Why the medical device tax repeal bill shouldn’t pass anytime soon

The proposed Protect Medical Innovation Act of 2013

The Protect Medical Innovation Act of 2013 has gained bi-partisan support in the House of Representatives, ensuring the bill passes when it comes to vote. But the keyword is “when“ it comes to vote.

Witnessing large layoffs by companies like Stryker Corp. in November 2012, lawmakers began taking interest in the tax repeal pleas of the medical device community. Following intense lobbying by manufacturing giants like Boston Scientific, members of congress—including the nearly 40-member House Republican freshman class—are currently pressing party leadership to repeal the 2.3% medical device excise tax that Obamacare implemented in January.

Repeal Effect on Federal DeficitEnlarge Graph

The tax has hurt medical device ETFs

With more than 8,000 medical device manufacturers in the United States, the tax on medical devices is expected to generate nearly $30 billion dollars in revenue for the next nine years—putting approximately 43,000 jobs at risk, according to a letter sent to party leadership from GOP freshmen. As of July 2013, the tax has already cut out 1 billion dollars in revenue from the industry, driving medical device ETFs like IHI and XHE to perform lower than their healthcare counterparts through the beginning of this year.

But the repeal hasn’t taken effect—and it isn’t likely to anytime soon

Earlier in the year, the senate voted 70–29 to repeal the tax. Yet the vote came as part of a budget amendment in a non-binding resolution, so the repeal hasn’t taken affect. The Protect Medical Innovation Act would be a binding resolution, and it’s currently waiting on a vote in the senate.

However, despite Senate support of repeal, many believe the tax will stay in place. In order for the government to completely repeal the tax, congress needs to find a way to replace the lost income—a difficult task. As the Obamacare funding hole recently got $10 billion deeper, without a $30 billion dollar offset for the repeal, Democrats are very unlikely to agree on cutting the tax. As time passes and Obamacare implementation costs rack up, the repeal of the law seems less and less likely despite the repeal’s support. The final nail in the coffin for the repeal could be a recent statement by President Obama stating his intention to veto any device tax repeal bills the senate passes. Without repeal, the tax continues to stifle industry earnings and drive down valuations among manufacturers.