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Why repealing the medical device tax is a top Republican priority

The medical device tax could sure take a bite out of dental prosthetic manufacturer profits.
The medical device tax could sure take a bite out of dental prosthetic manufacturer profits.
(BSIP via Getty News Images)

After coming out victorious in the midterm elections, congressional Republicans have begun to lay out an agenda for a world in which they control both the House and Senate. At the very top of their to-do list is repealing the medical device tax.

Lori Montgomery and Robert Costa reported Wednesday for the Washington Post that Republican leadership plans to quickly send President Obama a bill to "repeal an unpopular tax on medical devices."

Shares in medical device tax companies, meanwhile, soared at the news of a Republican takeover.

The medical device tax is part of Obamacare and has been a top repeal target since pretty much the day it became law. There are lots of Republicans and Democrats who oppose the fee, although the White House has stood firm behind it. Here's a quick guide to how the tax works, why it gets so much bipartisan hate, and whether its likely to survive the new Republican Senate majority.

What is the medical device tax?

It is, as the name implies, a 2.3 percent fine that medical device manufacturers have to tack on to the various items that they sell. This includes things like pacemakers and hip implants. It does not include eyeglasses, contact lenses, or other medical equipment that patients typically buy themselves in retail settings. The medical device tax took effect in 2013.

Obamacare didn't single out the medical device industry specifically; instead, the medical device tax is part of a larger suite of taxes on different sectors of the health-care industry. There is a new tax on insurance plans and another one on hospitals. The whole idea behind these taxes was to raise revenue to pay for the insurance expansion. And if health-care industries were going to get millions of new customers through that expansion, legislators decided that they should help chip in — via these taxes — for the cost of coverage.

The Congressional Budget Office estimates that the medical device tax will raise $29 billion in revenue over the next decade, all of which will be plowed back into the Affordable Care Act's coverage programs.

Has Congress tried to repeal the medical device tax before?

erik paulsen

Rep. Erik Paulsen (R-Minn.) has been a key opponent of the medical device tax (Douglas Graham / CQ Roll Call Group)

You bet it has! Multiple pieces of legislation have attempted to kill the medical device tax — and gotten decently far. Most recently, the House passed the Protect Medical Innovation Act, authored by Rep. Erik Paulsen (R-MN) in September. As Senate Majority Leader, Harry Reid (D-NV) has refused to bring up medical device tax repeal in his chamber. That all, however, obviously changes with the new Republican majority.

Medical device tax repeal was also a key demand of Republicans during the budget debate in 2013. Back then, Republicans demanded medical device tax repeal and a one-year delay of Obamacare in return for keeping the government open. Republicans got neither of these things, and the government ultimately shut down for two weeks.

How did the medical device tax become a top repeal target?

There are a few reasons that, taken together, explain why medical device tax repeal has become a key repeal target.

1) Medical device manufacturers have lobbied aggressively against it — Pretty much since Obamacare passed, the device industry has been pushing Congress to repeal the assessment. Companies have argued that the new fee will make medical devices unaffordable for patients and force them to cut jobs. One 2011 letter from more than 400 medical device company chief executives argued that the tax would reduce "adversely impact patient access to new and innovative medical technologies."

2) Some Democrats oppose it — Nearly every industry has lobbied against its own assessment since Obamacare passed; insurers, for example, have run an extensive campaign against the health plan tax. But what might have given medical device makers an extra boost is that a decent number of Democratic senators want to see that fee gone, too.

Both Minneapolis and Boston are hubs for medical device making. So it's not especially surprising that Senators Amy Klobuchar (D-MN), Al Franken (D-MN), and Elizabeth Warren (D-MA) all support medical device tax repeal.

3) It's relatively small — the fact that that the medical device tax is expected to raise less revenue than the other industry taxes could also work in the industry's favor. Finding a way to replace the $29 billion that the medical device tax brings in isn't necessarily easy. But it's certainly easier than figuring out how to replace the revenue from the health insurance tax, which is expected to bring in more than $100 billion over the next decade. Medical device tax repeal might be getting traction because its success is more plausible.

Will Republicans succeed in medical device tax repeal?

There's no crystal ball on this one, but the history we do have suggests they're setting up a fight with the White House, which has repeatedly refused to negotiate on the issue. It has issued veto threats for Republican-backed bills to overturn the tax. In one such veto statement, issued in 2012, the White House framed the issue as one of fairness.

"This excise tax is one of several designed so that industries that gain from the coverage expansion will help offset the cost of that expansion," the White House said at the time.

Whether or not the White House will hold that line as it works with a new Republican Senate majority remains to be seen.