New Analysis Challenges Arguments for Repealing Tax on Medical Devices
By: Robert Pear (NY Times) January 2015
WASHINGTON — A tax on medical devices, imposed by the Affordable Care Act, has become a prime target for Republicans, some Democrats and a small army of lobbyists for the industry. But a new report from the Congressional Research Service challenges economic arguments that are being made to justify repealing the tax.
Critics of the tax say it is destroying jobs and encouraging manufacturers to move operations overseas. Repealing it is a priority for Republicans on Capitol Hill.
But in its report, the Congressional Research Service, a nonpartisan arm of Congress, said that many of the concerns were unfounded.
The effects on jobs, research and company profits are “relatively modest,” the report said. As a result of the tax, it estimates, 47 to 1,200 workers could lose their jobs. They account for one one-hundredth to two-tenths of 1 percent of jobs in the industry.
“These relatively modest effects occur partly because the tax is relatively small,” the report said.
In addition, it said, “innovation and research would be minimally affected.”
The tax, which took effect in 2013, is equal to 2.3 percent of the sale price of a medical device and is expected to raise $29 billion over 10 years. It applies to products like X-ray machines, magnetic resonance imaging scanners, pacemakers, artificial hearts and artificial hip and knee joints.
Most of the tax will be passed on in the form of higher prices, the report said, but “the effect on the price of health care will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.”
The effects on output and profits of medical device companies will also be minor, the report said.
Studies commissioned by the medical device industry project larger effects, with a loss of 30,000 to 40,000 jobs or more. But the Congressional Research Service said the authors of these studies had often overlooked the fact that “about half of output is exempt from the tax.”
The law exempts eyeglasses, contact lenses, hearing aids and other devices that are “purchased by the general public at retail for individual use.” These include pregnancy test kits, adhesive bandages, wheelchairs and portable oxygen concentrators.
Tax-exempt products in the American market account for about 20 percent of the industry’s production, the report said. Sales of devices for export are also exempt, and they account for 38 percent of output, it said.
Senator Orrin G. Hatch, Republican of Utah and the chairman of the Finance Committee, strongly supports the repeal of the tax and said he trusted data from device manufacturers showing that it was “a job-killer.” Leading Democratic proponents of repeal include the senators from Minnesota, which is home to a thriving device industry. Last week, on the first day of the new Congress, Representative Erik Paulsen, Republican of Minnesota, introduced a bill to repeal the tax, and it immediately gained 258 co-sponsors, including 29 Democrats.
The House passed legislation to repeal the tax in 2012, in 2013 and again in September. The Senate endorsed repeal as part of a nonbinding budget blueprint that it adopted in 2013.
President Obama has threatened to veto legislation to repeal the tax, in part because its passage could embolden those who are trying to roll back other taxes and fees that finance coverage under the health care law. Whether Congress would sustain a veto is unclear.
The Advanced Medical Technology Association, a trade group, said the analysis by the Congressional Research Service was fundamentally flawed.
“It simply ignores the facts of what is happening in the industry,” said David H. Nexon, the association’s senior executive vice president. “All over the country, companies are reporting layoffs or forgone hiring for tens of thousands of workers as a result of the tax.”
A survey by the industry shows that one-third of medical device companies have reduced their research budgets in response to the tax, Mr. Nexon said.
“Patients will be the losers,” he said, because they will have fewer lifesaving and life-enhancing treatments.
Supporters of the tax said that device manufacturers, like insurers and drug companies, stood to benefit from the expansion of coverage. But the medical technology association said the increase in demand for devices so far “appears to be small or nonexistent.”
Republicans said the tax had encouraged device companies to shift jobs and production operations overseas. But the report said that “the tax should have no effect on production location decisions, since both domestically manufactured and imported medical devices are subject to the excise tax.”
