Rep. Erik Paulsen (R-Minn) this week introduced a bill to repeal the 2.3 percent tax on medical device sales. The legislation is a bipartisan effort co-sponsored by Democrat Congressman Ron Kind of Wisconsin. This is the third time Paulsen has introduced such a bill since 2012–making it through the Republican-controlled House twice, but stalling in the Senate. Now that Republicans control both houses, 2015 could be when the stars align. The latest bill had 254 original co-sponsors, including more than 25 Democrats, and all eight members from Minnesota, home to many medical device manufacturers, including a large employer in Medtronic.
“The medical device tax continues to stifle innovation, cost American jobs, and drive up health care costs despite bipartisan opposition in both houses of Congress,” Paulsen stated in a news release. “With over 250 co-sponsors day one of the new session, it is clear repealing this tax should be one of the priorities for the new Congress. The American people are looking for their elected officials in Washington to find common ground and repealing the medical device tax is a great place to start.”
The bill won’t just lower future tax bills for medical device companies–it retroactively eliminates the tax which would mean a refund for companies that have already paid it.
As background, on Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013.
Sen. John Thune (R-SD) concisely summed up the “repeal” side of the issue:
We are committed to repealing the job-killing Obamacare medical device tax, a tax on life-saving medical devices like pacemakers and insulin pumps. This tax has already eliminated thousands of jobs in the medical device industry, and it’s on track to eliminate thousands more if it isn’t repealed. Given the economic stagnation of the past six years, the last thing our economy needs is a tax that is eliminating thousands of jobs.
Last year, the Advanced Medical Technology Association (AdvaMed) surveyed companies and found that the tax was a direct cause of job loss. “The United States is the global leader in health care innovation and is a net exporter of medical devices but the medical device tax threatens to undermine this position, AdvaMed states. “The device tax remains a drag on medical innovation and has resulted in the loss or deferral of more than 33,000 industry jobs.”
AdvaMed states:
The medical technology industry is an important engine for economic growth in the United States, employing more than 400,000 workers nationwide, generating approximately $25 billion in payroll, paying out salaries that are 40 percent more than the national average ($58,000 vs. $42,000) and investing nearly $10 billion in research and development annually. The industry is fueled by innovative companies, the majority of which are small businesses, with 80 percent of companies having fewer than 50 employees.
While the issues certainly strike a chord with Congress, it is not entirely clear what will happen when it makes its way to President Obama. “With Senate majority leader Mitch McConnell [R-KY] at the helm, a repeal is expected to pass both chambers and go to the president’s desk,” notes the National Review. “From there, it is unclear whether he will sign it, although proponents of the repeal are optimistic.” Indeed, according to the Washington Post, this week President Obama signaled he could entertain repealing the tax, though he made clear that he would not repeal the law’s individual mandate.
There are a couple of issues that could stand in the way of the repeal.
First, “under congressional budget rules, cutting taxes means finding $30 billion worth of new revenue or spending cuts over the next 10 years elsewhere in the federal budget to ensure that deficits don’t increase,” per Minnesota Public Radio, “Paulsen said no such offset had yet been identified.”
Second, the Washington Post identifies an interesting set of issues as well:
“If successful, it could inspire a “me too” response from other parts of the health-care industry that made financial concessions in the health-care law.
“When repeal of the device tax played a central role in last year’s government shutdown, hospitals were concerned that medical devices companies were getting preferential treatment. And so they warned they would put pressure on Congress to reduce the estimated $155 billion in federal cuts they’re facing under the ACA. Hospitals have been especially nervous about these cuts since the 2012 Supreme Court decision made the Medicaid expansion voluntary, meaning there are fewer insured patients than initially expected when the law was enacted.”
It will be interesting to follow the device tax issue in the coming days and weeks. Members of Congress had also set their sights set on the Affordable Care Act’s definition of the work week. Currently, the ACA classifies any employee as full-time if they work over 30 hours per week. Because the law requires any company employing over 50 full-time employees to provide health care insurance, many workers have seen their hours cut to force them into part-time status–a potential 25% reduction of their earnings. Legislation entitled the Save American Workers Act would change the definition of the work week to 40 hours.
The legislation passed the House of Representatives by a bipartisan vote of 252-172. The White House, however, was not impressed:
The Administration strongly opposes House passage of H.R. 30, the Save American Workers Act, because it would significantly increase the deficit, reduce the number of Americans with employer-based health insurance coverage, and create incentives for employers to shift their employees to part-time work – causing the problem it intends to solve.
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If the President were presented with H.R. 30, he would veto it.