Tax on medical devices to resume after two-year suspension

January 1, 2018 by Bob Salsberg

While much of corporate America will enjoy a tax cut in the new year, one industry is getting a tax increase it has fought hard but so far unsuccessfully to avoid.

A 2.3 percent excise tax on medical device manufacturers went back into effect Monday after a two-year hiatus. It was originally imposed in 2013 as one of several taxes and fees in the Affordable Care Act that pay for expanded health insurance under the law.

The tax was strongly opposed by the $150 billion a year industry that produces everything from catheters to heart stents to artificial joints. In Congress, it was unpopular not only with Republicans but many Democrats from states like Massachusetts and Minnesota with large numbers of medical device companies.

Congress voted to suspend the tax for 2016 and 2017 with the widespread expectation it would be permanently abolished before 2018. But various GOP efforts to repeal the Affordable Care Act and the taxes associated with it failed, and the sweeping federal tax overhaul recently signed by President Donald Trump didn't eliminate the medical device tax either.

Industry groups Including the Advanced Medical Technology Association (AdvaMed) and the Medical Imaging & Technology Alliance warn the tax will take a $20 billion bite out of the industry over the next decade.

"What we have seen from past experience is that it comes out of funding for product development, research and the jobs associated with those things," said J.C. Scott, AdvaMed's head of government affairs. "We fear we will see employment freezes or reductions and a slowdown in the pipeline for medical innovation."

The slashing of the overall corporate tax from 35 percent to 21 percent may soften the blow for some manufacturers, industry officials say, but not for all. As the excise tax is applied to sales and not income, it will fall harder on smaller firms and startups with promising new products that have yet to yield profits.

Supporters of the tax contend manufacturers have overstated both the harm suffered while the tax was in effect, and the potential impact of its resumption. They argue expansion of health coverage under the ACA benefited medical device makers by boosting the potential market for their products and note other sectors—including private insurers and pharmaceutical companies—also pay taxes and fees toward the health law and complain less about them.

Device makers certainly aren't giving up their fight. They still hold out hope of repealing or again suspending the tax.

Despite earlier failures, industry officials say congressional backing for repeal remains strong. The next attempt could come in connection with a spending bill needed by Jan. 19 to avert a government shutdown.

Boston Scientific, a leading maker of heart stents and other devices, estimates reinstatement of the tax will cost the Marlborough, Massachusetts-based firm $75 million in 2018. The company said when the tax was suspended it invested the savings in projects including a partnership with Mayo Clinic that combines manufacturing expertise with ideas from physicians for new products to help patients.

"The reinstatement of the device tax threatens continued investment in programs like these," Boston Scientific said in a statement.

Some Democrats, including Sen. Elizabeth Warren of Massachusetts, have said they won't support repeal of the tax unless an equivalent source of revenue is found for the ACA.

In a Dec. 20 letter to Trump, AdvaMed urged the president to support repeal of the tax and, in the interim, direct the IRS to grant companies "administrative relief" from the tax. That could include such steps as waiving the bimonthly deposit requirement or any penalties resulting from late payments.

"Retroactive action by Congress next year cannot fully undo the impact of allowing this tax to be triggered on Jan. 1," the companies wrote.

Explore further: House votes to kill health care law's medical device tax

Related Stories

House votes to kill health care law's medical device tax

June 18, 2015
The House defied a White House veto threat and voted Thursday to abolish a tax on medical device makers as a group of Democrats uncharacteristically joined Republicans in moving to kill part of President Barack Obama's health ...

US senators reach bipartisan deal on Obamacare

October 18, 2017
US senators announced Tuesday they had reached a bipartisan deal to continue a program that helps low-income Americans purchase health insurance, days after President Donald Trump cut such subsidies.

House panel votes to repeal health law's medical device tax

June 2, 2015
A Republican-run House committee voted Tuesday to repeal a 2.3 percent tax on many medical devices that helps pay for President Barack Obama's health care overhaul.

Trump picks pharmaceutical exec as new US health secretary

November 13, 2017
US President Donald Trump, who harshly criticized pharmaceutical firms during his campaign, said Monday he has chosen an executive from the industry to be his new secretary of health.

Congress to complete first step to repealing health law

January 13, 2017
The House is poised to back legislation that is the first—and by far the easiest—step toward gutting President Barack Obama's divisive health care law.

New hurdles as Republicans rush to reverse Obama health law

September 19, 2017
After falling one vote short this summer, US Republicans have revived efforts to overhaul Barack Obama's landmark health care bill, but skepticism Monday by some in President Donald Trump's party has imperiled the plan.

Recommended for you

Craving a cup of joe? What does the research say about coffee and your health?

April 24, 2018
Coffee. Cup of joe. Java. No matter what you call it, millions of people worldwide wake up and fuel their day with it. And though consumers might be jittery about the recent court battle in California over cancer warnings, ...

Napping and teenage learning

April 24, 2018
Teenagers and sleep. It's certainly a passionate subject for many American parents, and those in China. University of Delaware's Xiaopeng Ji is investigating the relationship between midday-napping behaviors and neurocognitive ...

Researchers discover how young children seem to run around all day without getting tired

April 24, 2018
Children not only have fatigue-resistant muscles, but recover very quickly from high-intensity exercise—even faster than well-trained adult endurance athletes. This is the finding of new research published in open-access ...

Drinking affects mouth bacteria linked to diseases

April 24, 2018
When compared with nondrinkers, men and women who had one or more alcoholic drinks per day had an overabundance of oral bacteria linked to gum disease, some cancers, and heart disease. By contrast, drinkers had fewer bacteria ...

Vigorous physical activity may be linked to heightened risk of motor neurone disease

April 23, 2018
Vigorous physical activity, either in leisure time or in work, may be linked to a heightened risk of developing motor neurone disease, also known as amyotrophic lateral sclerosis, or ALS for short, suggests research published ...

Fetal exposure to moderate/high caffeine levels linked to excess childhood weight gain

April 23, 2018
Exposure to moderate to high caffeine levels while in the womb is linked to excess weight gain in early childhood, suggests a large observational study published in the online journal BMJ Open.

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.