by Brendon Nafziger
, DOTmed News Associate Editor
An industry-funded report says a 2.3 percent excise tax on medical device manufacturers set to go into effect in 2013 could endanger almost 43,000 U.S. jobs while making health care slightly more expensive to consumers.
In a report released Wednesday, the Advanced Medical Technology Association, a trade lobby, said the coming tax will cut into companies' revenues and force them to move manufacturing facilities offshore in order to escape the growing U.S. tax burden.
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"The device tax could cost thousands of jobs, depending on the cutback and what percent of the industry moves offshore," Diana Furchtgott-Roth, co-author of the report and a senior fellow with the Manhattan Institute, a New York-based think tank, told reporters on a call Wednesday. "We assume a loss of about 43,000 jobs in the medical device industry, if for example just 10 percent of manufacturers' activity moves offshore."
The group also warns that the tax could stifle U.S innovation and give a leg up to foreign competitors. Also, because the tax applies to revenue, and not profits, companies with smaller profit margins could be devastated, and end up owing Uncle Sam money despite operating at a loss.
The tax was included in the Affordable Care Act and is meant to raise $20 billion over the next decade to help pay for the costs of health reform -- that is, adding millions of new Americans to the insurance rolls. Earlier versions of the bill included a higher tax on device companies, but it was brought down for the final bill.
Direct-to-consumer and retail products like contact lenses are exempt from the tax, although it's unclear if it applies to home equipment, like motorized wheelchairs.
While the actual guidelines have to be finalized, the study, "Employment Effects of the New Excise Tax on the Medical Device Industry," tried to calculate the effect on employers when the tax comes online, from what's known now.
Naturally, when faced with the tax, companies will try to make up for it by raising prices and cutting costs. That is, part of the tax would be passed on to consumers: the researchers estimate after-tax prices for devices could rise about 1 percent. But also, companies could shift some amount of employment overseas.
The authors say under "reasonable assumptions" up to 10 percent of jobs could move abroad, resulting in U.S. job losses of 43,000 and labor compensation losses of about $3.5 billion.
In 2009, the domestic device manufacturing industry employed over 400,000 people, who earned about $33 billion in labor compensation, according to the study.