‘Upstart’ Companies Threaten Tobacco Settlement Payments
The proliferation of small tobacco companies that are not part of the 1998 national tobacco settlement is reducing the payments states receive from the major manufacturers, the Wall Street Journal reports. The "landmark deal" between 46 state governments and the major tobacco manufacturers -- which sought to "recoup" expenses incurred by the states in treating sick smokers -- links settlement payments to cigarette sales. But the "sheer size" of the $206 billion, 25-year settlement has forced participating companies to raise prices 80% since signing, and small "upstart" companies that sell cigarettes for as as little as $1 a pack are gaining market share. As their sales fall, major manufacturers such as Phillip Morris and Brown and Williamson are paying less to the states: The Journal reports that payments to states for 1999 fell by $190 million because of increased sales by nonsigning tobacco companies. In addition, another provision of the settlement may cut funding for the American Legacy Foundation, which was established by the agreement to "wage a national antismoking crusade." The settlement says that beginning in 2003, if sales from nonsigning companies account for more than 0.95% of the market -- a level already reached -- in any year, industry payment for that year to the education campaign would be halted. The Journal notes that while nonsigning companies are, under state laws, supposed to contribute to escrow accounts to "cover any future state claims against them," state officials say some companies have not made such payments. William Sorrel, attorney general of Vermont, said, "If these market shifts continue, the losses to the states could easily run into the billions and billions of dollars" (Fairclough, Wall Street Journal, 5/1).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.