Arbitrator’s Ruling Not the Final Word On Whether Tobacco Settlement Payments Will Be Reduced

Washington, DC — Today’s ruling by an arbitrator that the 1998 state tobacco settlement (the Master Settlement Agreement) was a “significant” factor in the loss of market share by signatory cigarette companies is not the final word on whether the companies can reduce their next settlement payment to the states and should not be used as an excuse by the companies to shirk their obligations under the settlement.

This ruling was the second part of a three-part test laid out by the settlement to determine how much the tobacco companies must pay the states. The signatory companies have met the first two parts of the test by showing that they have lost market share and getting the arbitrator to rule that the settlement was a significant factor in this loss. However, the companies must also show that the states have not diligently enforced their obligations under the settlement. The settlement obligates states to pass and enforce laws requiring cigarette companies that are not signatories to the settlement (called non-participating manufacturers or NPMs) to make escrow payments to the states comparable to what they would pay if they had signed the settlement. The states have a strong case to make that they have met their obligations and stand a good chance of prevailing and eventually receiving the full $6.5 billion in settlement payments they are due in April.

While the $1.2 billion possible reduction in settlement payments is significant, is it also important to note that this amount pales in comparison to the more than $89 billion in health care bills that tobacco costs the nation each year, much of it borne by the states through Medicaid and other government health insurance programs. The states can significantly reduce these tobacco-caused health care costs and improve the health of their citizens by aggressively implementing proven tobacco prevention measures, including well-funded tobacco prevention and cessation programs, higher tobacco taxes and smoke-free workplace laws. Higher tobacco taxes are a proven means of raising revenue and reducing health care costs, while reducing smoking, especially among children.

It is also worth noting that, while the signatory cigarette companies claim that the cost of the state tobacco settlements (the main settlement and individual settlements with four states) forced them to raise prices and gave smaller companies an unfair advantage, the big companies actually raised their prices by more than twice what was necessary to cover the $246 billion cost of the settlements, thus allowing smaller companies to take away some of Big Tobacco’s market share. Big Tobacco’s greed contributed to their loss of market share and now they are suffering the consequences.