RL30058: Tobacco Master Settlement Agreement (1998):
Overview, Implementation by States, and Congressional Issues
C. Stephen Redhead
Specialist in Public and Environmental Health
Domestic Social Policy Division
Updated November 5, 1999
List of Tables
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.
On November 23, 1998, attorneys general from 46 states, the District
of Columbia (DC), and the five U.S. territories signed a contractual agreement--the Master
Settlement Agreement, or MSA--with the cigarette companies to settle all the state
lawsuits seeking to recover the public health costs of treating smokers.(1) The MSA imposes some agreed upon restrictions on tobacco
advertising, marketing, and promotion and binds the companies to make annual payments
totaling about $206 billion through 2025. It follows earlier individual settlements with
four states--Mississippi (7/3/97), Florida (8/25/97), Texas (1/16/98), and Minnesota
(5/8/98)--in which the industry will make annual payments totaling more than $40 billion
over the first 25 years.
The MSA is a scaled-down version of the June 1997 proposed national
settlement, which required federal legislation in order to take effect. After a year of
intense debate, efforts by advocates in the 105th Congress to pass
comprehensive tobacco-control legislation that embodied the 1997 settlement ended on June
17, 1998, when the Senate rejected the McCain tobacco bill (S. 1415).
President Clinton praised the MSA as an "important step"
towards a comprehensive national tobacco-control policy. State officials also applauded
the agreement as the best opportunity to secure billions of dollars for anti-tobacco and
other public health programs, rather than risk protracted legal battles with uncertain
consequences. They predict that the MSA will significantly reduce underage tobacco use.
Skeptics have criticized the deal as accomplishing little but a very large transfer of
wealth from smokers (through the tobacco companies) to state treasuries. On the day the
settlement was signed, the major cigarette companies raised prices by 45 cents a pack to
cover the cost of the annual payments.(2)
The MSA bears a superficial resemblance to the 1997 proposed
settlement, but there are several key differences between the two documents. First, the
MSA represents a private contract between the industry and the states and does not require
congressional action for implementation. The National Association of Attorneys General
(NAAG) will manage the MSA on behalf of the states. By contrast, the 1997 proposal was a
blueprint for a comprehensive national tobacco-control policy, including federal
regulation and oversight. Second, the MSA settles only the state and local government
lawsuits. The industry gains no protection from class-action lawsuits and claims brought
by individuals, labor unions, and private heath care insurers. Finally, the MSA lacks many
of the tobacco-control initiatives that were included in the McCain bill.
ENACT, a coalition of leading national health and medical
associations organized to lobby for comprehensive tobacco-control legislation, strongly
criticized the settlement as a victory for the industry that will do little to reduce
tobacco use. The MSA places some limits on tobacco-product advertising, marketing, and
promotion, but fails to address most of the public health provisions included in the
McCain bill and other tobacco legislation introduced in the 105th Congress. For
example, the MSA bans outdoor billboard advertising (with the exception of poster-sized
advertising outside tobacco retailers) and limits companies to one brand-name sponsorship
of sporting and cultural events each year. But, unlike the McCain bill, it does not
restrict print advertising, Internet advertising, or marketing and advertising inside
retail stores. The MSA does not include any provisions limiting youth access to tobacco
products (e.g., restrictions on vending machines, self-service displays, and mail order
sales), nor does it provide for the enforcement of federal and state minimum age-of-sale
laws through retailer licensing and inspection. Finally, the MSA fails to address FDA
regulation of tobacco products, indoor smoking restrictions, and smoking cessation, all of
which were included in the McCain bill.
Table 1, which begins on page 12, provides a more detailed
comparison of the MSA's provisions and the corresponding sections of the June 1997
proposal and the McCain bill. Whereas the McCain bill would have provided billions of
dollars annually for federal tobacco-control programs, the MSA creates a national
foundation to combat underage tobacco use and substance abuse. Manufacturers will pay a
total of $1.7 billion to the foundation to fund research, surveillance, and public
MSA Implementation by States
A trial court judge in each state must approve the MSA, as well as a
consent decree containing many of the provisions of the agreement, in order for the state
to receive its share of the MSA payments. Court approval becomes final once all
opportunities for appeal have expired. To date, 38 states, DC, and the five territories
have received final approval. The remaining eight states either have pending legal
challenges to the MSA or, facing no legal challenges, are waiting for the appeals'
deadline to pass (see Table 2). MSA funds will be released when 80% of the states obtain
final approval (referred to as State Specific Finality) and those states represent 80% of
the total annual payments.(3) That will
occur when the next state achieves finality because the 38 states approved so far account
for 79.7% of the funds.
The MSA funds will be allocated to the states and territories
according to a formula developed by the attorneys general (see Table 2). The formula is
based on estimated tobacco-related Medicaid expenditures and the number of smokers in each
state. The annual payments are subject to a number of adjustments, reductions, and
offsets, of which the most important is likely to be the volume-of-sales adjustment. That
adjustment ties payments to nationwide cigarette sales, much like a sales tax. If, as
anticipated by public health officials, cigarette consumption declines as a result of
higher prices, the annual payments will be reduced proportionately.
Funding for Tobacco Control Programs
The MSA does not address the question of state legislative
appropriation of the settlement funds, nor does it earmark or in any way restrict how
states spend the funds. With billions of dollars at stake, state legislators have come
under intense pressure from lobbyists over MSA spending priorities. More than 500
MSA-related bills have been introduced in 49 states this year.(4) As of October 1, 1999, 195 bills had passed at least one
house of the legislature, and 103 bills had been signed into law. Many of the
tobacco-settlement bills that have been introduced deal with establishing a trust fund or
funds, from which money may be allocated to specific areas such as children's health,
smoking cessation, education, or highway construction. Some of the bills directly earmark
the settlement funds for health care access, tobacco control, S-CHIP (State Children's
Health Insurance Program), and children's health programs. Others propose using the
settlement funds to compensate tobacco farmers and their communities, or pay for long-term
care, tax cuts, and other miscellaneous proposals.(5)
Public health officials are pressuring state lawmakers to allocate
MSA funds for tobacco control programs. Experts believe that the public health provisions
in the settlement are unlikely, by themselves, to have much impact on reducing underage
tobacco use. But if states commit a substantial portion of the annual payments to
comprehensive tobacco control programs, and if those efforts are tied to a national
strategy, then public health officials are confident that the agreement will lead to
significant reductions in tobacco use.
In a recent guidance document, the Centers for Disease Control and
Prevention (CDC) recommended that comprehensive tobacco control programs include each of
the following nine components: (6)
- community programs that engage youth and local officials;
- school-based programs;
- enforcement of restrictions on minors' access to tobacco and on
smoking in public places;
- statewide programs that provide assistance to local programs;
- anti-tobacco advertising and marketing;
- cessation programs;
- public health programs to reduce the residual burden of
tobacco-related disease among former users (e.g., cancer, heart disease, asthma);
- surveillance and evaluation of statewide and local programs; and
- administration and management.
Those recommendations are based on CDC's analysis of the large-scale
tobacco control programs funded by state excise taxes in California and Massachusetts, and
on the agency's involvement in providing technical assistance to other states that are
developing comprehensive programs using excise taxes (Oregon and Arizona) or settlement
funds (Florida, Minnesota, Mississippi, and Texas). For each state, CDC has estimated the
funding required to establish a comprehensive tobacco control program. Annual costs to
implement all nine program components range from $7$20 per capita in less populated
states, and $5$16 per capita in more heavily populated states.
Table 3 summarizes the decisions taken by state legislatures so far
this year on whether to allocate a portion of their MSA funds for tobacco control
programs. Because some state legislatures are still in session and others have deferred
funding decisions until next year, it is not yet possible to draw any overall conclusions
about how much of their MSA payments states will use for tobacco control in the immediate
The MSA contractually obligates state legislatures to enact a model
statute that would include a per-pack fee on nonparticipating cigarette manufacturers, to
be placed in an escrow fund, in order to protect the market share of the companies that
participated in the agreement. Failure to enact such a statute will result in a reduction
in the state's allocation of no more than 65%.
State legislatures may consider other legislative actions aside from
determining funding priorities and enacting a model statute. The settlement's provision
banning the sale of cigarettes in packs containing fewer than 20 cigarettes sunsets on
December 31, 2001. Public health officials consider the ban to be a key provision to
discourage youth smoking. Legislation would be required if states wish to continue the
ban. Some of the public health issues included in the 1997 proposed settlement but not
addressed in the MSA (e.g., lookback penalties, print advertising) may also be the subject
of state legislative initiatives. The MSA contractually bars tobacco companies from
lobbying against certain kinds of state legislation and regulation that is intended to
reduce underage tobacco use.(7)
However, it allows companies to oppose legislative efforts to raise excise taxes and
restrict smoking in public places.
American Legacy Foundation
The MSA created a non-profit national foundation in Washington DC,
named the American Legacy Foundation (ALF), to support research on effective
tobacco-control programs and fund an anti-smoking advertising campaign. Manufacturers
agreed to pay the ALF a total of $1.45 billion over 5 years to fund the advertising
campaign and provide $250 million over 10 years to fund research and surveillance. The ALF
Board of Directors recently selected Arnold Communications of Boston, MA, to head a team
of marketing communications firms that will create a coast-to-coast advertising, marketing
and public relations anti-smoking campaign. The campaign will include TV, radio, print and
Internet advertising with a particular focus on discouraging teenagers from smoking. The
ALF plans to spend $150255 million a year on the campaign, making it one of the largest
advertising accounts in the country. The campaign is expected to begin in January 2000.
The ALF Board has asked Research Triangle Institute, NC, in
partnership with the Rand Corporation and Prospect Associates of Silver Spring, MD, to
coordinate and manage the Foundation's research and surveillance activities. Information
about ALF may be found online http://www.americanlegacy.org.
National Tobacco Growers'
Settlement Trust Fund
The four cigarette manufacturers that signed the MSA also agreed to
negotiate with the tobacco-growing states to establish a growers' trust fund. The purpose
of the fund is to compensate tobacco farmers and quota holders for financial losses as a
result of the anticipated MSA-driven decline in cigarette consumption.(8)
In August, both sides agreed to establish the National Tobacco
Growers' Settlement Trust Fund.(9)
Under the agreement, the four companies will pay into the trust fund a total of $5.15
billion over 12 years. Each company will make payments in proportion to its share of the
domestic market, and the payments will be subject to adjustments for inflation and
volume-of-sales. Chase Manhattan Bank is the designated trustee.
Only those states that grow flue-cured and burley tobacco used to
manufacture cigarettes will be eligible to receive payments from the trust fund. The
fourteen eligible states are Alabama, Florida, Georgia, Indiana, Kentucky, Maryland,
Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and
West Virginia. Funds will be allocated to the states based on their 1998 tobacco
production.(10) In order to receive
funds, each state is required to establish a certification board to develop a spending
plan and submit it to the trustee for approval. Board members must include the state
Governor and Attorney General, state legislators, members of the state's congressional
delegation, and representatives of the tobacco growers and quota holders.
Smokeless Tobacco Master
In addition to the MSA, the states also signed a separate agreement
with the United States Tobacco Company (UST), the nation's largest smokeless tobacco
company. UST manufactures Skoal and Copenhagen, the two most popular brands of moist
snuff, and has about a 55% share of the smokeless tobacco market (based on the number of
The Smokeless Tobacco Master Settlement Agreement (STMSA) contains
many of the same components as the MSA. The public health provisions in the STMSA are very
similar to those in the MSA, except that they also include a ban on free samples to sports
teams. Under the terms of the agreement, UST will pay a total of $100 million over 10
years.(11) Unlike the MSA, the states
do not receive any STMSA funds directly. The payments go to the American Legacy
Foundation. If the other five smokeless tobacco companies sign the STMSA, the 10-year
total will increase to $400 million, with UST's share rising to more than $200 million (in
proportion to the company's overall market share).(12)
So far, however, only UST has signed the agreement.
UST has already made its initial payment, in addition to a one-time
$4 million payment to the NAAG, which will oversee implementation of the STMSA. The
company has also agreed to make two payments totaling $5 million to cover attorneys fees.
Unlike the cigarette companies, UST has not raised its prices to pay for the STMSA.
Finally, the company has agreed to make certain legal documents available to the NAAG.
Federal Medicaid Recoupment
By far the most controversial issue is whether the states should be
required to return a portion of the MSA payments to the federal government. Under the
Medicaid statute, states are required to return to the federal government its share of any
Medicaid expenditures that states recover from liable third parties.(13) Medicaid is a joint federal-state health insurance
program that pays for medical assistance for low-income persons. The federal Health Care
Financing Administration (HCFA) matches state Medicaid benefit spending at anywhere from
50%, the minimum federal matching rate, to 77%, the matching rate for Mississippi.
Overall, HCFA pays 57% of total Medicaid benefit costs. The President's FY2000 budget
included a 5-year projection of HCFA recoupment of MSA funds, starting at $4.6 billion in
FY2001 and increasing to $4.8 billion in FY2004.(14)
On May 21, President Clinton signed the FY1999 Emergency
Supplemental Appropriations Act (P.L. 106-31, H.R. 1141), which
included a provision that waives any federal claim to a portion of the MSA funds and
allows the states to keep all the money without any restrictions on how it is spent.
Public health officials expressed concern that without federal
involvement the states will not make a long-term commitment to use MSA funds to pay for
anti-tobacco programs. State governors and attorneys general strongly opposed efforts by
some anti-tobacco lawmakers to allow HCFA to recover a portion of the MSA payments for the
- The state lawsuits included a variety of claims in addition to
Medicaid recovery, including consumer protection, racketeering, antitrust, and civil
penalties for violations of state laws. Medicaid was not mentioned in a number of state
lawsuits and was one of several claims in many others. In California and Iowa, state
courts dismissed the Medicaid portion of the lawsuit.
- The federal government was invited to participate in the state
lawsuits but declined. As a result, the states bore all the risk and financial burden of
taking on such a powerful industry.
- Congress never intended the third-party recovery provisions of the
Medicaid statute to apply to the types of lawsuits brought by the states against the
- Following the demise of federal legislation to enact the June 1997
proposed national settlement, states were forced to pursue their share of tobacco-related
medical costs and negotiate a settlement based on nonfederal claims.
The Administration countered that the federal government is entitled
to a share of the settlement payments under the Medicaid statute because the states sued
the industry primarily to recover the costs of treating tobacco-related illnesses, and the
Medicaid program bears the lion's share of those costs. Moreover, the MSA and the
individual state settlements prohibit the states from making any future claims for
tobacco-related Medicaid expenditures. Under the existing Medicaid statute, which allows
only the states to sue third parties directly, that effectively precludes the federal
government from recovering its share of Medicaid claims in the future. Federal recoupment
of settlement funds therefore represented the only opportunity to recover a portion of the
money that federal taxpayers have paid to treat tobacco-related illnesses under the
State officials also opposed legislation that would have waived the
federal claim to a share of the MSA funds in exchange for a commitment by the states to
use a portion of the money for anti-tobacco and public health programs. They argued that
the federal government had no business telling the states how to spend the money, and that
earmarking a fixed percentage of MSA funds for particular programs failed to recognize
ongoing efforts and new initiatives already implemented in the states.
Unlike the 1997 proposed settlement, the MSA does not incorporate
the Food and Drug Administration's (FDA) 1996 tobacco regulation, which includes
restrictions on youth access to tobacco products, new labeling requirements for packages
and advertisement, and restrictions on tobacco product advertising and promotion.(15) Only two of the rule's
provisions--prohibiting tobacco sales to minors and requiring photo ID for persons under
age 27--have gone into effect, pending the final outcome of the industry's lawsuit against
the agency. On August 14, 1998, the U.S. Fourth Circuit Court of Appeals ruled that the
FDA does not have statutory authority to regulate tobacco products. Following the full
appellate court's refusal to reconsider the ruling, the Administration appealed to the
U.S. Supreme Court, which has agreed to hear the case this fall.
The Administration and public health groups have urged Congress to
pass legislation to give FDA the authority to regulate the manufacture, sale, advertising,
and promotion of tobacco products. If the Supreme Court upholds the appellate court's
ruling, anti-tobacco lawmakers may revive last year's legislative efforts to grant FDA
broad regulatory authority over tobacco products.
Economic and Tax Issues
The industry's 45-cents price increase to cover the cost of the
state settlements falls well short of the $1.50 a pack increase sought by public health
officials as the single most effective means of reducing underage smoking.(16) The President's FY2000 budget called for a 55
cents-a-pack increase in the federal cigarette excise tax to help offset tobacco-related
health care costs. Under the Balanced Budget Act of 1997 (P.L. 105-33),
the current federal excise tax of 24 cents per pack is already set to increase by 10 cents
on January 1, 2000, and an additional 5 cents on January 1, 2002. The FY2000 budget
proposed that the full 15-cents increase take effect on January 1, 2000.(17)
Some economists have criticized proposals to raise cigarette taxes
because they are highly regressive. Lower-income families consume more tobacco, unlike
most commodities, than do higher-income families. According to a 1998 analysis by the
Joint Committee on Taxation, individuals with annual incomes of up to $30,000 account for
about 47% of the federal cigarette taxes collected. States may also oppose a significant
increase in federal tobacco tax because of provisions in the MSA. For example, if
cigarette sales decline due to higher prices, the volume-of-sales adjustment would reduce
proportionately the annual payments. Further, under the provisions of the settlement, if
the federal government raises tobacco taxes and gives a portion of the money to states
either as unrestricted funds or earmarked for health care programs, these funds would be
subtracted from the annual settlement payments on a dollar-for-dollar basis.
Federal Tobacco Lawsuit
On September 22, the Department of Justice (DOJ) sued the tobacco
industry to recover billions of dollars spent by federal health care programs to treat
smoking-related illnesses. The government alleges that the cigarette companies have
conspired since the 1950s to "deceive the American public about the health effects of
smoking." The allegation of a decades-long campaign of fraud and deception is based
largely on an analysis of millions of industry documents that were uncovered by the
states. Specifically, the DOJ's lawsuit alleges that the companies:
- made false and misleading statements about the health risks of
- supported biased research that was used in defending lawsuits brought
by smokers against the companies;
- suppressed research that suggested smoking caused disease;
- lied about the addictive nature of nicotine;
- refrained from developing, testing and marketing potentially less
hazardous products; and
- denied marketing products to teenagers, while seeking to capture the
The civil lawsuit, filed in the U.S. District Court for the District
of Columbia, names nine defendants: Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown
& Williamson Tobacco Corp., American Tobacco Co., British American Tobacco PLC,
Lorillard Tobacco Co. Inc., Liggett Group Inc., the Council for Tobacco Research, and the
Tobacco Institute. The DOJ claims that federal health care programs, excluding Medicaid,
spend more than $20 billion a year to treat illnesses attributable to smoking. Those
programs include Medicare, the Federal Employees Health Benefits Program, and health care
services provided by the Department of Defense, the Department of Veterans' Affairs, and
the Indian Health Service.
The DOJ based its lawsuit on three federal statutes: the Medical
Care Recovery Act (42 U.S.C. §§2651 et seq.), the Medicare Secondary Payer
provisions of the Social Security Act (42 U.S.C. §1395y(b)(2)(B)(ii) and (iii)), and the
civil provisions of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C.
§§19611968). Under the first two statutes, the government is seeking to recover some
of the medical costs of treating smokers, whereas under the federal racketeering statute
it is seeking a portion of the industry's profits over the past 45 years. In addition to
monetary damages, the government is seeking fundamental changes in the way the industry
advertises and markets its products.
The federal lawsuit has strong support from the public health
community. Tobacco opponents predict that it may have an even greater financial impact on
the industry than the MSA. The companies have criticized the federal lawsuit as
hypocritical and politically motivated and vowed to fight it in court rather than
negotiate a settlement. Critics of the lawsuit argue that the federal government suffers
no net financial loss from smoking. Smokers pay billions of dollars in excise taxes, and
government health and welfare programs save on the costs of old-age medical care,
pensions, and nursing home care because of smokers' reduced life expectancy.(18) The lawsuit's critics also point
out that for decades the federal government has recognized the health risks of smoking,
subsidized tobacco farming, and encouraged smoking in the military through subsidized
cigarette sales and free cigarette packs in field rations.
For more information on the federal tobacco lawsuit, see CRS Report
RS20091, The Federal Lawsuit Against Tobacco Companies to Recover Health Care Costs,
by Henry Cohen.
The full text of the MSA is available on the National Association of
Attorneys General home page http://www.naag.org. Further
analysis and information pertaining to the settlement, including state-by-state
tobacco-control activities, may be found on the National Governors Association web site http://www.nga.org.
1. (back)The MSA
was negotiated by the nation's four largest cigarette companies: Philip Morris, R.J.
Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, and Lorillard Inc.
Liggett & Myers, the fifth and smallest cigarette maker, agreed at the last minute to
sign the MSA. Liggett was the first manufacturer to acknowledge a link between smoking and
cancer and began settling with individual states in 1996. By signing the MSA, Liggett
replaced the terms of those earlier agreements with the terms of the MSA. Liggett does not
have to contribute financially to the MSA unless its sales rise 25% above current levels.
early 1997, Philip Morris and R.J. Reynolds have increased wholesale prices by a total of
93.5 cents a pack. Analysts estimate the cost of settling with all 50 states to be about
45 cents a pack, assuming an 810% decline in consumption.
3. (back)If the
requisite number of states have not reached State Specific Finality by June 30, 2000, MSA
funds become available to all the states that have obtained final approval by that date.
Kentucky state legislature is not in session this year, but it did pass tobacco
settlement-related legislation in 1998.
Health Policy Tracking Service at the National Conference of State Legislatures is
monitoring state tobacco-settlement legislation. Details and analysis of all the bills,
state by state, are available on their web site http://www.hpts.org.
Dept. of Health and Human Services, Centers for Disease Control and Prevention, Best
Practices for Comprehensive Tobacco Control Programs, August 1999. Available online
legislation or regulation includes limiting vending machine access, enforcing youth access
through penalties for underage possession or use, and supporting technology to increase
the effectiveness of age-of-purchase laws (e.g., ID scanners).
8. (back)The U.S.
Department of Agriculture (USDA) supports tobacco prices through a combination of
marketing quotas and nonrecourse loans.
referred to as the Phase II settlement fund.
five leading tobacco-growing states, which account for 89% of total production, will
receive approximately the following amounts: North Carolina - $1.97 billion; Kentucky -
$1.5 billion; Tennessee - $394 million; South Carolina - $361 million; Virginia - $342
STMSA payments are subject to the same kinds of adjustments and offsets as the MSA
payments (see Table 1).
five companies are Conwood Company, Pinkerton Tobacco Company, Swisher International,
National Tobacco Company, and Brown & Williamson Tobacco Corporation.
Medicaid statute establishes that it is the state's responsibility "to ascertain the
legal liability of third parties...to pay for care and services available under the
[state's Medicaid] plan." Under the statute, states are authorized to pursue through
the courts third party recoveries and provide the federal government with its share of any
recovered funds (Sections 1902(a)(25) and 1903(d) of the Social Security Act). The Justice
Department has concluded that the federal government is not authorized by the Medicaid
statute to sue third parties directly.
the specific portion of each state's MSA payment that reflects Medicaid recovery for
treating smoking-related illnesses might be extremely difficult because of the variety of
legal approaches taken. Non-Medicaid recoveries (e.g., damages and penalties for
violations of state antitrust and consumer protection laws) would not be subject to any
federal share requirements under the Medicaid statute.
August 28, 1996, the FDA issued a final regulation to reduce underage tobacco use (Federal
Register, v. 61, no. 168, p. 4439645318), based on its conclusion that cigarettes and
smokeless tobacco products are delivery devices for nicotine, an addictive drug.
the average retail price of a pack of cigarettes is about $2.90. However, prices vary
considerably from state to state because of the large differences in state tax.
tobacco excise tax proposals in the FY2000 budget would generate estimated receipts of $8
billion in FY2000, decreasing to $6.4 billion in FY2004.
CRS Report 97-1053, The Proposed Tobacco Settlement: Who Pays for the Health Care
Costs of Smoking? by Jane Gravelle.
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