Steve Watson
Thursday, March 25th, 2010

Medical Companies: Taxes In Healthcare Bill Will Kill Jobs, Businesses 250310devicesOne of the key selling points of the Obamacare health bill for the Democratic leadership was that it would provide tax breaks and credits for businesses to cover the cost of insurance for their employees. The Washington elite were somewhat less vocal, however, about huge tax increases that some companies now say may wipe them out altogether.

Medical device manufacturers have warned that a tax under the new health care overhaul on companies producing medical instruments and equipment will mean that jobs and manufacturing may have to be shifted out of the U.S. in order to secure already razor thin profits.

Beyond passing on costs to hospitals, surgeries, ambulance companies and the like, the options for the medical device industry are to cut research and development and then shift their production bases abroad.

Ernie Whiton, chief financial officer of Zoll Medical Corp., tells the Boston Herald “This bill is a jobs killer”.

“We could be forced to (move) manufacturing overseas if we can’t pass along these costs to our customers,” said Whiton.

Zoll, the leading manufacturer of heart defibrillators, employs around 650 people at its manufacturing facility in Massachusetts, and a further 1000 across the country.

“We believe that the tax will cost us somewhere between $5 million and $10 million a year,” Richard Packer, Zoll’s chairman and chief executive officer told The Washington Examiner this week. “Our profit in 2009 was $9.5 million.”

Under the Obamacare bill, signed into law on Tuesday, the government will extract a fee of $2.2 billion annually from medical device makers, equating to a sales tax of 2.9% beginning almost immediately. This would result in a $20 billion hit for the industry over the next decade.

Under the companion “Reconciliation” bill, currently in the Senate, the tax is set at 2.3%, and would take effect on January 1st, 2013.

We can’t run this company at a break-even or a negative rate,” Zoll’s Packer adds, “so we will be forced to look at alternatives.”

As part of the life-sciences sector, the medical device industry has actually continued to create jobs despite the economic crisis – this is how those healthy companies are now being rewarded, with possible extinction.

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“They’re beating up on the guys doing the best to create jobs,” Tom Taylor, chairman of the Massachusetts Medical Devices Industry Council and founder of Roush Life Sciences told the Examiner.

The bill is expected to clear both chambers today. Once it does so, numerous tax increases will be put into law by Obama.

The government will extract a fee of $2.3 billion annually from the pharmaceutical industry, a cost that will inevitably also be taken out of research and development, as well as being passed on to the consumer.

The government will also extract a fee of $6.7 billion annually from insurance companies – ‘good, they are the ones to blame’ many will cry – maybe they will think again when premiums increase and the cost is yet again passed on to the consumer.

The bill also legislates for a $50,000 tax on hospital organizations, which fail to meet described quality requirements – perhaps because they have to spend more of their funds on the increased cost of medical devices?

Another business tax contained within the reform bill is a 10% levy on indoor tanning. The International Smart Tan Network says that the tax “could lead to more than 1,000 tanning business closures in 2010″.

A similar 5% tax will be applied to elective cosmetic medical procedures.

Companies that provide pension plans that include prescription drug benefits for retirees and their spouses, have also warned they face being hit hard by taxes on federal subsidies they receive as part of the process.

Heavy machinery manufacturers Caterpillar and Deere have been most vocal about this, announcing that they will immediately face $100 million and $150 million charges respectively as a direct result of the health care overhaul.

All businesses, of course, face hefty fines of $750 (up to $3000 under the Reconciliation Act) should they fail to provide employees with coverage.

In addition, under the Reconciliation bill, firms refusing to pay health insurance, but not meeting required exclusions, face an 8% tax on wages.

The federal government will also impose a 40% tax on the value of employer-sponsored health coverage which exceeds certain “high cost” thresholds.

The Chamber of Commerce tells Fox Business that “the new law will hurt job creation and increase taxes on small businesses, and do little to restrain [health care] costs.”

The idea that the Obamacare bill is business friendly is another myth that is washed away like sandcastles on a beach within five minutes of reading around the peripheries of the legislation. Just as the idea that a trillion dollar health bill could in any way cut the national deficit, the notion that American businesses will be in any way shape or form better off as a result of the mandates placed on them under this so called “reform” is patently absurd.

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