House Votes to Repeal Medical Device Excise Tax

June 13, 2012

Voting 270-146, last Thursday, the House passed a bill (H.R. 436) introduced by Rep. Erik Paulsen (R-Minn.) to repeal a 2.3 percent excise tax that the 2010 health law would levy on manufacturers and importers of certain medical devices starting in 2013. The tax, part of the Patient Protection and Affordable Care Act, aims to raise nearly $30 billion over 10 years to help pay for the cost of reform. 

The U.S. is the global leader in medical technology and medical device development, shipping over $136 billion in goods, paying $24.6 billion in salaries to 423,000 American workers and is responsible for more than two million American jobs.

In 2007, 116 early stage device companies raised approximately $720 million in initial venture capital. But that number is declining – and so is the total dollar amount of venture capital invested in medical technology companies. Last year, only 55 new companies raised just under $200 million. What makes this data more troubling is that initial start-up company financings are a leading indicator for innovation and job creation in the medical device sector.

On Jan. 1, 2013, this new tax on medical device companies is set to go into effect and will likely be detrimental to medical innovation. The 2.3 percent excise tax will be levied on all types of medical devices, from heart stents and pacemakers to MRIs and ultrasounds. Because the new tax is on revenue–not profit–a small company that is not yet profitable would bear the biggest brunt. This tax will hit medical device companies especially hard in states that are leading the way in medical innovation; states like Pennsylvania, Minnesota, California, New York, and Massachusetts.

The bill was bundled with two others pieces of legislation related to flexible spending accounts; specifically, the bills would also repeal a health law provision that prohibits the use of funds from flexible health spending accounts (FSAs) and other health reimbursement arrangements to buy over-the-counter drugs without a prescription. Instead people will be able to cash out their FSAs at the end of the year, and also buy over-the-counter medicine with FSA funds. Currently, FSAs can only be used to buy prescription drugs. The House vote for the bill largely fell along party lines, with no Republicans voting against it and only 37 Democrats for it. Now awaiting Senate action—although it is unlikely to be considered—the bill would pay for itself by reducing subsidies to help low-income people buy health insurance policies in the new law’s insurance exchanges.

NSBA signed onto a letter supporting H.R. 436 and calling for repeal of this excise tax. NSBA supports innovation and jobs and continues to advocate for ensuring that the next great medical breakthrough is developed here in the U.S., not imported from abroad.