Tuesday’s election put Republicans in control of Congress, and the party is wasting no time in turning its attention to the Affordable Care Act – a piece of legislation that was passed without a single GOP vote. Given that some Americans have benefited from having more access to health insurance, however, the party will be looking for portions of the law that they can realistically tackle.
First on the chopping block is likely the 2.3 percent tax on medical devices, such as hospital beds, MRIs, pacemakers or artificial joints. Soon-to-be Senate Majority Leader Mitch McConnell of Kentucky immediately targeted the tax in his victory speech Wednesday. The tax has been in place since 2013, and medical device lobbying groups have spent millions trying to gain support for repeal, saying that the tax has cost jobs, increased prices and jeopardized funds for research and development.
“Fundamentally we don’t believe that lifesaving, innovative, patient-protecting medical technology should be subject to an excise tax,” says J.C. Scott, chief lobbyist for the Advanced Medical Technology Association. Excise taxes are usually used to offset the cost of harmful goods and services, he points out, such as cigarettes, alcohol or gas emissions.
Political experts think this portion of the law has the best chance of repeal because it is likely to gain bipartisan support. There are large medical device companies that operate in states where there is Democratic leadership, such as in Massachusetts and Minnesota.
“It’s much more symbolic than it is about the reality of repealing the tax,” says Sherry Glied, dean of theRobert F. Wagner Graduate School of Public Service at New York University. “This is a move they think they can win … Republicans can say they repealed a part of the Affordable Care Act and that they worked with Democrats.”
Allan Lichtman, distinguished professor of history at American University, agrees.
“This is a complete red herring issue,” he says. “Not one American in 100 can tell you what a medical device tax is and why it matters … It’s the easiest shot that the Affordable Care Act that the Republicans have.”
Though Obamacare is unpopular with voters, overall Americans are enjoying individual benefits they have received. Most Americans do not oppose having children covered until the age of 26, nor do they argue against a provision that keeps health insurance companies from turning people away because of a pre-existing condition.
The House passed a bill in September seeking to repeal the tax, and President Barack Obama noted in his address to the nation Wednesday that he was willing to entertain the idea, but that he would not sign any bills that he felt would take health care access away from Americans.
“We are encouraged by the commitments made by congressional leaders to get repeal of the medical device tax accomplished, as every passing day jobs and cutting-edge research are being lost,” Mark Leahey, president and CEO of the Medical Device Manufacturers Association, said in a statement. The association contributed $39,250 to various candidates running for office in 2014, the majority of whom are Republican. Overall, the medical device industry spent nearly $25 million in 2014 campaign contributions, according to the Center for Responsive Politics.
The passage of the tax was part of the Affordable Care Act’s aim to bring in more revenue as the pool of consumers who had access to health insurance grew. Since the ACA was implemented, more than 9 million Americans have gained access to private insurance, and more than 6 million Americans have gained access to Medicaid, the government’s health insurance program for the poor and disabled. Because several industries, such as the pharmaceutical, medical device and hospital industries, were likely to benefit from the influx of customers, authors of the health law concluded that a portion of their profits should be put back in to the government.
The medical device tax is set to boost government revenue by $29 billion over the next decade, according to the Joint Committee on Taxation. But industry groups say that they have not seen the boost in the number of customers help their business.
“They have been particularly aggressive because they feel have been particularly targeted,” Lichtman says.
The pharmaceutical industry, for example, is paying $80 billion toward the government to close the gap in Medicare prescription drug coverage, but had a seat at the table in early negotiations over the health law with Obama. In exchange, the government agreed not to negotiate lower drug prices or import drugs from Canada, among other deals. The meetings originally occurred behind closed doors, but after they were discovered they were soon highly publicized by the media.
“The m edical device industry never negotiated this tax or agreed to it, or cut any kind of a deal,” Scott says, referring to the early discussions over the health law.
Medical device companies say they have not seen as much profit because most of their payments come through Medicare, the government’s program for Americans 65 and older. Medicare does not grow under health reform – it continues to cover the same population it always did.
Analysts say the tax isn’t as significant as the industry claims. A ccording to a report published by Ernst and Young, in 2013 medical technology companies made $16.5 billion in income on $336 billion in revenue, a drop of 2.6 percent from 2012.
Scott says any allegations that income isn’t significant are “fundamentally flawed.”
“It feels like a double hit,” he says. “Hospitals are already taking cuts and putting pressure on device companies to lower costs, then there is also the tax.”
Companies are laying off workers, forgoing new hiring and reducing investment in research and development, he says.
If the tax is repealed, Congress will need to find a way to make up the cost, Glied says. One way is through a tax, which Glied and Lichtman say is unlikely, but the other way is to pull $29 billion from somewhere else in the national budget.
“It’s not going to be easy to replace that money,” Lichtman says.
