Why Delaying Obamacare’s Medical Device Tax Could Be A Bad Deal For Americans

The IRS today released final rules on a 2.3 percent tax on medical devices passed as part of President Obama’s landmark health care reform law, Reuters reports. The tax, which will help fund Obamacare’s coverage expansion and insurance subsidies for Americans, is estimated to raise $29 billion over the next ten years according to Congressional Budget Office (CBO) estimates.

But despite the IRS rules, the tax’s future remains shaky, as manufacturing firms, Republicans, and some Democrats are considering delaying or even repealing the tax as part of negotiations regarding the so-called “fiscal cliff.” The trepidation over the revenue source stems from fears that the tax could be applied too broadly, potentially stifling manufacturers or driving up the cost of everyday medical tools.

But officials contend that there are enough exemptions to the tax for more common, over-the-counter devices, and that the flurry of new customers coming into the health care market after Obamacare’s insurance expansion will counteract any added costs to manufacturers:

“The excise tax is on the medical device manufacturers and importers (who) will now have access to 30 million new customers due to the health care law,” Treasury Department spokeswoman Sabrina Siddiqui said in a statement.

Many medical devices that are sold over-the-counter — such eyeglasses, contact lenses and hearing aids — are exempt from the tax, as are prosthetics, the IRS said. […]

Some medical device companies are hoping to delay the tax’s start date as part of a resolution of the “fiscal cliff” deadline at the end of the year involving many tax and spending measures, said Steve Ferguson, chairman of Cook Group Inc.

“We would like to be part of the punt,” Ferguson said, referring to an extension of current tax policy into 2013.

ThinkProgress reported that repealing the tax would be a top priority for congressional Republicans in the wake of President Obama’s reelection. In June, House Republicans successfully repealed the tax, but the measure has not been taken up in the Senate. However, if a sufficient number of Democratic lawmakers feel pressured enough by industry interests to include a device tax repeal in “fiscal cliff” talks, that may change.


While it is certainly important for health care officials and lawmakers to make sure that the tax is applied in a way that doesn’t unnecessarily or negatively burden hospitals and device manufacturers, efforts to repeal or delay the tax risk leading down a slippery slope where Obamacare’s other funding mechanisms — such as the tax on premium health plans and wealthier Americans — are delayed, scaled back, or repealed in the face of persistent interest group lobbying.

As with any social program, Obamacare’s consumer protections, coverage expansions, and insurance subsidies can only be implemented effectively if they are responsibly paid for. The temptation to preserve popular consumer protections while shying away from the more painful costs of providing those protections might make for good politics, but it’s bad policy, and it could end up hurting more Americans in the long-term by making Obamacare unsustainable.