title: The economic impacts of the tobacco settlement.
abstract: Recent litigation against the major tobacco companies culminated in a master settlement agreement (MSA) under which the participating companies agreed to compensate most states for Medicaid expenses. Here the terms of the settlement are outlined and its economic implications analyzed using data from Massachusetts. The financial compensation to Massachusetts (and other states) under the MSA is substantial. However, this compensation is dwarfed by the value of the health impacts induced by the settlement. Specifically, Medicaid spending will fall, but only by a modest amount. More importantly, the value of health benefits ($65 billion through 2025 in 1999 dollars) from increased longevity is an order of magnitude greater than any other impacts or payments. The net efficiency implications of the settlement turn mainly on a comparison of the value of these health benefits relative to a valuation of the foregone pleasure of smoking. To the extent that the value of the health benefits is not offset by the value of the pleasure foregone, the economic impacts of the MSA will include a share of these health benefits.
authors.affiliation: Department of Economics, Harvard University, USA.
authors.forename: David M
authors.initials: DM
authors.lastname: Cutler
authors.forename: Jonathan
authors.initials: J
authors.lastname: Gruber
authors.forename: Raymond S
authors.initials: RS
authors.lastname: Hartman
authors.forename: Mary Beth
authors.initials: MB
authors.lastname: Landrum
authors.forename: Joseph P
authors.initials: JP
authors.lastname: Newhouse
authors.forename: Meredith B
authors.initials: MB
authors.lastname: Rosenthal
mesh_terms: D000329:Advertising / Q000191:economics; D017046:Cost Savings / Q000191:economics / Q000706:statistics & numerical data / Q000639:trends; D017281:Cost of Illness; D003365:Costs and Cost Analysis; D005544:Forecasting; D006801:Humans; D008017:Life Expectancy; D008404:Massachusetts; D008484:Medicaid / Q000191:economics / Q000331:legislation & jurisprudence; D012907:Smoking / Q000191:economics / Q000331:legislation & jurisprudence / Q000639:trends; D016540:Smoking Cessation / Q000191:economics / Q000331:legislation & jurisprudence / Q000706:statistics & numerical data; D000074606:Smoking Prevention; D013219:State Government; D013660:Taxes / Q000191:economics / Q000331:legislation & jurisprudence; D019460:Tobacco Industry / Q000191:economics / Q000331:legislation & jurisprudence; D014481:United States