What Is Medical Device Tax

What Is Medical Device Tax

There has been a lot of controversies surrounding the Medical Device Tax which until now remains to be unpopular. Despite its suspension until December 31, 2017, it still remains to be an important part of the legislation of health care reform and should at all times be taken into consideration during planning stages. Other than its current status, however, not a lot of people know much about the Device Tax.

Here’s what you need to know:

What is Medical Device Tax?

Launched back in 2013, the medical device tax is included in the ACA or Affordable Care Act. Imposing a 2.3% sales tax evenly on medical supplies both imported and domestically-produced, it does make an exemption for products that are produced in the U.S. but are tagged for export. It applies to a wide range of medical devices and products, including artificial joints, pacemakers, and even surgical gloves. However, it does not apply to devices that the general public typically buys for individual use such as hearing aids, contact lenses, and wheelchairs.

Why is it part of the Affordable Care Act?

Estimated to bring in around $29 billion over the next ten years, this tax was one of a number of revenue-raising provisions intended to offset the projected cost of providing healthcare coverage to over 25 million Americans through the Affordable Care Act.

How does it relate to my Health Insurance Costs?

According to President Obama’s argument in favor of said tax “Medical Device Tax = higher tax and sales cost but will come back to companies in the form of more customers due to the wider healthcare insurance coverage”. That’s exactly where the problem lies according to naysayers – taxing companies more creates a ripple effect on sales costs on different levels that will most likely end up with customers ultimately shouldering the additional expenses by way of paying more for their healthcare needs. Naturally, if a medical device used to treat or diagnose a patient becomes more expensive; healthcare providers who buy and utilize such devices can and will charge more for their services. We have yet to see if the claim that costs will eventually offset and actually be beneficial for all parties. What is obvious at the moment is that such tax, hopefully at least for the short-term only, will bring about higher costs.

What is a Taxable Medical Device?

A medical device is generally considered taxable if it is listed with the Food and Drug Administration of the FFDCA or Federal Food, Drug, and Cosmetic Act and 21 CFR part 807. That is, unless the device falls within an exemption from the tax. An example would be the retail exemption. There are many debates on the term “medical device”, however, as its definition is subject to broad interpretation.

Who are affected?

While the 2.3% sales tax might not be much for a big corporation, it can be pretty hard hitting for smaller medical device manufacturers, such as those who have just started producing small devices (for example tongue depressors, hearing aids, and patient monitoring accessories). Funds that will need to be diverted toward this tax could have been used much more effectively for research and development, and this could hurt the tight timeframe by which these companies run and can lead to loss of income for them as well.

The future of the Medical Device Tax

While the tax is currently considered “on hold”, it is certainly not dead. It will automatically be brought “alive” at the beginning of the year 2018, unless there are actions done between now and then to further delay or repeal the tax altogether. While there are those who vehemently oppose the medical device tax citing its significant costs and effects on the economy, those who are for it also have important points raised up that outline just how much the health care system and its reform can benefit from it in the long run.

For now, the Medical Device Tax is up in the air, and is still the subject of many a continued discussions and debates. It’s well worth remembering, however, that future health care reforms in the health care industry will definitely be affected if and when it is put into action in the year 2018.

Diego Orjuela is the founder and CEO at Cables and Sensors, recently ranked #377 on the Inc 500 fastest-growing companies in America. His company is a global leader in oxygen sensors for bedside monitors and also has a huge selection of ECG and EKG cables. With more than 10 years in the healthcare industry, the company is well equipped to design and manufacture quality cables and sensors to the specifications of OEM products.

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Jim operates an insurance agent network called Insurance Partners, aggregating agents in the Midwest for over 25 years. He was National Agent of the Year for Metropolitan in 1993 and Midwest Agent of the Year for Travelers in 2011. He served as a founding board member of the Surplus Lines Association of Minnesota.

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