Is the medical device tax on the way out?
As the state whose health care reform served as the model for Obamacare, Massachusetts has been a bit subdued in its reaction to the national law, formally known as the Affordable Care Act (ACA). Here, we haven't seen an overhaul in how people get insured, but, instead, a bunch of bureaucratic hassles and tweaks to the paperwork we fill out.
But the ACA has raised serious hackles in one area: the medical device tax. Since the law's passage in 2010, the large medical device industry in Central Massachusetts has been up in arms. Now, with Republicans set to control both chambers of Congress in January, it looks like a repeal of the tax may be in the works.
Brian Johnson, cofounder and publisher of industry publication MassDevice.com, has probably followed the issue as closely as anyone in the state, and he's bullish on repeal.
“I would say the odds are really high,” he said. “There's so many big-time medical device allies in positions of power.”
Here's how he and others picture things going down: Republicans in Congress, who have steadfastly opposed the entire ACA, will be able to act more decisively now. But if, or when, they send a repeal of the law to President Obama, he'll veto it. Then, both sides work out a compromise that includes repealing the tax.
“He's probably going to have to give something back, and the device tax seems like the right one,” Johnson said.
Why was the medical device tax included in the ACA to begin with? Basically, the argument is that medical device manufacturers would benefit from the law, which is designed to allow more people to get health care services. Putting the 2.3-percent tax on the sale of medical devices would simply offset some of that additional income for the industry while helping to pay for Obamacare.
Revenue expectations fall short
To opponents, though, the tax has serious flaws. For one thing, so far, it hasn't raised as much money as expected since taking effect at the start of 2013.
A major argument is that any tax on productive business activity, particularly one targeting a specific industry, can hurt business, costing jobs and reducing innovative product development.
When Marlborough-based Boston Scientific announced plans to cut up to 1,000 jobs in 2013, CEO Michael Mahoney cited the tax as a factor.
“The impact of the medical device tax is to the tune of $75 million for Boston Scientific,” he told industry news site FierceMedicalDevices at the time. “So it is appropriate for us, now that it has gone through, to adjust our cost structure.”
The prominence of the region's medical device industry has prompted even some Democratic politicians to speak out against the tax.
“I've long been open to the idea of repealing the medical device tax,” U.S. Rep. James McGovern, D-Worcester, said in an email. “The problem has always been how to pay for it. I'm hopeful that Republicans and Democrats can come together on this issue in a way that supports the medical device industry but is also fiscally responsible.”
Asked about her position on the issue, U.S. Sen. Elizabeth Warren's office cited a 2012 op-ed for MassDevice in which she argued for repeal.
“When Congress taxes the sale of a specific product through an excise tax, as the Affordable Care Act does with medical devices, it too often disproportionately impacts the small companies with the narrowest financial margins and the broadest innovative potential,” the Bay State's senior senator wrote. “It also pushes companies of all sizes to cut back on research and development for life-saving products. With an appropriate offset, we can repeal the medical device tax without cutting health care coverage for millions of people or forcing Americans to fight the whole health care battle all over again.”
The question of how to offset funding from the tax remains unclear. But that's just a part of the drama that will play out when Republicans in Congress go to war with the president over Obamacare. For now, the Massachusetts medical device industry, and the rest of us, will have to wait and see what happens.
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