The piece of Obamacare that Dems wouldn’t mind giving up

Updated
Physical therapist Joan Collins pushes Fred Lear in a wheelchair after a therapy session at the Lifelong Medical Marin Adult Day Health Care Center on...
Physical therapist Joan Collins pushes Fred Lear in a wheelchair after a therapy session at the Lifelong Medical Marin Adult Day Health Care Center on...
Justin Sullivan/Getty Images

Even as Democrats stand shoulder to shoulder in opposition to GOP threats to shut down the government or reject a debt-limit increase, they’re wavering ever so slightly about keeping Obamacare’s medical-device tax.

Scarcely any Democrat would even consider defunding Obamacare, as House Speaker Boehner demands, to keep the government open starting Oct. 1.  (Even Boehner doesn’t much like the idea; he’s pressing the matter to appease his party’s unappeasable reactionary wing.)  But more than a few Democrats would like to repeal Obamacare’s 2.3% excise tax on medical devices.

Even Assistant Majority Leader Dick Durbin, the number two leader in the Senate, flinched a little when Bob Schieffer asked him on CBS’s “Face the Nation” whether the medical-device tax ought to be repealed. (“Wouldn’t that be kind of a popular thing to do away with, a tax on wheelchairs and things like that?)  “Well, I support taking a look at the medical-device tax,” Durbin said, before adding, “But not with a gun to my head. Not with a prospect of shutting down the government.”

Obamacare contains many new taxes to pay for the law’s expansion in health coverage. It’s got three or four new taxes on health insurers, a tax on pharmaceuticals, and a tax on hospitals. It’s got a tax on tanning salons. It’s got an increase in the Medicare part of the payroll tax for high earners that includes a surcharge on investment income–an unprecedented liberal change that, quite surprisingly, has raised scarcely a peep. And it’s got the new tax on medical devices.

But only the medical-device tax has raised much of a ruckus. Why?

It’s easy to forget that, although partisan Republicans campaigned vigorously against passage of the Affordable Care Act, the health care industry, for the most part, did not. There were two reasons for this. The first was that the law (for all the “death panels” talk) contained scarcely any measures to curb medical inflation (although its passage, happily, coincided with—and perhaps helped bring about–a dramatic decrease in the rate of medical cost increases).  The second reason was that the law showered $1 billion on the health sector to expand coverage. Most players in the health industry saw a tax increase as an acceptable price to pay for Obamacare’s expansion of the health care market.

But the medical-device business is a bit different from the rest of the health industry (or at least judges itself so) in the extent to which it caters to the elderly. All of health care is of course heavily weighted toward older people, because they’re likeliest to get sick. But the medical-device business is (or at least believes itself to be) especially weighted toward elderly “customers.” And those customers already bill their health care costs to the federal government, via Medicare.

“Medical device makers argue that the new enrollees in health insurance plans will be young,” Brian Johnson, publisher of the trade publication MassDevice.com, explained to Boston public-radio station WBUR, “and not in need of the technology they create, such as cardiac stents, hip and knee implants and surgical devices that the industry primarily creates.” According to Johnson, several medical-device companies have examined the results from the 2006 Massachusetts health care reform, which was (Mitt Romney’s denials to the contrary) the model for Obamacare. They “swear they see no uptick in business,” Johnson said—presumably because the vast majority of medical-device users were already getting their pacemakers and whatnot paid for through Medicare.

If that’s true, then there’s no particular reason to believe Obamacare will have much upside for the medical-device industry to balance out the downside of the excise tax. The industry’s position is a bit like that of the state of Massachusetts when it unexpectedly elected the anti-Obamacare Scott Brown to the Senate in 2010 (before, more predictably, ejecting Brown in 2012 in favor of Elizabeth Warren, a liberal Democrat). Since Bay-staters were already getting health coverage via Romneycare, they had little reason to support Brown’s pro-Obamacare opponent, Democrat Martha Coakley. In both instances, the logic was: I got mine. Why should I pay for yours? Elderly voters were cool to Obamacare for much the same reason.

Now those elderly voters, a potent voting bloc, are faced with a (possible) pass-through of the medical-devices tax to the cost of what Schieffer calls their “wheelchairs and things like that” through higher Medicare co-payments. Conservatives have seized this opportunity to rally opposition to the tax. “Who buys pacemakers, wheelchairs, and other costly medical devices?” asked anti-tax activist Grover Norquist in a 2012 opinion piece in the Daily Caller. “Seniors do.” That makes it hard for Democrats to ignore the issue.

Compounding Democrats’ vulnerability is that the medical-device industry has a significant presence in Democratic strongholds like Massachusetts, Illinois, and Minnesota. The Illinois connection explains Durbin’s trepidation; Massachusetts and Minnesota firms have prompted Sens. Elizabeth Warren and Al Franken to urge delay in the tax’s implementation.

It should therefore come as little surprise that last March a (non-binding and entirely symbolic) resolution calling for repeal of the medical-device tax passed the Senate 79-20, with more than 30 Democrats voting aye. A “real” vote to repeal the tax would draw fewer votes, because supporters would have to find $29 billion in replacement revenue. But how many fewer is anybody’s guess.

Opposition to the medical-devices tax has little to do with the merits. Opponents complain that the tax would move device manufacturers offshore, but doing so would not allow companies to evade the tax, which applies to imports as well. (One trade association report alleging that the tax would eliminate 43,000 jobs in the U.S. was judged “not credible” by Bloomberg Government.) The tax’s impact on sales would likely be minimal, because medical-device spending is what economists call “inelastic”; if your doctor says you need a stent, you get a stent. Meanwhile, repealing the tax, notes Paul N. Van de Water of the nonprofit Center on Budget and Policy Priorities, risks creating a stampede among other industries to get their taxes repealed, too.

That is surely a key reason Republicans are tempting Democrats to repeal it. If they did, the supreme irony would be that the “socialistic” Obamacare had been cannibalized by the (far more “socialistic”) Medicare program, which single-payer advocates preferred all along as a model for health care reform.

The piece of Obamacare that Dems wouldn't mind giving up

Updated