Oklahoma State Question 814: Decrease Tobacco Settlement Endowment Trust Fund Deposits and Fund Medicaid Program Amendment
Summary:
In 1998, the major tobacco companies agreed to make yearly payments to 46 states, four territories, Puerto Rico, and the District of Columbia to settle lawsuits seeking to recover expenses from treating tobacco-related illnesses. The result was the Master Settlement Agreement (MSA), from which Oklahoma derives annual payments. In 2000, Oklahoma voters decided to constitutionally protect its MSA payments by placing the bulk of them in a public trust called the Tobacco Settlement Endowment Trust (TSET). The purpose of the TSET is to prevent tobacco use, provide smoking cessation services, and fund health-related research.
Three-quarters of Oklahoma’s MSA payments are deposited into the TSET. The rest is given to the Tobacco Settlement Fund (TSF), which the state legislature and the attorney general’s office can spend in annual budgets.
State Question 814 would reverse those percentages, with 75 percent going to the TSF where the legislature can spend it each year for the purpose of securing matching federal funds for the state’s newly expanded Medicaid program, while 25 percent would be given to the TSET.
Fiscal Impact:
In 2020, Oklahoma’s Master Settlement Agreement payment was $75 million. Should State Question 814 pass, $18.75 million instead of $56.25 million would go to prevent tobacco use, provide smoking cessation services, and fund health-related research,. However, the almost $40 million cut would be used to get a matching amount of federal Medicaid dollars.
Proponents’ Argument For:
Supporters of State Question 814 argue that the Master Settlement Agreement money’s reallocation is necessary to fund Medicaid expansion, which voters approved in June. According to the Oklahoma Health Care Authority, the state would pay $164 million per year to support the expansion. SQ 814 would cover a significant part of the Medicaid expansion without cutting other services or raising taxes. The need for smoking cessation and anti-tobacco education programs such as those provided by the TSET has also declined significantly.
In 2017, the adult smoking rate in Oklahoma was 20 percent, and the youth smoking rate was 12.5 percent, lower than any previous year. Unlike many other states, Oklahoma did not spend all of its MSA money on day-to-day programs but carefully built its endowment to a position of more than $1 billion. The TSET would continue to receive a substantial chunk of the MSA payments, which combined with its sizable reserves should be more than enough to cover its current activities. The purpose of the MSA is to cover the costs associated with smoking-related illnesses. Medicaid expansion would provide healthcare to many low-income Oklahomans who are disproportionately more likely to smoke than wealthier residents.
Opponents’ Argument Against:
Critics argue SQ 814 is shortsighted. While Oklahoma’s smoking rate is lower than in previous years, it’s still higher than the national average for youth and adults. Smoking remains the number one cause of preventable death in the state. Smoking is responsible for 31 percent of cancer deaths in Oklahoma. Supporters argue well-funded programs that prevent the onset of smoking-related disease in the first place are a better use of resources than pouring money into programs that often deal with only the consequences of smoking.
According to the American Cancer Society Cancer Action Network, the Tobacco Settlement Endowment Trust has saved 42,000 lives and $1.24 billion in health spending since it was formed in 2001. Other beneficiaries of TSET funding include Oklahoma State University Medical Authority and Oklahoma’s Stephenson Cancer Center. A permanent change to the distribution of MSA funds could limit the agency’s ability to pay for current programs and future initiatives.
Discussion:
Oklahoma’s MSA payments are constitutionally protected to ensure they are used to prevent tobacco use and not bail out other state programs. With a smoking rate above the national average and cigarettes still accounting for almost a third of cancer deaths in Oklahoma, it’s hard to conclude the TSET’s mission is accomplished and should be subject to such a massive funding cut.
Redirecting the vast portion of MSA money to a fund an expansion of Medicaid comes with risks. As smoking rates decline, so do MSA payments, meaning they would not prove a permanent or stable revenue source to fund the costs associated with Medicaid expansion, whose price tag of $164 million could be a significant underestimate. According to Sen. Roger Thompson (R-Okehmah), chairman of the Senate Appropriations Committee, the program could cost as much as $264 million.
Rerouting MSA payments is a temporary solution to a permanent funding problem. In the short-term, reallocating MSA payments looks like an attractive option because it avoids the need for dramatic tax hikes or funding cuts. But this is a false economy. The TSET contributes significantly to public health and reducing its funding could hobble its ability to do so while giving legislators a temporary reprieve from making the tough choices needed to fund Medicaid or reconsider the expansion altogether.
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