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Keep the Medical Device Tax

The Senate Finance Committee’s Subcommittee on Health Care will hold a hearing tomorrow on the 2.3-percent medical device excise tax that Congress enacted to help pay for health reform.  We recently updated our paper that gives the reasons why Congress shouldn’t repeal the excise tax.

The tax doesn’t single out the medical device industry for unfair treatment.  It is one of several new levies on sectors that benefit from expanding health coverage — including hospitals, health insurers, drug companies, and device manufacturers — because more insured people will use more health services.  These other industries will seek comparable treatment if Congress repeals the medical device tax, likely leading to an even greater revenue loss.  (Repealing the medical device tax alone would cost $26 billion over 2015-2024.)

The tax doesn’t apply to eyeglasses, contact lenses, hearing aids, wheelchairs, or any other medical devices that the public generally buys at retail for individual use.

The tax won’t cause manufacturers to shift production overseas.  The tax applies equally to imported and domestically produced devices, and devices produced in the United States for export are tax-exempt.  The claim that the tax will lead to production moving overseas thus is a talking point that lacks any foundation.

The tax will have little effect on innovation in the medical device industry.  To the contrary, health reform may well spur medical device innovation by promoting more cost-effective ways of delivering care.

The tax will not have much effect on employment, as a careful economic analysis by the Congressional Research Service finds.  In fact, by extending health coverage to many more Americans, health reform will increase the demand for medical devices and device manufacturers’ revenue.  A study by Wells Fargo Securities finds that health reform will increase device sales by 3.6 percent over its first decade.

Since the excise tax went into effect in 2013, the medical device industry has generally thrived.  Stock prices have risen at a rapid clip, according to the National Center for Health Research, and profits have remained very strong.  Sales and spending on research and development have also increased.

The device industry is heavily lobbying policymakers to repeal the tax, but its dire predictions have been wrong and its arguments against the tax don’t withstand scrutiny.