Wednesday, October 16, 2013

The Medical Device Tax Is Good Political Economy

One of the odd pieces of shutdown/debt ceiling negotiations has been an obsession in Washington with a 2.3% tax on medical devices included as part of the Affordable Care Act. Ezra Klein says "there's no obvious justification for the medical device tax", which, in pure policy terms I suppose is "mostly true". There's some deadweight loss, there will be slightly fewer jobs and slightly less innovation in the field. Whether or not that's a good price to pay for the revenue gained by the tax is an empirical and phisophical question. Note that there is some concern among health care wonks that medical devices are overutilized, particularly the subcategory of durable medical equipment.

But at the level of political economy, the medical device tax is a good tax. Most health care industry trade groups—insurers, drug manufacturers, hospital associations, etc.—decided that they would rather be at least a reluctant partner in the ACA's passage and negotiate some sort of industry-wide fee, tax, or federal spending cut in exchange for a tremendous expansion of their customer base. This lead to some unseemly results such as the White House opposing Democratic efforts to bring down the cost of prescription drugs as the price of PhrMA's cooperation.  The trade group for medical device manufacturers—the Advance Medical Technology Association—refused to play ball. The tax is thus a combination of (1) a way to gain revenue, (2) an attempt to compensate for perceived overuse & mispricing of medical devices, and (3) a penalty for the trade group's intransigence. The trade group is now trying to wriggle out from their previous mistakes.

This is the big leagues. In 2009, the AMTA played the lobbying game and lost. Now in 2013, they're trying again and losing. If device manufacturers want the tax repealed while Barack Obama is in the White House, they should try tying to something Democrats might actually care about. Fix the "family glitch". Replace the 30-hour "full time employee" cliff with some sort of full-time equivalency measurement. But attaching repeal or delay to reopening the government at sequestration levels of spending? That's not a ransom note that the Obama Administration should sign.
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