States Favor Healthcare In Spending Tobacco Settlement

When 46 states reached a $206 billion out-of-court settlement of a lawsuit against the tobacco companies in 1998, there were no restrictions on how states could spend the money that is to be paid out over the next 25 years. According to a recent survey by the National Conference of State Legislatures, most of the money is being spent on healthcare so far.

“The opportunity here is for states to expand eligibility and services for a range of healthcare programs. The jeopardy, of course, is expanding services and then having to contract those in the future if the tobacco settlement dollars decline greatly or the financial viability of the companies becomes questioned,” said Lee Dixon, director of NCSL’s Health Policy Tracking Service and primary author of the report.

The tobacco companies are awaiting a damage award in a Florida class action suit that they say could cause them to go bankrupt, disrupting the states’ settlement payments.

Forty-one states are spending or considering spending the money, which represents a recovery of public health costs of treating tobacco-related illnesses arising from smoking, to finance health research, primary care, community health centers, reimbursing hospitals for treating the uninsured, expansions of Medicaid and Children’s Health Insurance Programs (CHIP), the federal-state partnership to insure poor children not covered by Medicaid, and other such programs.

The only states that haven’t put tobacco money toward basic healthcare are Alabama, Idaho, North Dakota, South Dakota and Tennessee. Of these, Idaho, North Dakota and South Dakota have put tobacco funds into trusts but have not yet allocated the money.

Indiana, Michigan, Ohio and Texas have passed laws providing money for healthcare research. Thirteen other states — Arizona, Arkansas, California, Connecticut, Florida, Illinois, Kentucky, Maryland, Missouri, New Jersey, Pennsylvania, Rhode Island and Utah — are considering using the funds to conduct research in healthcare as well, particularly biomedical research. New Mexico’s legislature enacted a law using tobacco funds for research that was vetoed by Governor Gary Johnson. New Mexico will have a special session involving tobacco settlement money allocation, said Dixon.

Instead of reimbursing Medicaid for smoking-related public health costs as the tobacco litigation originally was intended to do, states are raising eligibility levels to cover more people or increasing reimbursement to providers in order to expand coverage to more of the working poor.

To try to shrink the ranks of uninsured Americans, which presently total an estimated 44 million, 17 states are putting money into expanding insurance programs for the uninsured. Indiana Gov. Frank O’Bannon last week signed legislation putting $28 million toward the state’s CHIP program.

All 44 legislatures in session this year have considered or passed laws that aim to reduce smoking, especially among children. (Arkansas, Montana, Nevada, North Dakota, Oregon and Texas do not have a legislative session for 2000.) Illinois, Oklahoma and Vermont may use settlement money to expand anti-tobacco programs already underway.

Only eight states funded their anti-smoking programs at levels recommended by the federal Centers for Disease Control and Prevention (CDC) in 1999, the American Lung Association found. “We are more optimistic in 2000 as we have seen successes. But it’s too soon to call a victory,” said Cassandra Welch, an American Lung Association spokeswoman.

States are also using tobacco settlement funds for other programs that previously were financially out of reach. For example, Indiana, Michigan, Nebraska and Nevada are allocating money for long-term care of the elderly and disabled, and 19 others are considering following suit.

Indiana has also earmarked a portion of its tobacco money to help low-income elderly afford prescription drugs. Ten other states are considering doing so — Arkansas, Colorado, Delaware, Florida, Iowa, Maine, Massachusetts, Michigan, Missouri and New Jersey.

Ohio, North Carolina and Virginia will receive public financial assistance to offset economic damage they would otherwise incur from efforts to curb smoking. Tobacco growers in six other southeastern states (Florida, Georgia, Kentucky, Maryland, South Carolina and Tennessee) may get similar assistance. Most programs are focused on education and retraining for tobacco growers.

A few states are using some of their tobacco money for purposes that have nothing to do with healthcare or smoking. Nevada is using some of its funds to finance its public broadcasting system. Part of West Virginia’s settlement will go to its teachers’ retirement funds, and Oklahoma is considering diverting funds to its teachers’ retirement program as well. North Dakota will spend nearly half of its settlement money, 45 percent, on water projects.

Louisiana, Michigan, North Dakota, Ohio, Nevada and New Hampshire have all allocated money to education. Some states, such as Ohio and New Hampshire, are using the windfall to correct past problems in school funding. Others, including Louisiana, Michigan and Nevada, have created trust funds to give scholarships to those who stay in state to attend a state college or university.

Alaska, Colorado, Connecticut, Kentucky and Missouri are considering putting tobacco money into their schools.