Obamacare and medical technology

By all accounts Obamacare is in its infancy stage at this point, and we’re already seeing massive transformations in our country.  Private insurance companies are raising their prices, doctors are saying that they’ll leave their profession if it’s implemented, and medical device manufacturers are raising prices and laying off employees, and Obamacare is only in its infancy at this point.

At this point, March 28, 2012, the question of the Constitutionality of the Obamacare law is before the Supreme Court in the form of oral arguments, and no one knows how the five non-liberal jurists will vote.  Some have suggested that the votes of Clarence Thomas and Samuel A. Alito Jr. are a fait accompli, and others have stated that Antonin Scalia and John Roberts past history dictates the manner in which they may vote, so that leaves one man to decide the future of our country: Supreme Court Justice Anthony Kennedy.

If one were to tell The Founding Fathers that a piece of legislation that would transform this country in innumerable ways rests in the hands of one man, would they see this as a natural course of events, or would they roll over in their graves in shame?  Would they say, for example, that if wasn’t a Supreme Court Justice, it might be a Senator being counted on for a sixtieth vote, or a president signing or vetoing a law?  No matter who it is, they might say, most laws will come down to one man’s vote.  We did our best to prevent it, with the separation of powers, but it’s impossible to stop in total.

If Obamacare becomes law, we can rightly theorize that there will be innumerable casualties in a post-Obamacare America.  The first casualty will be American medical technology.  With all the proposed caps on private insurance, their eventual demise is almost a sure thing, as we will begin to see companies like Merck and Pfizer with less profit at their disposal.  If they do manage to survive, they will almost assuredly be shells of their former selves.  They are already cutting their research and development (R&D) departments due to the poor economy, but they still have enough for some R&D to produce our country’s medical technology and advancement.  One is left to wonder what will happen to these companies, and our medical drug and device technology if Obamacare is judged Constitutional.

One also has to wonder what will happen to the world if Obamacare reaches its final stages of implementation.  Right now, the European countries, Canada, and a number of other countries have socialized medicine implemented in their country.  They have already cracked down on the profits that sectors of their medical industries can accumulate.  Some have theorized that they can do so without devastating effects to their citizenry, because they are able to rely on America to produce the advancements in medical devices and medicines.  With Obamacare, it can rightly be theorized that America will no longer be able to provide this base of advancement among our private medical companies, because they will no longer have the disposable income to invest in the research and development (R&D) departments of their companies that produce such products.  It’s called the law of unintended consequences

It can be said, without too much refutation, that one of the goals of Obamacare is to weed out the profits of the private medical sector.  Some people live with the illusion that every corporation in America uses their profits solely for their personal gain and enrichment.  Anyone who has looked at corporate profit sheets of these medical companies, however, knows that a large percentage of the profits is put aside for their company’s R&D.  These companies cut their teeth on R&D.  R&D is the future of these companies.  It is what helps one medical supply and drug company beat another.  It’s also what gives us the medical technology that enhances and elongates the lives of Americans and arguably those countries that subsist on what comes out of these American companies.

In February, the IRS took this argument out of the theoretical and into reality when they released a proposed plan to implement the 2.3 percent excise tax on medical devices designed to help foot the bill for Obamacare.  This tax is set to be implemented on January 1, 2013.

As Heritage’s Curtis Dubay explains, “All tax increases have negative economic effects because higher taxes take resources from the productive hands of the private sector and transfer them to the wasteful hands of politicians.”

In advance of this tax, a medical device company called the Stryker Corporation, announced a layoff of 1,000 workers to free up enough money to help them pay for this proposed tax.  Another firm, a Covidien Plc, announced a layoff of 200 U.S. workers and plans to offshore their production to Mexico and Costa Rica as a result of this tax.

The implicit intention of Obamacare is to take the medical industry out of the hands of private enterprises, that are only in the sector for profit, and put it into the hands of government officials that care about you.  In this specific example, we see what is called an incidental tax.  An incidental tax is a tax passed on a corporation that then passes that tax onto the consumer that buys their products.  If said corporation is not able to raise prices, due to market concerns, they may lay off employees to free up future funds to pay for the proposed tax, or they may lower the dividend that they pay their private investors.  If one of these alternatives are selected, they will result in either less quantity or quality of medical device products.  If the company decides not to select one of these choices, and they choose to simply exist with less profit, in a public relations move that President Obama may applaud and laud, that company will lose investors, and they may eventually have to fold up their tent.  Congress can legislate who collects a tax, in other words, but it cannot legislate who actually bears the tax’s economic burden. So it is surprising only to Congress that American workers bear the brunt of a tax that Congress assumed device manufacturers would pay.

Senator Orrin Hatch (R–UT), “Job creators and consumers shouldn’t have to foot the bill to pay for the president’s partisan health spending law. Hitting medical device manufacturers—an innovative engine of our economy—with a job-killing $28.5 billion tax hike is exactly the wrong thing under a weak economy.”*

And this is just one tax proposed by the IRS to pay for Obamacare.  This is not the institution of the 2,700 page law, this is not the reality of it, this is a proposed tax in advance of the 2,700 page bill to pay for what it is projected that it may cost as required by Section 1405 of the Patient Protection and Affordable Care Act (“PPACA”) of 2009.

Opponents of this tax are alarmed because this tax will be applied to gross sales, not profits.  As a result of this tax, and subsequently Obamacare, medical device manufacturers will not be profitable in the future.  Foreseeing this possibility, the IRS has designed this tax to be applied to gross sales, so that it will be passed along to consumers who will pay a higher price for medical devices at the point of sale. **

What is the reality of this 2,700 page bill?  How many different industries, medical technologies, drug and device manufacturers will be affected?  How many customers (individual citizens) will be affected by point of sale purchase prices that are raised by private enterprises to pay for this bill?  How much rationing will have to occur to allow for all of the medical services that will be required?  Since government cannot pay for all medical services demanded, rationing of one sort or another cannot be avoided in a world of finite resources, regardless of all the mindless rhetoric about “covering” the uninsured. Expensive treatments will not be allowed; that is the essence of top-down “cost control.”***

At this point in history, we have no idea how comprehensive Obamacare will be.  At this point in history, it has been estimated that Obamacare and HHS have issued waivers to 1,200 companies.  These waivers were presumbly allowed by HHS to prevent the negative consequences Obamacare may have on the economy while Obama is running for re-election.  This can be presumed, based on the fact that all of these waivers expire after President Obama gets re-elected, and the bill will not be fully implemented until 2014 anyway.  People in sections of the industry have informed me that they have already made drastic changes to prepare for all of the changes that Obamacare will introduce to their industry, and we’re still two years out…we’re still in the infancy of Obamacare.





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