WASHINGTON — Republicans have two demands they want fulfilled to avoid a government shutdown. The first is a one-year delay of the Affordable Care Act. The other is the repeal of a tax on medical devices that helps fund the health-care law.
The delay makes sense for Republican opponents: Holding off on implementing the law would indisputably hurt it. But the medical-device tax? The issue has risen to the top of the GOP agenda despite the fact a repeal would have a relatively minor impact on the health-care law’s success.
Here’s a look at where the medical-device tax came from — and how it has become a priority for the party.
The tax is part of a suite of fees imposed on the health-care industry. The Affordable Care Act is expected to expand medical insurance to millions, which amounts to a windfall for health-care providers. The previously uninsured will have plans that cover trips to the doctor and the hospital. That’s expected to increase the use of health-care services.
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When lawmakers drafted the legislation, they wanted members of the health-care industry to give up something in return for the increased volume of patients.
Health insurers, for example, agreed to pay an industrywide fee that would generate $60.1 billion in revenue over a decade. Pharmaceutical companies paid an even higher assessment.
Medical-device makers were hit with a 2.3 percent tax on sales. This will, according to the Congressional Budget Office, generate $29 billion in revenue over the next decade — money the health-care legislation will use to expand insurance coverage. The tax applies to devices such as defibrillators and pacemakers. Anything sold directly to consumers (such as hearing aids, contact lenses and eyeglasses) is exempt.
The medical-device makers say the tax is killing jobs. This has been the key contention from the $130 billion industry since the health-care law was signed. One study from the trade group AdvaMed concluded that the medical-device tax would ship 43,000 jobs overseas in an industry that employs an estimated 400,000 workers.
“The tax will stifle innovation and cost thousands of high-paying jobs,” one coalition of 400 device manufacturers wrote in a 2011 letter to Congress. “It will increase the effective tax rate for many medical-technology companies, thereby reducing financial resources that should be used for R&D, clinical trials and investments in manufacturing.”
Device makers contend that the tax, which kicked in this year, is especially hard on smaller device manufacturers, which have a more difficult time shouldering the burden. And they argue the costs of the tax will be passed on to consumers in the form of higher health-care costs.
The White House doesn’t buy the industry arguments, and opposes repealing the medical-device tax. “This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion,” the White House wrote in a veto threat last summer.
Supporters of the health-care law have criticized the AdvaMed study and other arguments that jobs would be moved overseas. The left-leaning Center on Budget and Policy Priorities notes that the tax applies to medical devices manufactured in the United States and abroad, which would dampen incentives to move out of the country. The tax does not apply to medical devices exported from the United States.
Some Democrats have opposed the medical-device tax from the start. Massachusetts and Minnesota, both home to many medical-device firms, are represented by Democratic senators. When Congress debated the device tax in 2009, Sens. Amy Klobuchar and Al Franken, both Minnesota Democrats, fought the tax. Their state is home to Medtronic, one of the country’s largest device manufacturers.
“The issue here is that these are very good jobs in our state and in our country,” Klobuchar said in a 2009 interview with The Washington Post. “You want to be very careful when you start assessing taxes on an industry like this.”
Since the Affordable Care Act became law, Democrats haven’t been shy about voicing their opposition to the medical-device tax. In July, 79 senators, including 30 Democrats, supported a symbolic resolution opposing the tax. A House bill that would repeal the tax has 260 co-sponsors.
The medical-device community has been pushing for repeal for years. In 2012, AdvaMed launched print and online ad campaigns in support of repealing the tax. During the 2012 campaign, the group sent Republican congressional candidates a fact sheet explaining why they should oppose the tax. All told, the medical-supply industry has spent more than $150 million lobbying Congress since 2008.
In the budget debate, repeal of the tax is a nonstarter. Although repealing the medical-device tax has gained traction in previous congressional votes, don’t expect that to happen this time. Senate Majority Leader Harry Reid, D-Nev., issued a statement Saturday saying Democrats would reject any changes to the health-care law that Republicans proposed.
“To be absolutely clear, the Senate will reject both the one-year delay of the Affordable Care Act and the repeal of the medical-device tax,” he said. “After weeks of futile political games from Republicans, we are still at square one: Republicans must decide whether to pass the Senate’s clean CR (continuing resolution), or force a Republican government shutdown.”