Opinion: Tobacco Lawyers Target HMOs, and Kids Still Smoke

Commentary by Pete du Pont

BOSTON--A lasting legacy of the Clinton administration will be its legal battles against the nation's four largest tobacco companies. As with almost all of his other "legacies," it's not likely to garner rave reviews from future historians.

In late 1998, shortly after 46 states settled their differences with Big Tobacco with a $ 206 billion dollar agreement, Clinton decided to get the federal government a slice of the lucrative action.

He threw down the gauntlet in his 1999 State of the Union speech, asking the Department of Justice to claim damages against Big Tobacco under three federal statutes. As Clinton leaves office, however, it's worth asking if there's been a winner.

The Master Settlement Agreement reached with those 46 states forced onerous concessions from the nation's four big tobacco companies--Philip Morris, Brown and Williamson, R.J. Reynolds and Lorillard. To their credit, they've fulfilled their end of the bargain, and then some.

First, the companies were required to pay $ 206 billion dollars over 25 years to the states including an upfront payment of nearly $ 13 billion through 2003 and $ 9 billion each year after that.

In addition, the MSA banned the sale and distribution of apparel and merchandise with cigarette brand logos. No more tobacco brand names at stadiums and arenas. Extended restrictions on outdoor advertising. No free samples except at adult-only facilities. They even limited the size of a pack of cigarettes.

My personal favorite, though, is the ban on cartoon characters in cigarette advertising. For the common link in all legal action against the tobacco industry, you see, is kids. The states, the Department of Justice and the Clinton administration claim one unifying goal: Stop kids from smoking.

If the overarching goal of litigation against Big Tobacco is to save our children from the unhealthy effects of smoking by breaking the industry, the four largest U.S. tobacco companies sure don't look like losers.

RJR will report a greater-than-32 percent annual growth rate for the year 2000. Lorillard projects almost 42 percent. Brown and Williamson forecasts 19 percent and change.

Speaking of change, the National Association of Convenience Stores reports cigarettes continue to account for nearly 30 percent of all in-store purchases.

In addition, the U.S. tobacco industry generated annual trade surpluses totaling more than $ 50 billion for the decade ending in 1999, according to the Tobacco Merchants Association.

Of course, tobacco's 1999 surplus contribution of nearly $ 4 billion was the smallest since 1988. Then there's the stock market.

R.J. Reynolds and Lorillard Tobacco are trading at 52-week highs, and Brown and Williamson and Philip Morris contribute heavily to large margins reported by their parent companies.

So much for crippling the tobacco industry. But there's always the settlement money. The stated purpose of those payments was to educate kids against smoking.

A tally last year by the National Conference of State Legislatures shows some of the money has been distributed for health-care services and children's programs, but a lot of it also has been spent on private lawyers who helped negotiate the MSA.

Recent word comes from North Carolina that several legislators there want to use part of an estimated $4.6 billion in settlement money to patch holes in the State budget.

In California, Orange County supervisors are challenging the onstitutionality of a measure mandating that most of the county's $ 750 million in settlement money be spent on health-care. They want to use it to pay off the county's debts.

So what about the kids? The latest count we could find (for 1999) shows less than 10 percent of tobacco settlement funds are actually being spent to keep kids from smoking.

The latest figures from the Centers for Disease Control show the percentage of eighth-, tenth- and 12th-grade students who smoke daily hasn't changed much in the past 20 years.

Eighth- and 10th-grade usage is down slightly and 12th-grade usage is up slightly, but the difference from rates in the 1990s shows little statistical significance.

While America's big four tobacco companies report record share prices, almost one of every four 12th-graders in America claims to smoke cigarettes on a daily basis.

Perhaps they're rebelling against the nonstop nagging of federal nannies and Pecksniffian groups like the Campaign for Tobacco-Free Kids.

So who's winning the Clinton administration's war against tobacco? Only the lawyers. Celebrity ones like Dickie Scruggs and David Boies, sitting on top of huge tobacco windfalls, are filing class-actions against HMOs--a move they themselves concede will result in dramatic increases in healthcare premiums for most Americans.

The Scruggs, the Boies and their cohorts already have walked away with billions of dollars. Now hundreds of government attorneys and private lawyers for foreign governments are sharpening their pencils for yet more rounds of litigation.

We all hope fewer kids will smoke. But in the final analysis, the only real winners in this unseemly process are members of the plaintiffs' bar.


The NCPA is a 501(c)(3) nonprofit public policy organization. We depend entirely on the financial support of individuals, corporations and foundations that believe in private sector solutions to public policy problems.

The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.

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