VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA Impact Analysis >> ACA Impact on Employment/Economy >> ACA Impact on Total Employment >> Tax-Related Job Impacts (last updated 2.11.17)
This section focuses on the estimated discrete job losses attributable to specific taxes levied under the ACA. Note that these effects in some instances may duplicate those accounted for in studies that seek to estimate the aggregate impact of the ACA on national employment. Thus, without understanding the underlying methodology use by a particular national employment impact study, it may be inappropriate to add the estimated job losses associated with individual taxes as that would result in double-counting.
Medical Device Fee
Projected Impact of Medical Device Fee
Various studies have estimated the medical device fee (typically referred to as a tax) would result in the loss of anywhere from 12,000 to 117,000 jobs. These are listed in reverse chronological order.
- Tax Foundation (June 2016). Options for Reforming the Tax Code (6.6.16). The Foundation estimates that repeal of the medical device tax would add 12,000 FTE jobs to the economy due purely to its dynamic effects on the economy: “Because the medical device tax falls on the labor and capital used to create medical devices, and the labor and capital income of those who purchase them, repealing it would grow the capital stock and increase the long-run size of the U.S. economy by 0.02 percent” (p. 117). This is a conservative estimate of job losses insofar as it does not take into account the direct incentives on the medical device industry per se.
- Tax Foundation (August 2014). Kyle Pomerleau. The ACA Medical Device Tax: Bad Policy in Need of Repeal (8.21.14)
- The tax will adversely affect innovation, employment, and competition in the same way the windfall profits tax of the 1980s depressed domestic oil production [David I. Meiselman, The Oil Excise Tax: Another Government Windfall, Tax Foundation Tax Review, Vol. XL, No. 9 (Oct. 1979)].
- The market power of hospitals could undercut the ability of device manufacturers to pass on much of the cost of this tax in the long run. One hospital supply association was recently quoted as saying it “will continue to monitor the device marketplace for evidence of cost-shifting onto hospitals, and encourage our hospital partners not to enter into contracts that bill them for the device tax.” [Michael Cohn, Medical Device Makers Shift Excise Tax Cost to Hospitals, Accounting Today (Jan. 25, 2013)].
- This illustrates the fact that much of the prices of goods in the health care industry are determined by the relative bargaining power of buyer and sellers.[Michael E. Porter & Elizabeth Olmsted Teisberg, Redefining Competition in Healthcare, Harvard Business Review.] Often prices are set by contracts and negotiated between two parties. If the medical device industry is highly competitive (many sellers), or if hospitals have significant bargaining power (few buyers), it is unlikely that medical manufacturers can pass the entire tax on to hospitals or consumers. With 80 percent of the industry comprised of small firms with fewer than fifty employees, the industry likely lacks bargaining power and the effects on business could be great.
- Pioneer Institute (April 2013). The overall medical device industry workforce in MA is 24,268 (2nd largest in country), along with 82,500 employees working in related companies that support the medical device industry. If the KPMG estimate of 25% reduction in workforce size is correct, it would imply a loss of 6,047 jobs in MA alone (4.18.13).
- KPMG (2013). “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%).” (Pioneer Institute, 4.18.13). Since the size of the workforce in this industry is 471,000, this implies a loss of up to 117,000 jobs nationwide.
- Miller, Henry I. (December 2012). ObamaCare’s Medical Device Tax Will Cost Innovation and Jobs, Forbes, Dec. 17, 2012.
- Rep. Paulsen dismissed the president’s prediction of a supposed “windfall’ to the industry a “convenient myth.” “In reality, utilization of medical devices is heavily tipped towards America’s aging population,” he said. “Medicare beneficiaries, both elderly and disabled, are disproportionally large users of medical devices and already have coverage through that program. Similar state level reforms in Massachusetts have not resulted in more revenues for medical device innovators.”
- The U.S. remains the global leader in medical device development and manufacturing, although reports from PricewaterhouseCoopers and others show that even without the excise tax its lead is tenuous, in part due to regulatory uncertainties and dysfunction that thwart innovation.
- Ramlet, Michael and Robert Book (June 2012). The Economic Impact of the Medical Device Excise Tax American Action Forum (6.12.12).
- The device industry will finance the excise tax largely by reducing payroll employment.
- We estimate that at least 14,500 jobs will be lost, based on Joint Committee on Taxation revenue estimates and historical industry data.
- Job losses could reach as high as 47,100, or 10 percent of industry employment if the medical device industry is unable to shift the burden of the excise tax.
- Furchtgott-Roth, Diana and Harold Furchtgott-Roth (September 2011). Employment Effects of the New Excise Tax on the Medical Device Industry. September 2011.
- Under reasonable assumptions, the tax could result in job losses in excess of 43,000 and employment compensation losses in excess of $3.5 billion.
- The new 2.3% excise tax will roughly double the device industry’s total tax bill and raise the average effective corporate income tax rate to one the highest effective tax rates faced by any industry in the world.
- The tax will be paid both by firms that have net income and those that do not. The tax will be especially harmful to companies that innovate and tend to suffer losses in the first years or when investing in research and development for a new product but would still be required to pay the tax.
Actual Impact of Medical Device Fee
To date, the fee has resulted in direct job losses of 33,000 workers and indirect losses of 165,000 workers.
- AdvaMed (February 2014). Impact of the Medical Device Excise Tax. February 2014. A survey was sent to all AdvaMed members on November 14, 2013, with a response deadline of December 9. Key findings:
- Direct Job Losses in Medical Device Industry. The tax has resulted in employment reductions of approximately 14,000 industry workers and forgone hiring of 19,000 workers. The total job impact of the tax on industry employment was approximately 33,000.
- Jobs Exported. Almost 10 percent of respondents said they had relocated manufacturing outside of the U.S. or expanded manufacturing abroad rather than in the U.S. because of the tax.
- Indirect Job Losses. Independent estimates of the relationship between direct employment in the industry and indirect employment among suppliers and in the general economy found a ratio of four indirect jobs for each direct job. Applying this ratio to jobs lost or foregone suggests that the impact of the tax on indirect employment would be approximately 132,000 jobs, for a total job loss due to the tax of as many as 165,000 jobs.
- While the focus of the survey was on effects of the tax in its first year, several questions were future-oriented: 58% of respondents said they would consider reducing employment if the device tax were not repealed.
- MassMEDIC (June 2013). Massachusetts, the second largest medical device producer behind Califonia, employs about 24,000 people in the industry. A survey of 123 MassMEDIC members and industry colleagues conducted in February and March 2013 found that in response to the tax:
- One third of respondents expect increased sales due to expanded coverage mandated by the ACA, however only one-quarter of these believed that the increased revenues will cover payments of the medical device excise tax.
Survey takers also report the following actions resulting from the implementation of the medical device excise tax:
- Job Losses. 43% have taken action or have discussed plans for workforce reductions
- Lower R&D Spending. Nearly 40% have executed or are developing plans to reduce R&D spending.
- Jobs Exported. A third of respondents have or are making plans to move manufacturing offshore.
Annual Fee on Health Insurers (Health Insurance Tax -“HIT”)
- NFIB Research Foundation (May 2014). Chow, Michael . Effects of the PPACA Health Insurance Premium Tax on Small Businesses and Their Employees: Revised Estimates for 2014 through 2023 (5.5.14). Using the same model and data, the author estimates that assuming a 3% premium increase, the HIT would result in between 183,000 and 286,000 fewer private sector jobs in 2023. Assuming a 2.5% premium increase, private sector job losses would be between 152,000 and 239,000 in 2023.
- NFIB Research Foundation (March 2013). Chow, Michael. Effects of the PPACA Health Insurance Premium Tax on Small Businesses and Their Employees: An Update (3.19.13). Using the NFIB Business Size Impact Module (BSIM), the author models the effects of the tax assuming (from other sources) that it will raise the cost of employer-sponsored insurance by 2% – 3%. This would impose a cumulative cost of nearly $5,000 per family by 2020. The NFIB Research Foundation’s BSIM model suggests that such price increases will reduce private sector employment by 146,000 to 262,000 jobs in 2022, with 59 percent of those losses falling on small business.