HTML _ RL30058 - Tobacco Master Settlement Agreement (1998): Overview and Issues for the 106th Congress
5-Nov-1999; Stephen Redhead; 6 p.

Abstract: On November 23, 1998, attorneys general representing 46 states, the District of Columbia, and the five U.S. territories signed an agreement with the major cigarette companies to settle all the state lawsuits seeking to recover the Medicaid costs of treating smokers. The Master Settlement Agreement, or MSA, contractually imposes some restrictions on tobacco advertising, marketing, and promotion and requires the manufacturers to make annual payments totaling about $206 billion through 2025. It follows earlier individual settlements with four states--Mississippi, Florida, Texas, and Minnesota--totaling more than $40 billion over the first 25 years. Cigarette price increases have passed on those settlement costs to smokers. The MSA is narrower in scope than the June 1997 proposed national tobacco settlement, which would have required federal legislation in order to take effect. Efforts in the 105th Congress to pass comprehensive tobacco-control legislation ended on June 17, 1998, when the Senate rejected the McCain tobacco bill (S. 1415). A trial court judge in each state must approve the MSA in order for the state to receive its share of the MSA payments. The funds are allocated based on estimated tobacco-related Medicaid expenditures and the number of smokers in each state. The MSA does not earmark or restrict how states spend the money. The agreement also requires states to enact a model statute regarding the treatment of nonparticipating tobacco companies. A national anti-tobacco advertising campaign, funded by the MSA is expected to begin in January 2000. In addition to the MSA payments, the cigarette companies will pay $5.15 billion over 12 years into a trust fund to compensate tobacco farmers and quota holders for anticipated financial losses resulting from the implementation of the MSA. The states also signed a separate agreement with the leading smokeless tobacco company, United States Tobacco, which contains many of same public health provisions as the MSA. Under the Medicaid statute, states are required to return to the federal government its share of any recoveries of Medicaid expenditures. On May 21, however, the President signed the FY1999 Emergency Supplemental Appropriations Act (P.L. 106-31), which waived any federal claim to the MSA funds and allowed states to keep all the money without any restrictions on spending. State Governors and attorneys general had strongly opposed federal recoupment of a portion of the MSA funds, as well as proposals to allow the states to keep all the funds but with restrictions on how the money is spent. Unlike the 1997 proposed settlement, the MSA does not incorporate the Food and Drug Administration's (FDA) tobacco regulation. The U.S. Supreme Court is expected to issue a ruling next year on whether the FDA has statutory authority to regulate tobacco products. On September 22, the Department of Justice sued the tobacco companies to recover billions of dollars spent by federal health care programs, such as Medicare, to treat smoking-related diseases. [read report]

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