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Industry Cries Wolf on Health Reform’s Medical Device Tax

In a new paper, we show that industry arguments for repealing the health reform law’s 2.3-percent excise tax on medical devices — surgical gloves, wheelchairs, cardiac pacemakers, and so on — are either wrong or greatly exaggerated.

Claims that the law (the Affordable Care Act, or ACA) singles out the medical device industry are false.  The excise tax is just one of a number of spending reductions and revenue increases included in the ACA that enable it to expand health coverage to 34 million uninsured Americans without adding to the deficit.

Contrary to lobbyists’ talking points, the tax will not cause manufacturers to shift production overseas.  It applies equally to imported and domestically produced devices, and devices produced in the United States for export are tax-exempt.  Thus, the tax will not reduce the competitiveness of U.S-made devices either here or abroad.

The excise tax is also unlikely to discourage innovation in the medical device industry, despite claims to the contrary.  The rate of innovation in medical technology has slowed in recent years for reasons entirely unrelated to the excise tax.  In fact, according to the consulting firm PricewaterhouseCoopers, health reform may well spur medical-device innovation by promoting more cost-effective ways of delivering care.

As The Economist states, the effect of the excise tax on the medical device industry will be “trivial compared with other shifts,” such as “scandals, recalls, stingy customers, [and] anxious regulators,” all of which have left the industry in a “rut.”

And repealing the tax would undercut health reform.  Congress would have to offset the cost of repeal by increasing other taxes or reducing spending; one likely target would be the ACA’s health coverage expansions.  Also, repealing the tax would encourage efforts to repeal other revenue-raising provisions of the ACA.