2.3% Medical Device Tax

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  1. profile image0
    JaxsonRaineposted 11 years ago

    This is one I haven't seen... making healthcare more affordable by increasing the cost of healthcare.

    Obamacare will tax 2.3% of medical device revenues, not profits. Anyone with basic business/economic/accounting understanding knows that if you increase the cost to do business, you increase the cost of the final good or service.

    http://online.wsj.com/article/SB1000087 … 87070.html

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    1. Josak profile image60
      Josakposted 11 years agoin reply to this

      Due to Obama-care those businesses will have a lot more clients, due to having more clients they will make more money and thus they do not need to raise their prices.

      Additionally this price will be passed not to the consumer but to the insurance companies which have inflation limited premium raises. Basically the Insurance companies and the manufacturers will share the cost, mainly the insurance companies and they are making more profit due to more business due to Obamacare so that's OK.

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      1. profile image0
        JaxsonRaineposted 11 years agoin reply to this

        Yeah, right. You really think you can increase the cost of each unit produced, and not influence pricing?

        The price will be passed to the consumer. It alway is. If you pass it to insurance companies, but don't allow them to adjust their pricing, then you will cause layoffs or bankruptcies(insurance companies don't make a very large profit margin.

        Inflation-limited premium raises is just a whole 'nother stupid idea. Price ceilings never work, and ALWAYS have unintended consequences.

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        1. Josak profile image60
          Josakposted 11 years agoin reply to this

          The price CAN'T pass to the consumer for anyone who is insured (vast majority of people after full implementation) so you're initial claim is misleading at best.

          The insurance companies have a ton more customers which means they can bear slightly smaller profit margins because there are more profits there won't be layoffs or shut downs because demand just went way up for insurance and indeed the opposite is already happening with amny jobs being created in the industry.

          You really don't have anything here.

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          1. profile image0
            JaxsonRaineposted 11 years agoin reply to this

            Yeah, just shovel all extra costs on the evil insurance companies, because they make a ton of money. Right?

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            1. Josak profile image60
              Josakposted 11 years agoin reply to this

              Try harder.
              The insurance companies revenue is expected to rise significantly due to Obamacare, already new branches are opening and more staff are being hired, they are going to win out from Obamacare and some of that extra revenue will be taken by the measures you mention.
              The insurance companies will make more money.
              Still got nothing.

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              1. profile image0
                JaxsonRaineposted 11 years agoin reply to this

                You think they are going to win?

                If they can only increase their prices at the rate of inflation, and healthcare costs rise at double the rate of inflation, how is that supposed to work?

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                1. Josak profile image60
                  Josakposted 11 years agoin reply to this

                  Cost of healthcare inflation not inflation in general.

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                  1. profile image0
                    JaxsonRaineposted 11 years agoin reply to this

                    Ok.

                    So, the price of devices goes up. That factors into the increase of the cost of healthcare.

                    Since the price of devices goes into the inflation of healthcare costs, then the insurance companies increase their premiums to keep up.

                    In other words, the prices just got passed to the consumer. Wonderful how that works, isn't it?

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  2. profile image0
    PrettyPantherposted 11 years ago

    It isn't that simple, though.  Thirty million more people who were not insured will increase the demand for medical devices.

    It will vary for each business, but medical device makers could easily maintain or increase their gross profit due to the increase in volume of sales.

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    1. profile image0
      JaxsonRaineposted 11 years agoin reply to this

      Do you know what happens to prices when you increase demand?

      So, you have rising direct prices, and rising indirect prices. Liberal logic ftw

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      1. profile image0
        PrettyPantherposted 11 years agoin reply to this

        Again, way oversimplified.  Jaxson logic ftw

        Edited to add:  I do not represent all liberals so to describe my personal views as "liberal logic" is, well, illogical.

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        1. profile image0
          JaxsonRaineposted 11 years agoin reply to this

          Nah, I'm calling it liberal logic because many parts of the bill are liberal logic.

          Ok, so tell me. How does increasing the price of a product, and increasing the demand for that product, reduce prices?

          I'm not saying the companies might not make more money. That's not the point. The point is the effect on healthcare prices. Both aspects are processes that increase prices, so why is this a good thing?

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          1. profile image0
            PrettyPantherposted 11 years agoin reply to this

            I was responding to your initial, simplistic statement that "Anyone with basic business/economic/accounting understanding knows that if you increase the cost to do business, you increase the cost of the final good or service."

            If companies are making more money, they don't "have" to increase their prices, do they?  I'm not saying they won't, but you make it sound like a given when there are many factors that go into that decision.

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            1. profile image0
              JaxsonRaineposted 11 years agoin reply to this

              General practice is not to decrease your price per unit with each extra unit sold.

              Suggesting that a TAX on equipment, and an increase in DEMAND for equipment will lower prices is doubly-counter to basic economic principles.

              Let's use 4% profit, for $100,000 machines. It costs $96,000 to make the machine, and $4,000 is profit. A company sells 100 of those machines, and makes $400,000 per year.

              Now, add a 2.3% tax, and increase sales by 50%(sales are not going to go up by 50%). Now each machine costs $98,208. If the company sells 150 machines for a $1792 profit, they end up with $268,800 in total profit, for 50% more work.

              Do you think that is what they are going to do?

              What about companies that only have a 2-3% profit margin already?

              It's simple, the costs will be passed to the consumers, just like they always are. Every tax on every business is paid by the consumers. Every tax, period, is paid by the consumers.

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              1. profile image0
                PrettyPantherposted 11 years agoin reply to this

                You are not looking at the big picture.  The tax is part of an overall plan that will lower health care prices for consumers.  In fact, according to the Center on Budget and Policy Priorities, spending on taxable medical devices represents less than 1 percent of total personal health expenditures, so a small increase in their price would have an almost imperceptible effect on health insurance premiums.

                Like I originally said, you are oversimplifying a very complicated set of factors, and making arguments that only consider a tiny part of the big picture.  People smarter than you or me took the time to figure it out.  This issue is only now being revisited because of lobbying from medical device makers.  Evan Bayh is working for a lobbying firm that represents several medical device companies, and most of the senators who suddenly support repeal of the tax are from states with large medical device makers.

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                1. profile image0
                  JaxsonRaineposted 11 years agoin reply to this

                  No, PP, you are ignoring the details, and trying to change the subject to 'the big picture'. The topic at hand is the taxation of medical devices. Taxing medical devices will not lower healthcare costs in any way, shape, or form. They will increase costs.

                  If you disagree, then please explain how increasing the cost of a good will decrease the cost of that good.

                  Did I say this would make total healthcare costs skyrocket? I said it would increase costs, and it will.

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              2. Quilligrapher profile image73
                Quilligrapherposted 11 years agoin reply to this

                Hi Jaxson.

                Nearly all manufacturing operations are subject to a Cost:Output relationship called Economies of Scale (EOS). Simply stated, as output increases, cost per unit decreases. As stated by Investopedia, "This means that as a company grows and production units increase, a company will have a better chance to decrease its costs." {1}

                In the over-simplified example suggested, the 4% profit margin is very unrealistic but I will stick with it for now.

                Increasing output from 100 machines to 150 machines will trigger Economies of Scale with the potential to reduce the unit cost from $96,000 to $86,000 each. Now each machine costs, if you include the 2.3% tax, $86,000 plus $2,300 (2.3% of the $100K selling price), or $88,300. Thanks to EOS, the manufacturer realizes an $11,700 profit per unit ($1,755,000 in total Profit) after the increase in business and the 2.3% tax.  Not a bad deal for the manufacturer!

                In summary, taking your model into the realities of EOS and the new 2.3% tax:
                Production increases from 100 to 150 units.
                Selling Price per machine rises from $100,000 to $102,300.
                Profit margin per machine rises from 4% to 11.7%.
                Cost per machine declines from $96,000 to $88,300.
                Net Profit per machine rises from $4,000 to $11,700.
                Stockholders are rewarded with a huge dividend.
                CEO takes the credit for the windfall profits.
                Production workers increase by 30% to meet the new demand.
                {1} http://www.investopedia.com/articles/03 … z28qzBu6eH

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                1. profile image0
                  JaxsonRaineposted 11 years agoin reply to this

                  Quill,

                  First, your reduction in price is just a number. My increases in price are factually based in hard numbers.

                  Second, you also ignore diseconomies of scale. We can throw out numbers until we are blue in the face, but there is no way to even get close to real EoS/DoS numbers without a huge undertaking of analyzing the financial/managerial/assets/procedures/etc of a specific company.

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                  1. Quilligrapher profile image73
                    Quilligrapherposted 11 years agoin reply to this

                    Thank you, Jaxson.  At least now you can see that your model and your argument are flawed.

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                  2. profile image0
                    PrettyPantherposted 11 years agoin reply to this

                    "First, your reduction in price is just a number. My increases in price are factually based in hard numbers."

                    LOL, I wonder how many examples of Jaxson's oversimplified story problems that use hypothetical numbers we could find on the Hubpages forums, including this thread?

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  3. profile image0
    PrettyPantherposted 11 years ago

    "The topic at hand is the taxation of medical devices. Taxing medical devices will not lower healthcare costs in any way, shape, or form. They will increase costs."

    The taxation of medical devices is part of an overall package that reduces health care costs in the long run.

    "If you disagree, then please explain how increasing the cost of a good will decrease the cost of that good."

    I did not say that.  I said that the increasing the cost of a good does not always result in an increase of the price of the good.

    "Did I say this would make total healthcare costs skyrocket? I said it would increase costs, and it will."

    I did not accuse you of saying it would make total healthcare costs skyrocket.  You said it would increase the cost of the final good or service.  I do not think that is necessarily the case and neither do the professionals at the CBPP who evaluated the tax increase as part of the overall impact of the ACA.

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    1. profile image0
      JaxsonRaineposted 11 years agoin reply to this

      The taxation of medical devices is the topic.

      No matter what else the bill does, this aspect of it raises prices.

      It pretty much does. I know 2.3% doesn't sound like much, but for a company that operates on a 4% profit margin, and already pays 20% in taxes, that is like raising their tax rate to 77.5%!

      Ok, forget this bill ever happened.

      Now, say we are going to tax medical device companies at over 75%. Do you think that will increase costs?

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      1. Josak profile image60
        Josakposted 11 years agoin reply to this

        NO the topic is this will cause the cost of healthcare to go up. It absolutely CAN'T.

        End of discussion.

        The rest of the bill did happen and it's relevant because it contains provisions that affect the result of this tax, looking at it out of it's proper context is pointless.

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        1. profile image0
          JaxsonRaineposted 11 years agoin reply to this

          Ok, I see.

          We increase the costs of goods and services, but say the service providers can't increase their prices?

          Yup, price ceilings always work.

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          1. Josak profile image60
            Josakposted 11 years agoin reply to this

            Stop ignoring the most basic facts, willfully ignoring. It's dishonest. The insurance companies just recorded their best quarters in decades, the insurance companies just got huge additions to their customer base from this legislation, in return they have some extra costs and regulation and the insurance companies are thriving.

            You haven't got anything on this one.

            http://www.bloomberg.com/news/2012-01-0 … boost.html

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            1. profile image0
              JaxsonRaineposted 11 years agoin reply to this

              Lol.

              "Insurance companies are doing better after the recession than they were doing during the recession."

              Hey, I have an idea. If you are so concerned over 6-8% profit margins, why don't you open up competition across state lines, to get insurance companies competing more with each other? We could drop the cost of insurance a good 4-5% if we get them competing.

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  4. tammybarnette profile image60
    tammybarnetteposted 11 years ago

    It is an excise tax on the manufacturer's that should bring in over 20 bill over 10 years. proponents actually say that device makers will reap more profits with 30 mill new customers. Retail devices sold directly to consumers are exempt and manufacturers that bring in under $5mil a year are also exempt.The CBO did say they expect at least some of the cost to be passed on to consumers

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    1. profile image0
      JaxsonRaineposted 11 years agoin reply to this

      A 2.3% tax on a company that has a 4% profit margin is like adding over 50% to their effective tax rate.

      It's not going to increase revenues.

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      1. Quilligrapher profile image73
        Quilligrapherposted 11 years agoin reply to this

        Now, Jaxson, it I that must remind you that your 4% profit margin is a fictitious, hypothetical number. I wonder why you treat the numbers in you rhetorical model as real but cast aside figures in other models as “just a number?”

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        1. profile image0
          JaxsonRaineposted 11 years agoin reply to this

          4-6% is a good average profit margin for medical-related industries.

          Also, using 4% is a nice benchmark to consider how something would affect smaller businesses, as their profit margins tend to be lower.

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          1. Quilligrapher profile image73
            Quilligrapherposted 11 years agoin reply to this

            Back again, Jaxson. Boy, do I admire your persistence!

            It seems you know very little about manufacturers of Medical Equipment. Here is a list of 71 companies in the industry and their profit margins:
            1 = 5%
            2= 14-15%
            8= 20-29%
            12 = 30-39%
            4 = 40-49%
            44 = 50-91%
            http://ycharts.com/rankings/industries/ … &d=asc

            Furthermore, smaller businesses require larger profit margins to survive than do bigger companies.

            The business model you suggested as an argument against the 2.3% tax is unrealistic, inaccurate, impractical, and, I am really sorry to say, not very useful.

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  5. profile image0
    JaxsonRaineposted 11 years ago
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  6. tammybarnette profile image60
    tammybarnetteposted 11 years ago
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  7. American View profile image59
    American Viewposted 11 years ago

    Bottom line, the companies will be getting these taxes and they will not eat them, they will be passed on to consumers.

    The assumptions made are all of increased revenue and therefore the company can eat the increase. The numbers tossed around are all guesses. There was on that claimed increase in production would save $10,000 in their example. But there are elements not taken into account when everyone talks of growth and additional profits, and that is additional costs. More sales means more product needed, which means more employees and the costs associated with them. The extra growth could mean they outgrow their production and warehouse facilities. So they need bigger building and all the increases associated with that like higher rent, higher property taxes, higher insurance, utility bills and so on.

    We have already seen dramatic increases in insurance premiums since Obamacare started and att the taxes and regulations are not in place yet. Wonder how much higher they will go? Not to mention all those who have already lost insurance.

    "Earlier today, the Congressional Budget Office (CBO) released an updated cost estimate for Obamacare that showed that the law will cost less over 10 years than last predicted—because fewer people will be covered.
    Now, although Obamacare spends more than $1 trillion, CBO predicts it will leave 30 million Americans uninsured, falling far short of what was promised.

    Obamacare will cost less… The new CBO scoring shows that the net cost of Obamacare will be $84 billion less over the next 10 years than predicted in its last analysis in March 2012. Spending on the Medicaid and the Children’s Health Insurance Program expansion will fall by $289 billion, while increased spending on the exchanges to cover some of those who will no longer qualify for Medicaid will cost $210 billion. The law will now add $1.17 trillion in new government spending over 10 years—paid for by massive tax hikes on all Americans and robbing money from the Medicare program

    http://blog.heritage.org/2012/07/24/cbo … -decision/

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    1. Quilligrapher profile image73
      Quilligrapherposted 11 years agoin reply to this

      Hi, AV.  Thank you for the latest spin from the Heritage Foundation regarding the ACA. I read your article and then read the CBO report to learn the facts first hand for myself. Allow me to point out what your source intentionally left out of their article.

      The law will NOT add $1.17 trillion in new government spending!

      Not only has the 10-year cost for the Insurance Provisions in the ACA gone down by $84B to $1.17T but also this is NOT new spending nor will this cost result in tax hikes. The CBO report re-iterates that Obamacare pays its own way and actually REDUCES the national debt over the next decade.  “CBO and JCT now estimate that the insurance coverage provisions of the ACA will have a net cost of $1,168 billion over the 2012–2022 period—compared with $1,252 billion projected in March 2012 for that 11-year period—for a net reduction of $84 billion. (Those figures do not include the budgetary impact of other provisions of the ACA, which in the aggregate reduce budget deficits.” {1} 
      {1} http://cbo.gov/sites/default/files/cbof … mates.pdf, p.2

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    2. Quilligrapher profile image73
      Quilligrapherposted 11 years agoin reply to this

      Back again, AV.

      In a classically pessimistic view, you point out that the glass is not empty. Before the ACA, 60 million Americans were expected to be without healthcare insurance by 2022. Now, as a direct result of the bill, 30 million, that is one-half, AV, will be insured due in part to the mandate, government assistance, and access to exchanges established under this bill. {1}

      Why less than promised? The Supreme Court ruling allows states to opt out of expanded Medicaid thus reducing the projected number of insured Americans. As noted by the CBO, “As a result of the Court’s decision, CBO and JCT now anticipate that some states will not expand their programs at all or will not expand coverage to the full extent authorized by the ACA. CBO and JCT also expect that some states will eventually undertake expansions but will not do so by 2014 as specified in the ACA.”{2}

      Those remaining uninsured will consist of unauthorized immigrants, those eligible for, but not enrolled in, Medicaid, and greedy, self-serving individuals who can afford the premiums but refuse to join all the other insured Americans looking to spread all the risks over a larger pool. To their benefit, the IRS penalty/tax of $695/year is the biggest insurance bargain ever conceived.
      {1} http://cbo.gov/sites/default/files/cbof … mates.pdf, Table 3.
      {2} Ibid, p.2

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  8. tammybarnette profile image60
    tammybarnetteposted 11 years ago

    More employees, more facilities, etc.....Sounds like more JOBS! You can't have it both ways. More jobs always means more cost, more demand for a product that equals the supply creates balance. The free market works the same way? Insurance premiums will continue to rise anyway. I will look up this report you are speaking of from the CBO, but the link I provided above explains how "getting rid of Obamacare" adds to the deficit.ie..Paid for by China.

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  9. psycheskinner profile image83
    psycheskinnerposted 11 years ago

    Even business gets taxed.  I don't see any different between taxing a farmer, a lawyer, a contractor, or a medical device maker.

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  10. tammybarnette profile image60
    tammybarnetteposted 11 years ago

    Exactly:)

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  11. tammybarnette profile image60
    tammybarnetteposted 11 years ago

    http://www.cbo.gov/publication/43082, http://www.cbo.gov/publication/43080 The link you provided is a blog from the right, these are the facts from the government documents.

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    1. American View profile image59
      American Viewposted 11 years agoin reply to this

      Tammy,

      The first link you provided said no page found. I did read the second link. I take from your statement and if I am wrong I apologize, that you blew the link off I provided and never read  it. Shame, for if you did you would have realized the report you cited was an outdated report, Pre- Supreme Court decision. The link was a CBO report of revised numbers post Supreme Court decision showing the changes of cost and amount of people that will not be covered.

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  12. tammybarnette profile image60
    tammybarnetteposted 11 years ago

    http://www.cbo.gov/publication/43472 I apologize for sending the link that wasn't updated, this one is. Yes I did read the link you sent, even though I recignize the name of the organization to be a right wing organization. I'm not sure what happened to the other link I will check it and try to fix that one as well

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  13. tammybarnette profile image60
    tammybarnetteposted 11 years ago

    Were you talking about my first link earlier in the conversation, "The letter to Bahner(sp)"? it worked for me?

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  14. profile image0
    JaxsonRaineposted 11 years ago

    Hey Quill, haven't had time to reply to your post.

    You're kind of right... I was thinking of the medical equipment industry which runs under 4% margin. Medical appliances averages 13%, but that's still like adding 18% to a companies taxes. The simple fact is, it increases costs, which will be passed on, and I also disagree with the thought that we should tax different industries at different rates.

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