WARSAW, Ind. — Travis Funk, laid off a year ago from his job finishing boat interiors, hopes to land a job in a field he thinks has more promise: making artificial hips and knees for an aging population.

“I figured the best thing to do was get into the orthopedic industry,” said Funk, 29, who is taking classes at Ivy Tech Community College. He hopes knowledge gained in the 12-month program will earn him a job in Warsaw, often referred to as the “orthopedic manufacturing capital of the world.”

Zimmer Holdings, Biomet and DePuy Orthopaedics are based in Warsaw, along with several smaller companies and suppliers. Together, they generate nearly a third of the estimated $32 billion in global orthopedic device sales.

But the industry, succeeding even as some other U.S. manufacturing sectors are slumping, faces challenges:

A proposal that passed the Senate Finance Committee on Tuesday would place as much as $40 billion in new taxes on the medical device industry in the next decade.

In addition, the recession has curbed demand for orthopedic devices worldwide as patients delay treatment, forcing layoffs at some companies.

Device makers say the tax would stifle job growth and innovation, adding to unemployment. But the health-care overhaul proposals also could bring benefits to the area, such as helping provide subsidies, so unemployed workers such as Funk could purchase health insurance.

Senate Finance Committee Chairman Max Baucus, D-Mont., who proposed the tax, sees the levy as the device industry’s fair share in helping pay for legislation that could bring it millions of new insured customers.

For much of the past decade, times have been good for the industry, with hefty profits from steadily rising sales of its artificial hips and knees, bone screws and other devices worldwide. More than 700,000 hip and knee replacements are performed in the U.S. each year. That number could double by 2016, driven partly by osteoarthritis and other ailments, researchers told the American Academy of Orthopaedic Surgeons’ annual meeting in February.

Orthopedic-device industry profits are healthy: Zimmer Holdings and Stryker Corp. show five-year average gross profit margins of 76.5 percent and 68.3 percent, respectively, according to Thomson Reuters. Medical equipment and suppliers as a whole showed five-year gross margins of 59 percent, compared with 45.8 percent for the S&P 500.

Drug makers and hospitals have agreed to help finance part of the legislation, expected to cost more than $800 billion over a decade, according to a Congressional Budget Office estimate.

Drug makers, for example, agreed to what they say is an $80 billion deal that includes cutting by half the prices they charge patients who hit a coverage gap in the Medicare drug program. Hospitals agreed to a $155 billion cut in Medicare reimbursements over a decade.

Jeffrey Binder, president and chief executive officer of Biomet, says the device industry faces a double whammy.

“This particular fee is completely out of proportion with what any other sector has agreed to do,” he said “It would cost our company alone $45 million to $50 million a year. That’s the equivalent of approximately 800 jobs.”

In addition, device makers, who sell directly to hospitals, will be under pressure to lower their prices as hospitals attempt to absorb their own cuts related to the health-care overhaul, Binder said.

No guarantees

The fate of the tax is uncertain. A number of Democrats and Republicans oppose it.

So, too, does the industry’s trade group, the Advanced Medical Technology Association (AdvaMed), which says the tax would be passed on to consumers in higher prices — or result in job cuts.

The $4 billion-a-year tax on the $130 billion medical device industry “is a devastating prospect,” particularly for smaller companies, AdvaMed President and CEO Stephen Ubl said at a news briefing in Washington on Tuesday. The industry is lobbying hard against the tax, but Ubl says it supports other elements of the legislation, such as finding new ways to compare which drugs, devices and treatments work best.

Senate Finance Committee staff, speaking to reporters Monday, said the device tax is a flat amount based on each company’s market share, not product prices, a move meant to discourage passing the fee to consumers.

The controversy about the device tax illustrates how difficult it is for lawmakers to find ways to pay for their ambitious health-care ideas. For months, proposals have come and gone — and come back again — from fees on soda pop to levies on the wealthy. Device makers are just taking their turn in the hot seat.

“Congress has a not-in-my-backyard problem in health reform,” said Robert Laszewski, an Alexandria, Va.-based health-policy consultant. “Everyone wants it, but someone else has to pay for it.”

Pluses and minuses

Funk is among the growing number of uninsured in Warsaw and its surrounding area. About 19 percent of people in the area have no health insurance, compared with 15.4 percent nationally, according to the most recent census data.

Today, device makers employ about 6,000 people in Kosciusko County, accounting for nearly 19 percent of its private-sector jobs, according to a September report from BioCrossroads, a group formed by venture capitalists and philanthropic organizations to boost the life-sciences industry in Indiana.

“It’s the only thing that provides a ray of sunshine in that part of the state,” said Robert Guell, professor of economics at Indiana State University.

Medical device jobs in Kosciusko County pay well, averaging more than $81,000 annually, according to BioCrossroads.

For a time, experienced workers were often lured from one company to another.

There was so much movement, “you almost had to keep a scorecard to know where your neighbor was working,” said Thomas Krizmanich, an orthopedic surgeon who lives and works in Warsaw. He said he has to be careful not to offend patients who work for one of the three big device makers by implanting them with competitors’ products.

“Every company would like you to use 100 percent of their product,” Krizmanich said. “It can be difficult to make three companies happy.”

The sagging economy has slowed job hopping — and hiring — in the past year. In August, unemployment in Kosciusko County, which includes Warsaw, was 11.6 percent vs. the national average of 9.7 percent, says database service Proximity.

The proposed tax on device makers is not the only issue dampening employment prospects.

Other states and countries have tried to get companies to move.

“I have a pile of business cards from companies in Ireland,” said Nick Deeter, president and CEO of OrthoPediatrics, a Warsaw-based firm that develops orthopedic devices for children. “Akron, Ohio, recently offered us a $3 million grant to move.” But he stayed, with the help of $4.4 million in grants and other incentives from Indiana.

The ongoing recession means job openings in the device industry are fewer and attract many more applicants, says Melissa Denton, work-force and economic development director at Ivy Tech in Warsaw.

Enrollment in Ivy Tech’s advanced orthopedic manufacturing skills-training program has grown so fast, now at 400 students, that the school has had to move into larger quarters twice since last year.

Funk expects to complete his training soon, although he might pursue a two-year degree: “I just hope someone hires me.”