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Making Big Tobacco pay smokers’ health bills: lessons from the United States

The legacy of the US Master Settlement Agreement holds significant lessons for policy makers in Australia. Razvan Caliman

Reports that Nicola Roxon plans to encourage state governments to consider legal action to recover around A$31 billion in smoking-related health-care costs from the tobacco industry highlight the incoming attorney-general’s commendable commitment to reducing the impact of smoking-related illness and mortality.

Such litigation is a potentially powerful way of countering the tobacco industry, but has been largely limited to the United States to date. As part of preliminary work on the proposal, Roxon has brought Matthew Myers, president of the leading US tobacco control organisation, Campaign for Tobacco-Free Kids, to Australia to discuss litigation with state officials.

Myers, as The Australian points out, advised US attorneys-general during litigation against the tobacco industry in the late 1990s, and played a key role in negotiations that resulted in the controversial 1998 Master Settlement Agreement (MSA).

While a spokeswoman for Roxon stated that Myers had been brought in to “share his extensive experience in tobacco-related litigation” and that the minister was “heartened by the support of such an esteemed anti-tobacco expert”, the MSA has, in fact, had limited impact on the tobacco industry and effectively split the tobacco control community in the United States.

Probably best known for its requirement that Philip Morris and other leading tobacco corporations make payments of US$246 billion to those states party to the settlement over a 25-year period, the MSA remains controversial within US tobacco control and broader public health circles, and it’s imperative that Australian officials consider the circumstances surrounding its progress carefully.

The US Master Settlement Agreement

The MSA was the result of secret negotiations between the tobacco industry, and attorneys-general and members of the tobacco control community including Myers. Critics of the negotiations claim the tobacco industry was on the defensive in the late 1990s – facing a combination of dozens of state lawsuits, damaging insights into its long-standing knowledge of the harms of smoking, and falling stock prices – and that state lawsuits should have been allowed to go to trial. In effect, the negotiations let the industry off the ropes.

Adam Mulligan

Under the terms of the MSA, the tobacco industry paid US$246 billion, agreed to fund a national initiative to reduce smoking and accepted limited restrictions on advertising. In return, outstanding litigation was dropped by the 46 states party to the settlement, and future state-level litigation was pre-empted.

The final terms have been described by Allan Brandt, professor of history of medicine at Harvard Medical School and author of the book The Cigarette Century, as “a pale reflection” of earlier proposed settlements. As many had predicted, tobacco corporations passed the costs of the MSA on to consumers through sharp price hikes essentially making the agreement, Brandt contends, little more than a new excise tax on cigarettes.

Settlement results

Ostensible marketing restrictions in the agreement contained so many loopholes that spending on cigarette advertising and promotion has, in fact, increased dramatically in the United States since 1998. Not only has the MSA had virtually no impact on tobacco industry income or marketing practice, signatory states have realised little benefit from it.

And while it may appear impressive, the agreed multi-billion dollar payment was insufficient to cover the costs of treating smoking-related illnesses and, more significantly, there were no assurances included in the settlement that monies received by the states would be dedicated to health-care and tobacco control programs.

In many cases these funds have disappeared into general revenues, making state politicians reliant on this unexpected income, and effectively making the states partners of the tobacco industry. As Brandt argues, any new legal challenges to the industry have become “threats to the states’ cash flow”.

Australia’s tobacco control legislation is considerably more advanced than that in the United States, so concerns that the MSA does little to curtail industry advertising are largely irrelevant here. But the legacy of the MSA does hold significant lessons for policy makers in this country assessing the advisability of mounting legal action to secure compensation for smoking-related health-care costs.

Most importantly, the MSA demonstrates that litigation, once launched, will have to be pursued diligently and without recourse to negotiated settlements with the industry.

The experience of US states also underlines the importance of installing a regulatory mechanism that ensures any monies recovered from the industry are used to underwrite health costs related to tobacco use. Given his central role in the MSA negotiations, Myers’ best advice to Australian policy makers may well be about what not to do in future litigation.

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