A provision in the Democrats' proposal to partially fund health care reform would tax medical devices and replacement parts like pacemakers, hearing aids and porcelain teeth, worrying critics who say the higher costs will be passed on to consumers.
By Maxim Lott
Friday, October 02, 2009
Tucked into the Democrats' proposal to partially fund health care reform is a provision to tax medical appliances -- including some manufactured replacement parts for your body.
Under pressure, the Senate recently exempted medical items that cost under $100 -- such as tampons and condoms. But the tax, expected to raise about $40 billion over the next decade, is still in the bill and includes items like:
Hip joint replacements
Prosthetic heart valve rotators
Groups like the Medical Device Manufacturer's Association said that the tax would hurt them, as well as those who need medical devices.
"Virtually all medical device providers would be affected," Thomas Novelli, the director of federal affairs at the Medical Device Manufacturer's Association, told FOXNews.com. "Ultimately, the costs associated with this tax are going to be passed on to consumers [because] producers will have to raise prices on their products."
Dr. Jennifer Mellor, the director of the Schroeder Center for Healthcare Policy at the College of William and Mary, agreed that part of the tax would be passed on to consumers. But she said that it was probably in the bill because universal health care is expected to help medical device makers by making all Americans buy insurance.
"When people have insurance, they use more medical care. It could be that [legislators] say that if you're going to provide a whole new set of customers, and these [medical device] firms are going to get some benefit from that, it might make sense that they also share in the burden of paying for these new benefits."
Novelli said that many of the items being taxed were used almost exclusively by the elderly, who are all already covered under Medicare.
"If you look at the devices that are primarily going to be targeted, like pacemakers, etc., they are already covered under Medicare. So that argument doesn't hold water."
The measure is facing significant bipartisan opposition in Congress, and members of both parties have pushed back against the measure drafted by Sen. Max Baucus, chairman of the Senate Finance Committee.
Sen. Al Franken, D-Minn., wrote in a letter to Baucus that the tax "will seriously threaten thousands of American jobs and deter innovation." There are "many other ways to save money in health care," he said.
While some external devices, including prosthetic limbs, will not be affected by the tax, internal devices like cochlear implants to aid hearing will be hit.
Alex Tabarrok, an economics professor at George Mason University, said that consumers, not the device suppliers, would most end up getting hurt.
"In a perfectly competitive market, you can only tax people. You can't really tax firms," he said.
Rick Tyler, a spokesman for Newt Gingrich, said that the bill's impact on consumers meant it would break Obama's promise not to raise taxes on ordinary Americans "for about the fourth time."
But Dr. David Cutler, an economics professor at Harvard University and Obama's senior health care advisor during the campaign, said that he expected that the bill would save Americans money by forcing health care costs down.
"In fact, the bill overall will reduce family spending. By rationalizing health care, streamlining administrative processes, and encouraging sensible prevention, the bills will save the typical family over $2,500 annually, and possibly much more," Cutler said, citing a June report by Obama's Council of Economic Advisors.
The Congressional Budget Office, however, does not anticipate such savings. It estimates that the Baucus plan would be paid for with $354 billion in tax increases and $409 billion in reduced spending on Medicare and other government health programs.
Tabarrok called Cutler's notion "wishful thinking at best."
"I would be willing to go along with the following: First you produce the cost savings. And any cost savings you produce, we'll put it into expanding coverage."
But economists also said that the tax was a very minor part of the health care bill.
Mellor, of William and Mary, added that the tax on medical devices was a very small part of the total amount raised, and that a more important tax to consider was the $215 billion tax on "gold-plated" health plans.
"Looking at the numbers, the bill calls for around to $350 billion in new taxes, so this $4 billion a year is just a small fraction of taxes raised," she said.
"This is not the major issue in the bill."
But Tyler said that the tax was still very relevant.
"All taxes that pay for a national health program are bad," he said. "But this illustrates the extent of the number of taxes and how much they will cost the consumer."