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

48 Pages Posted: 30 Sep 2019 Last revised: 19 Aug 2020

See all articles by Pengjie Gao

Pengjie Gao

University of Notre Dame - Mendoza College of Business

Chang Lee

Korea Advanced Institute of Science and Technology (KAIST) - College of Business

Dermot Murphy

University of Illinois at Chicago

Date Written: September 23, 2019

Abstract

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.

Keywords: public finance, health economics, municipal bonds, Affordable Care Act, Medicaid

JEL Classification: G12, G18, H74, I10

Suggested Citation

Gao, Pengjie and Lee, Chang and Murphy, Dermot, Good for your Fiscal Health? The Effect of the Affordable Care Act on Healthcare Borrowing Costs (September 23, 2019). Available at SSRN: https://ssrn.com/abstract=3458657 or http://dx.doi.org/10.2139/ssrn.3458657

Pengjie Gao

University of Notre Dame - Mendoza College of Business ( email )

246 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-8048 (Phone)

HOME PAGE: http://​sites.google.com/site/gpengjie/

Chang Lee

Korea Advanced Institute of Science and Technology (KAIST) - College of Business ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

Dermot Murphy (Contact Author)

University of Illinois at Chicago ( email )

2114 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
312-355-4372 (Phone)

HOME PAGE: http://sites.google.com/site/murphyderm

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