Federal Government Demands Share of Tobacco Settlement

WASHINGTON—There’s a new battle opening in the Tobacco Wars, and this time it’s a civil war—Uncle Sam vs the states.

The Health Care Financing Administration (HCFA) has renewed its claim that the states owe it some of the funds they recovered from the tobacco industry to reimburse their costs of treating people for tobacco-related illnesses. The agency says the Clinton administration will work with the states and Congress to resolve the federal claim through mutually agreeable tobacco legislation. The nation’s governors say the states will fight the government in the halls and chambers of Congress.

HCFA contends that federal law requires the states to reimburse the federal government its share of the Medicaid costs recovered as a result of tobacco agreements. HCFA says it provides 57%, on average, of the moneys paid out by state Medicaid programs. “US taxpayers have paid a substantial portion of the Medicaid costs that were one of the bases for the state tobacco settlements,” HCFA said in February.

The states argue that they, not the federal government, footed the costs of pursuing the lawsuits that led to the settlement and that the agreement reflects state costs resulting from issues such as antitrust violations, consumer fraud, consumer protection, and racketeering. HCFA points out that the governing law does not permit it to directly recover Medicaid costs from third parties and instead makes that the explicit responsibility of the states.

At its annual meeting, the National Governors’ Association said that “preventing the federal seizure of a staggering 57% of the state tobacco funds” remains its number one priority. “It is the nation’s governors’ position that the states are entitled to all of the funds awarded to them in the tobacco settlement agreements,” the governors said in a statement issued after they met with congressional leaders.

It continued: “Our states endured all of the risks and expenses during the arduous negotiations and litigation necessary to reach the final agreements.”

Senators Kay Bailey Hutchinson (R-Tex) and Bob Graham (D-Fla), both former governors, have already proposed a bill that would bar HCFA from pursuing any claims for reimbursement from the tobacco settlement.

The Clinton administration first raised the reimbursement issue in a November 1997 letter to the states from HCFA. This came after the initial $368.5 billion tobacco settlement was negotiated between the industry and the attorneys general of 40 states. This agreement, however, fell apart when the Senate killed legislation needed to implement it.

HCFA renewed its claim after 46 states, five territories, and the District of Columbia reached a less comprehensive $206 billion pact with the tobacco companies. Four other states have reached separate agreements.