Moody's: Increase in hospital debt issuance fueled by rise in pension liabilities

Growing pension liabilities and insurance premiums are causing nonprofit hospitals and public hospitals to issue more debt, according to a Moody's Investors Service report.

Hospitals following Financial Accounting Standards Board accounting pay higher premiums on unfunded pension liabilities, making them more likely to issue debt to cover these liabilities. Based on fiscal year 2016 audits and projections, Moody's expects pension liabilities for FASB hospitals to increase in 2016.  

Hospitals that issue debt to fund pensions are vulnerable to credit negative implications. "Pension funding bonds have credit negative elements because by issuing debt a system assumes its assumptions around discount rates, investment returns and rising premiums will pan out," according to Moody's. "If the assumptions do not work out as planned the system ends up with hard debt that they have to pay and more unfunded liabilities than expected, which equates to future budget risk."

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