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OCR Page 1 of 64Tobaco-Medicaid
CENTER ON BUDGET
AND POLICY PRIORITIES
January 30, 1998
The Proposed National Tobacco Settlement and
Recovery of Federal Health Care Costs
Andy Schneider and Sara Thom
Introduction
In June 1997, the Attorneys General of 40 states and five tobacco manufacturers
entered into a proposed national settlement of lawsuits brought by the states. The
proposed settlement calls for, among other things, a limitation on the civil liability of
the manufacturers for damages and injuries caused by cigarette smoking, as well as
payments by the industry totaling $368.5 billion in "face value" over a 25-year period.
The Attorneys General and the manufacturers are seeking federal legislation to
implement the proposed settlement.¹
The single most important goal of the proposed settlement is to reduce youth
smoking. But the settlement also has other elements. In particular, states would
receive substantial payments from tobacco manufacturers in return for giving up their
"sovereign power" to sue the industry.² A significant portion of these payments is
intended to compensate for states' tobacco-related Medicaid costs.
The proposed settlement also would bar lawsuits brought by the federal
government either on behalf of itself or on behalf of federal program beneficiaries as a
class to recover its costs in treating tobacco-related illnesses or conditions under
Medicaid, Medicare or any other federal health care programs. In return, however, the
settlement would provide for little or no recovery by the federal government of its
future costs under Medicare, Medicaid, and other federal health care programs. These
federal costs are several times as large as those that will be incurred by the states.
The goal of reducing youth smoking should not be sacrificed to achieve other
objectives. But if in the course of developing tobacco-related legislation, Congress gives
1
Proposed Resolution, June 20,1997, www.stic.neu.edu/settlement/6-20-settle.htm.
2
Testimony of Jeffrey A. Modisett, Attorney General of Indiana, before the Subcommittee on Health and
the Environment of the House Committee on Commerce, December 8, 1997, p. 4.
1
820 First Street, NE, Suite 510, Washington, DC 20002
Tel: 202-408-1080 Fax: 202-408-1056 [email protected] http://www.cbpp.org HN0026
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