Regulatory

Economic arguments for and against the medical device tax

If you’re interested in the Affordable Care Act’s 2.3% medical device excise tax (pro, con, or neutral), you should read the Congressional Research Service’s economic analysis of it. You might also want to pay attention to The Center on Budget and Policy Priority’s take.

Though no stranger to the limelight, repeal of the tax has received growing attention in wake of the midterm election that will bring a Republican majority to the Senate. But the politics of the tax has far outpaced its economic import.

There are reasons to dislike the tax. It’s not a particularly efficient one since it is levied on a narrow base. And, it’s not a particularly socially important tax. After all, the intent of medical devices is to help, not harm, individuals. Therefore, discouraging the use of them with a tax isn’t something that we, in general, should welcome.

But we shouldn’t get too worked up. In the scheme of things, it’s not a large tax. CRS estimates the net effect on the industry is $29B over 10 years. It therefore won’t have a large effect on health care spending, estimated to be about $40T over that span. ($29B is less than 0.1% of $40T.) By the nature of the market and the fact that half of it is exempt from the tax, it won’t lead to substantial job losses, 0.2% of medical device industry jobs at most. And it won’t hurt U.S. competitiveness, since the tax is levied on imports as well as domestically produced devices.

Still, if the tax is repealed, we’d need to make up the $29B loss somehow. And it is true that additional spending on medical devices is likely with coverage expansion, which is a typical justification for taxing the industry.

But who really pays this tax? CRS makes a very good argument that it’s not the industry, but consumers, through higher medical bills and insurance premiums. Abstracted from any particular industry, Mike Piper and I made the same argument in our book.

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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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