Nevada Attorney General Frankie Sue Del Papa has joined 32 state attorneys general in filing suit against the tobacco industry. On May 21, Del Papa announced her lawsuit at a news conference in Las Vegas. But a new study by the Heartland Institute’s Michael E. DeBow exposes the shaky legal ground upon which such legal actions stand. DeBow’s analysis of the attorneys generals’ lawsuits is summarized below.
Del Papa and her colleagues are ostensibly suing tobacco companies such as Phillp Morris and RJR Nabisco to recoup billions of dollars state governments have paid in medical costs incurred by smokers. Del Papa’s stated reason for filing was "to try to obtain reimbursement for Medicaid and other costs Nevada has paid to provide health care for diseases caused by tobacco." (Officials claim Nevada has one of the highest percentages of adult smokers in the nation, and 29 percent of the state’s youth smoke.) But as DeBow noted, the lawsuits also give attorneys general a get-tough image, in addition to garnering significant media coverage: "What could be more attractive than ‘free money’ from an unpopular industry for a public purpose?" Connecticut Attorney General Richard Blumenthal, who like Del Papa has ambition for higher political office, remarked how he was "astonished at how the momentum of public opinion has built relentlessly against tobacco" in his state. Del Papa employed a particularly shameless public relations tactic at the announcement of Nevada’s suit—the attorney general was flanked by children holding "Thank you, Frankie Sue" signs.
Using Every Trick in the Book
But cynicism regarding the attorneys generals’ motives is not the only reason to oppose their crusade against tobacco companies. As a matter of law, the cases have little merit, and may establish dangerous legal precedents. There are a plethora of reasons a thoughtful attorney general should decline to file a Medicaid reimbursement suit, the most prominent being the lawsuits do not fit within any existing legal liability theories—they are quite literally unprecedented. A state cannot sue for reimbursement in the traditional way, because by doing so, it would "step into the shoes" of the injured party—in this case, the smoker. But tobacco companies consistently win cases brought against them by individuals, so it is not likely any state can win its case by "stepping into the shoes" of its Medicaid patients. Thus, attorneys general are using every legal scheme at their disposal against cigarette makers. Their claims against the companies include fraud, product liability, public nuisance and racketeering. "The unusual application of these legal theories," predicts DeBow, "is not likely to succeed."
Further Reasons Not to Sue
However, victory is not impossible, and if they are successful, the lawsuits will serve to greatly expand tort liability. Other industries could soon be liable for Medicaid expenses. Liquor companies and fast food restaurants, for example, could be held liable for illnesses due to alcohol and high cholesterol. In addition, state governments, which tax cigarettes to produce revenue, are in some sense "partners" with the tobacco industry. Thus, states hardly have clean hands in the tobacco debate. In addition, a successful suit will be roughly equivalent to a tax increase on cigarettes—tobacco companies ordered to pay a lump sum to reimburse state medical costs will simply pass that expense on to their customers. This will serve the same function as a tax increase, and state legislatures—not attorneys generals—should make taxation decisions. Finally, with or without a victory, the association many attorneys general have (or in Nevada’s case, will have) with plaintiffs’ lawyers poses troubling questions. According to one report, over 100 firms across the country are suing the tobacco industry. Trial lawyers given work by Medicaid reimbursement lawsuits can reasonably be assumed to be relied upon for future political and financial support. "The alliance between the [attorneys general] and the plaintiffs’ bar," warns DeBow, "threatens to be an unholy one, and should be avoided."
Smokers: An Asset, Not a Liability
But perhaps the most-overlooked fact in the debate over Medicaid reimbursement is that smokers may not have a "societal cost" at all. Professor W. Kip Viscusi, in a 1995 study, found federal and state cigarette taxes averaged 52.6 cents per pack. Viscusi, updating earlier research by the Rand Corporation, found that "the costs for medical care imposed on society by smokers were in the range of 50 to 55 cents per pack." Thus, smokers do sufficiently fund the health care costs of those who smoke. Even more compelling is the argument that states actually save money due to the premature deaths of smokers. Viscusi concluded that smokers save society 20 cents per pack in nursing home care and $1.00 per pack through lower Social Security and pension costs. From an overall insurance perspective, smokers save society 27 cents per pack. "Put bluntly," observed DeBow, "the state treasuries are probably benefited by smoking, since the early deaths of smokers reduce state health care outlays through Medicaid in later years."
The Settlement Possibility
Despite the weak legal arguments behind the lawsuits, the tobacco companies, according to published reports, are willing to settle out of court. Tobacco executives’ desire to settle is primarily due to three reasons: the attorneys general have a flimsy case, but tobacco executives do not want to wage a bitter, protracted fight they could still conceivably lose, industry legal bills have already totaled some $600 million and a settlement would likely have a positive effect on tobacco stocks. The status of the possible settlement is not currently known—a meeting in Dallas to present one possible offer to the attorneys general was canceled this week.
Suing so-called Big Tobacco may be good politics for Del Papa—and perhaps give a boost to her gubernatorial aspirations—but it is bad public policy. Her lawsuit, as well as those of her colleagues, has little legal, ethical or economic validity. The Medicaid reimbursement suits may ultimately be successful, through a victory in court or a negotiated settlement. But the cost to the nation’s legal system—as well as to the truth—may not be realized for some time.
Where the Public Stands on
Attorneys general hoping to reap public approval for pressing their lawsuits may want to examine recent polling data—a majority of Americans believe warning labels on cigarette packs release tobacco companies from legal liability for smoking-related deaths. In March, one poll found 52 percent of Americans think tobacco companies are absolved of legal responsibility due to warning labels. Fourteen percent believe other reasons excuse the companies, meaning two thirds of the American public feel smokers themselves are responsible for detrimental health caused by lighting up. Only 28 percent of those surveyed feel tobacco companies are fully liable for smoking-related illnesses and deaths.
Gallup/CNN/USA Today poll, March 24-26, 1997.
D. Dowd Muska is a research analyst at NPRI.