One major defect among many in the Affordable Care Act (Obamacare) is the provision of the law which institutes an excise tax on medical device manufacturers. Totaling a paltry $29 billion (in relation to what Obamacare will cost overall) over the next decade, the purpose of the new tax is to finance some of the subsidies the federal government will pay to expand Medicaid coverage to the uninsured.
Last year, a survey conducted by the Massachusetts Medical Device Industry Council (MassMEDIC) found that 25% of the companies surveyed indicated they would reduce their domestic workforce in reaction to the new tax. Another 25% percent said they would outsource manufacturing to lower-cost areas outside the U.S.
And this seems to be what is currently happening. Consider just two of the bigger players in the medical device industry. Minneapolis-based Medtronic (NYSE: MDT), the world’s largest spinal device maker, announced it would soon hire 1,500 new workers, but most of those hires will be overseas. Then there is Massachusetts-based Boston Scientific (NYSE: BSX). The large cardiovascular device maker announced it would lay off between 1,200 and 1,400 workers worldwide with a majority being American workers, while at the same time announcing a $150 million investment in China that would create 1,000 new jobs there. So while Obama claims that more Americans will have health coverage under Obamacare, others will lose their jobs or not be hired because of it.
To be sure, companies do not move their operations overseas without careful consideration. It is expensive and even risky for them to relocate all or the bulk of their workforce outside the United States. There are a lot of costs involved with moving facilities and setting up shop abroad. Corruption, political instability, and unskilled labor forces in most developing countries provide an enormous amount of risk for American companies. Yet many of them make the move anyway, and that is the question which has baffled Obama and his ilk for some time now. Why have American companies and the jobs they provide gone overseas these last several decades? The answer is simple: Because the money saved in taxes, many times in the hundreds of millions of dollars annually, more than compensates them for their relocations abroad. It seems the medical-device excise tax will continue that trend.