax whether they make a profit or not.

“Imagine that you’re a manufacturer of medical devices and had a profit of $100,000 on sales of $1 million after all your costs and expenses — everything from materials and labor to research,” Miller explains. “The excise tax would be $23,000, wiping out almost a quarter of your profits.”

That’s particularly hard-hitting in the medical device field, because it takes a long time to develop, test and get approval for any device. It’s an expensive process, and actual profits aren’t realized for years and years.

“The U.S. remains the global leader in medical device development and manufacturing, although reports from PricewaterhouseCoopers and others show that even without the excise tax its lead was tenuous, in part due to regulatory uncertainties and dysfunction that thwart innovation,” Miller says.

Some companies say they’re now being forced to lay off their high-tech, highly compensated employees.

That’s why even the Democrat-controlled Senate voted to repeal the tax in March (the non-binding measure won 72 votes).

No one likes the tax. And, as The New Replublic’s Cohn acknowledges, it’s simply not necessary.

“Whatever the actual merits, it’s not one of Obamacare’s critical pillars,” he says. “And that could diminish its appeal on the right. Taking the tax away wouldn’t destabilize the insurance market or seriously undermine the program’s effectiveness, in the way repealing the individual mandate would. It would simply take away some money, just like eliminating the employer mandate would.”

But its repeal would be a victory for Republicans, who are desperately in need of one. And it’s achievable — if Republicans in Congress sit down with their Democratic counterparts and work it out.