April 15 is the day tobacco companies pay $9 billion for tobacco illnesses, but is it enough?

April 15 is Tax Day in the U.S., and it is a bitter pill for many.

For state Medicaid plans, though, which pay a heavy price for tobacco-related illnesses, it can be a shot in the arm of sorts. April 15 is also the day when the five largest tobacco companies pay US$9 billion dollars to state governments, each and every year, forever, because of a 1998 legal settlement meant to compensate states for the costs of tobacco-related illness such as cancer, emphysema and heart disease. Actual payments made by the tobacco companies vary year to year because of adjustment factors written into the settlement; each of the states’ payments varies as well.

Payments from tobacco companies, as well as tobacco taxes, help to support health care and other services for low-income people served by state Medicaid programs. Even though the federal government supports each state’s Medicaid program by paying at least half the costs, many states have difficulty finding revenues to pay the remaining share.

Determining how much tobacco use costs states’ Medicaid programs puts the payments from tobacco companies into perspective. One estimate found 15% of nationwide Medicaid costs were caused by tobacco use. But such estimates based on national surveys may not account for which tobacco-related diseases are most prevalent in a particular state. How many of the state’s Medicaid participants smoke, and how hospitals and doctors are paid, also affect a state’s Medicaid costs.

The Center for Mississippi Health Policy was interested in estimating the actual costs to Mississippi Medicaid for treating tobacco-related disease. The center wanted a price tag that more accurately reflected the health-related behaviors of people in Mississippi and health care services available in the state. Our team of researchers from The Hilltop Institute at the University of Maryland, Baltimore County (UMBC) conducted the study. We think our study is the first to focus on Medicaid costs using actual state Medicaid data.

Getting a truer picture

Instead of applying estimates of total costs of smoking from national surveys to individual states as previous studies have done, our research assessed how specific, individual smoking-related illnesses create costs for Mississippi. This lets the state better understand how much it differs from nationwide averages for both its total Medicaid costs and the sources of those costs.

First, we reviewed medical literature for studies that identified how tobacco use or exposure changes the risk of acquiring a particular illness. Many studies of how much smoking increases the risk of getting particular diseases have been conducted since the U.S. surgeon general first reported on the health hazards of smoking in 1964. In 2014, the surgeon general summarized many of these studies in a 50th anniversary report.