There is significant bipartisan support for repeal in the Senate, given that the Senate voted 79-20 last spring on an amendment to repeal the device tax in a nonbinding budget resolution. That move was praised by Hatch and Klobuchar, who co-sponsored a bill to repeal the tax. And in July, Klobuchar and Franken urged Sen. Max Baucus (D-Mont.) and Hatch, the leaders on the Senate Finance Committee, to include a repeal of the device tax in any comprehensive tax reform legislation. Baucus has complained that the device industry agreed to the tax.
Klobuchar pushed to reduce the tax by $20 billion over 10 years and delay it by one year during talks leading up to passage of the healthcare reform law in 2010. Besides Medtronic, St. Jude Medical and 3M are based in Minnesota.
Martin Milner, a partner at McDermott Will and Emery who represents small and large device manufacturers, said the device tax is unpopular among Republicans and Democrats because the medical-device sector is an important industry in a lot of states. “So I think it's easy to vote against it as both the House and Senate have done,” Milner said. “The hard part is when they need to offset the revenue that it raises.”
And with a price tag of $29.1 billion over 10 years, that's a huge challenge for lawmakers, especially as they remain stuck on how to re-open the government and raise the nation's debt ceiling, which will hit its limit around Oct. 17. Milner said he doesn't believe the device tax will be repealed in a stand-alone bill, but said it's definitely a negotiating point in larger budget negotiations.
Paulsen acknowledged that when the House passed the device-tax repeal bill last year, it did not address how it would make up for the billions in lost revenue. As one possible approach, he mentioned “pension smoothing”—an option Collins favors—to offset the revenue loss.
According to the Center on Budget and Policy Priorities, pension smoothing involves changing federal rules on the minimum amount that employers must contribute to employee pension plans to stay solvent. This would allow employers to “smooth out” their contributions over time, meaning they would pay less in the short term and more in the long term. Because the contributions are tax- deductible, shrinking them would raise employers' income tax payments—and overall federal tax revenue—as a way to pay for the money lost if the device tax is eliminated.
Paulsen said the House Ways and Means Committee would need to consider any proposals for how to pay for the tax's repeal. That could be problematic, since House Republicans are likely to oppose anything that could be considered a tax increase and anything that provides funding for the healthcare reform law.
But Paulsen said he is encouraged that there is a strong chance the device tax could be overturned. “If it was on its own—sure, the White House would not support it,” Paulsen said. “But if it's part of a larger package, then they're probably not going to call that out. There's opportunity there.”
If the device industry is successful, that could very well encourage various powerful interest groups to press for rollbacks in their even larger contributions to the financing of the healthcare reform law. Hospitals might try to scale back payment reductions, health insurers would seek to repeal or reduce the law's premium tax, and drugmakers might try to pare back the fees they agreed to when the law was written.
A repeal of the medical-device excise tax “would send a powerful signal to other groups and their lobbyists about the law's vulnerability to piecemeal erosion,” Kesselheim wrote in the conclusion of the NEJM perspective.