If you subscribe to any Medical Device blogs, you will have noticed that the new Medical Device Tax in the US is still a hot topic and that blogs are filled with controversial views of the tax impact on the industry. The 2.3% excise tax on the first sale of medical devices will become effective in January 2013. It is intended to provide up to $20 billion in the next 10 years to help pay for health coverage for the uninsured in the US under the Affordable Health Care for America Act.

According to the study conducted by AdvaMed, the tax would cost more than 43,000 U.S. jobs and $6.7 billion.  The initial reactions in industry seem to support the AdvaMed position; large US medical device companies are reducing expansions and planning to cut hundreds of jobs.

However, the pro-tax analysts claim the AdvaMed study is not based on solid economic research, and it overestimates the industry’s incentives to move jobs offshore and disregards the positive effect of new demand created by the law. One of the bloggers, Christopher Flavelle makes an interesting comparison with the auto industry in his blog:

‘The device industry isn’t the first to sound alarms over a policy it doesn’t like. In the 1980s, the Motor Vehicle Manufacturers Association said requiring airbags in cars would raise costs, reduce sales, and sacrifice as many as 200,000 jobs. That did not happen.’

Another blog suggests that the tax is especially harmful because it applies to gross sales, not profits. Start–ups and small companies with narrow profit margins could be taxed out of existence or become subject to M&A at the lower price. The issue is highly politicized as well and the companies may have to adjust their strategic plans after the US elections, since the Republican candidate, Mitt Romney, has pledged to repeal Obama’s 2010 healthcare law.

Time will show which group was right; the fact is that the tax will become effective at the beginning of next year, with or without industry support and regardless of the election outcome. Time will tell which prediction is closer to the truth.