Implications of the 2.3% Device Tax Associated with Obamacare

By Jill | Medical Devices, , , , , , , , ,

When the Affordable Care Act, or Obamacare, was signed into law in 2010, it contained a 2.3% excise tax on gross sales of medical devices. The tax applies to a wide range of products, from bedpans to the most advanced heart devices, as well as companies, from emerging healthcare startups to brand-name medical device companies. The tax is projected to raise about $30 billion over a decade, money that will be used to help pay for extending health care coverage to the uninsured under the Affordable Care Act.

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The tax remains controversial on both sides of the political aisle. In a rare display of bipartisanship, Senator Amy Klobuchar, a Minnesota Democrat, and Senator Orrin Hatch, a Utah Republican, teamed up to introduce a repeal amendment to the tax in March 2013. That resolution passed in a 79 to 20 vote with every Republican and most Democrats voting for it. However, the vote was mainly symbolic, since the bill was a nonbinding resolution.

Depending on whom you ask, the tax will either greatly benefit medical device makers, or cause them financial harm. When questioned about the tax in a 2012 interview, President Obama stated: “The health care bill is going to provide those health care companies 30 million new customers… The idea is that when you have 30 million more people coming in, you’re going to make money, you can do a little more to help facilitate and make sure people are getting the healthcare they need.”

Obama’s statement was disputed by the Medical Device Manufacturers Association (MDMA), which considers the tax onerous. The association points out that the majority of innovation in the medical device industry comes from small manufacturers who work to develop the diagnostic tools and therapies of tomorrow. According to the MDMA: “If it is not repealed, this tax will stifle innovation, harm patient care and weaken the position of the United States as the global leader in medical device innovation…. No data or studies show that the costs of this ‘innovation tax’ will be offset due to an increased pool of insured beneficiaries receiving treatment.”

Klobuchar has been vocal about the need to end the medical device tax because Minnesota is home to many large medical device companies, including Medtronic, St. Jude and others. As of now, the ultimate implications of the tax remain to be seen.

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