Tax Foundation slams reform’s medical-device tax

By BenefitsPro

By Kathryn Mayer

The Tax Foundation on Tuesday added its voice to the chorus of critics who have slammed the Patient Protection and Affordable Care Act’s medical-device tax, calling it a bad policy that needs to be repealed.

Unless it's repealed, the nonpartisan research organization said, the tax likely will lead to higher health care costs for consumers, lower employment and hurt innovation.

The 2.3 percent excise tax on the manufacturers of medical devices is designed to raise revenue and reduce excess profits manufacturers may receive as a result of PPACA. The provision, which went into effect Jan. 1, is predicted to raise $3.2 billion a year on average for the next 10 years.

“This tax will result in higher health care costs, which undermines the objective of the Affordable Care Act,” Tax Foundation economist Kyle Pomerleau said Tuesday. “It is also likely that this tax will adversely affect employment, innovation and competition in the medical device industry, especially among small firms with slim margins.”

In the short term, it’s expected manufacturers will try to pass the tax on to consumers in the form of higher prices. In the longer term, the Tax Foundation predicts the purchasing power of hospitals and health care organizations will reduce the ability of manufacturers to pass along the cost of the tax, likely leading to lower levels of investment in research and development and ultimately a loss of as many as 45,000 jobs nationwide.

The tax can apply to devices from pacemakers to defibrillators to MRIs and ultrasounds.

Critics of the tax also say it could reduce the incentive for medical manufacturers to innovate.

The complexity of complying with the tax will create an additional burden on manufacturers, disproportionately impacting smaller companies, Pomerleau argued.

“For many medical device firms, adding one more person in the tax department likely means not adding one more scientist in the research and development laboratory,” he said.

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