It’s hard to say how healthcare reform will affect the broad municipal bond market. But any new law with the potential to cause millions to lose insurance would be a bitter pill for hospitals. Investors should tread carefully.

For now, the biggest problem with healthcare reform for investors is the uncertainty surrounding it. The passage of a bill in the House raises the possibility that Congress could repeal the Affordable Care Act (ACA), also known as Obamacare. But it’s still not clear what will replace it.

The American Health Care Act, which was endorsed by President Trump, provides one path forward. But opposition from Democrats and some Republicans in the Senate means it’s likely to change before becoming law—if it should pass the Senate, that is.

How it might change matters a great deal. As it stands now, the House plan doesn’t bode well for certain sectors of the muni market, particularly nonprofit hospitals, and possibly state general obligation and appropriation bonds.

Of particular concern is a provision that would roll back the ACA’s Medicaid expansion and eventually change the way this public insurance program for low-income and disabled people is funded. Instead of contributing a set amount for every dollar that states spend on the program, in 2020 the federal government would under the new plan begin capping payments according to a fixed formula.

Changes in Medicaid along with the scrapping of subsidies and income-based tax credits for buying insurance are big reasons why the Congressional Budget Office, when reviewing a similar early version of the bill in March, estimated that 24 million people could lose coverage under the plan by 2026.

PUTTING HOSPITALS ON THE HOOK

Why should hospitals worry about the number of potentially uninsured patients? It’s simple: nonprofit hospitals are required to treat every patient that walks through their doors. When more patients can’t pay for lack of insurance, it increases the financial burden on the hospitals.

Having to pick up the tab for more uninsured patients could reduce hospitals’ overall revenue at a time when the operating margins for many are already thin. That could put pressure on their bonds, many of which have been issued in recent years with weak legal protections for investors.