As the race for Massachusetts’ vacant U.S. Senate seat heats up, candidates will be asked to address many of the problems state residents face. One of the most immediate is a new tax on medical devices, part of the financing for the Affordable Care Act.
The tax kicked in Jan. 1 of this year, and the first round of payments is due April 30. It will have a drastic impact on one of the commonwealth’s major industries, and hits locally at Analogic Corp. and Abiomed Inc. to the tune of more than $6.6 million next year.
Massachusetts is home to more than 400 companies that focus on medical devices, making the commonwealth among the nation’s top employers in the industry. It is in this context that some are concerned about the lasting impact of a new tax on current employment, future job growth, prospective innovation, and health care costs.
A study just released by Pioneer Institute estimates that the tax means Massachusetts’ 19 largest medical device companies will be sending an additional $422 million to Washington each year.
According to a recent survey conducted for the Massachusetts Medical Device Industry Council, half of companies plan to reduce their budget for research and development. Forty-four percent of companies plan to pass the tax’s cost straight onto the end users. In other words, it will translate to an increase in either to out-of-pocket expenses or insurance premiums. The survey also found that 39 percent of companies will attempt to cut internal spending, and 25 percent will immediately shrink the size of their workforce.
The provision was dubbed by Democratic Senator Al Franken of Minnesota a “job-killing-tax,” and some national companies have already started to lay people off. In Massachusetts, what will happen to the 24,000 directly employed in the industry — not to mention the 82,500 additional jobs that are working in related companies — is an open question.
While the bulk of the tax will be paid by larger companies in Massachusetts, many have argued that it will be even more burdensome for smaller companies. Many of these companies lack a diversified product line, and the tax will be levied regardless if a manufacturer or importer generates a profit.
Interestingly, repeal of the tax has attracted rare bipartisan support. Former U.S. Sen. Scott Brown supported its repeal and his opponent, recently sworn-in U.S. Sen. Elizabeth Warren, campaigned on its repeal.
The Republican candidates for the open Senate seat have all expressed concerns over the federal law as a whole, but none have directly addressed the medical device tax. By contrast, Congressmen Markey and Lynch are on record voting to keep the tax on the books, though they have recently softened their stances. It is an especially odd position for Markey, given his uncompromising support for the law, and how much time he has spent attacking Lynch for his earlier vote against the Senate version of the Affordable Care Act, before he voted for the final version.
According to ACA supporters, money raised by the tax will help to expand health care coverage. Surely this is true, but the other side of that coin is the potential lasting negative effects on the industry. Supporters have also argued that with more people covered by insurance, the medical device industry should expect a windfall of new users. Yet, the experience following the 2006 Massachusetts reform law does not support this view, as few companies saw an increase in sales due to the law.
We hope to hear more from Massachusetts Senate candidates regarding the trade-offs of the medical device tax and its impact on employment, future research and development funding, prices for end users and sending more private dollars out of state in the form of new taxes. After all, it is the future of your health care.
Josh Archambault is director of health care policy and Renee Laflam is a research intern at Pioneer Institute, a public policy think tank.