A Primer on the Taxes Embedded in the Healthcare Reform Act

November 29, 2012

IADC Professional Liability Committee Newsletter

The following is an excerpt from, "A Primer on the Taxes Embedded in the Healthcare Reform Act," originally published in the November 2012 issue of the International Association of Defense Counsel's Professional Liability Committee Newsletter.

We are now all aware that the United States Supreme Court has upheld most of the provisions contained in the Healthcare Reform Act, aka the Patient Protection and Affordable Care Act (“The Act”). Many of us, however, are not aware of several of the new taxes contained in The Act, which may have a significant impact on our clients in the Healthcare Industry for many years to come.

One such tax is a 2.3% excise tax on the sale of “medical devices.” Importantly, this is a tax on sales, not on profits. The tax is paid by the manufacturer or importer, not the ultimate consumer. Of course, it is anticipated that the cost will be passed along to hospitals, patients, and health insurers in the form of higher costs for the taxable items. Included are “big ticket” items such as MRI and X-ray machines and other hospital equipment. The tax also applies to smaller items for individual patients such as hip and knee joint replacements, other prosthetics, dental implants, pacemakers, etc. Excluded from the tax are items generally purchased by the public at retail for individual use. This would include such items as eyeglasses and other items commonly purchased at a local drug store.

Budget committees estimate that this tax will generate approximately $2 billion in 2013, increasing to more than $3 billion by 2022, with a total ten year impact in excess of $20 billion. Although the long term impact on the medical device industry is uncertain, one concern is that manufacturing jobs in the U.S. may be sent overseas to supply markets where this excise tax does not exist.

For the full article, please use the following link: A Primer on the Taxes Embedded in the Healthcare Reform Act.