Why Repealing the Medical Device Tax is a Bad Idea

The Patient Protection and Affordable Care Act (ACA) was signed on March 23, 2010, and Republicans have fought President Obama and congressional Democrats since the day it was proposed. In the beginning, with Democratic majorities in the United States House of Representatives and the United States Senate, Republicans’ only option to repeal the ACA was the Supreme Court.

As two court cases made their way to the nation’s highest court, Republicans won a majorityin the House of Representatives and passed 56 repeals of the ACA. The Supreme Court eventually ruled in favor of the ACA not once, but twice.

The first ruling affirmed the legality of the ACA’s individual mandate and shared responsibility payment. The second ruling allowed states that did not set up their own exchanges to continue to operate the federal exchange in their states. However, just when the law seemed untouchable, Republicans won a majority in both the House and the Senate. At the same time, remaining Senate Democrats finally seemed willing strike the ACA a blow by repealing the medical device tax.

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The medical device tax is a nominal fee attached to the sale of medical devices that was meant to keep the ACA revenue neutral by offsetting subsidies given to exchange customers. Medical device companies, like others in the healthcare industry, have benefited from the tens of millions of patients newly insured under “Obamacare.

The medical device tax is directed accurately, proportionate and fair, and repealing the tax would be a mistake.

Medical device companies and some in Congress say that the medical device tax in the Affordable Care Act is hurting a delicate industry, but there is evidence to the contrary. An ETF, or exchange traded fund, is a group of individual stocks meant to emulate the performance of an index or sector of the stock market. Ishares has an ETF specific to the medical device industry. If the industry were struggling, you would expect IHI, the ticker for iShares’ medical device ETF, to be down.

However, a $10,000 investment made the day the ACA was signed would now be worth over $20,000 – over 100% profit in just over five years. Medtronic, one of the largest medical device manufacturers, is showing similar results over the same period. It is clear that the medical device industry has benefited more from the ACA than the pain the nominal tax has caused, and can afford to continue paying the device tax.

Repealing the device tax is also a bad idea because it would balloon the deficit or burden groups that don’t benefit from the ACA with additional taxes to offset the repeal. As unfair as raising other taxes to compensate for a repeal sounds, Congress seems unable to do so, leaving deficit spending as the only option left if a repeal is successful. The resulting deficits could hurt the economy as a whole, with only a slight benefit to a thriving industry that benefits from subsidies given to the formerly uninsured.

Since the ACA has benefited medical device manufacturers by increasing sales to thepreviously uninsured, and the revenue generated is so greatly needed, repealing the medical tax would be a mistake. There is no appropriate place to displace revenue, and the tax is but an inconvenience to a seemingly ungrateful industry.

Congressional Democrats and the President ought to stand up to pressure and see the issue in the larger and more appropriate context of providing a higher quality of life to residents without increasing the debt that later generations will be forced to repay.