Evaluating the tobacco settlement damage awards: too much or not enough?

Abstract

This study compared the present economic value of the 1998 tobacco settlement with the present economic value of the damages attributable to tobacco. The 1987 National Medical Expenditure Survey was used to estimate the smoking attributable fraction (SAF) of medical expenditures. SAFs were then applied to Medicaid and other expenditures. Settlement payments covered only 40% of Medicaid treatment costs already incurred and only 30% of past and projected future Medicaid costs. Excess medical expenditures for all other payment sources were roughly comparable to those incurred by Medicaid. Although the settlement may reduce future smoking prevalence rates by limiting the ability of tobacco companies to promote smoking and by raising cigarette prices, euphoria over the huge settlement funds should be balanced by a sober comparison with the even larger damage amounts.