Baucus Medical Device Tax a Perpetual Finance Device
Some months ago I was asked to find someone who could determine the feasibility of a device reinvented by a local fisherman. The machine was an alternator driven by a bicycle that charged a car battery bicycle. An electric motor hooked up to the battery turned the wheel of the bicycle.
The claim was that the device produced electricity. Of course, it produced a charge, but used more energy than it produced—a perpetual motion machine. Such machines have been invented and reinvented for hundreds of years. And well-meaning garage inventors reinvent perpetual motion devices with every up-tick in energy prices. But physics triumphs and we know that the law of conservation of energy and matter still rules. Only part of the energy from the battery gets converted to work, with the rest being converted into friction and heat. Energy is not created out of nothing.
In trying to reinvent the health care delivery system, Senator Baucus seems to have invented a perpetual financing device , but one that will only push up prices and inhibit real innovation. What Senator Baucus wants to do is to tax the very providers of health devices, such as heart stents, artificial hips, and diagnostic machines in order to help pay for the new health care system that the federal government is reinventing.
There is a slight problem with all of this. Taxes collected from businesses are only partly paid by the producers, with the rest of the tax paid by the buyers in the form of higher prices. The easier sellers can move to something not taxed to sell, the more the tax gets passed along to buyers. The more these taxed items are covered by insurance, by other people paying the bill, the more the tax gets passed along to the buyers. If buyers have many non-taxed alternatives and find it easier to switch to them than the sellers can switch to non-taxed goods to sell, then less of the tax gets passed to buyers and the sellers will have to pay more of the tax. Of course, if sellers find switching easier than buyers, the taxed gets passed on to the buyers. In other words, the side of the market that can avoid the tax the easiest by switching what they have been doing will be the side that contributes less to paying the tax.
With medical devices, it is very likely that the sellers find it easier to go from making wheel chairs to making non-taxed items than wheel chair users can switch to some non-taxed item. Still, to the extent that the tax is borne by sellers, it reduces profits in these industries and reduces innovation as well.
What looks like will happen with this financing plan is that the tax will be passed along to buyers including Medicaire and insurance, who will raise taxes and raise premiums to pay for the higher priced devices which will lead to higher prices for the medical devices, higher premiums and higher taxes. Of course, after a while, the increasing out-of-pocket expenses reduce purchases along the way.
This financing scheme looks as if it were designed by the same guy who hooked up a car battery to an electric motor, a bicycle and an alternator. The problem is that both of these end up coming to halt and are unsustainable schemes. Genius at work? Not!
-MC