The Case for Keeping the Medical Device Tax


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In a testament to the power of health industry lobbying, lawmakers on both sides of the aisle have expressed support for repealing the medical device tax, a levy created as part of the Affordable Care Act that is expected to raise $29 billion over the next 10 years to help fund broader access to health care.

The medical device tax is a 2.3% tax that applies to firms selling medical devices including artificial hips and joints, pacemakers, and MRI machines. It excludes items such as eyeglasses, contact lenses, hearing aids and any medical device purchases made by the general public from retail stores for individual use. Exported items are also exempt from the tax.

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

Medical device manufacturers have been trying to gut the tax since it passed in 2010. The industry spent more than $200 million successfully lobbying Congress and waging a campaign using the typical anti-tax talking point that claims any new levy is a jobs and innovation killer. But the argument for repealing the medical device tax does not hold up.

A new analysis by the Congressional Research Service (CRS) found that in all predicted scenarios, the tax would have minimal effects on the medical device industry and job loss. The CRS suggests that it could have as much as a 0.2 percent impact on output, and little if any effect on research, development, and innovation. The report attributes this low impact on the fact that the tax is relatively small, exports are exempt from taxation, and consumer demand is relatively inelastic.

At the very least, any repeal of the medical tax should pay for the $29 billion in revenue that would be lost, yet those fighting the tax have not found a politically viable way to replace the lost revenue. In addition, a repeal would set a precedent for the repeal of other taxes used to fund the ACA, creating a dangerous cycle that could weaken the law, which is clearly the intent of some lawmakers.

Other sectors of the healthcare industry have successfully incorporated ACA taxes, and without brouhaha, and we now have the numbers to show that the medical device industry can, too.

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