GOP's growing obsession: Why they're fixated on the medical device tax

Republicans' hostage-taking now revolves around a tax on medical devices. Here's why they're so preoccupied with it

Published October 4, 2013 12:46PM (EDT)

Eric Cantor, John Boehner, Kevin McCarthy, Mitch McConnell                                                                                          (AP/J. Scott Applewhite)
Eric Cantor, John Boehner, Kevin McCarthy, Mitch McConnell (AP/J. Scott Applewhite)

If Republicans manage to win one change to Obamacare, it may well be repeal of the medical device tax, which was meant to bring in $30 billion over a decade. Politico reported Thursday that congressmen Ron Kind, D-Wis., and prominent shutdown critic Charlie Dent, R-Pa., were working to build support for a resolution to reopen the government and repeal the tax. That follows a March vote in which 33 Democratic senators joined Republicans in expressing their disapproval of it.

Salon spoke Thursday with economist Paul N. Van de Water of the Center on Budget and Policy Priorities, author of a new report defending the device tax, about the attacks it’s faced from John Boehner and Elizabeth Warren -- and the policy and politics in play. What follows is a condensed and edited version of our conversation.

So what does this “device tax” tax, and why?

It’s a tax on a large number of, but not all, medical devices. Things like cardiac stents, artificial hips, x-ray machines. The tax does not apply to medical devices that consumers generally buy themselves -- contact lenses, or wheelchairs. It was one of a number of taxes that was included in the healthcare reform legislation to help pay for it. It’s been in place for nine months and we haven’t seen any significant consequences that I’ve heard about.

John Boehner accused Democrats of bringing us to the brink of a government shutdown partly “for the sake of raising taxes on seniors’ pacemakers and children’s hearing aids.” Does this tax cover those?

The tax does apply to pacemakers. It doesn’t apply to children’s hearing aids – those are things that consumers buy for themselves. So the speaker is partly right, and partly not.

So is the senior who has that pacemaker going to be negatively impacted by this tax?

Absolutely not. Elderly Americans are covered by Medicare. The price of the procedure is determined by the Medicare program, and the senior’s share of it isn’t going to go up as a result of this tax.

On the other side of the aisle, Elizabeth Warren wrote in an op-ed last year for a device industry website that this kind of tax “too often disproportionately impacts the small companies with the narrowest financial margins and the broadest innovative potential.” She said it “also pushes companies of all sizes to cut back on research and development for life-saving products. What do you make of that argument?

I think that that argument really for the most part doesn’t hold water. There are a number of device manufacturing company owners who’ve actually spoken out and said a tax of this sort really isn’t likely to affect research and development. If you can produce a new pacemaker at roughly the same cost, which is a whole lot better, a 2.3% difference in the price isn’t going to shift the balance between whether or not you can sell the product, or whether or not you’re going to develop it.

Republicans have also said this tax will drive jobs overseas. Is that so?

No. Absolutely false. The tax does not apply to medical devices that are exported, and it does apply to medical devices that are imported. There’s no change in the relative positions of the U.S. companies relative to foreign competitors.

Who is going to actually be paying that 2.3%?

It’s going to be a mixture. To some extent it’s going to come out of the profits of manufacturers. The industry is highly profitable. To the extent that some small part of this ends up being borne by final consumers, it’s going to be almost invisible in people’s insurance premiums, because medical devices only represent a very, very small fraction of healthcare spending.

How does that cost compare to the new business these companies are going to get under the ACA?

This tax is one of several that are being imposed on industries that are going to benefit from the new health reform legislation. There was a recent analysis by a Wells Fargo analyst who found that in 2014 the demand for medical devices would go up by about 1.5 %, and by 2022 the cumulative increase would be about 3.5%.

So why has this tax become such a target?

The medical device industry has a very energetic, very aggressive lobbying campaign. And in this particular case it’s proved to be very effective in convincing a lot of members of Congress that it’s in their political interest to support repeal of the tax. The industry also has former members of Congress such as former senator Evan Bayh arguing on their behalf, and that sort of thing makes a difference.

If the tax gets removed, could it come at the expense of other parts of the law?

In the version of a temporary appropriations bill which the House approved a few days ago, the repeal of the device tax was coupled with a delay in health reform, and that would’ve in fact offset the cost through delaying people’s access to healthcare coverage. That would be a big problem, if Congress attempted to pay for repeal of the device tax through cutting back on these critical elements of health reform.

There was lots of discussion about how various provisions of the ACA were shaped by the Obama administration’s desire for the Congressional Budget Office – where you worked during Clinton’s healthcare effort – to project that the bill wouldn’t add to the deficit. Looking back, was the White House right to try to craft the bill that way?

Yes, I think that was exactly the right decision. In my personal view, making health coverage available to those who don’t have it is a really important thing to do, and I’m very pleased that the coverage expansion is about to go into effect. But we also have to be fiscally responsible. If we think something is worth doing, we have to raise the revenues in order to pay for it.

Setting aside the politics, are there other changes to the ACA you’d like to see Congress take up?

With the Republicans still dead-set on trying to defund, delay or derail the entire legislation, any suggestion that there’s a part of the law that could be improved is just going to be pounced upon by the law’s opponents, and that doesn’t facilitate a reasoned discussion. I hope that somewhere down the road -- after the legislation is well established -- at that point if we see that there are things that aren’t working well, then there will be the opportunity to make the necessary changes. But I think this is not the environment in which sensible changes can be discussed at this point.

By Josh Eidelson

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Aca Budget Cbpp Congress Economy Gop Healthcare John Boehner Obamacare Politics Shutdown Tax Taxes