Dec 6th 2012
By Ken Berry
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A controversial component of the 2010 health care law - the legislation commonly referred to as "Obamacare" - imposes a new 2.3 percent excise tax on most medical devices, beginning in 2013. The IRS has just issued a fifty-eight-page document on implementation of the rules.
Yet the new tax is far from a done deal. The IRS release triggered more calls to postpone the tax or eliminate it completely. Critics are hoping that a repeal can be folded into an agreement between Congress and the president to avoid the looming "fiscal cliff" of tax increases and spending cuts.
The 2.3 percent excise tax in the health care law is levied on gross sales received by medical device manufacturers after December 31, 2012. It's expected to raise $29 billion in tax revenue through 2022 (an increase from the original projection of $20 billion). "The excise tax is on the medical device manufacturers and importers (who) will now have access to thirty million new customers due to the health care law," said Treasury Department spokesperson Sabrina Siddiqui in a prepared statement.
Under the IRS "final rule," the tax applies to most devices used or implanted by health care professionals, ranging from simple tongue depressors to complex pacemakers. But certain devices that are sold over the counter - such as eyeglasses, contact lenses, and hearing aids - are specifically exempt from the tax. The IRS also carved out an exception for prosthetics. Conversely, products designed for humanitarian reasons, including experimental cancer treatment devices, won't escape the tax hit.
However, the IRS final rule didn't resolve all the questions surrounding the new excise tax. For instance, it's not clear if companies selling "dual-purpose" products to regular customers as well as medical professionals will be taxed on those products. One good example of a dual-purpose product is latex gloves.
Proposed legislation that passed the House in June would have repealed the 2.3 percent excise tax, but it was never voted on by the Senate. Now the IRS final rule has sparked renewed opposition to the tax. "With a mere twenty-seven days until the device tax goes into effect, medical imaging and radiation therapy manufacturers don't have sufficient time to implement or adjust to these job-killing regulations," said Gail Rodriguez, executive director of the Medical Imaging and Technology Alliance, an industry trade group.
If the tax is allowed to stand, it's likely to be passed to consumers in the form of higher costs. Stay tuned.