With The ACA Under Fire, Can Health Conversion Foundations Patch The Safety Net For Low-Income Americans?

With the threatened repeal of the Affordable Care Act (ACA), a surprising source is emerging as the nation’s largest pool of philanthropic dollars for health: health conversion foundations. Together, 228 conversion foundations represent some $27.5 billion of assets, according to our estimates.

What’s more, conversion foundations are already often the largest health funders in their geographic area, dispensing more than $1.3 billion a year, based on our research, to enhance the health and well-being of mostly low-income Americans and patching a fraying safety net in the process.

Sometimes called health legacy foundations, health conversion foundations form when a nonprofit health care organization converts to for-profit status or is sold to a for-profit or another nonprofit. Transaction proceeds form the basis for a new foundation intended to support the health of the community or state that the organization once served.

While some conversion foundations still focus on access to health care and insurance coverage, many are moving “upstream” to address issues such as social determinants of health (for example, access to healthy food) and health equity.

“This work has evolved over the 10 years we’ve been around,” said David Sandman, president and CEO of the New York State Health Foundation, a conversion foundation, in a telephone interview. That funder’s assets top $270 million. “Today, much of our work is prevention-focused. We’re focusing on creating healthy food access and opportunities for physical activity. We hope to change behaviors, which can decrease obesity and make people healthier.”

Recent research by The Bridgespan Group has created a picture of the number of health conversion foundations, their financial resources, and their programmatic ambitions—as well as their growing importance. Here’s what we learned:

• Fewer health conversion foundations than others have estimated fuel the giant funding pool

While published estimates for the number of conversion foundations range from 300 to 400, our research found significantly fewer. For our count, we excluded existing community foundations that got a fresh infusion of cash (for example, the Truman Heartland Community Foundation); company-sponsored foundations such as most Blue Cross Blue Shield Foundations (for example, the Blue Cross Blue Shield of Massachusetts Foundation); and foundations that had not made a grant since 2008.

We focused on foundations established by conversions of large hospitals and insurers, because these transactions most often create foundations with the largest asset bases. When we had doubts, we picked up the phone. Using this methodology, we arrived at a total of 228, far fewer than past published estimates. This effort also identified a handful of foundations structured as 501(c)(4)s, including the newly formed Group Health Community Foundation in Washington State.

• Health conversion foundation assets are growing

We also discovered that between 2008 and 2014, total assets of conversion foundations on our list grew by about 30 percent. The vast majority of that increase (80 percent) is attributable to investment performance, with only 20 percent attributable to the creation of new foundations. Perhaps unsurprisingly, the top fifteen conversion foundations hold half of all conversion foundation assets. Among them, the California Endowment had $3.7 billion; the Colorado Health Foundation, $2.4 billion; and the Missouri Foundation for Health, $1.1 billion. Ohio, Texas, and Virginia round out the six states in each of which conversion foundations have combined assets exceeding $1 billion per state. Across all of the foundations, the rate of annual giving held relatively constant between 2008 and 2014 at 4–5 percent of assets. (Foundations in the United States, including conversion foundations, are required to grant—at minimum—an average of 5 percent of their funds per year.)

• Conversion foundation creation is tied to broader health care trends

More than half of the foundations on our list were created in two concentrated waves: thirty-seven from 1983 to 1986, as managed care started to emerge, and then another ninety-nine from 1995 to 1999, coinciding with a nationwide push toward managed care and to consolidation in the health care sector.

Future Health Care Consolidation Could Give Rise To New Wave Of Health Conversion Foundations

The real question we set out to answer was this: What is the future of conversion foundations? How will they affect the health of the most vulnerable Americans? Here we shifted from hard data to informed speculation. The ACA spurred a new wave of health care consolidations, with mergers and acquisitions in 2015 growing 14 percent in one year, breaking the previous record set in 2014. As reported by Price Waterhouse Coopers in its 2016 industry report, that trend is likely to continue.

Indeed, if those current trends hold, we predict that at least fifty new conversion foundations will emerge by the early 2020s, potentially adding between $6 billion and $8.5 billion in assets to this funding pool.

The enormous and growing assets of conversion foundations don’t automatically translate into a healthier America, of course. But many make a real effort to address the most important health and wellness needs in their communities.

For example, the MetroWest Health Foundation, an approximately $100 million foundation in Framingham, Massachusetts, identified an important need for adolescent mental health support in its funding area. The foundation then invested in several initiatives aimed at middle school and high school students, including grants to fund the Bridge for Resilient Youth in Transition program, which helps to re-integrate students who have been out of school because of a mental health challenge. MetroWest also carefully tracked its progress against its impact targets in each of its strategic areas, including adolescent mental health, over time—setting clear goals along the way—and noting improvements such as a 3 percent decrease in students suffering various mental health conditions and a 20 percent decrease in suicide ideation from 2012–2014.

There’s also a role for influencing policy and for advocacy. “We don’t replace government funding,” explained Sandman of the New York State Health Foundation, “but we can push the state.” That foundation, for example, helped the state of New York adapt effectively to the ACA, an example of such positive pushing.

Given their resources and close connection to local communities, health conversion foundations appear well-positioned to work with health systems and community-based organizations where federal dollars and the safety nets they fund are at risk. What’s more, the local innovations they fund, sometimes addressing root causes of ill health in the community, can serve as exemplars for the national dialogue.

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