Medical Device Tax Might Be Way To Get A Budget Passed

The health care law is partly funded by a tax on medical devices. Republicans and some Democrats from states with medical device companies want to repeal the tax. Leading Democrats say that's not happening if it's meant to scale back Obamacare. But the device tax could be an area of compromise later in a broader budget deal.

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This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

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And I'm Audie Cornish. This week's government shutdown has been defined by Democrats and Republicans squabbling, finger-pointing and largely refusing to negotiate. But there is one thread of bipartisan cooperation emerging, although it's a small one. Some members of both parties want to repeal a tax on medical devices that's helping to fund the Affordable Care Act. Senate leadership say there's no way they'll repeal that tax, while Republicans are trying to win concessions during the shutdown.

But down the road, the tax might be an area of compromise in an overall budget agreement. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: The medical device tax is projected to raise about $30 billion over ten years to help more people get health insurance. Many Republicans who want to defund Obamacare want to repeal the tax. That's not so surprising. But some Democratic lawmakers have said that they might repeal the tax, too. Those include Senator Al Franken of Minnesota and Elizabeth Warren from Massachusetts, states where medical device companies say the tax is hurting them.

MICHAEL MINOGUE: This is the latest product that we're testing now.

ARNOLD: In a research lab at a company called AbioMed outside Boston, CEO Michael Minogue is showing me a little high tech blood pump. And you can actually hear the heart-like pumping sound inside of the testing unit.

(SOUNDBITE OF PUMP)

ARNOLD: Minogue says it's a new product that can save money by avoiding costly surgeries. But he says innovation like this is being hampered by the new tax.

MINOGUE: So the tax went into effect last January, 2.3 percent of revenue.

ARNOLD: That means the tax is equal to 2.3 percent of total sales. And Minogue says for younger companies their profits, if they even have any, might only be 5 percent or so of their total sales, so the tax really hurts the bottom line. Especially, he said, since he's been unable to pass along the cost to his customers.

MINOGUE: It's absolutely going to take 35 to 40 percent of our profits.

ARNOLD: And Minogue says that means he won't be hiring as many people.

MINOGUE: We've slown up our pace a little bit of hiring, even though we've still added over 100 jobs here in Danvers, Massachusetts. But we're slowing down a little bit some of our research.

ARNOLD: Minogue estimates he'd have hired 30 more people if it wasn't for the tax. And CEOs like Minogue appear to have won the ear of Democratic lawmakers who represent them. Proponents, though, say that while there may be some firms that are getting hard hit, the tax is not a hardship for the overall industry. Paul Van de Water is an economist with the left-leaning Center on Budget and Policy Priorities in Washington, D.C.

PAUL VAN DE WATER: The tax has been in effect for nine months. There's no sign of any serious widespread problems. And this is largely the industry crying wolf.

ARNOLD: Wall Street analysts estimate that most big medical device firms are seeing a much smaller, 2 or maybe 3 percent impact on their profits. And proponents of the tax say that many healthcare-related companies are going to make more money because more people will have health insurance under Obamacare, so they can pay a little more tax. Similar levies were also placed on hospitals and drug companies as part of the Affordable Care Act.

Lisa Swirsky is a health policy analyst with Consumers Union. She says 86 percent of the revenues from the tax will come from just the 10 biggest companies that make medical devices.

LISA SWIRSKY: They're doing well, they're profitable and they're the ones who are going to be paying most of the tax.

ARNOLD: But that said, the tax still looks like it could hurt at least some smaller companies. Josh Lerner's an economist at Harvard Business School who studies technological innovation and public policy.

JOSH LERNER: My intuition is that there's a real middle ground here.

ARNOLD: Lerner says there might be room to keep the bulk of the tax in place but to tweak it so that it doesn't hurt young emerging companies that are coming up with the medical devices of the future. Chris Arnold, NPR News, Boston.

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