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RURAL HEALTH BRIEF

THE STATE TOBACCO SETTLEMENTS:
WHAT'S IN THEM FOR RURAL HEALTH?

The use of tobacco remains the most important preventable cause of death in the United States, and over the past decade, the states have moved to the forefront of controlling its use. California, followed later by Massachusetts, Arizona, Oregon and other states, generated referenda increasing tobacco excise taxes and dedicating a small fraction of the revenues to reducing tobacco use. Lawmakers in additional states-such as Alaska, Hawaii, Maryland, Michigan, New Jersey, New York and Washington-chose to substantially raise their tobacco taxes. Furthermore, the Master Settlement Agreement reached in November 1998 between 46 states and the tobacco industry-along with individual state settlements reached earlier with tobacco companies in Florida, Minnesota, Mississippi and Texas-are projected to provide as much as $246 billion from tobacco firms to states over the next 25 years. Also, there are some who believe that a recent ruling by the U.S. Supreme Court that the Food and Drug Administration lacks the authority to regulate tobacco could give states greater latitude to regulate the production and sale of tobacco within their borders.1

The Master Settlement Agreement provided that certain "up-front" payments, starting in 1998, were to be credited to an escrow account in each state. The first annual payments to states from the Settlement were to be distributed in April 2000. The amount allotted to each state is determined by a formula that takes into account the states total historical spending on health. The base number determined will be adjusted each year by factors such as consumer price index and decline in domestic tobacco sales.

Although these settlement agreements arose from suites by states against the tobacco industry to recoup funds that were spent to treat tobacco-related illness of Medicaid recipients, they place no restrictions on how states must spend the settlement funds. Thus, the states are left with the task of determining how the funds will be used. Legislatures across the country are now making decisions about how to receive the money, how to manage the money and how to spend the money. In 1999, over 500 bills relating to the disposition of tobacco funds were introduced in 49 statehouses. By the end of the year, 23 states had enacted enabling legislation or appropriated the funds, 19 states had enacted laws to place funds in a trust fund, and 4 states had enacted laws to place part or all of the funds in endowments.

Beginning in 2000, more than half of the states had yet to determine how they would spend their tobacco funds. Even those states addressing tobacco fund disposition in 1999 largely did so in broad terms with much of the detail and shape of the disposition still to be established.

As of early May 2000, more than 530 bills pertaining to appropriation of tobacco funds had been introduced or carried over from 1999 in 44 state legislatures that are in session this year. Most of the pending or enacted legislation can be categorized as follows:

Although most of the proposed or enacted programs aimed at smoking cessation and tobacco use prevention2 direct funds for statewide use (and therefore rural health care programs generally would be eligible), such proposals or laws are vague as to exactly where these funds will be spent. Often, legislation simply designates that funds be allocated for general areas of health, such as maternal and childcare or expansion of insurance coverage to the working poor, and lawmakers delegate details of program development to state executive agencies.

To date, a few states have language in proposed or enacted legislation that provides for allocations of tobacco settlement money specific to rural areas or rural health. These states include:

• Georgia. The FY 2001 appropriations act (H 1160) allocates $62 million to promote rural economic development. The measure also authorizes $30 million for school nurses and $4 million for rural health clinics and federally qualified health centers.
• Illinois. A 2000 bill (H 2924) would establish a healthy communities trust fund for the expansion of community and family health programs, including those located in rural designated shortage areas.
• Indiana. A 2000 law (S 108) creates trust funds to: assist community health centers in providing vaccinations, health services and preventive measures in rural areas and that address the special needs of minorities ($25 million); enhance health services in local health departments ($3 million); support rural community health programs, particularly in areas with a high underserved and minority population ($8.2 million); and provide health maintenance support to counties with populations of under 50,000 ($14,000).
• Kentucky. A 2000 law (H 583) allocates 50 percent of settlement funds for rural county development. A separate law (HB 611) creates the Rural Development Board to help affected tobacco farmers.
• Louisiana. In 1999, H 640 earmarks support for school-based health clinics, rural health clinics and primary care clinics in its appropriations to the newly created Health Excellence Fund and Louisiana Fund. The Louisiana Fund also is intended to pay for capital improvements to state health care facilities.
• Maryland. A 1999 law (S 334) stipulates that expenditures from the cigarette restitution fund shall be made available to support primary care in rural areas of the state. A 2000 law (S 896) appropriates funds for such activity.
• Nevada. A 474, enacted in 1999, creates a public health trust fund. The board of trustees for the fund shall include a rural county health officer. A portion of the fund is to go to the Office of Rural Health of the University of Nevada School of Medicine to support emergency medical services in less populated rural counties, improve billing technologies for rural hospitals and develop telemedicine systems to provide basic health services in less populated rural counties.
• South Carolina. A 2000 bill (H 4489) allocates 5 percent of settlement funds to support rural economic development.
• Texas. A 1999 law (H 1676) creates the Rural Health Facility Trust Fund ($50 million) and the Community Hospital Capital Improvement Fund ($25 million). The Texas Center for Rural Health Initiatives was instrumental in providing direction for the creation of these endowments. The measure also creates a trauma and emergency medical services fund, for which a related bill (H 1920) ensures that 60 percent of monies in the fund be distributed to rural counties.

States with current bills or laws that direct allocations of settlement funds to programs that most likely will impact rural communities or rural health include the following:

• Illinois. H 2924 in 2000 includes money for the healthy schools trust fund (to increase primary care and school health), the health infrastructure fund (for construction or modification of health facilities), and the health and medicine endowment fund (to support graduate medical education programs for students pursuing careers in family medicine).
• Indiana. S 108 provides $10 million to cover the capital costs of community health centers.
• Massachusetts. A 1999 budget measure (H 4900) allocates $9 million to school-based health and nurses and $5 million for community health centers.
• Minnesota. 1999 appropriations legislation (S 2225) authorizes $97 million for local public health activities.
• Mississippi. A 1999 law (S 3018) includes $4 million to support community health centers.
• Oklahoma. Various bills outline how a new endowment trust fund will target appropriations for health care. Proposals direct funds for tobacco cessation, health education and health services targeted mainly to children. Among other ideas, Governor Keating proposes to use funds to expand reimbursement to rural hospitals.
• Texas. A 1999 law (H 1161), which establishes the Tobacco Settlement Permanent Trust Account, provides that earnings and interest off the account are to be used to reimburse counties and hospital districts for indigent care.
• Wyoming. A 2000 law (H 42) creates the Settlement Trust Fund with priority given to, among other things, community based health care.

A window of opportunity now exists for rural stakeholders to gain a reasonable share of their state's tobacco settlement funds.3 To date, several states have instituted a variety of approaches intended to allocate some portion of these funds to rural communities. Experiences in many states suggest that rural interests can be advanced through the following approaches:

Ensuring that rural interests are represented in:

• Decisions to determine what amount of settlement funds should be spent immediately, preserved for future needs, and invested.
• All governing structures established to manage the various settlement trust funds and endowments.
• Any and all efforts to enforce existing state agreements with tobacco companies.

Earmarking a clearly defined portion of settlement funds to be spent or saved:

• For rural economic development to rural health care.
• For health care that is directed toward public and community health as well as minority and disadvantaged populations to such health care in rural communities.
• For tobacco control and health promotion/disease prevention initiatives to such initiatives in rural areas.
• For capital improvement of certain health care facilities to capital improvement of similar facilities in rural areas.

• U.S. Centers for Disease Control.
• National Center for Tobacco-Free Kids.
• National Association of Attorneys General (information on the Master Settlement Agreement).

1 Recent plans by several New York hospitals to file their own lawsuit against cigarette makers for the cost of treating smoking-related illness (not covered by Medicaid or other insurer) is based on similar arguments used by states to win their settlements with tobacco firms. Such a lawsuit may provide a precedent for hospitals in other states to file similar lawsuits.

2 Reports indicate that smoking cessation programs and increased efforts to fight tobacco use actually limit or reduce tobacco consumption. Aggressive anti-tobacco campaigns in California and Massachusetts have been found to coincide with statistical declines in cigarette use in those states. Even when cigarette prices dropped nationwide, and subsequently sales rose nationwide, sales in California and Massachusetts did not rise.

3 R. Anson, "Use of State Tobacco Settlement Funds: A Legal and Strategic Analysis with Implications for Rural and Public Health." Texas Journal of Rural Health (2000), 18(1).