NCPA - National Center for Policy Analysis

Repealing the Medical Device Tax

January 15, 2015

With a new group of lawmakers in office and a Republican-controlled Senate and House, we can expect to see a number of new bills and proposed reforms. With that in mind, the American Action Forum has just released a new report with suggestions for the 114th Congress, including repeal of the medical device tax.

What's the medical device tax? It's an excise tax that's part of the Affordable Care Act and intended to raise revenue to fund the law. The tax has been in place since January 2013. It imposes a 2.3 percent tax on revenue of medical device manufacturers and importers. According to the American Action Forum's Brittany La Couture, the fact that the tax is on revenue rather than profits is especially significant: in 2011, while the top 30 medical device firms saw a 22 percent increase in income, the rest of the medical device industry (consisting of more than 6,000 firms) saw a 186 percent net loss. But even in the event of loss, the medical device tax applies.

Supporters of the tax have suggested that the ACA will increase medical device sales, but La Couture says medical device demand tends to be inelastic. As a result, device manufacturers will have to raise prices or cut costs in order to make up for the tax. According to research from the Advanced Medical Technology Association, 14,000 high-skilled jobs were lost as a result of the tax, and it caused losses of up to 132,000 jobs in support industries.

Source: "Ideas and Solutions for the 114th Congress," American Action Forum, January 2015.


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