Despite the windfall of money states harvested in the 1998 Master Settlement Agreement with tobacco companies to treat illnesses caused by smoking, Medicaid expenditures continue to soar.
According to the Centers for Disease Control, Medicaid costs attributed to smoking-related illnesses and prevention totaled $769 million in North Carolina in 2004, the most recent year measured. The state and its counties were responsible for more than $265 million of the amount.
About 10 years ago the attorneys general in all 50 states filed lawsuits against large tobacco companies. The lawsuits, most of which were consolidated under the Master Settlement Agreement between “Big Tobacco” and 46 of the states, were intended to recover the states’ Medicaid costs for the health problems of sick smokers.
The agreement called for the tobacco companies to pay $246 billion to the states over 25 years. North Carolina’s share of the take was projected to be $4.6 billion.
Expenditures have grown since the agreement. As measured by the CDC, smoking-related Medicaid expenditures in North Carolina totaled $600 million in 1998 and $708 million in 2002. The state and counties paid $220 million and $271 million, respectively, for the two years.
Ironically, none of the money the state harvested in the agreement is used to treat smoking-related illnesses.
“The source was a lawsuit that said, ‘You bad tobacco companies have caused added expenses to our Medicaid budget,'” said N.C. House Minority Leader Paul Stam, a Wake County Republican. “The implication of that is it should go to the fund that paid the money, which is the General Fund.”
At the time of the agreement, South Carolina’s attorney general, Republican Charlie Condon, recommended to then Democrat Governor-elect Jim Hodges that the state’s share of the proceeds go to tax relief.
“These funds, the $2.2 billion designated for South Carolina, are reimbursements…reimbursements to the taxpayers of our state for dollars already spent,” he wrote in a public statement. “It would be a terrible injustice if those funds were used to pay for more government programs and more bureaucracy or to grow the government in any way.”
But North Carolina’s leaders never indicated that taxpayers would be relieved for all the years of caring for sick smokers. In 1998, then-Gov. Jim Hunt pledged, “It will help us address our efforts to crack down on underage smoking and to protect the health and well-being of North Carolinians.”
The attorney general at the time, now-Gov. Mike Easley, who was a chief negotiator of the agreement, told the Associated Press that half the money would help transition tobacco-dependent communities “by diversifying economic development,” while the other half would go to public health, with an emphasis on education about smoking and nicotine addiction.
Today those payments from corporations such as Philip Morris USA and R.J. Reynolds Tobacco Company have been used by many states for purposes other than relief of their Medicaid costs. Earlier this decade the tobacco funds helped close many state budget gaps. Other states directed funds to economic development projects. In New York, the Niagara County public golf course received $450,000 in tobacco settlement funds for two capital projects.
North Carolina has been no exception. The state, led by Easley, created the Golden Long-Term Economic Advancement Foundation (Golden LEAF) to manage one-half of North Carolina’s share of the agreement, which mostly flows to so-called economic development projects as decided by its politically appointed board.
Golden LEAF has received more than $555 million in payments from tobacco companies. According to its Web site, the nonprofit has awarded 445 grants totaling more than $155 million.
Many of the grants have gone to tourism projects and educational initiatives, but one $400,000 grant funded infrastructure for a tobacco processing plant in Rocky Mount. Some grants this year supported a drag racing museum, a visitors bureau for Johnston County, and “a showcase for Blue Ridge traditions” in the town of Old Fort.
As for the other half of North Carolina’s share of tobacco settlement payments, the state also created two other specialty organizations: the North Carolina Tobacco Trust Fund and the Health & Wellness Trust Fund. The Tobacco Trust was created to assist farmers with the transition from cultivating tobacco to other crops, but the fund has also financed other economic development projects.
The Health & Wellness Trust was created to start a tobacco use-prevention program and to advocate for the overall health of North Carolinians. Its largest initiative has been a senior citizen prescription drug program, on which it has spent $86 million. The trust has spent $77 million on its teen tobacco prevention program.
The Tobacco Trust has received nearly $278 million, and Health & Wellness $246 million, in tobacco settlement payments. But earlier in the decade Easley diverted some of that money into the General Fund in order to make up a shortfall in the state budget.
Meanwhile, Medicaid continues to weigh heavily on the state, on its counties, and ultimately on taxpayers. In its current session the General Assembly is expected to consider relieving the counties’ burden. North Carolina is the only state in the United States that requires its counties to pay a fixed percentage of Medicaid costs.
“If you put [tobacco settlement money] in the General Fund,” Stam said, “that would take care of half the counties’ burden for Medicaid, instead of having a giant slush fund controlled by political appointees.”
State Sen. Ellie Kinnaird, a Carrboro Democrat, remembered when the tobacco settlement was first reached, saying that North Carolina farmers put forth a much stronger lobbying effort than did the medical community and ill smokers.
“[The farmers] were the ones who prevailed because they persisted,” she said.
She said the outcome with the MSA and Medicaid is a good reminder of how politics works in North Carolina.
“I can’t believe anybody’s going to open this up again, even though the farmers have been paid very well,” Kinnaird said. “It shows you the influence of tobacco in every county.”
Paul Chesser ([email protected]) is associate editor of Carolina Journal.