Taking aim at med device tax

  • Article by: JIM SPENCER and KEVIN DIAZ , Star Tribune staff writers
  • Updated: May 30, 2012 - 9:11 PM

Rep. Erik Paulsen is leading the fight to repeal it. Sens. Franken and Klobuchar also oppose it, but chances in Senate are uncertain.

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Rep. Erik Paulsen called the tax a “tax on innovation.”

Photo: Jerry Holt, Star Tribune

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WASHINGTON - Republican House members are not waiting for the long-sought decision of the U.S. Supreme Court next month on the constitutionality of President Obama's signature health care law.

Spearheaded by Minnesota Republican Erik Paulsen, the GOP-led House is expected to vote next week to repeal an estimated $28 billion tax on medical device makers. While the tax is intended to help pay for the expansion of health care in the U.S., its repeal would provide relief to an industry with a major hub in the Twin Cities, home of pacemaker giant Medtronic.

Paulsen's bill, scheduled to pass out of the House Ways and Means Committee on Thursday, represents the third time this year that the House's GOP majority has moved to dismantle the health care law in whole or in part, fulfilling a central promise of the 2010 Tea Party movement that dubbed it "ObamaCare."

Paulsen's device tax repeal bill has 239 co-sponsors, including a dozen Democrats, which virtually ensures its passage once it comes to the House floor, possibly as soon as early next week. At a business roundtable in Minnetonka on Wednesday, Paulsen called the medical devices tax a "tax on innovation" that would "hit companies in Minnesota pretty hard" unless it were repealed.

Minnesota is home to some 400 medical device makers who employ 35,000 people, making the state one of the leading regional economies in the U.S. to feel the pinch once the planned 2.3 percent levy on revenue kicks in next January.

Chances for a repeal are far less likely in the Senate, where Democrats are reluctant to blow a $28 billion hole in a massive health care overhaul that needs every dollar Washington can muster to expand coverage to about 30 million people.

Potentially caught in the crossfire could be Sens. Amy Klobuchar and Al Franken, Minnesota Democrats. Both have staked out positions against the medical devices tax, but it is unclear whether they could support a repeal effort that did not include a another means of filling the funding gap.

"I still think we need to eliminate the tax," Franken said, "but any plan to do so must be offset in a responsible and fiscally sound way."

Klobuchar pushed to reduce the tax from the $40 billion that was originally proposed in the 2010 health care law. Appearing at the Minnetonka roundtable with Paulsen, she said she would "continue to support repealing it, reducing it, whatever we can do."

She has not said whether she would require the offset that other Democrats want, waiting to see what might be proposed. The GOP plan headed for the House floor next week provides no offset.

Industry presses

With no agreement on how to backfill the lost revenue that would be generated by the tax, next week's action in the House could turn out to be largely symbolic, much like previous votes to dismantle the Affordable Care Act's cost-control board or to repeal the law altogether.

But political analysts say the election-year House votes will count heavily on lawmakers' records, regardless what the Senate or the Supreme Court do in the coming weeks. The medical technology industry also has become heavily involved.

"We expect the House to pass the measure [repealing the tax] with a significant number of Democrats voting to do so," said Steve Ubl, CEO and president of AdvaMed, the country's leading medical device advocacy group. AdvaMed has poured time and hundreds of thousands of dollars into lobbying to get rid of the device tax, which it calls a job killer.

In the 2012 election cycle, Paulsen received $64,000 in campaign contributions from medical suppliers -- more than any other member of the House, according to records compiled by the Center for Responsive Politics.

Those records also show that Klobuchar, who is running for reelection this year, ranks third in the Senate, with $63,650 in campaign contributions from medical suppliers.

Paulsen quipped that "we're counting on Senator Klobuchar to twist the arm of [Senate Majority Leader] Harry Reid to schedule it on the Senate floor." But that appears unlikely.

"The Senate couldn't put [the House bill] on the floor today and pass it," admitted Shaye Mandle, government relations vice president for the LifeScience Alley, which represents the med-tech industry in Minnesota. "There's a lot of politics, given the presidential election."

'Congress' responsibility'

Even if the Supreme Court strikes down the individual mandate, which forces individuals to buy health insurance or pay a penalty, experts believe the entire Affordable Care Act will be difficult to dismantle because many parts already have been put into place.

Using the individual mandate to increase the number of healthy people buying insurance was the reform's most critical source of revenue. If the Supreme Court throws that out, other revenue sources, such as the device tax, magnify exponentially in importance.

Some in the medical device industry don't see that as thir problem.

"I don't think it's our responsibility to go through the whole federal budget and find $20 billion," Mandle said. "It's [Congress'] responsibility."

AdvaMed's Ubl believes there are other ways to recoup the tax money that would be lost, should the device tax be repealed. But his organization is not advocating for any offset and in fact hopes the Senate will not attach one to the repeal bill.

The issue is complicated and controversial enough that Ubl thinks it will not be taken up as stand-alone legislation, but perhaps included in an end-of-the-year, overall tax package.

"We've heard from Senate Democrats who are concerned if it gets pushed to a vote [right now]," Ubl explained.

Meanwhile, the IRS is moving ahead with rule-making to collect the tax. The medical device industry is playing a role in that process to protect its interests in the event that the House and Senate deadlock over the device tax repeal.

"On the one hand, we want to get rid of the tax," Ubl said. "But we have to prepare for its implementation."

Jim Spencer and Kevin Diaz are correspondents in the Star Tribune Washington Bureau.

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