[House Report 112-514]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 112-514
======================================================================
PROTECT MEDICAL INNOVATION ACT OF 2012
_______
June 5, 2012.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Camp, from the Committee on Ways and Means,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 436]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 436) to amend the Internal Revenue Code of 1986 to
repeal the excise tax on medical devices, having considered the
same, report favorably thereon with an amendment and recommend
that the bill as amended do pass.
CONTENTS
Page
I. Summary and Background...........................................2
II. Explanation of the Bill..........................................3
A. Repeal of Medical Device Excise Tax................. 3
III. Votes of the Committee..........................................5
IV. Budget Effects of the Bill.......................................5
V. Other Matters To Be Discussed Under the Rules of the House.......8
VI. Changes in Existing Law Made by the Bill, as Reported...........9
VII. Dissenting Views...............................................12
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Protect Medical Innovation Act of
2012''.
SEC. 2. REPEAL OF MEDICAL DEVICE EXCISE TAX.
(a) In General.--Chapter 32 of the Internal Revenue Code of 1986 is
amended by striking subchapter E.
(b) Conforming Amendments.--
(1) Subsection (a) of section 4221 of such Code is amended by
striking the last sentence.
(2) Paragraph (2) of section 6416(b) of such Code is amended
by striking the last sentence.
(c) Clerical Amendment.--The table of subchapters for chapter 32 of
such Code is amended by striking the item relating to subchapter E.
I. Summary and Background
A. PURPOSE AND SUMMARY
The bill, H.R. 436, as reported by the Committee on Ways
and Means, repeals the medical device excise tax.
B. BACKGROUND AND NEED FOR LEGISLATION
As a result of the Patient Protection and Affordable Care
Act (Pub. L. No. 111-148), as modified by the Health Care and
Education Reconciliation Act (Pub. L. No. 111-152), beginning
in 2013, a 2.3 percent tax will be imposed on the manufacture
and importation of medical devices.
The medical device industry employs more than 400,000
workers nationwide and invests nearly $10 billion in research
and development (``R&D'') annually. The tax is expected to
stifle innovation, increase health care costs, and cost
thousands of high-paying jobs. One study concluded the tax
could result in job losses in excess of 43,000 and employment
compensation losses in excess of $3.5 billion. The study also
demonstrated that the tax would ``roughly double the device
industry's total tax bill and raise the average effective
corporate income tax rate to one of the highest effective tax
rates faced by any industry in the world.''
The new tax will increase costs for patients. In April
2010, the CMS Office of the Chief Actuary explained how various
taxes and fees, including the medical device excise tax, would
be passed onto patients in the form of higher prices. The Chief
Actuary wrote: ``We anticipate that these fees and the excise
tax [emphasis added] would generally be passed through to
health consumers in the form of higher drug and device prices
[emphasis added] and higher insurance premiums, with an
associated increase in overall national health expenditures
ranging from $2.1 billion in 2011 to $18.2 billion in 2018 and
$17.8 billion in 2019.''
The excise tax will increase the effective tax rate for
many medical technology companies, thereby reducing financial
resources that should be used for R&D, clinical trials and
investments in manufacturing.
During a period of persistently high rates of unemployment,
the Committee believes that allowing the medical device tax to
go into effect, as scheduled, in 2013 would exacerbate job
losses. Additionally, the Committee believes that slowing the
rise in health costs is an urgent priority, and this new tax
would instead increase such costs.
C. LEGISLATIVE HISTORY
Background
H.R. 436 was introduced on January 25, 2011, and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 436 on May
31, 2012, and ordered the bill, as amended, favorably reported
(with a quorum being present).
Committee hearings
The economic and health policy issues surrounding the
medical device tax were discussed at four Committee hearings
during the 112th Congress:
Full Committee Hearing on the Health Care
Law's Impact on Jobs, Employers, and the Economy
(January 26, 2011)
Subcommittee on Health Hearing on Health
Care Law's Impact on the Medicare Program and its
Beneficiaries (February 10, 2011)
Full Committee Hearing on the President's
Fiscal Year 2012 Budget Proposal with U.S. Department
of Health and Human Services Secretary Kathleen
Sebelius (February 16, 2011)
Full Committee Hearing on the Need for
Comprehensive Tax Reform to Help American Companies
Compete in the Global Market and Create Jobs for
American Workers (May 12, 2011)
II. Explanation of the Bill
A. REPEAL OF MEDICAL DEVICE EXCISE TAX
Present law
Effective for sales after December 31, 2012, a tax equal to
2.3 percent of the sale price is imposed on the sale of any
taxable medical device by the manufacturer, producer, or
importer of such device.\1\ A taxable medical device is any
device, as defined in section 201(h) of the Federal Food, Drug,
and Cosmetic Act,\2\ intended for humans. Proposed regulations
further define a medical device as one that is listed by the
Food and Drug Administration (``FDA'') under section 510(j) of
the Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part
807, pursuant to FDA requirements.\3\
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\1\Sec. 4191.
\2\21 U.S.C. sec. 321. Section 201(h) defines device as an
instrument, apparatus, implement, machine, contrivance, implant, in
vitro reagent, or other similar or related article, including any
component, part, or accessory, which is (1) recognized in the official
National Formulary, or the United States Pharmacopeia, or any
supplement to them, (2) intended for use in the diagnosis of disease or
other conditions, or in the cure, mitigation, treatment, or prevention
of disease, in man or other animals, or (3) intended to affect the
structure or any function of the body of man or other animals, and
which does not achieve its primary intended purposes through chemical
action within or on the body of man or other animals and which is not
dependent upon being metabolized for the achievement of its primary
intended purposes.
\3\Prop. Treas. Reg. sec. 48.4191-2(a). The proposed regulations
also include devices that should have been listed as a device with the
FDA as of the date the FDA notifies the manufacturer or importer that
corrective action with respect to listing is required.
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The excise tax does not apply to eyeglasses, contact
lenses, hearing aids, and any other medical device determined
by the Secretary to be of a type that is generally purchased by
the general public at retail for individual use (``retail
exemption''). Proposed regulations provide guidance on the
types of devices that are exempt under the retail exemption. A
device is exempt under these provisions if: (1) it is regularly
available for purchase and use by individual consumers who are
not medical professionals; and (2) the design of the device
demonstrates that it is not primarily intended for use in a
medical institution or office or by a medical professional.\4\
Additionally, the proposed regulations provide certain safe
harbors for devices eligible for the retail exemption.\5\
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\4\Prop. Treas. Reg. sec. 48.4191-2(b)(2).
\5\Prop. Treas. Reg. sec. 48.4191-2(b)(2)(iii). The safe harbor
includes devices that are described as over-the-counter devices in
relevant FDA classification headings as well as certain FDA device
classifications listed in the proposed regulations.
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The medical device excise tax is generally subject to the
rules applicable to other manufacturers excise taxes. These
rules include certain general manufacturers excise tax
exemptions including the exemption for sales for use by the
purchaser for further manufacture (or for resale to a second
purchaser in further manufacture) or for export (or for resale
to a second purchaser for export).\6\ If a medical device is
sold free of tax for resale to a second purchaser for further
manufacture or for export, the exemption does not apply unless,
within the six-month period beginning on the date of sale by
the manufacturer, the manufacturer receives proof that the
medical device has been exported or resold for use in further
manufacturing.\7\ In general, the exemption does not apply
unless the manufacturer, the first purchaser, and the second
purchaser are registered with the Secretary of the Treasury.
Foreign purchasers of articles sold or resold for export are
exempt from the registration requirement.
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\6\Sec. 4221(a). Other general manufacturers excise tax exemptions
(i.e., the exemption for sales to vessels or aircraft, to a State or
local government, to a nonprofit educational organization, or to a
qualified blood collector organization) do not apply to the medical
device excise tax.
\7\Sec. 4221(b).
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Proposed regulations provide guidance related to the sale
of medical devices for use in kits. Under the proposed
regulations, the kit itself is a taxable medical device if the
kit is listed as a device with the FDA pursuant to FDA
requirements.\8\ The process of producing or assembling a kit
that is a taxable device constitutes further manufacture under
the proposed regulations.
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\8\Prop. Treas. Reg. sec. 48.4221-2(b)(3).
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The lease of a medical device is generally considered to be
a sale of such device.\9\ Special rules apply for the
imposition of tax to each lease payment. The use of a medical
device subject to tax by manufacturers, producers, or importers
of such device, is treated as a sale for the purpose of
imposition of excise taxes.\10\
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\9\Sec. 4217(a).
\10\Sec. 4218.
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There are also rules for determining the price of a medical
device on which the excise tax is imposed.\11\ These rules
provide for (1) the inclusion of containers, packaging, and
certain transportation charges in the price, (2) determining a
constructive sales price if a medical device is sold for less
than the fair market price, and (3) determining the tax due in
the case of partial payments or installment sales.
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\11\Sec. 4216.
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Reasons for change
The U.S. medical device industry is a leader in medical
technology innovation. The industry is an important contributor
to the nation's economy, employing over 400,000 people and
manufacturing devices both for the U.S. and foreign markets.
The United States is a net exporter of medical devices. The
Committee believes that the excise tax on medical devices,
scheduled to take effect on January 1, 2013, will adversely
impact the industry. The Committee believes that the tax will
increase the cost of healthcare, slow medical innovation, and
lead to loss of jobs in the industry.
Explanation of provision
The provision repeals the medical device excise tax.
Effective date
The provision is effective on the date of enactment.
III. Votes of the Committee
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the votes of the Committee on Ways and Means during
the markup consideration of H.R. 436.
MOTION TO REPORT RECOMMENDATIONS
The bill, H.R. 436 was ordered favorably reported as
amended by a roll call vote of 23 yeas and 11 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp....................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Herger..................... X ........ ......... Mr. Rangel....... ........ ........ .........
Mr. Johnson.................... ........ ........ ......... Mr. Stark........ ........ X .........
Mr. Brady...................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Ryan....................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Nunes...................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Davis...................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Reichert................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Boustany................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Blumenauer... ........ X .........
Mr. Gerlach.................... X ........ ......... Mr. Kind......... X ........ .........
Mr. Price...................... X ........ ......... Mr. Pascrell..... ........ ........ .........
Mr. Buchanan................... X ........ ......... Ms. Berkley...... X ........ .........
Mr. Smith...................... X ........ ......... Mr. Crowley...... ........ X .........
Mr. Schock..................... X ........ .........
Ms. Jenkins.................... X ........ .........
Mr. Paulsen.................... X ........ .........
Mr. Marchant................... X ........ .........
Mr. Berg....................... X ........ .........
Ms. Black...................... X ........ .........
Mr. Reed....................... X ........ .........
----------------------------------------------------------------------------------------------------------------
IV. Budget Effects of the Bill
A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the revenue provisions
of the bill, H.R. 436, as reported.
The bill is estimated to have the following effects on
Federal budget receipts for fiscal years 2013-2022:
FISCAL YEARS
[Millions of dollars]
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Item 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-17 2013-22
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Repeal the 2.3 percent excise tax on medical devices...... -1,742 -2,562 -2,668 -2,771 -2,889 -3,012 -3,143 -3,280 -3,428 -3,582 -12,631 -29,076
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NOTE: Details may not add to totals due to rounding.
B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX EXPENDITURES BUDGET
AUTHORITY
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee states further that the bill involves no new or
increased tax expenditures.
C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 4, 2012.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 436, the Protect
Medical Innovation Act of 2012.
If you wish further details on this estimate, we will be
pleased to provide them. The staff contact is Kurt Seibert.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure.
H.R. 436--Protect Medical Innovation Act of 2012
H.R. 436 would amend the Internal Revenue Code to repeal
the medical device excise tax that is scheduled to go into
effect on January 1, 2013. Under current law, a tax of 2.3
percent will be imposed on the sale of medical devices by the
manufacturer or importer. Medical devices that are regularly
available at retail for individual use and not primarily
intended for use by a medical professional are exempt from the
tax. The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 436 would reduce revenues by $29.1
billion over the 2012-2022 period. The entire revenue reduction
would result from a reduction in on-budget revenues and thus
pay-as-you-go procedures apply.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
direct spending or revenues. Enacting H.R. 436 would result in
revenue losses in each year from 2013 to 2022. The net increase
in the deficit is shown in the following table.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS OF H.R. 436, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 31, 2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2012-2017 2012-2022
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NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Impact............ 0 1,742 2,562 2,668 2,771 2,889 3,012 3,143 3,280 3,428 3,582 12,631 29,076
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.
H.R. 436 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Kurt Seibert.
The estimate was approved by Frank Sammartino, Assistant
Director for Tax Analysis.
D. MACROECONOMIC IMPACT ANALYSIS
In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: the effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.
V. Other Matters To Be Discussed Under the Rules of the House
A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the potential impact of the medical
device tax and the provisions of H.R. 436 that the Committee
concluded that it is appropriate to report the bill favorably
to the House of Representatives with the recommendation that
the bill do pass.
B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for any
measure that authorizes funding is required.
C. INFORMATION RELATING TO UNFUNDED MANDATES
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the reported bill does
not contain any Federal private sector mandates within the
meaning of Public Law No. 104-4, the Unfunded Mandates Reform
Act of 1995. The Committee has determined that the revenue
provisions of the bill do not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. APPLICABILITY OF HOUSE RULE XXI 5(B)
Clause 5(b) of rule XXI of the Rules of the House of
Representatives provides, in part, that ``A bill or joint
resolution, amendment, or conference report carrying a Federal
income tax rate increase may not be considered as passed or
agreed to unless so determined by a vote of not less than
three-fifths of the Members voting, a quorum being present.''
The Committee has carefully reviewed the provisions of the
bill, and states that the provisions of the bill do not involve
any Federal income tax rate increases within the meaning of the
rule.
E. TAX COMPLEXITY ANALYSIS
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the Senate Committee on
Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Code and that
have ``widespread applicability'' to individuals or small
businesses within the meaning of the rule.
F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND LIMITED TARIFF
BENEFITS
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill as reported contain no congressional earmarks, limited
tax benefits, or limited tariff benefits within the meaning of
that rule.
VI. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
SUBTITLE D--MISCELLANEOUS EXCISE TAXES
* * * * * * *
CHAPTER 32--MANUFACTURERS EXCISE TAXES
SUBCHAPTER A--Automotive and Related Items
* * * * * * *
[SUBCHAPTER E--Medical Devices]
* * * * * * *
[SUBCHAPTER E--MEDICAL DEVICES
[Sec. 4191. Medical devices.
[SEC. 4191. MEDICAL DEVICES.
[(a) In General.--There is hereby imposed on the sale of any
taxable medical device by the manufacturer, producer, or
importer a tax equal to 2.3 percent of the price for which so
sold.
[(b) Taxable Medical Device.--For purposes of this section--
[(1) In general.--The term ``taxable medical device''
means any device (as defined in section 201(h) of the
Federal Food, Drug, and Cosmetic Act) intended for
humans.
[(2) Exemptions.--Such term shall not include--
[(A) eyeglasses,
[(B) contact lenses,
[(C) hearing aids, and
[(D) any other medical device determined by
the Secretary to be of a type which is
generally purchased by the general public at
retail for individual use.]
* * * * * * *
SUBCHAPTER G--EXEMPTIONS, REGISTRATION, ETC
* * * * * * *
SEC. 4221. CERTAIN TAX-FREE SALES.
(a) General Rule.--Under regulations prescribed by the
Secretary, no tax shall be imposed under this chapter (other
than under section 4121 or 4081) on the sale by the
manufacturer (or under subchapter A or C of chapter 31 on the
first retail sale) of an article--
(1) * * *
* * * * * * *
but only if such exportation or use is to occur before any
other use. Paragraphs (4), (5), and (6) shall not apply to the
tax imposed by section 4064. In the case of taxes imposed by
section 4051, or 4071, paragraphs (4) and (5) shall not apply
on and after July 1, 2012. In the case of the tax imposed by
section 4131, paragraphs (3), (4), and (5) shall not apply and
paragraph (2) shall apply only if the use of the exported
vaccine meets such requirements as the Secretary may by
regulations prescribe. In the case of taxes imposed by
subchapter A of chapter 31, paragraphs (1), (3), (4), and (5)
shall not apply. In the case of taxes imposed by subchapter C
or D, paragraph (6) shall not apply. [In the case of the tax
imposed by section 4191, paragraphs (3), (4), (5), and (6)
shall not apply.]
* * * * * * *
SUBTITLE F--PROCEDURE AND ADMINISTRATION
* * * * * * *
CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS
* * * * * * *
SUBCHAPTER B--RULES OF SPECIAL APPLICATION
* * * * * * *
SEC. 6416. CERTAIN TAXES ON SALES AND SERVICES.
(a) * * *
(b) Special Cases in Which Tax Payments Considered
Overpayments.--Under regulations prescribed by the Secretary,
credit or refund (without interest) shall be allowed or made in
respect of the overpayments determined under the following
paragraphs:
(1) * * *
(2) Specified uses and resales.--The tax paid under
chapter 32 (or under subsection (a) or (d) of section
4041 in respect of sales or under section 4051) in
respect of any article shall be deemed to be an
overpayment if such article was, by any person--
(A) * * *
* * * * * * *
Subparagraphs (C), (D), and (E) shall not apply in the
case of any tax paid under section 4064. In the case of
the tax imposed by section 4131, subparagraphs (B),
(C), (D), and (E) shall not apply and subparagraph (A)
shall apply only if the use of the exported vaccine
meets such requirements as the Secretary may by
regulations prescribe. This paragraph shall not apply
in the case of any tax imposed under section 4041(a)(1)
or 4081 on diesel fuel or kerosene and any tax paid
under section 4121. Subparagraphs (C) and (D) shall not
apply in the case of any tax imposed on gasoline under
section 4081 if the requirements of subsection (a)(4)
are not met. [In the case of taxes imposed by
subchapter C or D of chapter 32, subparagraph (E) shall
not apply.]
* * * * * * *
VII. DISSENTING VIEWS
We voted against H.R. 436 for many reasons. First, the bill
results in a revenue loss of $29 billion without any indication
of how--or whether--it will be paid for. Claiming the need for
fiscal austerity, the Majority is insisting on other spending
and program cuts that will have devastating impacts on low- and
middle-income people in our communities.
In April, the Majority voted to end the Social Services
Block Grant (SSBG) program; doing so would reduce protective
services for abused children, assistance for people with
disabilities, and home-based services for senior citizens--
including Meals on Wheels. They also voted to increase taxes on
low- and middle-income families that receive health insurance
assistance under the Affordable Care Act (ACA). Cutting funding
for programs that serve the poor while protecting tax
preferences for industry is not consistent with our values.
This Committee has far more pressing issues than
eliminating the contribution by the medical device industry to
help finance affordable, quality health care for all Americans.
There are much higher priorities that need to be addressed,
including passing legislation that creates jobs and the pending
27 percent cut to Medicare physician payments. If the Majority
wants to increase spending or reduce revenue without paying for
it, they should at least select a pressing issue that must be
addressed before the end of the year--such as helping Medicare
patients and military families maintain access to their
physicians.
This bill is the latest in a continued series of attacks by
the Majority on the ACA. The medical device and other health
sectors stood with the President in the late spring of 2009 and
pledged to do their part to lower health spending by $2
trillion, stating ``we, as stakeholder representatives, are
committed to doing our part to make reform a reality. . . .''
The medical device excise tax that is the subject of H.R. 436
represents the medical device sector's contribution to health
care reform in light of the expanded market for their products
that results from having more than 30 million newly insured
patients. Virtually all sectors of the health and medical
industry--including hospitals, pharmaceutical companies,
insurance companies and others--made significant contributions
to help finance health care reform. These contributions were
appropriate because the coverage expansions of health care
reform will result in tens of millions of additional health
care customers for the health industry. H.R. 436 undermines the
financing of the ACA--by eliminating the contribution of a key
health industry sector.
We are particularly concerned that the Majority continues
its attack on the ACA without putting forward any comprehensive
legislation to address the health insurance needs of the
American people. In January of 2009, the Majority voted to
fully repeal the ACA and separately for a resolution that
contained ``principles'' that should guide legislation to
``replace'' the ACA. Yet we haven't seen them bring forth any
legislation to replace the ACA with proposals that guarantee
access to quality, affordable health insurance. With H.R. 436,
the Majority continues its repeal agenda and again offers
nothing for replacement.
We are also very concerned about a number of distortions
surrounding the debate on the medical device excise tax, a
number of which were dispelled during the markup of H.R. 436:
Contrary to industry assertions, the device tax
will not cause a contraction of the medical device industry or
major job losses. Tom Barthold, Chief of Staff for the Joint
Committee on Taxation (JCT), testified during the markup of
H.R. 436 that the medical device industry will continue to grow
even after the medical device excise tax is in effect. While
one reason for projected growth is the aging of America's
population (a demographic shift that favors the device industry
as older patients tend to constitute a larger portion of the
sector's total sales), Mr. Barthold also testified that a key
reason for the industry's continued growth is the ACA's
coverage expansion. JCT's revenue estimates regarding the
excise tax highlight this second factor--revenue from the tax
grows by more than $800 million in the first year that the
coverage expansions of the ACA take effect when compared to the
prior year's revenues from the tax. It should be noted that JCT
is an impartial and nonpartisan expert on tax law and the
economic implications of tax law. While studies paid for by the
medical device industry predictably suggest the excise tax will
result in a dramatic contraction of the industry, independent
experts have criticized such studies for disregarding economic
research on demand sensitivity to price fluctuations for
medical products and services and for reaching conclusions that
are not based on empirical evidence. For example, an
independent analysis by Bloomberg Government found that
industry-commissioned studies on job loss both fail to take
into account the tens of millions of newly insured customers
and make other unsubstantiated assumptions about consumer and
industry behavioral responses to the tax.
The device tax does not incentivize companies to
ship jobs overseas. The tax applies to all products used in the
United States. Thus, the tax applies to goods made abroad and
imported into America. Further, the tax does not apply to
products made in the United States and shipped abroad. Domestic
and foreign manufacturers are on a level playing field. During
the markup, Members knowledgeable about the negotiations during
development of the ACA stated that one of the industry's
primary concerns was that the tax needed to be applied fairly
to both foreign and domestic manufactures. The medical device
tax satisfied this concern.
Industry burden. All companies are subject to the
same tax and thus all are on a level playing field--large or
small, foreign or domestic. Over the next ten years, the tax is
predicted to raise less than $3.6 billion per year. According
to the Congressional Research Service, the ten largest
companies that manufacture devices had total, company-wide
profits on all of their lines of business of $42 billion and
$48 billion for 2010 and 2011, respectively, with gross device
sales of $133 billion in 2010. Industry analysts predict that
the largest device manufacturers will pay most of the excise
tax. For example, industry analysts predict that the ten
largest companies manufacturing non-diagnostic medical devices
will pay 86 percent of the excise tax liability on those
devices.
The ACA lowers health insurance premiums. While
the Congressional Budget Office (CBO) estimates that the device
tax, along with the other industry contributions, may result in
a slight increase to health insurance premiums when taken in
isolation, CBO also estimates that the ACA will more than
offset these slight increases with significant decreases in
premium costs. For example, CBO estimates that the cost of
policies available today in the individual insurance market
will be seven to 10 percent lower after the ACA's coverage
expansions and key market reforms take effect than those same
policies cost today. These are critical reforms--provisions
such as the creation of state exchanges to foster competition
and transparency, reduced underwriting expenses because
insurers cannot deny benefits or price policies based on pre-
existing conditions, and minimum loss ratio rules that require
insurance companies to spend premiums on providing benefits and
not on excessive insurance company profits.
All of these reasons contributed to our vote against H.R.
436 today. We hope the Committee will soon address more
pressing issues facing our nation--in particular, legislation
to create jobs and the pending 27 percent cut in physician
payments that threatens the health of America's senior
citizens, people with disabilities, and military personnel.
Sander M. Levin.
Charles B. Rangel.
Fortney Pete Stark.
Jim McDermott.
John Lewis.
Xavier Becerra.
John B. Larson.
Earl Blumenauer.