TOBACCO SETTLEMENT: New Accord To Be Unveiled Today

      After months of negotiations, attorneys general from eight states and the nation's four largest manufacturers of cigarettes reached an agreement this weekend to settle state lawsuits which seek to recover Medicaid expenses for treating sick smokers. This third attempt to settle the suits comprehensively "has a modesty that reflects some of the tobacco industry's major legal and political victories this year," the Philadelphia Inquirer reports (Gibson/Mishra, 11/14). Philip Morris Cos., RJR Nabisco Holdings Corp., Brown & Williamson Tobacco Corp. and Lorillard Inc. collectively agreed to pay $206 billion to the states over 25 years in exchange for immunity from the state Medicaid lawsuits (Geyelin, Wall Street Journal, 11/16). The industry will also be required to spend $1.45 billion over five years to "finance smoking-cessation programs and advertisements to counter under-age tobacco use." Big Tobacco will pay another $25 million over 10 years into a foundation that will combat youth smoking, and the companies have agreed to not market to children or teenagers (Meier, New York Times, 11/14). Thus, "[t]hey can't use cartoon characters in their advertising anymore. That means no more Joe Camel." Each manufacturer will also be restricted to one sponsored event per year, such as sporting events. The settlement "disbands the tobacco trade associations, and it restricts tobacco lobbying somewhat."

More On The New Deal
      Unlike the failed June 1997 agreement and the congressional anti- smoking bill, under the new settlement, the industry will not have immunity from future lawsuits by other parties. But in a victory for tobacco firms, the new deal does not allow for FDA regulation of tobacco nor does it penalize the companies if youth smoking rates do not decline. "Those were all things that would have needed congressional approval," something the current deal also does not require (Elliott, "Weekend Sunday," NPR, 11/15). The proposal will not restrict the fees of the attorneys who worked on the individual state cases, but the industry will not be expected to pay more than $500 million in fees per year (New York Times, 11/14). The formal settlement is expected to be announced at a news conference in Washington, DC, today (Wall Street Journal, 11/16). Click here to read the draft settlement, as published by the Arizona Republic. Or click here to see cnn.com's coverage of the settlement.

Hop On
      As eight states negotiated the deal and four have already settled with the industry, 38 states have yet to decide whether to sign on or take their chances in court. The New York Times reports that the remaining states will have one week to make a decision. If the total number of states that sign on to the new deal represent 80% or less of the country's Medicaid population, the tobacco industry has the right to withdraw (11/14). Analysts said such a goal "was well within reach." Each state that agrees will "be entitled to an amount to be distributed by a formula based on state population, number of smokers, and the amount of money each has dedicated to state Medicaid in the past" (Wall Street Journal, 11/16). If "some states do not participate," the $206 billion amount "would be reduced proportionately" (New York Times, 11/14).

The Financial Angle
      The Washington Post reports that in order to cover the costs of the settlement, cigarette makers may raise prices as much as 40 cents a pack by 2003, though Washington Attorney General Christine Gregoire (D), lead negotiator of the deal, said "nothing in the deal would force companies to raise prices" (Torry/Schwartz, 11/14). The New York Times notes that "some makers might, for competitive reasons, choose to raise prices less and absorb the cost" (11/14). Nevertheless, tobacco investors were seemingly happy with the news. NPR's Elliott reported that the deal gives "stockholders a financial certainty -- they'll know just how much these cases are going to cost over the next 25 years. [Manufacturers'] stocks tend to go up when they announce settlement agreements like this" (11/15). According to USA Today, the settlement's $206 billion price tag would amount to the "largest civil settlement in U.S. history" (Wolf/Koch, 11/16).

Public Health Opposition
      Public health groups reacted harshly to the terms of the settlement this weekend. John Banzhaf, the executive director of Action on Smoking and Health, said, "If the offer is really so good, why does it have to be decided in four days? Why not have 30 days in which to study it?" (Financial Times/Arizona Daily Star, 11/16). Paul Knepprath of the American Lung Association in California said, "The deal is woefully inadequate in terms of the per capita compensation that would come to California, based on the Minnesota settlement and the Minnesota settlement is the best to date" (Sweeney, Copley/San Diego Union Tribune, 11/13). Matthew Myers of the Campaign for Tobacco-Free Kids added, "The more we know about the agreement, the more we know it is not a comprehensive national plan" (New York Times, 11/14). A statement from the American Public Health Association said, "This settlement is not a comprehensive solution to the national tobacco control problem. Federal legislation is essential" (11/14). In response to these concerns, Gregoire said, "I know that some of the pubic-health community says 'We want more.' Well, we do, too. So let's get on with it. ... This settlement will provide us with as much as, if not more than, we could get in the courtroom" (Wall Street Journal, 11/16).