The Obamacare medical device excise tax: get ready for the next round in the repeal fight

The 2.3% Obamacare medical device excise tax has been praised, denounced, attacked, commended, vilified and applauded. The tax, which went into effect after Dec. 2012, under Section 4191 of the Internal Revenue Service Code,

“imposes an excise tax on the sale of certain medical devices by the manufacturer or importer of the device.”

Efforts to pull the plug on this tax have been underway, thus far without success. But the battle continues. The Washington Post, in a Jan. 30, editorial headlined, “Bipartisan efforts to repeal the medical device tax are galling,” blasted both sides of the aisle for attempts at repeal, which would cost Obamacare funding $3 billion annually over 10 years. Said the Post:

“The medical device tax isn’t a particularly elegant policy. But it accomplishes its goal of helping to fund health care for the poor and middle class without dealing unreasonable damage to the economy.”

Not all medical devices are taxed under the law.  There are exemptions for such items as contact lenses, hearing aids, and eyeglasses under a retail safe harbor provision. This “safe harbor” is explained by the IRS in this way:

“The retail exemption safe harbor includes devices in the FDA’s online in vitro diagnostics (IVD) Home Use Lab Tests (Over-the-Counter Tests) database, devices that the FDA describes as “OTC” or “over the counter” in certain official FDA classification or product code headings or descriptors, and a number of devices that qualify as durable medical equipment, prosthetics, orthotics or supplies for which payment is available on a purchase basis under the Medicare Part B payment rules.”

The medical device tax and airline ticket pricing have something in common: One would have to be in the conference rooms where decisions are being made to fully understand how tickets are priced, and how government officials decide where to draw the taxable lines. For example, as mentioned, eyeglasses are not taxed, but such life-sustaining and diagnostic equipment as heart pacemakers; magnetic resonance imaging (MRI) machines; and heart valves are assessed the 2.3% tax.

The war of words over the tax and attempts at repeal alternately claim that the law has already cost thousands of jobs and is stifling creativity and innovation to assertions that it’s really not all that much money and the claims are exaggerated of the tax’s dire effects. There have been complaints that medical device manufacturers and importers are simply passing the cost on to hospitals, and eventually, the patients. Why that should be a surprise is anyone’s guess. Many examples don’t spring to mind of situations in which taxes on a sector were raised and its members just willingly ate the cost.

Nevertheless, that has been an argument as well. If you’re a consumer, you know this: someone is going to pay, and eventually you’ll find him or her living at your address. To learn more about the medical device tax start by looking here.

Have questions? Contact a Rodefer Moss accounting professional!

Tagged Accounting, Featured, Tax