Minnesota congressional delegation slow to propose ways to pay for repeal of medical device tax

WASHINGTON – Ask Marc Goldwein at the Committee for a Responsible Federal Budget how to pay for repeal of the medical device tax and he reels off a dozen precise solutions.

Ask the same question of members of the Minnesota congressional ­delegation who are leading the charge to kill the device tax, and hemming and hawing starts.

While many in the U.S. Senate and House pay lip service to ending the sales tax on medical devices that was instituted to help pay for national health care reform, no consensus exists about exactly how.

The reticence, says University of Minnesota political scientist Larry Jacobs, combines an old trick with a new dynamic.

"Skillful politicians use ­ambiguity to try to please competing interests," Jacobs said. "This is one of those increasingly difficult debates around health reform where you've got very significant and important state ­interests colliding with other goals."

The situation is delicate enough that Rep. Erik Paulsen, R-Minn., the self-styled leader of House device tax opponents, declined to be interviewed about specific ways he hopes to offset $26 billion in federal revenue lost over 10 years if the device tax disappears. The Senate rejected an offset Paulsen proposed in an earlier device tax repeal passed by the House. This year, he offered a device tax repeal bill without explaining how to pay for it and deferred to "leadership" in the House and Senate to settle on exactly what that would be.

Sen. Amy Klobuchar, D-Minn., has offered a device tax repeal bill in the Senate with Republican Orrin Hatch that does not specify an offset.

"We are in the process of looking at different proposals, running the numbers to see if we can come up with one or a combination that has ­bipartisan support," said Klobuchar. Congress' Joint Committee on Taxation has lowered the revenue loss from repealing the tax from $30 billion over ten years to $26 billion, Klobuchar said.

The Congressional Budget Office also has estimated that the Affordable Care Act's expansion of insurance coverage will cost $101 billion less than originally thought, she added.

"Under congressional rules, you can't use that savings to pay for [repeal]," Klobuchar said. "But it is certainly an argument that will be out there."

Sen. Al Franken, D-Minn., ticked off a number of ideas, many of them similar to what Goldwein mentioned — expanding reforms to health care delivery and encouraging generic drug use. Franken even talked about ending tax subsidies to oil and gas companies and closing the carried interest loophole for hedge fund ­managers.

But he also acknowledged that coming up with an idea that could pass the Senate is a challenge.

"That's why doing this ­during comprehensive tax reform is attractive," he said.

The reluctance by some to be specific about device tax repeal could be necessary to preserve options while negotiating privately, Jacobs said.

Klobuchar and Franken are "clearly constrained at this point in finding a path that would allow them to support a rollback of the medical device tax without undermining the Democratic Party's support and their own support for health reform."

For groups like the Committee for a Responsible Federal Budget, owning a solution that deals with the nation's deficit is job No. 1. The committee, known as CRFB, is affiliated with the bipartisan group Fix the Debt and was co-founded by former Democratic congressman Tim Penny of Minnesota. Its entreaties for debt reduction or revenue neutrality sometimes struggle to find purchase on Capitol Hill. Even offsetting a relatively small revenue loss like the device tax "is tough to do because of [a lack of] political willingness," Goldwein said.

Meanwhile, the industries seeking tax relief often refuse to talk about ways to pay for those breaks, saying it is Congress' job, not theirs. In the case of the medical device tax, the device industry not only does not discuss so-called "pay-fors," it continually suggests they may not be necessary.

"Where there's a will, there's a way," Stephen Ubl, president of AdvaMed, the device ­industry's main lobbying group, said recently.

"Repealing the medical device tax may or may not require an offset. When Congress decides it wants to make a policy change, sometimes it pays for it. Sometimes it doesn't."

Klobuchar said there may be votes on her Senate bill as it is — without an offset. But, she added, "we have always believed our best chance of getting it passed was finding a pay-for."

CRFB has outlined a number of ways to save $26 billion over 10 years or add new revenue sources that total that amount.

Medicare and Medicaid

Reforms to such programs as Medicare and Medicaid, the government-run health insurance plans for senior citizens and the poor, are better than anything for long term debt reduction, Goldwein said.

Expanding bundled payments for inpatient care would base Medicare reimbursements on treatment packages and outcomes. CRFB says that alone could save $25 billion over 10 years. Reducing Medicare's reimbursements to hospitals for patients' bad debts would save $30 billion in a decade, CRFB says.

But fiddling with Medicare is politically risky. So is proposing new revenue sources.

Moving up by one year a new tax health insurers must pay on premiums in excess of $10,200 per employee or $27,500 per family would bring in $35 billion over 10 years, said Goldwein. Eliminating tax breaks for oil and gas companies also produces $35 billion in new revenue over a decade, according to CRFB.

Competition for savings and revenue is the problem. If you use reduced spending or new money to get rid of the device tax, said Goldwein, you obviously can't use them for other kinds of tax reform.

And once you let the medical device industry off the hook, Jacobs added, the pharmaceutical, hospital and health insurance industries will line up looking for the same relief. If offered, it could ultimately undermine the Affordable Care Act, which the president considers a signature legislative achievement.

"This," said Jacobs, "is a new kind of debate that we haven't had in the past."

Jim Spencer • 202-383-6123