The Affordable Care Act’s Medical Device Tax Under Attack in 2015

By: Peter Levrant

The final quarter of 2014 has not been particularly easy for supporters of the Affordable Care Act (ACA). In November, the Supreme Court announced they would hear King v. Burwell, the case challenging the IRS tax subsidies; and now, the plaintiffs from Pruitt v. Burwell are petitioning to join as well.[1] Even more important, the nation ushered in a new Republican-dominated Congress that may also seek to attack provisions of the Act.[2] One of the biggest targets of ACA opponents is the medical device tax, which imposes a 2.3% tax on the sale of medical devices.[3]

The tax covers nearly all clinical products and went into effect last year in order to offset the funds needed to cover roughly 25 million Americans without insurance.[4] The tax affects 6,500 manufacturers and opponents claim it inhibits growth and innovation.[5] When the new Congress begins in January, opponents hope that pressure from industry executives and the loss of 14,000 jobs will spur a legislative push to reconsider the tax.[6]

Supporters of the tax point to the Congressional Research Service report that concluded the impact on the medical device industry is “fairly minor.”[7] Furthermore, according to Senator Barbara Boxer, repealing the tax would increase the deficit by $30 billion.[8] Nevertheless, small businesses, which make up the majority of device-makers, are disproportionately impacted by the tax.[9] Two-thirds of these businesses have been forced to cut jobs and nearly half decreased their research and development budgets.[10] Additionally, the IRS had difficulties identifying which companies must pay the tax and tax discrepancies resulted in $117.8 million of lost revenue.[11]

While the tax represents less than 3% of the funds necessary to cover the ACA over the next ten years, repealing it would increase industry profits by up to 5%.[12] And, since 2008, the medical device industry has spent $30 million per year lobbying against the tax.[13] But, what gives opponents hope for repeal is the fact that some legislative allies were elevated to key positions in Congress following the November elections, in addition to growing bipartisan support.[14] Moreover, the Republican majority now makes a repeal even more likely to happen by spring 2015.[15]

[2] Dan Freedman, Device Makers Take Renewed Aim at Affordable Care Act Tax, SFGate (Dec. 9, 2014, 4:14 PM), http://www.sfgate.com/health/article/Device-makers-take-renewed-aim-at-Affordable-Care-5946198.php.

[3] Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, § 1405, 124 Stat. 119 (2010); Medical Device Excise Tax: Frequently Asked Questions, IRS, http://www.irs.gov/uac/Medical-Device-Excise-Tax:-Frequently-Asked-Questions (last updated Feb. 3, 2014).

[4] Freedman, supra note 2.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Freedman, supra note 2.

[10] Id.

[11] Mark Reilly, Will the Medical-Device Tax be Dead by Spring?, Minneapolis/St. Paul Bus. J. (Dec. 22, 2014, 7:21 AM), http://www.bizjournals.com/twincities/morning_roundup/2014/12/will-the-medical-device-tax-be-dead-by-spring.html.

[12] Kevin Drawbaugh, Republican Knives Out for Obama’s Medical Device Tax, Reuters (Nov. 12, 2014, 6:53 PM), http://www.reuters.com/article/2014/11/12/us-usa-tax-devices-idUSKCN0IW2NE20141112.

[13] Brett Neely, Medical Device Tax Opponents Envision Victory in Spring, MPRNews (Dec. 22, 2014), http://www.mprnews.org/story/2014/12/22/medical-device-tax.

[14] Id.; Drawbaugh, supra note 12.

[15] Neely, supra note 13.