Repealing the medical device tax

It’s not by chance that we spend much more time on this blog talking about what Obamacare does than on how it raises the money to do it. We’re much more interested in health policy than in tax policy. Well, at least I am. We’re also focused on the outcomes, not necessarily the process. That’s why we can defend the need for an individual mandate, while also acknowledging that other mechanisms might get us the same results. It’s also why we aren’t spending as much energy defending the employer penalty, which has a much less important function.

Which brings me to the medical device tax.

Honestly, I just don’t care that much about it. As I’ve long advocated that everyone in the health care industry is going to have to suck it up a bit to make real reform happen, I imagined this was the way that this industry would contribute. Hospitals are shrinking. Doctors are complaining about taking a hit. The pharmaceutical industry gave concessions. The insurance industry is going through a major transformation. Hell, even tanning salons were taxed. The medical device tax is another way that we’re going to raise revenue so that even more people could buy what they make.

I get why the industry doesn’t like it. But repealing it just makes the deficit worse, no? Again, this isn’t my thing. So I’m outsourcing this to Tim Carney:

The medical device tax, like the rest of Obamacare, is bad. Congress is correct to repeal it. But the whole scene demonstrates again the way Washington works: Obamacare hurts many people and many industries, but those with access to power often escape the harm.

Obamacare created a 2.3 percent excise tax on the manufacture and import of medical devices. This tax doesn’t really fall on patients, except in very indirect ways.

According to Ernst & Young, the federal government — through Medicare, Medicaid, the Veterans Administration, and the Department of Defense—accounts for a majority of U.S. spending on medical devices. This limits device makers’ ability to mark up prices and pass along costs. This means most of the tax will come out of device makers’ profits, while private health-care institutions and consumers may also bear a portion of the cost.

How bad should we feel for the device makers?

USA Today reports: “Medtronic, the largest independent U.S. device maker, has gross profit margins of about 75 percent — compared with an average of 46 percent for the Standard & Poor’s 500. … Even after overhead and research and development, Medtronic reported pretax cash flow of 34 percent of its 2012 sales, well above the 24.5 percent average for U.S. corporate leaders.”

Also, Obamacare’s subsidies and mandates boost demand for medical devices. Market analyst Ducker Worldwide predicts “the newly insured will increase overall primary demand for the industry’s products by 3 percent after 2014.” Further: “The newly insured will demand medical products and services that are more expensive than they can now afford. This will support significant price increases.”

Although Tim and I disagree on just about everything else related to Obamacare, we can agree that government often seems beholden to corporate interests. He sees a cherry-picked repeal of the medical device tax as a win for lobbyists and rigged government. I don’t think he’s wrong.


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