The following article by Michelle Ye Hee Lee was posted on the Washington Post website March 16, 2017:
“I look at the 20,000 jobs that have left America because of the irresponsible medical-device tax, I look at the health-insurance taxes and others that drove up health-care costs on Americans, especially those who could least afford it.”
— Ways and Means Committee Chairman Kevin Brady (R-Tex.), quoted in a news article, March 7, 2017
The GOP replacement for the Affordable Care Act would repeal most new taxes in the current health-care law, or Obamacare. Among those taxes is the 2.3 percent medical-device tax, which has faced criticism from both Democrats and Republicans. Lawmakers have attributed all sorts of negative impacts to this law, and we’ve fact-checked someof those claims in the past. A two-year moratorium of the tax, which took effect in 2013, started in December 2015.
Is Brady’s claim accurate?
The excise tax applies to non-retail medical devices such as X-ray equipment, MRI machines, surgical instruments and pacemakers. It does not apply to products such as glasses, contact lenses and hearing aids.
The tax took effect January 2013. The effective tax rate is about 1.5 percent, because businesses can claim a deduction from their federal taxes. Repealing the tax would make little difference in federal revenues — reducing about $20 billion over 10 years, according to the Congressional Budget Office. For context, the federal government is projected to collect $3.4 trillion in revenues in fiscal 2017.
Brady’s staff pointed us to a study by industry group AdvaMed and a report from the right-leaning American Action Forum, which has long been critical of Obamacare.
In February 2017, AdvaMed announced the medical-technology industry shrank by about 29,000 jobs (372,628 in 2015, compared with 401,472 in 2012) while the device tax was in effect. American Action Forum calculated about the same number.
The figures come from the Census Bureau’s Annual Survey of Manufacturers, for the eight sub-sectors of the medical-technology industry that is affected by the tax. There are some manufacturers in the sub-sectors that are exempt from the tax.
What’s the evidence that the jobs lost were specifically due to the medical-device tax? AdvaMed and the American Action Forum said the timeline of jobs trends aligns too closely with the tax to dismiss the losses as being caused by other factors.
“We know companies told us their economic behavior would change in the wake of this tax, and even saw some of that before the tax went into effect. We’re not saying the device tax was the lone cause of these losses, but rather the losses occurred during the same time, and their significance is too large to ignore,” AdvaMed spokesman Greg Crist said.
But pure timing is not enough evidence to draw causation. Moreover, it doesn’t explain the slight recovery in jobs in 2015 or the overall decline in jobs that began in 2011. That suggests that other factors play a role.
The annual breakdown for the eight sub-sectors, per our calculation of using the latest figures reported in the same Census data set:
- 2015: 372,638
- 2014: 370,042
- 2013: 397,058
- 2012: 401,472
- 2011: 402,120
- 2010: 380,232
- 2009: 392,664
- 2008: 426,937
The 2015 figures are the most recent ones available, published in December 2016.
Some companies surveyed by industry groups did cite the tax as one of the factors that contributed to layoffs in their company. But there’s no evidence that it was the sole factor or that the jobs were shipped overseas, as Brady suggests.
The medical-device industry has faced many regulatory and technology changes in recent years that have made its future volatile. China, India, Korea, Russia and Brazil are playing a bigger role in the medical-device market.
In a January 2015 survey, industry consulting firm Emergo Group found that more than half of 685 executives in medical-device companies in the United States did not make any significant business changes in 2014 in response to the tax. (AdvaMed has criticized the firm’s methods, which allowed more than one response from one company.)
Emergo has not done a more recent version of the survey, but a January 2017 report on the global medical-device market showed that there is confidence in the medical-device markets in the United States and Europe. Emergo spokesman Chris Schorre said the strong U.S. dollar, which began rising in 2014, probably has had more to do with the sluggish growth among U.S. medical-device companies than the tax itself.
The Congressional Research Service called the tax “challenging to justify” from the “perspective of traditional economic and tax theory.” In its 2014 analysis, CRS found that the tax would have “fairly minor effects” on U.S. jobs but that the administrative and compliance costs are disproportionate to the revenue.
Health-care costs have grown more slowly after Obamacare, especially for people who could least afford it. So what does Brady mean that “health-insurance taxes and others” drove up health-care costs for Americans? A spokeswoman for the Ways and Means Committee said Brady was talking about overall costs associated with the law, including out-of-pocket costs, fees, taxes, premiums and other mandates.
“He’s talking about all of Obamacare, not just one tax. Our legislation repeals the taxes and mandates (on employers, individuals, providers, etc.) that have affected costs for consumers,” the spokeswoman said. She also pointed to the Congressional Budget Office’s 2016 calculations that the health-insurer tax, for example, will increase premiums for affected plans by between 2 percent and 2.5 percent.
However, the Milliman Medical Index attempts to calculate all out-of-pocket costs, not just premiums, for a typical U.S. family. Its data shows that health-care costs would have been nearly $5,000 higher if they had continued on the inflationary path that predated the 2010 health-care law.
The Pinocchio Test
Brady attributes job losses in the medical-device industry directly to the medical-device tax enacted under Obamacare. But there is little evidence that the roughly 29,000 jobs in eight sub-sectors affected by the tax directly resulted from the tax. The tax itself is minimal — the effective rate is 1.5 percent — and has been on hold since December 2015.
The census data that Brady cites showed that jobs in the eight sub-sectors began declining since calendar year 2011, before the medical-device tax went into effect in January 2013. And then in 2015, there was a slight increase over 2014 in the number of jobs, even though the tax was in effect all of 2015. This suggests there were other factors at play in addition to the tax, which was enacted in 2013 and placed on hold at the end of 2015.
Brady earns Two Pinocchios for exaggerating the impact of the tax.