My colleague Robert Book has written a compelling analysis of Obamacares medical-device tax, which concludes that it will destroy about 14,000 and perhaps up to 47,100 jobs. The 2.3 percent excise tax on medical devices is a savage blow to innovation. Note that this tax is on sales, not profits. It cuts into the top line, not the bottom line. If not repealed, this tax will start hitting medical-device makers on January 1, 2013.
Another colleague, Benjamin Zycher, has come at the tax from a different angle: In an analysis that concludes that the tax will lead to a reduction in research and development by about $2 billion every year, Zycher estimates how many patients will suffer early deaths because of the throttling of innovation.
Reviewing peer-reviewed literature on the relationship between medical technology and improvements in life expectancies, Zycher estimates that the knock-on effect of the tax will be about one million life-years lost annually. (Due to limitations in applying the literature, it not possible to tell the degree to which this tilts towards one million people dying one year earlier, or a smaller number of people dying many years earlier. My own interpretation leans towards the latter.)
Such findings are both dramatic and timely. Recognizing their impact, the House Majority Leader, Eric Cantor, has promised to schedule a vote on the repeal of the tax. Many observers expect such a vote to be symbolic, noting that the Republicans have still not identified how to pay for the repeal. To be sure, Obamacare has proved resilient to Congressional assault since the Republicans took the gavels in January 2010. Only one piece has bitten the dustthe so-called 1099 provision, which President Obama signed in April 2011.
The 1099 provision came into ridicule after citizens learned that any business which bought $600 or more worth of goods and services from any vendor would have had to issue a 1099 to the IRS. The provision was so obviously absurd that small-business lobbyists had little difficulty mobilizing a coalition to get the bill to the White House.
The medical-device industry has made repeal of the excise tax priority number one. And its success in getting it to the top of the agenda is quite a masterstroke. Although economically harmful and even deadly, the tax does not comprise a major part of Obamacare.
If we go back to March 2012, to the original Congressional Budget Office (CBO) score of Obamacare, we can see that the whole reform was going to cost just over $1 trillion over the decade 2010 though 2019. This was almost evenly split between expanding dependence on Medicaid and handing out tax credits for coverage via the Health Benefits Exchanges.
The legislation (which relied on faulty assumptions that have been discussed thoroughly over the past two years) was supposed to reduce the ten-year deficit by $142 billion. The funding, just under $1.2 trillion, came from a mix of cuts to Medicare and a menu of tax hikes. The tax on medical-device manufacturers was projected to raise $20 billionless than 2 percent of Obamacares total revenue.
And yet the medical-device industry has managed to move this to the front of the queue of Obamacare repeal. I dont think that Republicans will schedule a symbolic vote on repealing this excise tax. Theres a very good chance that they will work with Democrats to find a way to pay for the repeal with savings from another part of Obamacare, and that the President will sign it. Even pro-Obamacare Democrats like U.S. Senators Amy Klobuchar and Al Franken, and candidate Elizabeth Warren, advocate repealing this deadly tax.
Every industry in the health sector has something that they want rubbed out of Obamacare. The research-based pharmaceutical industry wants the repeal of the Independent Payment Advisory Board (IPAB), the death panel of fifteen presidential appointees that will limit seniors access to innovative prescription drugs. Make no mistake: IPAB needs to go. In this case, the Republicans did hold a symbolic vote to repeal, but there was no effort to bring Democratic legislators onside.
Why the difference? My guess is that it has to do with the way the two industries handled themselves during the debate and passage of Obamacare. The research-based drug makers were revealed early on to have been key players in passing the despised legislation. As late as last week, Republican legislators were digging out e-mails detailing the deal-making between them and the White House. Its not surprising that those legislators are not investing seriously in executing the industrys post-Obamacare agenda. (The Prescription Drug User Fee Act, PDUFA, which is sailing through Congress with overwhelming bipartisan support, has nothing to do with Obamcare, but renews a twenty-year old law).
The medical-device industry, on the other hand, acted more carefully during the debate over Obamacare. It did the best it could to protect its members interests, but avoided the temptation to jump on the bandwagon and commit to promoting the terribly one-sided, partisan, uncompromising bill.
With the benefit of 20/20 hindsight, I suspect its an approach that leaders in other health-care sectors wish that they had taken.
|John R. Graham is Senior Fellow at the Independent Institute.|