Capitol View: March 23, 2012 Archive

PoliGraph: Hegseth's medical device claim inconclusive

Posted at 2:26 PM on March 23, 2012 by Catharine Richert (2 Comments)
Filed under: PoliGraph

In a recent opinion piece, Pete Hegseth, one of Sen. Amy Klobuchar's potential opponents this fall, wrote that an excise tax in the new health care law will have a significant impact on Minnesota's small and mid-sized medical device companies.

Hegseth wrote Klobuchar should not have voted for the health care overhaul as a result.

"If the tax is allowed to take effect, nonpartisan experts expect major job reductions, with more than 2,700 med-tech jobs lost in Minnesota alone. The 83,000 Minnesotans employed as an indirect result of the industry will also be holding their breath," Hegseth wrote in his March 22, 2012, op-ed.

Health economists say the device industry will feel the impact of the new tax, but are skeptical it will lead to dramatic job losses.

The Evidence

Starting in 2013, the excise tax will apply to the sale of taxable medical devices by the manufacturer or importer of the device. It won't apply to eyeglasses, contact lenses, hearing aids or any other devices that people typically buy at retail, according to the Internal Revenue Service's proposed rule on the tax.

The tax is expected to generate between $20 and $30 billion over 10 years, and is meant to help pay for other parts of the new law. The medical device industry believes the tax will inevitably be passed on to consumers, who will then use fewer of their products. Republican Rep. Erik Paulsen is leading an effort in the U.S. House to repeal the tax.

When the health care bill was first debated in 2009, Klobuchar opposed a higher device tax, and worked to reduce it. Klobuchar also co-chair of the Medical Device Caucus. But she has so far not signed on to bills in the Senate that would repeal the tax.

Hegseth relied on two reports to support his claim, both commissioned by AdvaMed, the medical device lobby; one report was written by two economists who have ties to conservative think-tanks including the American Enterprise Institute, the Hudson Institute and the Manhattan Institute for Policy Research.

According to those reports, Minnesota employs roughly 27,000 people in the medical device field, but the new tax would cut the workforce by 2,700 people, in part by moving jobs overseas.

In February, the left-leaning Center on Budget and Policy Priorities issued a rebuke of the AdvaMed-commissioned research. Economist Paul N. Van de Water wrote that U.S. device exports are exempt from the tax, and it will apply to devices locally and imported from overseas creating no incentive for manufacturers to move jobs overseas.

The new health care law is designed to increase demand for drugs and devices because it requires everyone to have insurance, said Gerald F. Kominski, a health care economist at UCLA and director of the UCLA Center for Health Policy Research. In theory, what the industry pays in taxes will be offset by more people buying coverage.

But Kominski agreed that there's room for debate on whether the additional demand will be exactly offset by the tax.

Roger Feldman, a health economist at the University of Minnesota who consults for the U.S. Department of Health and Human Services and the Congressional Budget Office, agrees.

But he also pointed out that most medical devices are implanted as part of a hospital stay, so they would be covered by insurance, which doesn't typically respond much to price changes.

For the Minnesota medical device industry to lose 10 percent of its workforce, let alone all the workers associated with the industry as Hegseth's claim implies, "demand for medical devices would have to be hugely, hugely more responsive to prices than demand for medical care over all," Feldman said.

Thrivent Financial health care analyst David Heupel said the tax is likely to hit smaller, less profitable companies.

"If you're not that profitable, it will have a more meaningful hit to you than it would to a Medtronic," he said. "But what that means to job cuts is anyone's guess."

The Verdict

Hegseth relied on two studies commissioned by the medical device industry, which opposes the device tax, to support his claim.

Still, PoliGraph couldn't find extensive research to demonstrate that the medical device industry won't be affected by the new tax. And while health care economists are skeptical that the Minnesota device makers would lose a full 10 percent of its workforce, they agree that reasonable minds can argue about exact impact of the new tax on the industry.

Because of the lack of evidence about exactly what impact the medical device tax will have on employers, PoliGraph can only give Hegseth's claim an inconclusive verdict.

SOURCES

Pioneer Press, Pete Hegseth: Medical device tax will hit small and mid-size companies hard, March 21, 2012

Internal Revenue Service, Notice of Proposed Rulemaking: Taxable Medical Devices, Feb. 7, 2012.

White House, Office of Management and Budget, Fiscal Year 2013: Analytical Perspectives, accessed March 22, 2012

The Center for Budget and Policy Priorities, Excise Tax on Medical Devices Should Not Be Repealed:Industry Lobbyists Distort, Overstate Tax's Impact, By Paul N. Van de Water, Feb. 14, 2012

The State Economic Impact of Medical Technology Industry, June 7, 2010

Employment Effects of the New Excise Tax on the Medical Device Industry, by Diana Furchtgott-Roth and Harold Furchtgott-Roth, September 2011

Minnesota Public Radio News, Paulsen: Congress to take up medical device tax repeal, by Brett Neely, Jan. 26, 2012

The Star Tribune, Klobuchar, Franken oppose device-firm tax, by Janet Moore, Sept. 16, 2009

Interview, Gerald F. Kominski, Director of the UCLA Center for Health Policy Research, March 22, 2012

Interview, Roger Feldman, professor, University of Minnesota, March 22, 2012