Kelly H . Tiller Tobacco Settlement , Phase II and Disaster Payments : An Overview and Status Report

After a year and a half of negotiations and failure of an earlier settlement proposal to obtain Congressional approval, the four largest cigarette manufacturers reached a settlement with 46 states over state claims against the tobacco industry on November 23, 1998. According to the Master Settlement Agreement (MSA), cigarette manufacturers agreed to pay participating states $206 billion over the next 25 years. Four states – Florida, Mississippi, Minnesota, and Texas – settled suits individually with tobacco manufacturers prior to the 1998 MSA additionally committing cigarette makers to pay more than $40 billion over the next 25 years. According to the terms of the settlement, payments are divided among participating states according to each state’s share of Medicaid funding, which is largely population based. The MSA places no restrictions on state spending of settlement payments. The exact amount of future settlement payments is uncertain as payments are subject to annual adjustments for changes in cigarette consumption, inflation, and other factors.