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Shutdown update: White House open to medical device tax change

Open to change

According to reports, President Obama has ceded that his administration is open to a repeal of the medical device tax following federal budgeting meetings with Republican senators yesterday. Discussion over the medical device tax is part of larger efforts to resume government operations and pass legislation raising the debt limit before the October 17 deadline.

President Obama was quoted saying that the tax is “not part of the core program” of the Affordable Care Act. The President is said to consider the repeal after budget negations have met a resolution. Senator John McCain was quoted saying President Obama “sees progress, but we are a long way from agreement.”

 

IHIvsSPYEnlarge Graph

The change in the Obama Administration’s stance on the repeal is preceded by six months of stark refusal to discuss a repeal. The tax is expected to provide $30 billion of funding for the Affordable Care Act over the next ten years.

Reports say that a repeal is predicated on senators finding a “pay-for” to plug the $30 billion gap in revenue a repeal would create. Lawmakers are reported to be considering cutting tax breaks for big oil and gas companies to make up the revenue.

Medical device stocks still performing well

Since the medical device tax went into effect at the start of 2013, the iShares Medical Device ETF (IHI) is up 26% year-to-date, while the S&P 500 is up 19%. The ETF has continually performed better than the S&P 500 since the implementation of Obamacare (since March 23, 2010, up 48.6% versus 45.9%). Medtronic (MDT) represents the largest share of IHI, at 10%.

AngioDynamics (ANGO), which has been struggling of late, beat its Q1 results and raised its earnings and sales guidance Friday. Its stock went up more than 3% on the day. The trend shows an industry slowly weathering the effect of the tax, even ahead of an insuree influx expected by the end of this year.

The result shows a strong industry with an emerging market that has performed well enough to offset the effect of the tax over the entire industry. A repeal could spell wonders for the industry, accordingly.

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