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OCR Page 1 of 11THE WHITE HOUSE
WASHINGTON
November 24, 1998
MEMORANDUM TO THE CHIEF OF STAFF
FROM:
Elena Kagan
Cynthia Rice
SUBJ:
Tobacco Issue to be Raised Today by Governor Chiles
At your meeting this afternoon, Governor Chiles plans to give you a proposal regarding the state
of Florida's tobacco settlement. Under this plan, the state of Florida would agree to spend 50
percent of its tobacco settlement funds on the menu of items we and the states agreed to in the
McCain legislation. In exchange, HCFA would agree not to assert any claim to the state
settlement funds.
The Justice Department previously has advised us that there are real legal obstacles to entering
into such an agreement without Congressional approval. We will, however, immediately send the
Governor's proposal to the Department for a legal opinion.
Additional Background on Medicaid Recoupment
Under current law, states must share with the federal government a portion of any Medicaid
claims they recover (from any source, including lawsuits and third party insurers). The exact
amount of the share is based on the percentage of the state's Medicaid costs that are paid by the
federal government. This percentage varies by state according to a statutory formula and
averages 57 percent nationwide. For Florida, the percentage is 50 percent. Although states do
not dispute the federal government's right to recoup Medicaid funds generally, they argue that
little or none of the tobacco settlement funds derive from Medicaid claims and thus recoupment
should not apply.
In the McCain bill, the federal government waived its claim to a share of Medicaid funds in
exchange for a requirement that the states spend 50 percent of their funds on a menu of seven
items: child care; child welfare; the maternal and child health block grant; the substance abuse
block grant; the safe and drug free schools program; Eisenhower education grants; and the state
match for the children's health insurance program (subject to a six percent ceiling).
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