Medical Device Tax: Myth Versus Reality

Those who follow Congress may be surprised to learn that there is an issue where Representative Eric Cantor and Senator Elizabeth Warren — along with dozens of other Republicans and Democrats — are aligned.

The issue is the medical device tax, which was one of the main tenets of House Republican opposition to the Affordable Care Act that precipitated the recent government shutdown. Yet, if it is an issue where two people so ideologically opposed as Cantor and Warren can agree, it must be a serious issue that will undoubtedly harm America, right?

Alas, it seems nothing in Washington is ever so simple. The medical device tax is a 2.3 percent excise tax levied on the manufacturers of medical equipment that is sold to doctors and hospitals. Medical equipment sold over-the-counter, such as hearing aids or contact lenses, are exempt.

When the Obamacare was being written, representatives from all of the healthcare lobbies were required to present cost-saving measures to Congress. Pharmaceutical companies, health insurers, and hospitals all negotiated ways in which to lower the cost of care for the government. Yet one lobby, medical device-manufacturers represented by AdvaMed, “refused to negotiate” according to POLITICO.

The medical device industry is the opposite of a free market, with sales representatives paying kickbacks to doctors and not allowing hospitals to negotiate volume discounts on devices. In fact, when presenting their “cost saving measures” to Congress in 2009, the lobby actually proposed a tax on groups that negotiate lower prices for hospitals.

Speaker John Boehner said on the House floor that this device tax would cost Americans “tens of thousands” of jobs. However, according the GOP’s own list of companies that have moved jobs overseas, the numbers barely crack ten thousand. In fact, many of these companies had already began the process to move their operations overseas because of the emerging markets in Brazil, India, China and Russia.

In a report by financial news site Minyanville, the legislators that have opposed this measure all either receive campaign donations from the medical device companies or house one of the manufacturing plants in their districts. While their exact profit-margin is unknown — they are not required to disclose how much they sell their equipment for — they do seem able to shoulder the cost. In fact, because excise taxes are deductible, Moody’s Investors Service guesses that net payments will be about 1.5 percent rather than the proposed 2.3 percent. 


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