Nobody likes paying taxes. So naturally if a tax gets removed, most people are glad to see it go. This appears to be the case with the medical device tax, which is part of the Affordable Care Act. Based on current congressional legislation, the 2.3% tax on medical devices seems to be slated for a continued hiatus, rather than be repealed altogether. On hiatus since early 2016, the tax suspension is scheduled to cease by year’s end. But if current legislation passes, the hiatus will continue up to another five years.
Patient-Centered Health Care
Based on comments from congressional leaders from the Ways and Means Committee, suspending the tax for five more years would allow them to continue creating legislation that focuses on patient-centered health care. According to committee members, citizens would receive targeted tax relief that would provide easier access to medications, treatments, and affordable health care options.
As with almost any type of legislation, there are still lingering questions regarding its cost and effectiveness. According to the Joint Committee on Taxation, repealing the tax is expected to cost the United States Treasury $20 billion over 10 years. From 2013-2015, the IRS collected an estimated $1.5 billion annually from the tax. To get the current legislation passed, Congress will need to attach it to one of several pending pieces of legislation still being negotiated. Those options include bills aimed at continued funding for the government, tax cut legislation, and funding for the Children’s Health Insurance Program, better known as CHIP.
Medical Technology Companies
Based on the reactions from many executives from medical device manufacturers, the possible tax suspension would be welcomed. According to the Advanced Medical Technology Association, many companies such as Abbott Laboratories, Medtronic, Johnson & Johnson, and others say the medical device tax hurts the industry’s ability to encourage innovation, especially at smaller companies. Based on the latest industry data, one-third of medical device manufacturing companies have less than 20 employees.
Investing the Savings
Since the tax was put on hiatus, many companies state they have been able to use the savings wisely. Job creation, making capital improvements, and funding additional Research and Development projects have been high on the list of many companies. By having the tax suspended for a long period of time, they believe it will become much easier for them to develop the next generation of medical devices for patients dealing with a variety of illnesses and conditions.
Chances of Permanent Repeal
With the medical device tax now looking at an additional five-year hiatus, many in Congress and the medical device manufacturing business are wondering if the temporary suspension will result in a permanent repeal. However, there are few if any answers to that question at the moment. In previous legislation aimed at repealing and replacing Obamacare, the medical tax legislation was included in bills that ultimately failed to pass Congress. However, with the popularity of the current tax hiatus with medical device manufacturers, congressional leaders are expected to continue to pursue an eventual repeal of the tax. But with more data set to be analyzed and evaluated by political and industry leaders, it is difficult to ascertain at the moment what the eventual outcome will be regarding this issue and its related legislation.
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