NCPA - National Center for Policy Analysis


June 10, 2010

Medical device manufacturers are bristling over a key provision in the nation's new health care law which they say forces them to shoulder an unfair cost of expanded insurance coverage. 

A 2.3 percent excise tax on companies that supply medical devices like heart defibrillators and surgical tools to hospitals, health centers and ambulance services will cost medical device manufacturers an estimated $20 billion (the initial proposed tax was $40 billion) in new taxes over the next decade.  And they say that will force them to lay off workers, and curb the research and development of new medical tools. 

"Many small to midsize medical device companies will owe more to the federal government in taxes than they make in profits," said Mark Leahy of the Medical Device Manufacturers Association. 

  • The tax, which doesn't kick in until 2013, has touched a nerve in Massachusetts, the state that provided the blueprint for the health care law.
  • Massachusetts is a hub for medical device companies, with more than 200 firms calling the state home.  

Sen. Scott Brown (R-Mass.), who won a special Senate election in part by vowing to block the national health care bill, made the medical device tax one of his first issues after taking office.  Brown condemned the tax, calling it threat to a local industry. 

"For a lot of them, that's their profit that's going to be eaten up by this tax," Brown said, faulting President Barack Obama for failing to acknowledge problems in the health care bill.  "The problems are the medical device companies are going to be whacked." 

According to industry estimates: 

  • California has the highest number of medical device workers with more than 72,400 followed by Massachusetts with nearly 22,000, Florida with nearly 20,000 and Minnesota with more than 18,000.
  • Other states with significant medical device hubs include: New Jersey, Pennsylvania, New York, Texas and Ohio. 

Source: Steve Leblanc, "Medical device makers: New tax will cost jobs," Texas Insider, June 8, 2010. 

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