New Report Estimates Medical Device Tax Will Cost Massachusetts Employers Over $422 Million Per Year
Controversial Provision of Federal Health Law Impacts Hundreds of Companies, Will Lead to Research and Development Cuts, Layoffs, Higher Prices
BOSTON – As part of the financing for the federal Patient Protection and Affordable Care Act (PPACA), Massachusetts businesses face a 2.3 percent excise tax on medical devices that went into effect on January 1st, 2013. According to a new Pioneer Institute policy brief, First, Do No Harm: The Impact of the Affordable Care Act on Massachusetts’ Medical Device Industry, the estimated tax liability for this year will be more than $422 million for the 19 largest companies in the state. The first payment is due to the Internal Revenue Service on April 30th.
The new report, authored by Pioneer Health Care Policy Director, Josh Archambault and Xiaofei (Jackie) Zhou, examines the potential impacts on the over 400 medical device companies in Massachusetts, making the state the second highest concentration of employees in the nation, at 24,268. The law could also impact 82,000 additional jobs in related industries.
“There has been bipartisan condemnation of this particular provision, Minnesota Senator Al Franken has called it a ‘job-killing tax’, and our own Senator Elizabeth Warren campaigned against it,” said Archambault. “While the majority of the tax hike will fall on larger companies, the impact on innovation at smaller companies will be felt more heavily, since the tax is assessed regardless of profitability and these companies often lack a diversified product line.”
The authors examined 19 Bay State-based companies, varying in size from 22 employees at AdvanceSource Biomaterials to 3,200 Massachusetts employees at Phillips Healthcare, with an estimated tax burden ranging from $27,000 to $122 million, respectively.
A recent survey by KPMG of local medical device executives indicates that the added costs of the tax will likely result in firms decreasing research and development budgets (50 percent), raising prices on consumers (44 percent), and reducing the size of their workforce (25%). Nationally, some industry firms have already initiated layoffs.
This brief is part of a series by Pioneer Institute examining the outcome of particular tax provisions in the ACA in Bay State residents and businesses. Last fall Pioneer released, The Impact of the Federal Health Law’s “Cadillac Insurance Tax” in Massachusetts, showing that a majority of Massachusetts employees will bear thousands of dollars in additional costs when the ACA’s so-called “Cadillac” insurance excise tax provision goes into effect in 2018.
Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.