NCPA - National Center for Policy Analysis

Affordable Care Act Tax Will Hurt Patients and Destroy Jobs

February 20, 2012

Because of the enormous costs associated with the Affordable Care Act, Washington placed a tax on medical devices that would help to offset the additional expenditure.  The medical devices in question are not those purchased by regular consumers in retail markets, but instead are those purchased from wholesalers for use in professional medical offices.  Nevertheless, the tax will have a highly damaging effect on the medical device industry, medicine and consumers, says Investor's Business Daily.

  • With a rate of only 2.3 percent, the tax appears small, yet it will nevertheless create additional costs that will raise rates and inflate prices.
  • Richard Foster, Medicare's chief actuary, estimates that the tax, along with various fees, will push national health care costs higher by $18.2 billion in 2018 and $17.8 billion in 2019.
  • These increased costs will be to the detriment of all consumers.

The tax will also have an extremely cumbersome impact on the device industry specifically, causing them to lose even more from its implementation than the population as a whole.

  • Because the tax is placed on sales instead of profits, it has a heightened ability to undermine producers' fiscal strength.
  • Devon Herrick of the National Center for Policy Analysis found that major device producers will see profits dwindle -- Zoll could see its profits fall by 40 percent while Abiomed's losses will fall by 19 percent.
  • Preempting the effects of the tax, Stryker Corp. and Covidien PLC each announced layoffs of 1,000 workers and 200 workers, respectively.
  • Economists Diana Furchtgott-Roth and Harold Furchtgott-Roth estimate that the tax could result in job losses in excess of 43,000 in an industry that employs as many as 423,000.

Many of the jobs lost will likely be outsourced to other countries as companies attempt to reduce payroll expenditures as a means of absorbing the additional costs of the tax.

In addition, because the tax will reduce returns to producers, it will undermine the innovative and entrepreneurial forces that invent new technologies.

Source: Andrew Malcolm, "ObamaCare Tax Will Hurt Patients and Destroy Jobs," Investor's Business Daily, February 13, 2012.

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