Is the Affordable Care Tax Killing Medical Device Jobs?

by | Jan 19, 2016 | Business

When the Affordable Care Act (ACA) was passed a few years ago, members of the healthcare community immediately started wondering how it might affect their livelihood. Insurance companies wondered if they would be able to absorb financial losses, doctors worried that they might lose patients, and medical sales reps were concerned that their jobs might be in jeopardy.

Certain elements of the ACA have been hotly disputed, namely the 2.3 percent medical device tax hike. The U.S. Senate has promised in the past to repeal specific aspects of the ACA and create a bill to do so. In recent weeks, it appears that they are ready to make good on that promise. Their reasoning: an increased tax stalls economic growth by restricting research and development while ultimately costing companies many jobs.

According to John Eckberg, Director of Media Relations for the medical device manufacturing company, Cook Group, “This tax is a 30 percent tax surcharge for average companies, but because it’s a tax on gross sales, it can claim all the profits for companies that are in a competitive segment or companies that have thin profit margins.”

EvaluateMedTech’s 2015 report offers a staggering example of how most companies have cut R&D to pay for this tax since it went into effect on Jan. 1, 2013. Other firms (about 10 percent of U.S. companies), according to a recent Emergo report, slashed payroll and laid off workers.

The report, which based its findings on 300 publicly traded companies, shows the precipitous drop in the growth rate of R&D spending started in 2012, from 9.6 percent in 2011 to 2.5 percent in 2012 and hit a trough at 0.6 percent in 2014. “Because only a fraction of companies in this space formed the basis for this study, the harm is actually far worse when private firms are included,” claimed Eckberg.

It proves that research and development spending has dwindled to a trickle in this sector since this tax was passed.” In addition, Eckberg goes one step further, calling the tax itself “The dumbest tax in the history of public policy”:

Assume a total of $1.8 billion collected from U.S. firms between January 2013 and January 2015. That’s the equivalent of 30,000 jobs that might have paid $60,000 each — a starting medtech job. 

Innovation that does not happen leaves no footprint, but now it’s clear that jobs were bled from company balance sheets. Because a $60,000-a-year job creates three other jobs in local communities, in all, 120,000 jobs have not been created thanks to this tax.

The Plastics Industry Trade Association has also come out in support of a repeal of the device tax. In a statement posted on Nov. 11, 2015, the group wrote: “Repealing the medical device tax is essential to promoting economic growth, jobs, research and development and manufacturing. More importantly, repealing is critical to ensuring patient access to life-saving care and treatment.”

Politically-speaking, the attempts at a repeal have been largely partisan: House Republicans have voted more than 50 times to repeal or delay the ACA. However, they decided to take a different course of action with this tax. This is the first time the Republican-controlled House and Senate have used a procedure aimed at bypassing a filibuster by Senate Democrats to get a bill on the president’s desk.

So what does it all mean for medical device sales professionals? Only time will tell if the U.S. Senate is successful in repealing this specific tax. In the meantime, medical device sales jobs are still available for many of the larger companies that continue to attract and retain top sales talent.

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