NCPA - National Center for Policy Analysis

Budget Slugfest Hits Medical Device Tax

October 11, 2013

Washington's budget battles are turning a spotlight on a controversial medical device tax adopted in 2010 to help finance health care reform, says USA Today.

The government shutdown may force a reprise of one of the hardest fought battles over the new health care law's details, as medical device companies and their backers press for repeal of a 2.3 percent tax on everything from artificial hips to defibrillators.

  • The tax became part of the budget showdown when Republicans attached the idea of repealing the tax, which took effect Jan. 1, to a bill to fund the government temporarily and let 800,000 non-essential federal workers come back to work. The Democratic-controlled Senate rejected the idea.
  • The $150 billion industry says the tax, part of a broader plan to subsidize insurance for up to 30 million people, will slice into profits in an industry already battling price cuts.
  • Stryker, a Michigan-based maker of artificial hips and knees, says prices for its products dropped 1.9 percent in the second quarter from a year ago.

Repeal is possible because a number of Senate Democrats from states with big device companies, notably Minnesota's Amy Klobuchar and Al Franken, opposed the tax when it first passed. Repealing the tax might boost industry-wide profits by about 4 percent. Companies with narrower profit margins would get a bigger boost if the tax disappeared.

"The medical device tax takes funding away from other areas where we could have invested, and it is not something that we support," says Cindy Resman, a spokeswoman for Medtronic, adding that the company expects to pay $120 million in device taxes this fiscal year.

Source: Tim Mullaney, "Budget Slugfest Hits Medical Device Tax," USA Today, October 8, 2013.


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