The Tax that Wouldn’t Die

With the recent “pull back” of the Republican healthcare replacement plan, the Affordable Care Act (ACA) doesn’t appear to be on its way out as quickly as some anticipated. While those who keep their coverage as a result may be pleased, the continuing ACA could offer bad news for medical device manufacturers. The 2.3 percent excise tax remains (albeit still suspended through 2017). With this in mind, I reached out to a number of industry thought leaders to get their opinions on what the fate of the tax may be now.

Ben Dunn, managing director of Covington Associates, said, “Conventional wisdom would suggest that the medical device tax should remain dead. It was a poorly conceived idea to begin with and it clearly makes sense to keep it repealed. With that said, we are currently living in unconventional times so we must acknowledge that there is the risk that the current administration would allow the device tax to return as part of a planned strategy whereby any incremental improvements to Obamacare are avoided so that a full-blown repeal of Obamacare would become more palatable to more people.”

With a more positive spin, Mark Leahey, president and CEO of the Medical Device Manufacturers Association, shared, “We are extremely confident that the medical device tax will be addressed this year because of the overwhelming bipartisan desire to put an end to this destructive policy. MDMA will continue to work with Congress to make sure this gets done.”

Bryan Hughes, a director of P&M Corporate Finance, said, “A full and permanent repeal of the medical device tax is unlikely to occur in the absence of the passage of a broader healthcare reform bill. That being said, the fact that Republicans currently control both the House and the Senate makes extending the December 2015 device tax suspension the most likely course of action. The repeal of the device tax is a topic on which Democrats and Republicans seem to be aligned, as noted by Scott Whitaker, president and CEO of the Advanced Medical Technology Association (AdvaMed), ‘Full device tax repeal continues to hold broad bipartisan support, and we’re hopeful that no matter what next steps are taken, erasing this tax is part of the plan.’”

I reached out to Whitaker for a complete statement on this concerning issue. He offered, “Despite the partisanship surrounding broader health reform, full device tax repeal holds overwhelming bipartisan support in both houses and within the Administration. We will continue our aggressive push with congressional leaders and the White House to make sure this continues to be a top priority for legislative action this year.”

He added, “There are still several options to make this tax go away permanently, including stand-alone legislation, which enjoys support from a significant majority of House members and a strong bipartisan coalition in the Senate. We will continue to explore all opportunities and to work with leaders such as Ways and Means Chairman Brady, Reps. Paulsen and Kind, Senate Finance Chairman Hatch, Sen. Klobuchar, and so many others who have called for full repeal of the tax.”

“We cannot allow this tax to be reimposed on a vibrant and innovative American industry and look forward to working with Congress and the Administration to end this tax once and for all,” concluded Whitaker.

“Even from the most objective perch, the AHCA was viewed primarily as a vehicle to cut taxes and used healthcare as the route to arrive there. The AHCA was pulled without a vote and the possibility of reduced or eliminated coverage was wildly unpopular, even in many Republican districts. I don’t imagine the president or any other Congressional leader will be eager to revisit healthcare reform for a while and, when they do, turning on the device tax won’t be on the table,” stated Perry De Fazio, vice president of Covington Associates.

“Unlike modifications to healthcare, tax cuts (or, in this case, continued tax suspensions) are not unpopular and it is difficult to see a Republican president, House, and Senate allowing a resumption of the device tax. Such a move would be anathema to their party’s platform and future electability,” he added.

From this small, but very qualified, sample size, it would appear a continued device tax suspension or full repeal is still likely before the end of the year. That opinion, however, doesn’t even have full agreement among these five. If we learned anything from this past November’s election, there are no guarantees in the world of Washington.

Hopefully, our president and Congressional leaders can lick their wounds received from the healthcare plan’s defeat and get back to working on eliminating this tax.