Although the Humana Foundation has received no cash infusions from its corporate creator of late, a booming stock market has boosted its assets 29 percent in the last three years for which data are available. What’s more, if Aetna’s acquisition of Humana goes through, the foundation stands to receive a financial injection of about $18 million.
While experts told IL that the loss of corporate support usually marks the beginning of a long, slow decline for foundations, they said the organization also could reinvent itself — and even find a new corporate benefactor.
Between 2002 and 2011, Humana pumped more than $100 million into the foundation, including $46.3 million in 2010 and $35 million in 2011, according to records from the Internal Revenue Service. However, the company gave nothing in 2012, 2013 and 2014. That marked the first three-year stretch in at least a decade in which the company did not give any money to the foundation.
The IRS report for 2015 is not yet available, and neither the company nor the foundation would say whether Humana gave any cash to the foundation last year. The foundation did not reply to a voicemail from IL, and the company would say only that the foundation “confirmed (that) the publicly available reports are the most recent data available.”
Despite the sputtering corporate spigot, the foundation’s assets more than doubled from 2010 to 2014, to nearly $180 million. During that period, the number of corporate shares held by the foundation more than doubled to 1.5 million, and the value of those shares roughly quadrupled, to more than $124 million, thanks to the post-recession stock surge.
While the foundation’s ownership in Humana, at 400,001 shares, has remained steady, its holdings in other corporate giants, including AT&T, General Electric and UPS, steadily increased in the last few years.
The foundation also has diversified its stock portfolio: In 2010, it owned shares in 31 companies. By 2012, that number had doubled, as the foundation added such well-known brands as Boeing, Microsoft and Yum.
The foundation, which describes itself as a “health and well-being” organization, has holdings in Merck, Eli Lilly and Pfizer — but it also owns stakes in Coca-Cola, McDonald’s and Transocean (of Deepwater Horizon oil spill infamy.)
By federal law, private foundations have to annually distribute at least 5 percent of their assets, said Suzanne Friday, senior counsel and vice president of legal affairs for the Arlington, Va.-based Council on Foundations. They can distribute more, she said, but if they give less, they incur a tax penalty.
As the Humana Foundation’s assets have grown, so has the organization’s charitable giving: In 2010, the foundation distributed nearly $4 million, or about 6 percent of its assets. By 2014, the distributions reached more than $8.2 million.
In 2014, the foundation gave gifts between $3,000 and $1 million. The biggest gift went to a Washington, D.C.-based charity that helps children, especially those in poverty, become more active. The foundation also gave more than $900,000 to the University of Louisville Foundation, more than $700,000 to Actors Theatre of Louisville, and $640,000 to Metro United Way.
The Humana Foundation, as a separate entity from the corporation, is not part of the proposed merger between Humana and Aetna. The $37 billion deal is facing opposition from federal antitrust regulators. A trial is set for Dec. 5.
The foundation stands to see its assets increase by about $18 million if the merger goes through: For each of the 400,001 Humana shares it owns, it will receive 0.8375 shares of Aetna and $125 in cash. The purchase price amounts to a premium of about $45 per Humana share, or about $18 million for 400,001 shares.
If the merger goes through, the Humana Foundation could outlive Humana, the company, which might get absorbed into Aetna, said Thomas Pope, Ernst & Young associate professor of accountancy at the University of Kentucky’s Gatton College of Business and Economics.
But, he said, Aetna also could operate Humana as a subsidiary and give the subsidiary’s leadership some leeway on its corporate giving.
In that case, Humana could very well continue its support of the Humana Foundation, and the foundation would continue completely unaffected by the merger, Pope said.
The Council on Foundations’ Suzanne Friday said the Humana Foundation has other options, including merging with another foundation, finding another corporate supporter, or even converting to a public charity, which would allow it to raise funds from various sources, including individuals and, yes, corporate foundations.
But with its sizable assets, the Humana Foundation may not need to take any of those steps, Friday said. Some foundations simply bolster their assets through investments.
The Ford Foundation, for example, no longer has any connection to the Ford family or the Ford company, she said.
However, Pope said that once a corporate foundation loses its support, it “is very likely on its downward path.”
Investments do not generate a good return year after year, and the required distribution may very easily outstrip whatever the foundation earns from its investments over time.
“Sooner or later,” Pope said, “they disappear.”
Disclosure: One of the five directors of the Humana Foundation is David A. Jones Jr., an investor of Insider Louisville.