A Prescription for Opportunity in Muni Healthcare

As fundamental municipal credit managers, we believe that research-driven underwriting can help us identify investment opportunities in out-of-favor areas with wide dispersions in credit spreads, both across sectors and among individual names. One area we believe is particularly rich with opportunity is the healthcare sector, which underperformed in 2025.¹ Investors grew concerned about the policy ramifications of Trump’s tax-and-spending bill, including lower reimbursement rates, lower utilization rates and pressure on federal and state aid, as well as the impacts of immigration and tariffs on labor and operating costs.

Cuts to Medicaid and Medicare—which comprise approximately 44% of US hospital spending²—outlined in the bill will total more than $1 trillion through 2034³ and are estimated to eliminate healthcare coverage for up to 15 million people.⁴ Though set to begin in 2026, many of these cuts will ramp up over time, which we believe will give hospitals, healthcare providers and insurance carriers time to adjust their operating models. The delayed nature of the cuts will also give Medicaid and proponents of the Affordable Care Act opportunities to push back or eliminate the implementation of the cuts. Lastly, we believe an aging population in need of chronic disease management and long-term care will further support healthcare utilization.

Within this sector, we believe that larger, well-managed hospital systems, specialty-care hospitals and hospitals that provide essential care in geographies with population growth and a favorable payer mix are more likely to be resilient in the face of policy changes. These policy changes may also drive consolidation of the hospital space as smaller hospital systems and providers in rural areas seek financial stability and access to capital. By identifying what we view as essential-care providers in larger, well-funded geographies or smaller hospitals that may be well positioned to be acquired by larger providers with a more favorable payer mix, we believe we can identify credits with attractive yields and prices and lower default risk.