Sales on medical widgets are helping to pay for the health law. Device makers say the tax is a job-killer.
High on the to-do list for the new Republican-controlled Congress is a plan to repeal a tax on medical-device manufacturers.
The provision was included in the Affordable Care Act to help make health insurance more affordable for millions of Americans.
The levy is on companies that make things like pacemakers and tongue depressors.
Health law architects predicted that medical-device makers would gain new customers once more Americans gained health insurance, but some industry executives say they haven’t seen an increase in business from newly insured people.
“It didn’t happen,” Caroll Neubauer, chief executive officer of B. Braun Medical in Pennsylvania’s Lehigh Valley.
The tax took effect in January 2013.
Neubauer says lots of newly insured people are young, and that makes them less likely to be in the market for an artificial hip, a wheelchair or the medical widgets that his company makes.
Neubauer says the medical-device levy is eating into his profits. B. Braun has paid 24 million dollars in taxes so far, he reports.
“That’s just money we don’t have to spend. We had it two years ago, we don’t have it anymore,” Neubauer said.
About 1,400 people work at the plant in Allentown. It makes catheters, syringes and intravenous tubing among other plastic equipment used in hospitals.
Because of the medical-device tax, some research and development projects are on hold, the company postponed construction on a new building, Neubauer said.
Economist Henry Aaron from the Brookings Institution has heard the complaint that the industry is hurting, but he believes other reports suggesting that so far the tax has had little impact on the sector.
“The industry that’s subject to this tax created over 20,000 new jobs, and profits went up by 2 percent, they are not really hurting,” Aaron said.
Echoing that analysis from Ernst and Young, a recent report from the nonpartisan Congressional Research Service estimated that any employment and output slowdown from the tax would be “relatively modest.”
The trade group Advanced Medical Technology Association surveyed device makers and concluded the tax will cost the industry more than 30,000 jobs. That prediction counts up future layoffs and belt tightening that executives say will lead to hiring freezes.
The medical-device tax is a “job killer” said Paul Touhey from Fujirebio Diagnostics in Malvern, Pennsylvania. He says that company has paid $800,000 toward the tax.
“We have not laid anyone off, or cut jobs, but we had a vision and a mission to create more cancer tests, and the way to do that is to hire more research and development employees. We haven’t been able to do that,” said Touhey, a consultant for the company.
Touhey says the big problem is that the levy is on company sales, whether or not a firm is making a profit.
In early February, Touhey joined a rally against the tax in Philadelphia, where B. Braun bused-in about 100 volunteers to protest.
The plan to revoke the 2.3 percent tax has backing from both parties. Pennsylvania Democrat, Senator Bob Casey is a supporter, but in Philadelphia, it was mostly Republican lawmakers who showed up to give speeches.
The medical device tax is supposed to raise about $30 billion dollars over 10 years to help fund expanded health coverage. Some Democrats–including Delaware Senator Tom Carper–say they won’t support a repeal until they see a plan to replace that money.
“My top priority is to create a nurturing environment for job creation and businesses growth, so I take seriously the impact of health care reform on our health care industry, which employs millions of Americans,” Carper said by email.” But it is important to note that the Affordable Care Act is expanding coverage to more than 30 million Americans—significantly enlarging the customer base for health care providers, including the medical device industry.”
But even without a plan, Paul Touhey and other industry executives are pushing for repeal now.
“That’s not our job, the Congress will have to come up with that,” he said.
Neubauer from B. Braun seems confident a plan will emerge. He says one lawmaker told him, “Three billion a year–that’s a rounding error in Washington.”
Aaron from Brookings says he hasn’t seen any good ideas yet.
Still, he says a repeal could succeed if it’s folded into a broader bill that lets Democrats and Republicans trade favors.
“The old tradition of what’s called log rolling, putting together provisions that appeal to different members of Congress,” Aaron said. ” Whether that’s going to happen this year, or next year, or the year after that I don’t know.”
Staunch health-law advocates want to hold the line.
In an analysis from the Center on Budget and a Policy Priorities, an analyst points out that the medical-device levy is only one of several taxes that help pay for the health overhaul. Some argue that repealing the medical-device tax will create “me too” lobbying from other sectors that have gained business from the expansion of health coverage.
The Supreme Court is set to review a core part of the Affordable Care Act. This summer, if the King v. Burwell decision doesn’t favor health-law supporters, Aaron says at that time the Obama administration may be more amenable to horse-trading.
Aaron says President Obama may be willing to deal because the medical-device tax is not a tent-pole provision of the health law.
In November, just after Republicans swept the election to control the House and Senate, Obama said the medical-device tax is among the things he’ll be discussing with GOP leadership.
“Let me take a look comprehensively at the ideas that they present,” he said.
The president still holds veto power, and repeal supporters concede they don’t—yet–have the votes to override him.