The tobacco wars: Back to the states - Health Policy Update

For more than three weeks, the Unites States Senate debated national comprehensive tobacco policy and failed to pass any legislation almost a year after the state Attorney Generals announced their historic agreement with tobacco companies. That failure shifts the debate back to the states. For those involved in health care policy and in looking at the bottom line of health care costs, the challenge becomes how to achieve the goals of reducing tobacco use and preventing teen smoking in the absence of a comprehensive national approach.

Health care costs of tobacco

The most popularly cited number for the annual cost of smoking is the $50 billion estimate made by Dorothy Rice and her colleagues. (1) The U.S. Centers for Disease Control and Prevention (CDC) also uses this study for its calculations. The $50 billion amount measures the estimated additional medical costs attributable to smoking related diseases in 1993 dollars, based on estimates of smoking attributable risk (for example, what share of each disease is due to smoking). The study also indicates the share paid by various groups: 21 percent by smokers, 33.4 percent by private insurance, 20.4 percent by Medicare, 10.2 percent by Medicaid, 9.5 percent by other federal programs, 3.2 percent by other state programs, and 2.2 percent by others.

This estimate is incomplete because it does not include the cost of premature death or lost productivity. The Centers for Disease Control and Prevention estimates these indirect costs associated with morbidity and premature mortality to be $6.9 billion and $40.3 billion (in 1993 dollars). (2) With an estimated 3,000 children beginning to smoke each day, the stakes are high in terms of human life and in future health care costs related to tobacco. Reducing youth smoking rates by 50 percent has been estimated to result in the reduction of 60,000 premature deaths and savings of $43 billion each year. (3)

Getting to a national settlement

The long march toward a national tobacco settlement began on April 14, 1994 when representatives from seven of the leading American tobacco companies stood before Congress and swore that nicotine was not an addictive substance. Since that day, much has changed in the tobacco industry. The public did not believe the companies' denials that tobacco was not addictive. The executives who testified left their positions and new CEOs realized that they had a public relations problem. States began to file suit to recover tobacco health care costs.

In the summer of 1997, four of the largest tobacco giants negotiated for three months before hammering out a negotiated settlement with the Attorneys General (AG) of 40 states. The settlement, officially called the "proposed resolution," promised to seriously curtail the market practice of the tobacco industry. In return for substantial immunity from lawsuits, the big four tobacco companies agreed to a number of restrictions, including restrictions on advertising, the strict regulation of tobacco by the Food and Drug Administration, and a punitive payment of $368.5 billion over 25 years.

That settlement became the framework for action in the United States Senate. Senator John McCain, (R-AZ) Chairman of the Senate Commerce Committee, was given complete jurisdiction over the tobacco issue, although several other committees claimed some jurisdiction. McCain had introduced a hastily drafted version of the national settlement (S. 1415) in 1997. As the Commerce Committee held hearings, he and his staff began intensive negotiations with its members to develop a consensus proposal. McCain had to balance the concerns of a range of members, some who represented tobacco growing states and others with long histories of fighting tobacco companies, including one member who the tobacco companies had unsuccessfully sued over the release of documents in 1994.

The AG agreement had not addressed such issues as tobacco farmer assistance, the minority health impact of tobacco targeting, health research, and the federal excise tax. On April 1,1997, the Commerce Committee met to formally 'mark-up' 5. 1415 and create a consensus bill. It was reported to the full Senate by a 19-1 vote. Because of the complexity in drafting It, final legislative language was not available for nearly a month. That bill contained controversial provisions related to international tobacco control, some liability protections for the tobacco companies, raised the federal excise tax to $1.10 per pack, and provided relief for tobacco farmers. Refinements were made through an amendment Senator McCain offered when debate began on the Senate floor.

The debate centered on several issues: Was the increased excise tax high enough to effect teen smoking: was the look back structure constructed in an effective way to penalize companies that did not act to reduce teen smoking rates: should the tobacco companies have any liability protections: and how much money S.1415 would raise. The AG settlement raised $365 billion over 25 years, the McCain bill, $516 billion over 25 years. The tobacco industry began a $40 million advertising campaign against the bill, targeting the issue of how much money would b paid through the new excise tax.

An amendment offered by Senator Kennedy (D-MA) to raise the excise tax to $1.50 per pack failed, despite the passage of a Sense of the Senate amendment on the budget that the excise tax should be $1.50. An amendment by Senators Richard Durbin (D-IL), Mike DeWine (R-OH), and Ron Wyden (D-OR) changing the look back structure to be more company specific and increasing the goals for reducing teem smoking passed. Another amendment by Senators Judd Gregg (R-NH) and Patrick Leahy (D-VT) to strip liability protections completely also passed.

In response to the issue of how much money the bill raised, the debate shifted to who would pay the excise tax. Senator Gramm (R-TX) was successful in attaching an unrelated provision to "fix" the so-called marriage penalty by using many of the funds raised to pay for the tax cut for married individuals fling jointly. A second amendment by Senator Coverdell (R-GA) used many of the remaining funds for anti-drug efforts and education vouchers. After several attempts to get cloture (a procedural move that shuts off debate and prevents the offering of amendments unrelated to the topic of the bill), it became clear that the Senate would not be able to move the legislation off the floor. Ironically, while a cloture vote requires 60 supporters to be successful, head counts showed a majority that would have voted for comprehensive national tobacco legislation. However, there were not 60 senators who would vote to shut off debate.

State settlement agreements

Even as the Senate debated, states were settling with the tobacco industry. As of June 1998, four states had settled: Mississippi, Texas, Florida, and Minnesota. Each settlement built upon previous agreements. Five states had also settled with the smaller Ligeett and Brooke Groups (Florida, Louisiana, Mississippi, Massachusetts, and West Virginia). The total state payments range from $3.3 billion to $14 billion over several years. These dollars are to be used for expanded programs for health insurance. public health aimed at prevention control, additional substance abuse treatment, and health research. Other important concessions also include restrictions on advertising and bans on vending machines.

Back to the states

A month after the Senate killed its $56 billion settlement, the tobacco industry revealed it was discussing settling the remaining lawsuits with the states in an agreement that would be far less costly. The settlement could involve a payment of $180 to $200 billion to the states to cover costs of treating sick smokers in exchange for states dropping their claims, It is estimated that such a settlement would be financed by a 35 cents a pack increase in cigarette prices over five years. Unlike the AG proposed resolution and the Senate legislation, the settlement now under discussion does not include giving the Food and Drug Administration specffic authority to regulate cigarettes because of the nicotine content. (4) Whether these discussions will reach any agreement remains to be seen.

Over the next several months, as many as seven states are scheduled to go to court. Numerous other civil suits have been filed which may bring intense pressure for a more comprehensive settlement. The White House and some in Congress believe that a national policy is necessary. Local settlements would not address the federal oversights many believe are essential to ensure changes in the way tobacco is marketed, manufactured, and distributed. There is also great concern about ensuring that any increase in tobacco prices would be large enough to discourage young smokers.

Justice Department investigations

The unknown factor is whether Justice Department investigations into the use of Y-1 tobacco will bring the issue back to the national forefront for legislation. Y-1 tobacco is genetically altered to deliver a higher level of nicotine and is being used in some brands of cigarettes worldwide. In 1994, Brown and Williamson, owned by British America Tobacco, told Congress it was not using Y-l in its products. In 1998, before the Senate Commerce Committee, British America Tobacco admitted it was working off a "small stockpile" of Y-1 and was indeed using it in some cigarettes.

Conclusion

Physician executives need to decide which efforts they can support that will progress and increase the health status of their communities. The health and fiscal costs of tobacco use are preventable. Comprehensive tobacco reform should be a national goal. However, if there is a failure on the national level, health care leaders must create and participate in strategies to reduce teen smoking at the local level.

References

(1.) "Smokers Would Pay Bills for Previous Generations," Washington Post. June 21, 1997.

(2.) Medical-Care Expenditures Attributable to Cigarette Smoking-United States, 1993. Morbidity and Mortality Weekly Report, vol. 43, No. 26, July 8, 1994.

(3.) Preamble. The National Settlement Agreement. 1997.

(4.) Associated Press Wire, "Analyst: Tobacco Firms Discuss Deal" July 10, 1998.

Georges C. Benjamin, MD, FACP, is the Maryland Deputy Secretary for Public Health Services in Baltimore. He can be reached at 410/767-6510 or via fax at 410/767-6489.

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