The Squandering of Tobacco Settlement Billions



Please enjoy this recycled oldie-but-goodie while I spend the next few weeks juggling a high case load with studying for the boards with taking care of two babies, etc. . .

Few things smell worse to me than the stank of a cigarette while trying to trying to load up on cholesterol via awesome blossom.  Perhaps one such thing is the beguiling tale of what perverse fate has befallen the gobs of cash money rewarded to state governments from Big Tobacco.  

This seemingly righteous pursuit was fought by brave attorneys general of 46 various states to regain money we dished out to pay the costs of Medicaid patients who, due to tobacco use, found themselves in various states of wheeziness and/or infarction.  So naturally you’re asking “why then did these same states more recently try to help Big T in getting a recent settlement against it reduced?”  Good question.  Read on. . .


Background:  Smoking is estimated to kill 440,000 people per year in the U.S.  To put this into perspective that’s the equivalent of ; (for Indians)  110,000 auto-rickshaws full of people, (for white people) 440,000 full size suv’s, (for illegal immigrants)  44,000 windowless cargo vans, (for northern liberals) 5 New York giants’ stadiums worth of Celine Dion concerts. 

So it was only natural that we cheered our fair heroes as they pursued the feral beast that was (is) big tobacco to compensate us for the damage they had done to our Medicaid purses, oops I mean patients. And lo they were successful! Our public defenders brought home the bacon in the form of 206 billion to be paid out annually from the year 2000 to 2025 to the states. “Don’t worry!” they told us. The money would be used to pay for Medicaid expenses and for tobacco cessation/education programs.  In addition, as part of the agreement, the tobacco industry said it would stop marketing to minors, without any specific stipulations on what the consequences would be if they continued this practice.

And thus began the greatest case of false advertising since Homer Simpson tried to sue the movie “The Never Ending Story”. Big T said that they never meant they would stop marketing to minors, but actually meant miners (or something like that). The States said they needed the money in other places and then started pouring the money into their own general coughers (ahem, sorry couldn’t help myself), squeezing every last drop from the cigarette tax to fund other areas. In 2010 alone 25.1 billion was collected from tobacco taxes.  Of that a measly 2.3 percent has gone towards helping Dopey, Coughey and Wheezy kick the habit.

And that lack of funding for tobacco cessation has far reaching, and in many cases lethal consequences. As we have seen from a study in NEJM looking at spending on smoking cessation, money spent on tobacco cessation directly affects smoking rates. Thus investment in smoking cessation programs directly reduces the amount of money required to care for those whose health declines as a result of smoking.

However, spending on smoking cessation has another unintended and more immediate financial consequence: it reduces tobacco tax revenue. When spending on tobacco cessation decreased in California, tobacco tax revenues sky-rocketed by a massive 1.4 billion over the period of study. Similarly, the resulting increase in the number of deaths, due to cuts in tobacco cessation funding, could be quantified to the tune of an extra 8300 people dying in California alone.

Meanwhile state governments continue to reap the benefit of tobacco sales taxes in addition to the tobacco settlement funds. And somehow in this weird circle-jerk of lunacy, the state governments had somehow become the enablers, themselves addicted to the tobacco revenue that they had doled out as punishment. For 25 easy payments of several billion dollars, the state governments were bought and paid for. They were no longer in the business of protecting their citizens, but were becoming more interested with keeping Big T in business to support their own source of funding.

 Witness now the next phase in tobacco enabling: securitization.

The States, faced with shrinking revenues during the Great Recession are looking to borrow against future tobacco settlement earnings. To do this, they have begun peddling bonds against future tobacco earnings to fund current budget shortfalls.  Thus we are stuck with the incredible situation where state governments are in the business of keeping tobacco in business, and opposing any large settlement against the tobacco industry that might threaten earnings.  

How does one escape this pickle? Me thinks higher taxes would be the way. For while taxing the hell out of one segment of the population may cause them to secede from the union (United State of Smokers?), it would also vastly reduce the number of smokers.  The yearly tobacco tax revenues would dry up, along with the persevere incentives it has created. Big T will do fine.  Powered by lungs of overseas youth, it will continue to be our perpetual payout slot machine until 2025. But hey, we can hardly solve the rest of the world’s problems, now can we?