The medical device tax is a 2.3 per cent tax on medical devices that are sold in the United States. This tax is passed on to the consumers, and is used, in part, to pay for healthcare.
Here are some common questions regarding the tax:
(a) What kind of tax is this?
This is an excise tax. Which means it is a tax based on the business done, not a tax on income or a tax on property. Other examples of excise taxes include taxes on fuel. The taxes on fuel are used to help repair our roads – and they are applied to fuel taxes because those who use fuels the most will be using the roads the most – so they pay more for that use. Sports fishermen pay an excise tax – they pay a 10% tax on rods, poles, reels, as well as 3% on tackle boxes and 3% on outboard motors. These taxes invest in improvements in sports fishing, and fish populations and have served to restore fish populations tremendously. Other examples of excise tax include taxes at airports that help pay for the air port facilities.
In this case- this is an excise tax that is based on the product used. If a physician orders a stethoscope, the price increases by 2.3% and the money is rolled back into the health care system. Just like when you buy gasoline, there is an excise tax and the tax is rolled back into the highway system, or if you buy a fishing rod the tax is rolled back into the sports fishing industry. For years we have had a vaccine tax of 75 cents, and that tax is used if there is any injury from the vaccines.
(b) Will this tax cost American jobs?
While some quote this tax as costing Americans jobs, in fact, all medical devices whether imported or not, have to pay the 2.3% tax on the items sold. Welch Allyn said they were downsizing 230 jobs in the US and one of its executives blamed Obama-care for this. In fact, they had plans to move jobs overseas and to Mexico because of labor costs. This 2.3% tax will still be in effect if their medical device comes from Mexico or from their plant in Oregon (which they are closing).
The idea behind any excise tax is that those who use the system pay for it through an excise tax. If you don’t need a medical device then you won’t pay the tax. Some manufactures of devices are already charging for the tax- but the tax goes into effect on December 31, 2012 – hence those companies are simply increasing their profit by 2.3% for a short period of time.
(c) What devices are not taxed?
According to the IRS “taxable medical device” does not include eyeglasses, contact lenses, hearing aids, and any other medical device determined by the Secretary to be of a type that is generally purchased by the general public at retail for individual use.”
(d) But what about all these companies that are laying off people because the tax will cut into their profits?
The tax doesn’t cut into the profit of a company. It is an excise tax. That is like saying the fuel excise tax cuts into the profit of the oil company, or the 10% tax on fishing poles cuts into the profits of the companies making them. That is simply bunk. Further, some of these companies have used their planned layoffs to blame Obama-care. While the right-wing press likes to point these companies as those that are laying off employees because of Obama-care, or are moving jobs overseas (where, they still have to pay tax on the retail price of the item) – but in fact needed to lay off employees because of their own business practices NOT because of Obama-Care.
Welch-Allyn: closed a plant in Oregon, moved jobs overseas. The company has lost money, and makes more by shipping these jobs overseas. The demand for the company products have decreased as physicians have consolidated offices and had less use for their products. It has nothing to do with Obama-Care.
Boston Scientific according to Reuters: “Boston Scientific has faced weak markets for its key products — heart stents and implantable heart defibrillators — for several years as the number of procedures has dropped, partly because of a weak economy and heightened scrutiny over their use.
The medical device maker, which has been struggling since its 2006 acquisition of heart stent maker Guidant Corp, is expected to announce the additional layoffs within the next two months, according to a person close to the company.” In addition : “Under a mountain of debt, the company suffered from a series of high-profile product recalls and manufacturing problems. ”
Dana Holding: also cited, reported that its earnings decreased by more than half. While the cost of health care have increased, that has nothing to do with President Obama. In fact, health care costs have had the lowest level of increase in the last twenty years. Part of the Obama plan is to decrease insurance costs by increasing the pool of people who get insurance. Dana Holding’s issues are they have missed the mark in earnings.
Stryker: turns out its President Kevin Lobo is a friend of mine. Their issue was not with the Obama-Care, but rather they sold less in Europe than they had anticipated. The device tax does not hit earnings- the device tax instead is taxed to users. That does not mean decreased sales, because all products sold a device tax is not a tax on corporate income. But Stryker has had huge earnings- and those earnings have slowed. Stryker had only 8 percent growth in Europe, and Stryker’s president resigned to replaced with my friend, Mr. Lobo. Stryker also took a $33 million charge in the second quarter to cover the cost to the U.S. Dept. of Justice to settle an investigation into Stryker’s marketing of an artificial knee replacement that had not received FDA approval.
Medtronic: They have been seen in the news lately because of accusations of manipulating data for their spine division. They have had a decrease in earnings over the last few years. This company is not suffering because they will collect a tax – they have their own issues.
BOTTOM LINE: the device tax will not cost lives, or jobs, or decrease productivity. It will not affect only US corporations. The device tax allows money to go into the healthcare system like other excise taxes. It is not a tax against corporate earnings- and sadly many business people have misunderstood this tax and its effect. The other possibility- people simply want to use the poor performance of some US corporations on Obama-healthcare.
Recently the retail sporting good store mistakenly put this tax on consumers. They collected it incorrectly, and you are entitled to a refund.
Dr. Terry Simpson
Dr. Terry Simpson is a Phoenix based surgeon. He received his bachelors, masters, and medical degrees from The University of Chicago, where he spent 3 years studying virology and researching viruses. Dr. Simpson is a frequent contributor to media outlets, discussing health related topics and advances in medicine, while maintaining a thriving practice in Scottsdale, Arizona. www.drterrysimpson.com