Indiana settles dispute with tobacco companies

Indiana has settled a dispute with major tobacco companies that could have dramatically cut payments that now fund major health programs.

The agreement means the state will still receive less cash than under the Master Tobacco Settlement that Indiana and other states signed in 1998. But state officials said the agreement provides some certainty in funding in future years and prevents additional losses.

Under the agreement signed Thursday, Indiana will receive about $217 million during the next two years, enough to pay for programs that use the dedicated tobacco money.

The agreement ends an appeal of an arbitration panel’s ruling that would have let the tobacco companies reduce their payments to Indiana from $131 million in 2014 to $68 million. The decision was based on the state’s 2003 enforcement efforts.

The panel ruled that Indiana, along with five other states, had not use “diligent enforcement” when collecting payments from other tobacco companies that were not part of 1998 Master Settlement Agreement. By not doing so, the participating companies could reduce what they paid to the states.

According to the attorney general’s office, in the original agreement, the term “diligent enforcement” was not defined. In a fact sheet from the office at that time, the state said it found the settlement “unfavorable” and “not in the state’s interest.” It said, “Indiana declined to settle for a smaller amount merely to end the process, preferring instead to argue its case in arbitration.”

The tobacco companies were also pursuing additional cuts in Indiana’s payments for enforcement efforts after 2003.

However, the attorney general’s office decided that an agreement would be in the better interest of the state than a long, complex, and time-consuming arbitration with an uncertain court outcome. The attorney general’s office said finality over the 2003 payment dispute – as well as the payment years from 2004-2014 – would be best covered by the agreement, the office said.

Still, the office maintained that Indiana did meet the requirements of enforcement in 2003 and that the arbitrary panel’s decision was incorrect, the office said.

“Nobody gets everything they want in a lawsuit settlement, but Indiana’s recovering this amount and preserving future payments at the end of this process is a better outcome than if we had not appealed and not entered into settlement talks with the tobacco defendants,” Indiana Attorney General Greg Zoeller said in a prepared statement. “By clawing back a larger amount of money from big tobacco, we will provide the legislature some certainty going into the next budget cycle and continue to fund the health programs near-term that depend on this money.”

In the Master Settlement Agreement, companies are allowed to reduce the amount they pay to states if they have lost market share to cigarette manufacturers that are not part of the agreement. States were to be exempt from the cuts if they enacted – and enforced – laws that imposed obligations on any non-participating companies that sold cigarettes within their borders.

Forty-six states, including Indiana, signed the agreement in 1998 with four of the largest cigarette manufacturers in the United States. The companies agreed to pay the states roughly $206 billion over 25 years to settle claims regarding smoking-related health care costs and youth smoking.

Since then, another 40 or so tobacco companies have joined the settlement, which requires the companies to make annual payments to the states.

States that agreed to terms with the tobacco companies last fall received more than $1 billion in net additional cash payments from the release of their portion of disputed master settlement funds that had been set aside in a separate account. In addition, those states will be protected from any further downward adjustments in their master settlement payments for the years 2003 through 2012, according to Altria.

Instead of taking the settlement from the companies, Indiana and 14 other states opted to take the issue to arbitration instead.

“While the financial impact of diseases cigarette smoking causes will be with our state for many years to come through costs to the health care system, one thing Hoosiers can do now to reduce the relative importance of this annual tobacco settlement payment to Indiana is to stop purchasing the tobacco companies’ products: Quit smoking or don’t start,” Zoeller said.