Last November, attorneys general of 46 states settled lawsuits with the tobacco industry for $206 billion to recover the cost of treating tobacco-related illnesses among Medicaid beneficiaries.
But almost a year later, healthcare and anti-tobacco advocates say states have not allocated enough of that money to medical programs or smoking prevention and cessation programs. Instead, the advocates complain, the states have focused more on deciding where to deposit the money.
States often passed laws to ensure they would get the most money possible and to dissuade the federal government from recouping a share of the money equal to its Medicaid grants to the states-advice the federal government has since heeded.
Many declined to designate the tobacco-settlement money for any purpose and instead let it flow into their general coffers.
"By and large, most of the states have taken (the tobacco settlement money) and put it into general funds," said Randolph Smoak, M.D., president-elect of the American Medical Association and a surgeon in Orangeburg, S.C. "It was not to be used for bridges and roads."
The same issues are likely to arise from any federal tobacco settlement. Last month, the Justice Department filed suit against eight tobacco companies, trying to recover the costs of treating smoking-related illnesses incurred by Medicare and the veterans and military healthcare systems (Sept. 27, p. 14).
The federal government is likely to have many of the same problems in determining how to use settlement dollars appropriately.
Even before the suit was filed, the Justice Department was embroiled in a fight with Congress about how to finance such a lawsuit. In its fiscal 2000 budget, the Justice Department sought $20 million to pay for the lawsuit. Congress first responded by denying the department the specific money for the suit and barring it from using any other funds in its budget to sue the tobacco companies.
The House and Senate have passed the budget legislation, which doesn't give the department its $20 million in earmarked funding for the lawsuit but doesn't bar the department from suing the tobacco companies using other money from its budget.
Tobacco money for tobacco. Some Southern states were as likely to give money to tobacco growers and the communities whose economies depend on tobacco as they were to give money to healthcare.
North Carolina, for example, has earmarked more than half its $149.5 million payment in 2000 to support tobacco farmers, displaced workers and tobacco-dependent communities. Only one-quarter of its annual payment, or $37.4 million, is designated for a healthcare trust fund.
Surprisingly, the idea of using some of the money for such purposes has not incurred the wrath of anti-tobacco advocates. "Those people are starving to death," said Joel Spivak, spokesman for the Campaign for Tobacco-Free Kids.
Other states have fulfilled the promise of the tobacco settlement, however, earmarking part of their payments for healthcare services and programs aimed at seniors and children.
Hawaii, for example, enacted legislation that will dedicate $13.5 million of its $38.6 million in tobacco revenues in 2000 to healthcare programs. Of the dedicated amount, $1.4 million will go to the state's Children's Health Insurance Program.
Michigan will use $18 million of the $279 million it will receive in 2000 to fund state long-term-care programs, including spending $5 million on a respite-care program.
And Delaware leapt ahead of federal Medicare reform efforts by designating part of the $25.4 million it will receive in 2000 for a prescription drug program for seniors with low incomes or high drug expenses. That program is expected to cost about $8 million in the first two years.
To be decided later. Other states have done little more than decide where to stash the cash.
Utah, for example, decided only to create a separate account in the state general fund for the $28.5 million it will receive from the tobacco industry in 2000.
Hospitals in the state feel especially left out by that decision. They say Gov. Mike Leavitt has backpedaled on a promise to repeal a per-bed tax on 13 hospitals once the tobacco revenue tap was opened. Leavitt said the tobacco-settlement money was too uncertain to repeal the hospital tax. The tax provides $5.5 million for the state's CHIP.
"We don't want to destroy the CHIP program by doing this, but a deal's a deal," said Jill Vicory, communications director with the Utah Hospitals and Healthsystems Association.
States like Utah have drawn the criticism of the Campaign for Tobacco-Free Kids and the American Heart Association, two leading anti-tobacco voices. They say that since the states based their lawsuits partly on the argument that tobacco use has increased Medicaid costs, the states should use the settlement money to prevent smoking or for healthcare programs.
"Far too many states have failed to live up to the promise to protect our nation's children from tobacco," said an August report from the two groups.
In this year's legislative session, 27 states have decided what to do with tobacco settlement money, according to the two groups. But only six are using the money for comprehensive smoking prevention and cessation programs.
Officials of another health organization said state inaction is shortsighted, because smoking cessation and prevention programs will decrease smoking rates and avert future healthcare expenditures.
"If states don't start spending money on tobacco control, they are going to incur some costs," said Cassandra Welch, manager of state government relations at the American Lung Association.
The National Conference of State Legislatures, however, argues that the states that haven't acted are using the time to listen to the public so they can use the money wisely.
Fending off the feds. As if it weren't enough that state legislatures fought about how to use the money, the states also fought with the federal government about whether the feds would take a cut of the proceeds. The states prevailed.
The federal government had a legal claim on part of each state's share because the tobacco settlement was designed to compensate states for Medicaid-related costs. The federal government could make a claim based on the fact that it pays for, on average, 57% of state Medicaid budgets.
In emergency spending legislation President Clinton signed in May, the federal government relinquished its claim on the tobacco money.
"State legislatures can now make their own healthcare spending decisions, with no federal strings attached and without the threat of federal seizure," said Sen. Kay Bailey Hutchison (R-Texas), who lobbied hard to allow the states to keep all the settlement funds.