Skip to main content

The Journal Gazette

  • FILE

Saturday, December 30, 2017 1:00 am

Medical device tax returning Monday

Hoosier lawmakers push for suspension

BRIAN FRANCISCO | The Journal Gazette

Members of Congress are eager to again suspend the medical device tax, which takes effect Monday after a two-year pause.

“I'm hopeful and confident that something will happen in the near term but disappointed that it hasn't happened yet,” Rep. Jim Banks, R-3rd, said this week in a telephone interview.

“It's a tax that directly affects companies in northeast Indiana more than anywhere else in the country,” Banks said.

Warsaw calls itself the world's orthopedic capital because of its cluster of joint replacement manufacturers and suppliers. Together, implant makers Zimmer Biomet, DePuy Synthes and Medtronic employ more than 5,000 people, or roughly one of every eight workers in Kosciusko County.

Monica Kendrick, vice president of corporate communications for Zimmer Biomet, said in an email that the 2.3 percent tax on device sales “threatens to undermine industry competitiveness and patient access to life-saving and life-changing medical technologies.”

Reps. Jackie Walorski, R-2nd, and Erik Paulsen, R-Minn., recently introduced legislation that would suspend the tax for five years retroactive to Jan. 1. House Ways and Means Chairman Kevin Brady, R-Texas, issued a statement Dec. 12 supporting that measure and other bills aimed at relieving health care taxes, saying he would be “advancing legislation in the weeks ahead.”

Yet House and Senate bills introduced last January to repeal the device tax failed to receive congressional hearings or votes.

In October, 180 members of the House, including Banks, Walorski and Paulsen, sent a letter to House Speaker Paul Ryan, R-Wis., urging him to halt reinstatement of the tax. This month, Indiana Gov. Eric Holcomb wrote a letter encouraging Ryan and Senate Majority Leader Mitch McConnell to dump the tax.

Why wasn't a device tax moratorium included in the income tax overhaul legislation approved this month by Congress and signed by President Donald Trump?

“I suspect that there are some who have a hard time separating it entirely from the larger health care conversation, because it was part of Obamacare,” Banks said, using the nickname for the Affordable Care Act, the federally subsidized health insurance program the medical device tax was supposed to help fund.

Banks said “a lot of us signed letters and advocated to leadership that it could and should be” in the tax code revisions, which repealed the Affordable Care Act provision requiring Americans to carry medical insurance or pay tax penalties.

He has met with House Republican leaders and Trump administration officials about extending the device tax respite.

“I've bent all of their ears,” Banks said. “They know how important it is to our district.”

Banks and Kendrick each dismissed the notion that members of Congress might be reluctant to kill the device tax after having just cut the corporate income tax rate from 35 percent to 21 percent.

“There is bipartisan support for it. There is no financial loss for a continued suspension. ... It wouldn't be a loss of revenue,” Banks said.

“Medical device tax repeal continues to have strong bipartisan and bicameral support,” Kendrick said.

Brendan Benner, vice president of public affairs for the Medical Device Manufacturers Association, said in an email “it's important to note that many medical technology innovators have revenues, but are still operating at a loss, and the corporate tax rate cut provides them no benefit.”

He said the return of the device tax “will result in many innovators having an effective tax rate of over 100%.”

In 2015, the U.S. Government Accountability Office reviewed medical device sales and profits for 102 companies over a decade. The GAO found that while average annual profits grew by 4 percent for the 30 largest companies, the rest reported net losses for each year.

Indiana Sen. Joe Donnelly has been among Democrats who favor ditching the tax. Donnelly, too, seeks to delay until 2020 the reinstatement of a yearly fee on health insurers that takes effect Monday after being suspended in 2017. The so-called health insurance tax, another funding source for the Affordable Care Act, is also among Brady's targets for elimination.

Donnelly said in a statement to The Journal Gazette: “Repealing the medical device tax, which would encourage innovation and job creation in Indiana, and delaying the health insurance tax, which could reduce health care premiums for millions of American consumers and small businesses, are two bipartisan changes that we should pursue. I will continue working with my colleagues to move these efforts forward.”

The medical device tax took effect in 2013 and was projected to generate $29 million in revenue over a decade.

The thinking then was that medical device sellers would benefit from product demand created by an expansion of health insurance coverage under the Affordable Care Act.

Regardless, the Republican-majority Congress suspended the tax for two years as part of legislation passed in late 2015 to extend more than 50 expiring tax cuts.

The U.S. Commerce Department released data this year showing the device industry shed nearly 29,000 jobs while the tax was in place, the vast majority of losses occurring in 2014. But the Commerce Department reported an industry gain of 2,600 jobs in the year before the tax was suspended.

The medical device tax applies to products registered with the Food and Drug Administration, including pacemakers, stents and imaging technologies. It does not apply to hearing aids, eyeglasses, contact lenses and health products sold by retailers.

The medical device industry employed roughly 16,000 people in Indiana in 2015, according to Harvard Business School's Institute for Strategy and Competitiveness. Only California employed more: nearly 46,000 people. Other states with large numbers of medical device jobs are Florida, New York, Minnesota and Texas.