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Obamacare’s medical device tax — and how it became a repeal target — explained

World's Smallest Pacemaker Saves Life Of 78-Year-Old Patient Photo by Joe Raedle/Getty Images

The Republicans’ current health care plan in the Senate focuses on killing two parts of the Affordable Care Act: the mandate to purchase health insurance and the law’s medical device tax.

Attacking the individual mandate makes sense, politically: It routinely polls as one of Obamacare’s most-hated provisions. The medical device tax, however, is a bit perplexing. This is not a crucial part of the health care law, nor does it appear to be an Obamacare provision that keeps voters up at night, angry.

Still, the Affordable Care Act’s 2.3 percent tax on medical-device manufacturers has faced a sustained and bipartisan repeal campaign. It constantly emerges as a key repeal target in part because it is so small, and thus feels relatively easy to pick off. It helps that many large device manufacturers are based in places like Massachusetts and Minnesota — making Democratic senators like Al Franken and Elizabeth Warren supporters of repealing this particular part of the bill.

The Medical Device Manufacturers Association has led a consistent lobbying effort to repeal the tax. It spent $1.2 million lobbying Congress in 2015 and again in 2016 — more than any other year the nonprofit group Open Secrets has on record. It has spent $600,000 so far this year.

The medical device tax hits medical equipment like pacemakers, joint replacements

The tax is, as the name implies, a 2.3 percent tax on the various items that medical device manufacturers 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 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 law’s insurance expansion. 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 $23.9 billion in revenue over the next decade, all of which is supposed to be plowed back into Affordable Care Act programs.

The device industry has argued that the tax would cause device prices to rise and manufacturers to shed jobs. But there is little evidence to date of such changes. The Government Accountability Office issued a report in June 2015 finding that medical device sales had not declined. They actually kept going up.

Government Accountability Office

There is even some evidence that the price of medical devices has declined since the tax took effect, as hospitals have become more cost conscious about the devices they buy and whether the newest versions are actually worth the higher price tags.

“I’m not going to cry any big tears over the device folks … [the industry] is doing extremely well with ObamaCare,” former Senate Majority Leader Harry Reid (D-NV) said in 2015.

That being said, the industry (and many legislators) disagree with Reid and his sentiment. A 2015 report from the Senate Joint Economic Committee, for example, argues that the industry would be preforming even better had the tax never taken effect.

The medical device tax is a constant repeal target

Repealing the tax has been a consistent Republican priority for several years. During the 2013 budget debate, 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.

There are about a half-dozen bills to repeal the medical device tax; one has made it as far as passing the House in 2013. There are a few reasons that, added up, explain why the tax 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 Sens. 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 has also worked in repeal’s favor. It is easier to offset the losses of $23.9 billion in revenue that the medical device tax brings in than it is to offset, for example, the health insurance tax, which is expected to bring in more than $100 billion over the next decade. Medical device tax repeal gets traction in part because it seems a realistic target at a moment when passing any sort of Obamacare repeal has proved a vexingly difficult task.

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