The Affordable Care Act’s Medical Device Tax: Where Are We Now?

By Jill | Medical Devices

When the Affordable Care Act was signed into law in 2010, lawmakers included a 2.3% excise tax on gross sales of medical products. The tax, which went into effect in January 2013, was projected to raise about $30 billion over the coming decade to help pay for extending health care coverage to the uninsured under the Affordable Care Act. The tax applies to a wide range of medical products and medical device companies.

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The Medical Device Tax has been controversial from the start and has been opposed by politicians left, right, and center from House Speaker John Boehner (R-OH) to Senator Al Franken (D-MN). In October 2014, presumed 2016 Democratic presidential candidate Hillary Clinton dodged questions about the tax when she delivered the keynote luncheon speech at AdvaMed, the annual conference of the medical device industry. On one hand Clinton asserted that the medtech industry was “bearing some of the burden alongside other stake holders.” On the other hand, she said “you are also positioned to reap the benefits of those millions of newly insured customers using medical devices.”

Moving beyond political speeches, the Device Tax is facing problems in the real world. While the IRS projected it would receive $1.2 billion from the tax during the first half of 2013, the tax only generated $913.4 billion. The shortfall is due a lower number of companies filing returns for the tax. The IRS expected medical device companies to file 9,000 to 15,000 tax returns when it set out to collect the tax. Only 5,107 returns were filed. According to the Treasury inspector general, because of differences in commercial and government business tax registration procedures, the IRS “still cannot identify the population of medical device manufacturers … required to … pay the medical device tax.”

According to a November 2013 survey by AdvaMed the tax resulted in direct employment reductions of approximately 14,000 while the industry has forgone hiring 19,000 workers, for a total of 33,000 lost jobs. About one-third (30.6 percent) of those surveyed in the medtech industry said they had reduced research and development because of the tax.

While supporters of the ACA take issue with some of those statistics, Congress works to repeal the medtech excise tax. In September 2014, the House approved a jobs package that repealed the device tax, but the bill died in the Senate. For now the tax remains the law of the land, but with the recent midterm election results, that may change.