House repeal-and-replace bill for the Affordable Care Act would end device tax

March 8, 2017 – 8:37 AM | By Andrea Gonzalez | No comments yet

By Mark McCarty, Regulatory Editor

Two committees of the House of Representatives have unveiled the much-discussed legislation that would overwrite several vital features of the Affordable Care Act (ACA), one of which is the controversial 2.3 percent tax on medical devices.

The device tax, which was introduced as an offset to some of the costs of the ACA, was suspended for a two-year period terminating at the end of calendar year 2017, a time during which device makers said they were able to resume hiring and restore funding for research and development.

A number of Senate Democrats from med-tech-intensive states have previously voiced their opposition to the tax, and a sense-of-the-Senate vote in March 2013 backed the idea of the repeal, even though the 79-20 vote was non-binding.

As is widely known, the GOP has floated a number of replacement bills for the Affordable Care Act, although none have gained much traction on Capitol Hill up to now. Sens. Susan Collins (R-Maine) and Bill Cassidy (R-La.) released the details of their Patient Freedom Act in January, a bill that was initially floated in 2015 and which would sustain coverage of pre-existing conditions and the health insurance exchanges created by the ACA.

The latest iteration, which is said to be based on the “Better Way” outline drafted by House Speaker Paul Ryan (R-Wisc.), consists of two bills, one each from the House Energy and Commerce and the House Ways and Means committees, both of which will be marked up March 8. The Ways and Means bill encodes the features of ACA financing that are up for repeal, including the device tax, while the Energy and Commerce bill addresses means by which public health programs can be accessed.

The Ways and Means bill also would repeal taxes on prescription medications, and would alter the tax credit framework for payments for health insurance premiums. The so-called Cadillac tax, a tax on premium health plans, is also among the taxes that would fall should the legislation pass and be signed into law.

The bills, jointly known as the American Health Care Act, leave intact several provisions of the ACA, including the cap on out-of-pocket expenditures. However, the new bill restores the traditional age-band rating system that allows insurers to charge older patients as much as five times the premiums charged to younger, presumably healthier enrollees. The ACA had reduced that ratio to 3:1.

Mark Leahey, president and CEO of the Medical Device Manufacturers Association, said the association had opposed the device tax from the outset and that MDMA had advised Congress as to the impact of a suspended device tax. Leahey said “the two-year suspension of the tax has proven these predictions to be true,” pointing to job creation and additional innovation in the device space as benefits of the suspension of the tax. Leahey added that addition of the repeal to the health care overhaul legislation “is a positive first step to permanently ending this punitive policy once and for all.”

Scott Whitaker, president and CEO of the Advanced Medical Technology Association, commended the Ways and Means Committee for adding the device tax repeal language to its bill, noting that the Department of Commerce had determined that the device industry had shed nearly 29,000 jobs while the tax was in force. Whitaker also pointed to a study conducted by the American Action Forum said to have demonstrated that full repeal of the tax could restore those lost jobs and stave off the loss of another 25,000 from the payrolls of device makers in the U.S.

Whitaker said permanent repeal of the tax would “provide medical technology innovators with the long-term certainty necessary to support future job growth and sustainable, cutting-edge R&D that will ultimately lead to the next generation of breakthroughs in patient care and treatment.”

Pharmaceutical Research and Manufacturers of America, spokesperson Nicole Longo told Medical Device Daily, “ensuring patients have access to the medicines they need is our top priority. As Congress considers reforms to our health care system, we look forward to continuing to work with them to enhance the competitive market, ensure patients have access to affordable health care and foster the continued development of new innovative medicines.”

Daniel Seaton, a spokesperson for the Biotechnology Innovation Organization, said BIO “did not take a position on original passage of the ACA – and our board of directors has not taken a formal position on any new legislation.” Seaton added that BIO members believe that what is most critical “is that patients have access to the medicines and cures that they need. We will be working with Members of Congress in both chambers and both parties to safeguard patient access and promote continued biomedical innovation.”

PREDICTIONS OFF ON TAX REVENUES, JOBS

The American Action Forum has published several papers dealing with the device tax over the past several years, most recently a March 2 analysis by AAF’s Robert Book, who acknowledged that preliminary assumptions about the device tax were substantially off. Among the predictions that did not pan out were the number of job losses, but as events demonstrated, the predictions of total revenues came up far short of initial projections as well.

Book said the Joint Committee on Taxation had projected a device tax revenue stream of nearly $2.5 billion in 2013, but that the actual volume of collections was closer to $1.8 billion, a figure provided by the Office of Management and Budget. The difference in tax revenue is attributed to a drop in sales of $25 billion that year, although device makers shed far fewer jobs than the drop in sales might have suggested. Book’s original prediction for job loss, roughly 7,000, might have ballooned to 21,000 lost jobs based on the calculation for lost industry revenues, but only 4,400 jobs were actually lost that year, according to the U.S. Census Bureau.

The projected and actual tax revenue numbers for 2014, and the calculated loss of industry revenues, fairly closely mirrored those for 2013, but the impact on jobs began to mount that year. Book had projected a loss of more than 10,000 jobs that year before lost industry revenues were factored in, at which point Book revised his calculation to more than 22,000 lost jobs. The Census Bureau offered a more grim picture for 2014, however, stating that an additional 27,000 employees exited the industry that year for a two-year total of 31,400. By the end of 2015, the cumulative job loss metric had eased somewhat, however, to just shy of 29,000.

Tax collections never hit the predicted volumes in any of the three years included in Book’s report, coming in $750 million short in 2015 for a final figure of $2.1 billion. Unfortunately for those supporting the repeal of the device tax, the Joint Committee on Taxation published a March 7 analysis that claimed that elimination of the device tax would cost the Treasury nearly $20 billion over 10 years, while the loss of taxes levied on pharmaceuticals would hit the Treasury for another $25 billion over that same term.

While the Cadillac tax was not scheduled to take effect for another three years, this loss would likewise drain several billion dollars more, leading to a net loss of revenues of more than $265 billion over 10 years by the JCT’s estimate, a measure certain to provoke a response from deficit hawks on both sides of the aisle.

 

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