Another side effect of refusing the Medicaid expansion

Bonds issued by health care systems in those states may suffer:

Municipal bonds sold by hospitals and health-care systems have been the market’s biggest losers in the past three months. Debt from facilities in the 21 states that aren’t expanding Medicaid is poised to fare even worse.

A key provision of President Barack Obama’s health-care plan is extending care under the health program for the poor, which is financed by states and the federal government. Where politicians don’t go along, millions would be left uncovered, costing hospitals more in uncompensated care.

Health-care related bonds are already posting the biggest losses among revenue debt in the $3.7 trillion municipal market, losing about 6 percent over the past three months, Standard & Poor’s data show. In states that have rebuffed extending Medicaid, securities of hospital systems have less appeal, said Todd Sisson, a senior analyst at Wells Capital Management inCharlotteNorth Carolina.

“We’re going to see spread widening on hospitals in states that are not expanding versus states that are expanding,” said Sisson, whose company oversees about $31 billion in munis. “States that aren’t expanding Medicaid are still going to have a high percentage of the uninsured. The hospitals are going to lose a lot of money.”\

There’s actual evidence and data for this:

Bloomberg cited Palmetto Health, whose spread on $139 million of recently issued debt narrowed by 15 percent, while the yield was not much higher than junk. By comparison, debt issued by Yavapai Regional Medical Center in Arizona, which has decided to expand its Medicaid coverage, has seen improving spreads in recent weeks.

The financial schism between hospitals in states that are choosing to expand Medicaid or stay put is already playing out, with at least one facility in North Carolina blaming its pending closure on the state’s decision not to expand Medicaid enrollment.

According to Bloomberg, hospital debt does not fare as well as debt issued on utilities and sewer systems because it does not hold a monopoly on its customer base.

“It’s going to be the system of the haves and have-nots, and that starts with which states are expanding Medicaid and which are not,” Sisson said.

This should be interesting to watch.

@aaronecarroll

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