The Medical Device Tax Lives On
For opponents of the 2.3 percent medical device tax, it looked like the repeal/replacement of the Affordable Care Act would alleviate their concerns. However, following the failure of repeal legislation that would have killed off, or delayed, the tax, the tax is on pace to be reinstated on January 1st, 2018 after a two-year gap.
Regardless of the status of the Affordable Care Act, news articles have indicated that companies and lawmakers opposed to the tax are considering pursuing a number of different options, such as adding tax delay language into other bills. Accordingly, a group of conservative action groups are pushing Congressional leaders to pursue a repeal of the tax, including preparing a letter to House speaker Paul Ryan and Senate majority leader Mitch McConnell. Further, the Advanced Medical Technology Association will be running digital and social media ads throughout this month in a number of states, hoping for tax repeal once lawmakers are back in session in September.
While it can be difficult to truly define a correlation between job performance and the medical device tax, a member survey performed by the Medical Device Manufacturers Association found that 70% of companies added jobs in 2016-2017 and R&D increased by 19% on average. On the other hand, in 2015 the Congressional Research Service found that there were no significant losses due to the tax.
According to news sources, the tax applies to hospital and physician medical equipment, but excludes many consumer medical items (eyeglasses, hearing aids, etc.).
Obamacare Replacement Would Repeal Medical Device Tax
Republican lawmakers recently proposed a replacement of Obamacare known as the American Health Care Act (AHCA). One provision of the proposed legislation would permanently repeal Obamacare’s 2.3% medical device excise tax. Beginning in 2013, manufacturers and importers of certain medical devices were required to pay a 2.3% tax on sales of these devices. Although the medical device tax was suspended for 2016 and 2017, it was set for reinstatement in 2018.
Introduction of the AHCA is not the first time that lawmakers and industry lobbyists have attempted to permanently repeal the medical device tax. For example, in January 2017, a group of more than 220 Representatives introduced a bill in the House of Representatives that sought to repeal the tax. In introducing that bill, Rep. Erik Paulsen (R-MN) released a statement citing improvements in the industry after temporarily suspending the tax:
We are already seeing new American jobs and increased investment in research and development as a result of the temporary suspension of this tax. With over 200 cosponsors at the start of this new session, and with overwhelming bipartisan support, permanent repeal should be a top priority for Congress.
Beyond repealing the medical device tax, the Washington Post reports that the AHCA seeks to repeal a wide array of taxes that were expected to cost insurance, medical device, and other healthcare companies billions of dollars over the next decade. Indeed, according to the Joint Committee on Taxation the 2.3% medical device tax, alone, was expected to cost these companies $20 billion over the next ten years.
Medical device industry representatives are encouraged by the prospect of a full repeal of the medical device tax. Scott Whitaker, CEO of the trade association AdvaMed stated:
Repealing the tax will provide medical technology innovators with the long-term certainty necessary to support future job growth and sustainable, cutting-edge R&D that will ultimately lead to the next generations of breakthroughs in patient care and treatment. We urge the House and Senate to act expeditiously to pass this important legislation.
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