Medical Device Makers Warn of Jan. 1 Tax
Boston — Medical device makers in Massachusetts and elsewhere are warning of potential job losses and other consequences as the industry’s hopes of avoiding a 2.3 percent excise tax fade amid the stalled fiscal cliff negotiations.
The tax, scheduled to take effect on Jan. 1, is expected to raise $20 billion over 10 years. It’s one of several taxes imposed on segments of the health care industry to help pay for President Obama’s health care overhaul.
Lobbyists for medical device makers say implementation of the tax could jeopardize about 43,000 jobs nationwide in a $64.7 billion industry. They say companies have shed about 6,000 jobs in the past year, some in anticipation of the tax, while others might scuttle expansion plans or cut back on research that can lead to medical breakthroughs.
“It’s been a year of uncertainty, and now we are looking at this tax coming at us,” said Thomas Sommer, president of the Massachusetts Medical Device Industry Council. “And until it really goes into effect we are not going to know where the reductions in other areas are going to come.”
The industry has been trying for much of the past year to persuade Congress to repeal or at least delay the tax, and it still clings to the slim hope that a postponement could be attached to any fiscal cliff deal that might be reached in Washington in the coming days.
In Massachusetts, the nation’s second-largest medical device producer behind California, the repeal effort has been embraced by Democrats who are otherwise avid backers of the federal health care law.
U.S. Sen. John Kerry and Sen.-elect Elizabeth Warren were among 17 Democratic senators or senators-elect who signed a letter earlier this month asking Senate Majority Leader Harry Reid to support a delay in the tax. Opposition to the tax was a rare area of agreement between Warren and Republican U.S. Sen. Scott Brown, who opposes the federal health care law, during their recent campaign.
U.S. Reps. Niki Tsongas and William Keating were among Massachusetts House Democrats who backed a Republican-sponsored bill to repeal the medical tax device in June. Democratic Gov. Deval Patrick has also lobbied the White House to hold off on the tax.
Annual sales of medical devices made by Massachusetts companies are about $13 billion and medical devices are the top exported commodity out of the state, Sommer said.
Medical device companies employ nearly 24,000 people in Massachusetts, who earn an average salary of $66,787, according to research by the Advanced Medical Technology Association, a national industry group.
Defenders of the tax say it is perfectly reasonable to ask industries that stand to benefit from the federal health care law to help shoulder the costs of implementing it.
That was the precisely the argument Obama made in June when he pledged to veto the House bill if it reached his desk. The White House said medical device makers and industries like it stand to gain 30 million potential new customers who would have access to health insurance under the Affordable Care Act.
John McDonough, a professor at Harvard University’s School of Public Health, said the law was designed to be fully paid for and not add to the federal debt.
“Every other segment of the health care industry has said yes, we understand this is important … and we need to be part of the solution in financing this as opposed to raising the taxes of everyday Americans or adding the cost of this law to the federal debt,” McDonough said.
“And it’s really only the medical device industry that has said no,” he added.
The industry, meanwhile, disputes the notion that the health care law will be a boon for business.
According to Sommer, the heaviest users of medical devices are older Americans already covered by Medicare, not younger people who will gain insurance under the law.
“They are not using coronary stents. They are not having their hips replaced, or their knees replaced,” Sommer said.
“They’re not having the large number of procedures that older people do.”
Industry officials add there is no evidence the 2006 universal health care law in Massachusetts, which served as a model for the national plan, led to an increase in sales in the Bay State.
“For us, this isn’t a health care policy issue … this is fundamentally an issue of corporate taxation,” said J.C. Scott, chief lobbyist for the Advanced Medical Technology Association. “If Congress intends to have a conversation around corporate tax reform, we think this should be a central component.”