What is the Medical Device Tax? Why there is such a battle to remove it as a revenue source of The Affordable Care Act (ACA) and/or Obamacare? The Medical Device Tax has become one of the primary centerpieces of “what is wrong about ACA” for the Republicans. Republicans advocated for removing this tax because it would be a burden on the American people and on the Medical Device manufacturers. Looking at the history of revenues for new programs, the financial picture of Medical Device Manufacturers, and the process of determining how to pay for ACA/Obamacare will be reviewed to help the reader determine whether the tax is reasonable or a burden for the taxpayer and medical device manufacturers.
As lawmakers in Congress and the White House were developing the ACA/Obamacare, major healthcare industry players, including but not limited to the pharmaceutical industry, hospital industry, and healthcare insurance industry, were invited to participate in the process and offer suggestions about how the law could best be paid for. Most of the industries contributed some revenue ideas to help fund the law, negotiated others and finally compromise on a plan and agreements were made on how the ACA/Obamacare would be funded. However, one health care industry, The Medical Device Industry, appears to have refused to make suggestions, offer possible revenues, or suggested how they could contribute to the process of funding this law. (http://www.politico.com/story/2013/10/medical-device-tax-obamacare-affordable-care-act-government-shutdown-debt-ceiling-talks-98367.html) Instead they suggested other industry players be the sources of revenue. The medical device industry never offered any contribution in order to provide health insurance coverage to the 40-50 million uninsured Americans.
What is important to understand is that the Medical device industry is an exceptionally profitable industry. It includes not only the manufacture of artificial knees and hips, but also CT and MRI equipment made by companies like GE and Seimans. Recently on the news, it was reported that an artificial hip, just the hardware for it is manufactured for about $350.00 and sold for over $10,000.00. (http://www.motherjones.com/kevin-drum/2013/08/artificial-hip-cost-markup-healthcare) The patient may pay in excess of $20,000.00 for the surgery. This represents an approximate 900% mark-up on the device alone.
After discussions and negotiations with industry leaders a “forced tax”, of 4.6% was levied, since the Medical Device industry was the only industry player to not offer a contribution to funding the Affordable Care Act. (Resource) The planned contribution was an estimated $40 billion over 10 years. This tax was cut in half from 4.6% to 2.3%, and the expected contribution was dropped to $20 billion. But the industry’s profits have spiked recently, so the revised estimated ACA contribution from this tax is now $30 billion over 10 years due to the industry’s increased profitability. (http://www.politico.com/story/2013/10/medical-device-tax-obamacare-affordable-care-act-government-shutdown-debt-ceiling-talks-98367.html )
On the one hand the medical device industry was complaining about the $30 billion price tag, the industry invested $30 million a year to lobby congress in order to get this tax removed. They spent in one year of lobbying, the cost to them for the ACA over 10 years. Think about it, if 2.3% of profits over the next 10 years is $30 billion, that means that the medical device industry’s profits over the next 10 years is $1.3 trillion dollars, or on average, $130 billion a year. (http://www.nytimes.com/2013/10/17/opinion/the-myth-of-the-medical-device-tax.html?src=me&ref=general&_r=0)
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