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House Votes to Repeal Medical Device Tax in Health Law

Republicans in the U.S. House joined with 37 Democrats to pass a bill repealing a medical-device tax, chipping away at the 2010 health-care law in a victory for companies including Medtronic Inc. (MDT) and Boston Scientific Corp. (BSX)

The Republican-led House voted 270-146 yesterday to pass the repeal measure. The 2.3 percent excise tax on sales, estimated to raise $29 billion over the next decade, is due to take effect in 2013. It applies to devices such as hip implants and coronary stents that aren’t sold directly to consumers.

“Plain and simple, this tax hike is a job killer and it must be repealed,” said Representative Dave Camp, a Michigan Republican who heads the House Ways and Means Committee.

The House bill is part of Republicans’ attempts to scale back or repeal the health-care law that passed without a single Republican vote. The U.S. Supreme Court is expected to rule this month on the law’s constitutionality.

In a statement, Republican presidential candidate Mitt Romney said the tax would stifle innovation.

“The ill-considered medical device tax is only one of many fatal flaws in Obamacare,” he said.

Senate Opposition

The measure faces opposition from Senate Democrats such as Majority Leader Harry Reid and Finance Committee Chairman Max Baucus. “Can’t the Republicans find a new script, rather than trying to attack the health-care bill? That’s all that is,” Reid told reporters on June 5. “So the answer is I’m not looking forward to doing this.”

Some Senate Democrats who represent states with concentrations of medical-device makers, including Amy Klobuchar of Minnesota, support repeal of the tax, and the House bill attracted votes from Democrats such as Jason Altmire of Pennsylvania, Keith Ellison of Minnesota and Tim Bishop of New York.

Companies including Stryker Corp. (SYK) and Zimmer Holdings Inc. (ZMH) have been lobbying for repeal.

The White House opposes the legislation and said in a statement that President Barack Obama’s advisers would recommend a veto.

Republicans said companies were already cutting jobs in anticipation of the tax increase. Democrats said the companies were benefitting from the expanded health insurance market created by the law.

Prior Year Income

Republicans propose paying for the change by altering another feature of the health law. Because people qualify for health insurance subsidies based on a prior year’s income, the law requires a recalculation based on actual income and makes people repay any excess subsidy to the government, within limits.

The House bill would remove those limits, requiring people to repay the government for all of the cost. Democrats said the proposal would penalize people for bonuses or second jobs that increase their income.

“We’re repealing a tax on an industry that had over $40 billion in profits in 2010 and we’re paying for it on the backs of middle-class people,” said Representative Mike Thompson, a California Democrat.

Democrats cited an estimate from the congressional Joint Committee on Taxation that the change would cause 350,000 fewer people to have health insurance.

Representative Tim Scott, a South Carolina Republican, said the provision requires people to repay money they shouldn’t have received.

’Honesty and Integrity’

“Requiring people to return money not correctly given to them, this is not a tax and it certainly is not a tax increase,” he said. “It is simply a matter of honesty and integrity.”

Some House Democrats said they would support a repeal of the tax if the cost was covered without making other changes they oppose to the health law.

“We need to find a more acceptable way to do what I think a lot of us agree needs to be done, which is to repeal the medical devices tax,” said Representative Mel Watt, a North Carolina Democrat. “But this is not the way to pay for it.”

The bill would repeal a portion of the health law that requires people with tax-advantaged health savings accounts and flexible spending arrangements to obtain prescriptions if they want to use that money to purchase over-the-counter medication such as aspirin.

The legislation also would change the “use it or lose it” rule for tax-advantaged accounts that requires holders to forfeit any money they don’t use by the end of each year. Under the bill, taxpayers would be able to receive back as much as $500 and would owe taxes on that money.

The bill is H.R. 436.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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