Medical Device Excise Tax: The Jackalope Hunt That Went Too Far

The medical world is financially screwed up. In my own recent past, my wife got a brace (that didn’t work) from an Urgent Care. Had they billed it to me correctly, it would have cost me zero dollars. If I bought the piece of crap at Walgreens, it would have cost about $30 dollars. Instead, some company I’ve never heard of is hounding us to cough up $60 for the shoddy plastic mess.

In my case, the surprise billing is just an overpriced brace. For many others, the situation is much, much worse.

And let’s be honest. Civilization will end before the government figures out how to do health care right. That’s why I’m voting for SMOD for president in 2016.

Though I am concerned we'll only get its surrogates on the campaign trail

Though I am concerned we’ll only get its surrogates on the campaign trail

As for our esteemed Congressional Representatives, while many claim they have a plan to solve the health care issue (anyone who thinks Obamacare did it hasn’t been to the doctor recently), the current battles are being fought at the edges. The edge fight of the day is over the unpopular medical device excise tax introduced by Obamacare.

The tax has always been one of the least popular features of a still unpopular law. The medical device excise tax tacks on a tax of 2.3% based on the price of each medical device sold. The House is looking to get that tax repealed through the Protect Medical Innovations Act of 2015, which should pass the House today (if it hasn’t already).

President Obama, unsurprisingly, is not on board.

The Facts

An excise tax, in essence, is an unseen sales tax. The difference between the two is over who pays the tax.

Unless you’ve lived in Oregon your whole life, you’ve seen sales tax in action. That candy bar might say it costs only 50 cents, but we all know that two quarters won’t deliver you that sweet chocolate goodness. That’s because sales tax is your responsibility, something you pay, though it’s collected by the retailer and passed along to the state.

An excise tax falls on the company. If a candy bar only has an excise tax, if it says 50 cents on the price tag, you pay 50 cents at the register. The company will then pay any taxes behind the scenes.

The Fiction

Democrats have argued that increased medical insurance coverage will lead to more patients buying more devices. Since the medical device manufacturers should be getting more sales thanks to government intervention, they should pony up more in taxes, right?

If prices on medical devices were perfectly elastic, that argument would have some weight, i.e. the most they could charge for a brace was $60 both before and after Obamacare. Maybe if people were buying their own braces (or other medical devices), this might be the case, since individuals could compare price tags. But that’s not how it works in the medical community. Most people have no clue what they’re actually paying for any care, including their medical devices.

That’s all a round about way of saying that medical device companies are passing on the increased tax to the consumers through higher prices, and we probably have no idea. Heck, some of us have no idea we bought something until months later.

But let’s not put all the blame on the Democrats. Republicans are making a similar argument, saying that the medical device excise tax is costing manufacturers huge amounts of money that’s preventing them from reinvesting their profits back into the company, stunting innovation (hence the “Protect Medical Innovations” bill title). While there may be a small amount of justification to their concern (again, going back to the elasticity argument), chances are that very few medical device companies are absorbing that cost, instead passing it on to the consumer.

The Irony

The Democrats started the fictional argument that we’re going to tax companies to help offset the cost of health care. It’s a false argument, but the Republicans are picking it up and running with it.
All we’re doing is indirectly increasing costs to the end consumer. But the Democrats find corporations a much easier targets, and I guess Republicans either don’t see or don’t feel like arguing for what’s actually happening.
I’m pretty sure we’re watching a Jackalope hunt right now. Except the organizers can’t admit that Jackalopes don’t exist, because they’ve built up such an elaborate world and convinced so many people that admitting it was a joke will make them look bad.
It’s like a bad 90’s sitcom, except instead of being resolved in a half hour, it has been dragged on for years.
So whether the Protect Medical Innovations Act of 2015 passes or not, whether the medical device excise tax goes away or not, those corporations are going to be fine. It’s us and our stupid, overpriced braces that we should be worried about.