In general, the Affordable Care Act (ACA) seeks to reduce the number of uninsured. A larger insured population benefits hospital credits by reducing the amount of write-offs from bad debt and charity care. We call these write-offs “uncompensated care.” Less uncompensated care could have a meaningful positive impact on net patient revenue and can potentially lead to higher operating margins. At the same time, the ACA limits Medicare and Medicaid reimbursements, which could reduce operating margins. So which dynamic is more powerful? Morgan Stanley, in its May 1, 2014 Municipal Strategy Report, argues that a larger insured population more than offsets a reduction in Medicare and Medicaid reimbursements, and lower credit quality hospitals that service a greater proportion of the uninsured would benefit the most as the result of the ACA. We tend to agree with Morgan Stanley’s argument, and so does the municipal market. Since the decision by the U.S. Supreme Court to uphold the ACA, yields on hospital credits have fallen more than the overall municipal market. There are other factors that contribute to this out-performance but, in general, the ACA is a positive fundamental credit factor for the municipal hospital sector.