House Passes Medical Device Excise Tax Repeal

On June 6, 2012, the U.S. House of Representatives passed H.R. 436, titled the “Health Care Cost Reduction Act of 2012,” by a 270-146 vote to repeal the medical device excise tax created by the Patient Protection and Affordable Care Act (P.L. 111-148) (PPACA).  Beginning in 2013, an excise tax of 2.3 percent will be imposed on the sale of any medical device by the manufacturer or importer.  The provision for the medical device excise tax in PPACA carved out exemptions for eyeglasses, contact lenses, hearing aids, and other devices determined by the Treasury department to be of a type that is generally purchased by the general public at retail for individual use.  The bill appears to have little chance of approval in the Democratic-controlled Senate. 

Supporters of the excise tax argued that the medical device industry could bear the tax because the law will drive healthcare demand for those companies.  President Obama made that argument in his veto threat against the bill if it were to reach his desk.

House Republicans would pay for repealing the tax by recouping some subsidies provided to low- and middle-income people to help those individuals and families buy insurance.  Eligibility for subsidies is based on a person’s income and according to the House Republicans, individuals and families who experience an increase in income may receive larger subsidies than entitled.  Under H.R. 436, the government would recover those overpayments.  According to the House, that provision is expected to save $44 billion over the next decade, meaning the overall bill would reduce federal deficits by $7 billion.

The bill also included a pair of other health-related provisions.  One would allow individuals up to $500 back from unused money in their tax-favored health flexible spending accounts.  Under current law, money in such accounts are not refundable if not spent for medical bills.  The other would allow for contributions to some tax-advantaged health savings accounts be used to buy over-the-counter drugs.

The administration has cited previously that the excise tax would add upwards of $29 billion over 10 years to the federal coffers.  In anticipation of the tax, some manufacturers had announced plans to lay off workers or reorganize operations.  Stryker Corporation of Kalamazoo, Michigan, cited the tax as a factor in plans to reduce its global work force by about five percent.