Good for your Fiscal Health? The Effect of the Affordable Care Act on Healthcare Borrowing Costs

We study the effect of the Affordable Care Act (ACA) on hospital credit risk through the municipal finance channel. The ACA increased insured healthcare demand but decreased expected reimbursement rates for treating insured patients. Healthcare yields decreased by 39 basis points relative to non-healthcare yields following a favorable 2012 ACA Supreme Court ruling, suggesting the demand effect dominates. We further identify the demand effect by showing larger yield reductions in Medicaid-expansion states and urban areas. Weaker effects for public hospitals and long-term bonds suggest that expected reimbursement cuts and subsidy uncertainties are also important determinants of hospital credit risk