A new Congressional Research Service report (PDF) found that Obamacare's medical-device excise tax probably will affect the purchasers of medical supplies and devices—who may have to spend more on new technology—more than manufacturers' bottom lines. But the report estimates that the financial impact of the tax is likely to be negligible.
The Patient Protection and Affordable Care Act established a 2.3% excise tax on the sales of certain medical devices in the U.S., whether manufactured domestically or imported. It's the device industry's contribution to funding the law's coverage expansions. The tax is expected to produce net revenue of about $29 billion over a decade.
But opponents of the tax, including the Advanced Medical Technology Association, congressional Republicans and some Democrats, claim that the tax will have significant, negative consequences for the industry and cost the U.S. jobs.
The CRS researchers estimated that the tax would reduce output and employment in the industry by no more than two-tenths of 1%. This limited effect, according to the report, is due to the small tax rate, the exemption of about half of output, and the relatively insensitive demand for health services.
The analysis suggested that most of the tax will fall on consumer prices, not on device company profits. “The effect on the price of healthcare, however, will most likely be negligible because of the small size of the tax and small share of healthcare spending attributable to medical devices,” the report said.
A number of congressional bills have sought to repeal the tax. Some political observers think there's a chance that Congress will repeal the tax if Republicans win control of the Senate in Tuesday's election. Congressional Democrats in states with significant presence of device companies, such as Minnesota and Massachusetts, oppose the tax.
But the Obama administration and many other Democrats oppose repealing the tax because of concerns about how to replace the revenue to fund the health coverage expansions under the ACA. There also are worries that if the device industry succeeds in ending its contribution to the ACA's funding, other healthcare stakeholders, including hospitals and health insurers, may seek similar repeals of their funding contributions.
The CRS report highlights the positive and negative sides of the tax, noting that the tax may mean marginally higher prices for new technologies. But it said fewer than 1,200 employees in the device industry would lose their jobs as a result.
Last year, the Healthcare Supply Chain Association publicized the names of medical supply and device manufacturers that told hospitals they planned to pass along the cost of the tax on the prices of the products they sell. Hospitals and group purchasing organizations have been concerned that devicemakers will pass along the cost of the tax to healthcare providers that buy their supplies.
The CRS report said the tax also may be passed through to federal healthcare programs through their purchasing of medical devices.
Follow Jaimy Lee on Twitter: @MHjlee
