Medical Device Excise Tax Kills Jobs, Obamacare Kills Much More
The sweet smell of success for the medical-device industry is wafting over Capitol Hill. News from Senator Orrin Hatch is that the Senate will take up repeal of the medical-device excise tax. This is a tax of 2.3 percent on most medical devices that was passed as part of the Affordable Care Act to fund Obamacare.
AdvaMed, a trade association representing the medical-device industry has just published another survey of its members, which reports that
According to the survey, the tax has led to employment reductions of approximately 18,500 industry workers and will lead to forgone hiring of 20,500 additional employees over the next five years. The total impact of the tax on medical technology industry employment is approximately 39,000 jobs. Additional jobs will be lost in companies providing supplies or services to the industry. Forty-six percent of respondents said they would consider further employment reductions if the tax is not repealed. On the positive side, 71 percent of respondents said they would reinstate forgone hiring if the tax were repealed.
These results are largely in line with research published in 2012 that forecast job losses due to the tax, which I discussed in a Health Alert last summer.
39,000 jobs lost is nothing to take lightly. Nevertheless, let’s not forget that Obamacare itself will cost 2.0 million jobs by 2017. Repealing the medical-device tax is fine, but repealing Obamacare is far more important.
“On the positive side, 71 percent of respondents said they would reinstate forgone hiring if the tax were repealed.”
Wow, that is a rather strong response. Great news (potentially)
The FTC recently claimed the tax had little effect. But my own person experience is that it’s had a tremendous effect on hiring and quality / compliance programs. If it had no effect, you wouldn’t see medical device firms lobbying for repeal so vigorously. A tax of 2.3 may not sound like much, but when the tax is on gross sales and the gross margin is only 8% that reduced profits by one-third. Profit that is one-third lower is a huge deal!
I suspect that most people who haven’t closely followed this issue either don’t know that this tax is calculated on gross sales, or don’t understand the financial impact of that.
Also, note that this tax is imposed on dual-use medical/veterinary devices as well as human-only, even when used for veterinary purposes. How is that right & “fair”?
Just as with so much of ACA, this provision was poorly conceived, poorly considered, poorly written, and poorly understood.
I understand that it’s become virtually impossible to calculate the current costs & benefits of ACA, but I’d really like for someone, somewhere, to calculate how many dollars of ACA’s revenue-raising provisions have disappeared from the initial CBO scorecard, leaving much of the cost to be supported by general taxes. Remember how the long-term care provisions were front-loaded with premium payments? While its payouts exceeded the term that CBO covered in its scoring? Risk corridors and subsidies, taxes and failure to raise scored revenue: what a boondoggle.
You may be right, as excise taxes comprise a small share of federal tax revenue these days, and have since income taxes came to dominate the tax structure.