Bloomberg News

Republicans Attempt to Repeal Taxes for U.S. Health Law

May 31, 2012

Republicans Attempt to Peel Back Pieces of U.S. Health Law Taxes

Protesters from both sides campaigned outside of the Supreme Court as the court began listened to oral arguments over the constitutionality of the individual mandate portion of the health care law championed by President Barack Obama. Photographer: Fang Zhe/Xinhua/Zuma Press

Efforts to repeal taxes imposed by President Barack Obama’s health-care law advanced in Congress as Republicans sought to save medical-device makers $29 billion in levies and consumers $4 billion in out-of-pocket drug costs.

The U.S. House Ways and Means Committee voted 23-11 to eliminate a 2.3 percent tax on hip implants, pacemakers and other devices sold to hospitals; and voted 24-9 to end a ban on the use of pretax flexible spending accounts to buy nonprescription medicines such as Johnson & Johnson’s (JNJ:US) Tylenol.

Obama’s almost $1 trillion, 10-year plan to overhaul the health-care system passed Congress in 2010 without a single Republican vote. The law, known as the Affordable Care Act, is being challenged before the Supreme Court. It is expected to expand insurance to more than 30 million Americans after its main provisions take effect in 2014, funded partly by taxes, product discounts and other costs agreed to by drug companies, hospitals and insurers in exchange for increased business.

“The GOP continues to strongly oppose the ACA and is always searching for ways to prevent the implementation of any tax or fee that would help pay for this law,” said Steven Irizarry, a partner at the Washington-based lobbying firm Roberti White LLC. “It doesn’t hurt that it’s an election year, and that the ACA continues to remain as unpopular as ever.”

The Joint Committee on Taxation has said that repealing the two provisions of the health law would cost the government almost $34 billion through 2022 in lost revenue. The Republican- led Ways and Means Committee sent the bills to the House for a vote next week. The repeals must pass the Senate, controlled by Obama’s fellow Democrats, and gain the president’s signature to become law.

Cost Burdens

Device makers say they can’t afford the industry tax, which is set to take effect next year. The Advanced Medical Technology Association, a Washington-based lobby group representing Medtronic Inc. (MDT:US), Boston Scientific Corp. (BSX:US) and other device makers, says the levy will push companies to other countries and hurt innovation.

“This tax will harm the device and diagnostics industry’s ability to invest in hiring and medical progress,” Wanda Moebius, a spokeswoman for AdvaMed, said in an e-mail. “We are pleased repealing it has generated strong momentum.”

House Speaker John Boehner, an Ohio Republican, echoed the arguments today, telling reporters that unless repealed, the tax “will drive up the cost of health care in America and drive many of these companies overseas.”

The tax applies to all devices sold in the U.S., even those made in other countries, said Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee.

Bottom Line

“In full public view this issue was vetted,” Representative Richard Neal, a Democrat from Massachusetts, said. “It was transparent and the industry by and large bought in as long as the tax was applied to foreign competition, that was the bottom line.”

Two Democrats voted to repeal the tax, Representatives Ron Kind of Wisconsin and Shelley Berkley of Nevada. Other Democrats were sympathetic to the device industry while stopping short of supporting the repeal because Republicans hadn’t proposed how to pay for eliminating the tax.

“Without the pay-for it makes it difficult to proceed,” Representative Xavier Becerra, a Democrat from California, said.

A Senate bill, S. 17, the Medical Device Access and Innovation Protection Act, to repeal the tax has 26 sponsors, all Republicans. Minnesota Democrats Amy Klobuchar and Al Franken, who haven’t signed on to the bill, have said they support relieving the burden on device makers in some way. Medtronic, the world’s biggest maker of heart-rhythm devices, is based in Minneapolis. St. Jude Medical Inc. (STJ:US), No. 2 in the market for those devices, is based in St. Paul, Minnesota.

Drug Accounts

The House bill is H.R. 436, the Protect Medical Innovation Act of 2011. The bill to reverse the over-the-counter prohibition is H.R. 5842, the Restoring Access to Medication Act.

The Joint Committee on Taxation estimated allowing over- the-counter medicines to be included as flexible spending account expenses would cost the federal government $4 billion in anticipated revenue from 2013 through 2022.

Every dollar spent on nonprescription medicines saves the U.S. health-care system as much as $7, a total of $102 billion each year, according to a Booz & Co. study released in January by the Consumer Healthcare Products Association. The association serves as the Washington lobby group for over-the-counter drug companies, such as Allegan, Michigan-based Perrigo Co. (PRGO:US)

A third bill today, the Medical FSA Improvement Act, or H.R. 1004, lets employees cash out unused flexible spending dollars, as much as $500, and have it taxed as wages. Under current law, employees must forfeit money they don’t use.

To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • JNJ
    (Johnson & Johnson)
    • $102.36 USD
    • 0.40
    • 0.39%
  • MDT
    (Medtronic Inc)
    • $62.41 USD
    • -0.24
    • -0.38%
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