Ramesh Ponnuru has written the kind of column that really undermines the credibility of conservatives who thump their chests about reducing federal spending and insist that any new law must be paid for. Because it proves — yet again — that even if lawmakers jump through hoops and spend months agreeing to a combination of spending cuts and fees that result in deficit reduction, the GOP will either argue that the Democrats tricked the Congressional Budget Office (CBO) into producing a favorable score or just make up a lot of false arguments about the resulting pay-for provisions.
Ponnuru relies on the latter technique in this Bloomberg piece, in which he goes after the Affordable Care Act’s tax on medical devices, claiming that the fee would produce less jobs and undermine medical innovation:
A year from now, the federal government will start collecting a new tax on medical devices from tongue depressors to imaging machines, thanks to the sweeping health-care overhaul that Democrats enacted in the spring of 2010. People in the industry say it’s already having an effect. [...]
Device makers complain that the tax will lead not only to higher prices and layoffs but also to reduced research and development. They also say that when combined with high U.S. corporate-tax rates, the device levy makes relocation to other countries more appealing. Ireland, for one, is actively recruiting medical- device makers to move production there.
The main reason Congress included the tax in the health- care legislation was, of course, to raise money. Democrats wanted the Congressional Budget Office to certify that the bill would reduce the deficit overall. But why go after one industry in particular? The justification for this selectivity was that the legislation would be a boon for this sector. By expanding health coverage, the new law would increase demand for medical devices and thus, in effect, subsidize the industry. The tax was, therefore, a partial clawback of this subsidy.
Ponnuru must know that the fee was not intended to target the medical device industry specifically, but was just one of many provisions that sought to ask the sectors of health care — from hospitals to insurers to pharmaceuticals — that would benefit from reform to contribute towards expanding coverage to (almost) all Americans. In fact, these provisions came about after conservatives, Republicans, and moderate Democrats defeated a whole host other cost-cutting deficit-reducing mechanisms — from the public option to a national exchange — and for them to now present the resulting compromise as some kind of attack on medical devices is intellectually dishonest to say the least.
That being said, the specific charges in Ponnuru’s piece are highly misleading. First, the device tax excludes common consumer products like eye glasses, contact lenses, and “any other medical device determined by the Secretary to be of a type which is generally purchased by the general public at retail for individual use” — so as to minimize the cost-shift to consumers. Companies also cannot avoid the fee by moving manufacturing to Ireland, like Ponnuru suggests, since the fee applies to products produced in, or imported in the United States. Finally, it’s not clear that that tax would result in any significant hardship for the ever-profitable medical device industry. As Abbot Labs CEO Miles White explained during a conference call in June of 2010, “I’m not terribly optimistic that we’re going to pass along much at all to tell you the truth because it’s an extremely competitive market, and I haven’t seen for example in the vascular business that there is opportunity for price increase. You have to innovate. And you have to innovate with real value in order to maintain pricing or value.” “I tend to agree with Miles, but it’s not, and it doesn’t happen until 2013 and the amount of number is just not that large for us,” CFO Thomas Freyman added.