Column: Obamacare’s silent job killer (USAToday)
The Affordable Care Act’s medical device tax harms the economy and patients.
Obamacare has been the dog that didn’t bark in this campaign. Given some of the damaging ideas in the law, that’s a surprise. Among the worst is medical device tax, which kicks in next year. The reticence to fight about the tax is odd: It already is destroying job opportunities, and it soon will start blocking medical developments that could improve or even save many lives.
The president’s health law imposes a 2.3% tax on all medical device sales. This doesn’t sound like much, but that’s misleading. The tax is not on profits, but on gross (total) receipts. For smaller device manufacturers with narrow profit margins, the tax could actually exceedtheir profits, pushing them into the red. Such is the case with companies known as ConMed (with possible job losses in swing states Colorado and Florida), Symmetry Medical (job centers in swing states Michigan and New Hampshire), and ultrasound pioneer Sinosite.
Some medical-device makers, such as Stryker (headquarters: Kalamazoo, Michigan) and Zimmer Holdings (job locations in Nevada, Minnesota, Ohio, and Pennsylvania), already have announced layoffs (1,000 and 450, respectively) as a result of the tax.
In all, some 43,000 jobs could be lost due to the tax, according to a widely-cited, but industry-funded study. Another report, out just two weeks ago, showed venture capital fleeing the medical device industry, presumably in response to the new ObamaCare tax. Such investment is down for the third straight quarter, to levels as low as in 2004.
I spoke with Steve Ferguson, CEO of the Cook Group, founded in the back room of a family house in 1963 with a $1,500 loan, and now the world’s largest privately-owned medical-device company with 8,000 U.S. employees. It makes some 16,000 different devices, most of them small items such as catheters, stents, wire guides and other products that help patients avoid major surgery. Such advances represent phenomenal progress for the quality of patients’ lives.
Ferguson said the 2.3% tax on gross revenues equals, for Cook, about 15% of earnings. Added to a base corporate income tax rate of 35% and state taxes of 6%, the total tax rate exceeds 50%. Pitted against places like Ireland, with a total business tax of 12.5%,an American medical-device company faces acute competitive disadvantages.
“We were looking to build five new plants to employ about 300 people each,” Ferguson said. “Now we’ve had to put them on hold, to see what will happen with this tax.”
Consider the sorts of devices Cook makes: Urology advances to remove stones without invasive and painful surgery. Stents to improve circulation in the lower leg, to help ward off many of the 10,000 amputations each year nationwide. And a device to clear aneurysms in leg arteries: “If such an aneurysm bursts, there’s just a 3% chance of survival,” Ferguson said. “The old method of trying to treat it involved major surgery splitting the chest open and using what might as well be a radiator hose to work down to the leg. With our device, they can handle it with two little incisions in the leg.”
Some devices serve large markets of patients; they won’t be affected by the tax. But some products serve smaller, niche markets. The tax would make it cost-prohibitive to serve those patients.
“It’s a choice you are going to have to make with each device that comes up,” Ferguson said. “Will it justify itself? With the tax, it becomes harder.”
The medical device tax, therefore, could be quite literally deadly, both for jobs and for people. It, and ObamaCare, ought to be repealed.
Quin Hillyer is a Senior Fellow for the Center for Individual Freedom and a Senior Editor of The American Spectator.