The Medical Device Tax has been a divisive issue since even before the Affordable Care Act (ACA) came into effect. Lobbyists for the medical device industry have repeatedly sought to have the tax repealed, arguing that it:
- Stifles innovation in the medical device industry
- Reduces employment in the industry
- Incentivizes overseas rather than domestic job creation
The ACA requires device manufacturers to pay a 2.3 percent excise tax on the sale of their products. Congress has thus far resisted efforts to repeal the tax, which Obama administration representatives say is necessary to offset the cost of expanded coverage for millions of previously uninsured Americans. In analyzing the opposition’s claims, a closer look at the realities of the Medical Device Tax can prove worthwhile.
Manufacturers Are Not Incentivized to Relocate
The argument that the tax encourages jobs to shift overseas may not hold up to scrutiny. Consider the law’s provisions:
- Medical devices produced in the U.S. but sold abroad are not taxed
- The tax only applies to devices sold in the U.S.
As such, you can see that the tax alone doesn’t incentivize manufacturers to shift their operations abroad. Moreover, since foreign manufacturers also pay the tax if they sell their products in the U.S., the tax doesn’t disadvantage domestically based companies.
Increased Demand Increases Innovation
A study conducted by the Congressional Research Service found that the tax might be too small to have a pronounced impact on device manufacturing operations. If millions of previously uninsured Americans now receive treatment that they previously would not have, demand for the requisite medical devices may rise with them.
Though the tax is naturally an additional manufacturing cost, the increased demand may well be sufficient to offset it, and in turn, product innovation will be there to meet demand. There is also the consideration that the promotion of more cost-effective treatments can itself spur innovation without…
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