MuniLand: Hospital Credits Supported by Supreme Court’s Decision to Uphold the Affordable Care Act

Last Thursday, the U.S. Supreme Court upheld a provision of the Affordable Care Act that provides insurance subsidies to individuals in states without state-run health insurance exchanges. Formerly known as The Patient Protection and Affordable Care Act (ACA), the law is a series of interlocking reforms designed to expand coverage in the individual health insurance market. First, the act bars insurers from taking a person’s health into account when deciding whether to sell health insurance or how much to charge. Second, the act generally requires each person to maintain insurance coverage or make a payment to the Internal Revenue Service. And third, the act gives tax credits to certain people to make insurance more affordable. The court case was specifically about whether the ACA’s tax credits should be available in states that use a Federal health insurance exchange instead of a state run program. The ruling is supportive of hospital credits, at least insofar as there will be less charity care due to a higher volume of insured patients. Also, we typically see insured individuals consume more healthcare and preventive services, which means hospital are collecting more revenue and writing off fewer uncompensated services. With the ACA decision behind us, SNWAM continues to overweight the hospital and healthcare sectors because (1) we believe the U.S. economic expansion and ongoing job growth will continue, which means more people have access to and will consume more healthcare services, and (2) we continue to have a bias toward large regional hospital systems that are able to scale their operations to meet provisions under the ACA that will eventually control Medicare pricing for various services. The municipal market includes much more than just state and local general government debt. Within the space, the healthcare and hospital sector is one area in which we see attractive risk/reward opportunities while receiving tax-exempt income.

Source: SNWAM Research