Congress, Consider the Facts not Fiction before Voting to Repeal the Medical Device Tax

A priority of the new GOP-dominated Congress is to dismantle the Affordable Care Act (ACA), otherwise known as Obamacare. Having failed to repeal the ACA in the past, the GOP is now starting to nibble at the edges of the ACA, hoping to weaken it. One nibble that is likely to see congressional action soon, and which may even pass in both houses, is the repeal of the medical device tax.

The medical device tax is a small 2.3 percent excise tax on the manufacturer’s price of medical devices. It applies to manufacturers and importers of medical devices. The purpose of the tax is to raise revenue to help offset the costs of the ACA by taxing industries that benefit from health care reform: as reform leads to more people with health insurance coverage, the demand for health care—including medical devices—is likely to rise. The medical device tax became effective on January 1, 2013 and is projected to raise about $3 billion per year, or almost $30 billion over 10 years.

The medical device industry, which apparently is represented by Advanced Medical Technology Association (AdvaMed), argues this small tax is a job killer. According to a recent “study” by AdvaMed, the tax reduced industry employment by 14,000 jobs in 2013, or 3.2 percent of the employees in the industry. Furthermore, the “study” argues that R&D has been reduced in the industry, although no numbers are reported. AdvaMed says they estimated this number from a survey of 55 companies in the industry—less than a quarter of the firms in the industry.

This appears to be pretty damning evidence against the medical device tax, but how does it square with what really happened? Every year, Ernst & Young (E&Y) issues a report on the financial condition of the industry; the E&Y data come from a variety of sources including company financial reports. E&Y shows that industry revenues increased by 4 percent between 2012 and 2013, R&D spending increased by 6 percent, and employment increased by 5 percent. In the first year of the medical device tax, the industry created over 20,000 jobs! Oh, and profits were up by 32 percent.

Of course, it is impossible to say what would have happened in the absence of the medical device tax; perhaps more jobs would have been created. But, contrary to AdvaMed’s fictions, it is clear that the number of jobs in the industry has not fallen.

At about the same time the AdvaMed “study” was released, the Congressional Research Service issued an updated report on this tax. The report concludes: “The analysis suggests that most of the tax will fall on consumer prices, and not on profits of medical device companies. The effect on the price of health care, however, will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.”

Unless Congress is willing to replace lost revenue from the repeal of the medical device tax, they should keep this small tax on one group that benefits from the ACA.