Tobacco Settlement
BACKGROUND
[APRIL 1, 2002] In the mid-1990s, to secure compensation
for health care expenditures for ailments arising from tobacco use,
46 states and two jurisdictions filed lawsuits in their state courts
against the tobacco industry. In June 1997 a group of state attorneys
general presented an agreement reached between the states and the
tobacco industry that purported to settle all current and pending
class action lawsuits brought against the industry by states and
other government entities.
To make the settlement binding on all 50 states, Congressional
action would be necessary. A number of bills—including the
bipartisan effort sponsored by senators McCain, Gorton, Breaux,
and Hollings—were introduced for this purpose. Among its other
provisions, the McCain bill would have (1) required the tobacco
industry to pay considerably more than the amount agreed to by the
states and the industry; (2) raised cigarette taxes by $1.10 a pack
over five years; (3) preserved the Food and Drug Administration's
ability to regulate the tobacco industry in ways that the agreement
did not; and (4) drastically restricted cigarette marketing, advertising,
and promotion.
Following the bill's introduction, several major players
in the tobacco industry withdrew support of the Congressional process
for developing comprehensive tobacco legislation, citing Congress's
deviation from the terms of the June 20 agreement, and launched
a successful advertising campaign to kill the bill.
Meanwhile, four states reached individual settlements
with the tobacco industry, yielding total payments of at least $35
billion over the next 25 years. In 1998 an agreement—known
as the master settlement agreement—between the remaining states,
including Michigan, and the industry resulted in a deal to settle
pending state cases and defuse potential claims in the remaining
states. The industry committed to paying these states $206 billion
over the next 25 years for recovery of their tobacco-related health
care costs. In addition, $5 billion would be paid to 14 states to
compensate them for potential harm to their tobacco industry. The
new deal did not require Congressional approval because it did not
include provisions pertaining to federal jurisdiction over the nicotine
contained in tobacco products. It also did not grant the industry's
major wish: a limit on future lawsuits.
The agreement did not specify how the states would
spend the money they received in the tobacco settlement, but it
generally was seen as a unique opportunity for the states to reduce
the financial and health burden that tobacco use imposes on American
families and government.
Michigan's Settlement Monies
Michigan's initial payment from the tobacco industry
was $104.5 million, to be followed by $279–365 million annually
for 24 years. The federal Centers for Disease Control and Prevention
(CDC) issued guidelines recommending how much money should be spent
annually in each state to implement an effective, comprehensive
tobacco-use prevention program; for Michigan, the amount is $53–149
million. Michigan, however, allocates none of its settlement money
directly to tobacco-use prevention and cessation; it is one of only
three states to take this approach.
Michigan policymakers enacted legislation allocating
75 percent of the tobacco-settlement funds to support the Michigan
Merit Award program, a fund providing college scholarships to high
school students who do well on the Michigan Educational Assessment
Program test. The remaining 25 percent goes into the Tobacco Settlement
Trust Fund, which supports a variety of programs, including a prescription-drug
program for seniors and various health programs and research efforts.
Tobacco Use in Michigan
In Michigan in 2000, according to the state Behavioral
Risk Factor Survey, 24 percent of the population—about 2.4
million adults—were smokers; this is down from 27.5 percent
in 1998. The national average is 23.2 percent.
Teen smoking in Michigan also has dropped: Preliminary
figures from the state Youth Tobacco Survey show that 27.6 percent
of 9–12th graders smoked in 2001, down 10 percent from 1997.
This puts Michigan youth just below the national average, which
is 28 percent.
According to the Tobacco-Free Michigan Action Coalition,
tobacco use indirectly costs Michigan taxpayers $2.5 billion annually
for health care, lost work productivity, and work absenteeism. The
coalition also says that Medicaid payments related to smoking totaled
$350 million in Michigan in 2000.
DISCUSSION
The state's decision to spend the majority of Michigan's
tobacco settlement on education rather than health programs engendered
forceful debate that continues. Many interested parties believe
that much of the settlement properly should be spent on tobacco-use
prevention and cessation programs and/or to cover health care costs,
stating that (1) this was the intent with which the lawsuits were
brought against the industry, and (2) polls indicate that there
is (a) strong support for spending the money on tobacco-use prevention
and health care matters and (b) little support for spending it on
the Michigan Merit Award program.
Among Michigan's current programs to prevent and reduce
tobacco use are a health-education, promotion, and research program;
a smoking-prevention program aimed at youth; and a school-based
HIV/AIDS, risk-behavior, and health-education program. The recent
drop in teen smoking is attributed by Michigan Department of Community
Health officials to an assertive and expanded K–12 component
on tobacco-use prevention. In the 2001–02 school year, more
than 100 Michigan middle and high schools implemented a teen smoking-cessation
program developed by the American Lung Association.
In 2001 the House Fiscal Agency reported that since
the settlement payments began in 1999, the state is spending about
$8 million annually, less than 2 percent of the amount of the settlement
revenue, on general anti-smoking projects. Proponents of maintaining
the current spending level contend that funding for anti-tobacco
programming is closer to $75 million if one takes into account the
portion of the $5 billion in Medicaid spending that includes anti-tobacco
programs and the relevant portion of the $170 million spent for
programs to prevent smoking, teen pregnancy, and AIDS. As evidence
of the effectiveness of these programs, they point to the drop in
smoking among both adults and teens, and data from Michigan's Health
Risk Behaviors 2000 give some credence to this position: The percentage
of smokers tends to decrease as education and income level increase.
Proponents of upholding current policy with regard
to the tobacco settlement believe that because there already is
in place strong and sufficiently funded tobacco-use prevention programming,
the state will be doing more to help its youth be healthy and successful
by spending the money on the scholarship program. Those in favor
of using the settlement mainly for health care believe that doing
so would free some of the money currently spent for health care
and allow it to be spent on other state programs.
Supporters of spending the majority of the money on
anti-tobacco programs believe that health care costs resulting from
smoking will not drop without significant efforts to reduce tobacco
use. Although smoking in Michigan appears to be declining, those
who would have the settlement money spent in line with the CDC recommendations
point out that the percentage of smokers in Michigan still exceeds
the national average.
Of the six states where tobacco-prevention spending
is within the CDC guidelines, only one—Indiana—still has
a smoking rate higher than Michigan's. In Massachusetts and California,
two states that have had programs in place for quite some time,
smoking rates (19.9 percent and 17.2 percent, respectively) are
significantly lower than in Michigan.
The Citizens for a Healthy Michigan coalition has
launched a petition drive to put a question on the November 2002
ballot asking voters if they wish to amend the state constitution
to redirect the settlement funds now being used in the Michigan
Merit Award program to
- a Tobacco Illness Care Fund (46 percent of total
settlement funds),
- a Tobacco Settlement Research and Education Fund
(31 percent),
- a prescription-drug assistance program for senior
citizens (13 percent), and
- the state General Fund (10 percent).
Opponents of the ballot question say that its passage
would kill the Michigan Merit Award program, and although initial
polling revealed little support for spending the settlement funds
on the program, it has gained popularity as more than 91,000 scholarships
have been awarded since its implementation.
Supporters of the ballot question point to the success
with which other states have used tobacco settlement funds to reduce
smoking rates. Florida has seen a considerable drop in smoking among
middle-school and high school students (reductions of 47 percent
and 30 percent, respectively). They say that lawmakers will find
another way to fund the scholarship program if it is a priority.
See also K–12 Quality and Testing; Substance
Abuse; Taxes on Consumers; Youth at Risk.
FOR ADDITIONAL INFORMATION
Citizens for a Healthy Michigan
P.O. Box 16087
Lansing, MI 48901
(800) 235-1910
House Fiscal Agency
Michigan House of Representatives
124 North Capitol Avenue
P.O. Box 30014
Lansing, MI 48909
(517) 373-8080
www.house.mi.gov/hfa/home.asp
Michigan Department of Community Health
Lewis Cass Building, 6th Floor
320 South Walnut Street
Lansing, MI 48913
(517) 373-3500
www.michigan.gov/mdch
National Center for Tobacco-Free Kids
1400 I Street, Suite 1200
Washington, DC 20005
(202) 296-5469
www.tobaccofreekids.org
Tobacco Control Resource Center
Northeastern University School of Law
400 Huntington Avenue
Boston, MA 02115
(617) 373-2026
www.tobacco.neu.edu
Tobacco Free Michigan Action Coalition
617 Seymour Street
Lansing, MI 48933
(517) 827-0020
www.tobaccofreemichigan.org
CONTENT CURRENT AS OF APRIL 1,
2002
© 2002 Public
Sector Consultants, Inc.
Sponsored by the Michigan Nonprofit Association and the Council
of Michigan Foundations
www.michiganinbrief.org
 
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