Financial Illusions in the Master Settlement Agreement

The stated purpose of the Attorneys General Master Settlement Agreement was to compensate participating states for tobacco-related Medicaid costs. Our analysis suggest that New Mexico will be a big loser in this deal. It is important to point out that the baseline payments to the state vary over time. The initial figures are listed as follows:

MSA Payments to New Mexico
(millions of dollars)



















MSA Adjustments
Few people understand these baseline payment figures are subject to numerous annual adjustments that will most certainly result in actual payments far less than the listed amounts. Besides inflation, the baseline figures are subject to a Volume Adjustment, Non Participating Manufacturers Adjustment, Non Settling States Adjustment, Federal Tobacco Legislation Offset, Litigating Releasing Parties Offset, miscalculations and disputed payments [1]. We cannot assume New Mexico will receive the payments as listed.

The MSA specifies that baseline payments will be adjusted upward to compensate for inflation. At a minimum, payments increase 3% annually. It is virtually impossible to model changes to payments using the other listed adjustments. We assume these adjustments will result in decreased payments to New Mexico. We use this simple inflationary-only model to demonstrate a "best case" scenario for payments [2].

Predicted Costs to Support Medicaid Through 2025

1. "Calculating State Settlement Revenues," research by Bill Godshall, June 11, 1999 (Complete analysis here).

2. "Analysis of New Mexico's Master Settlement Agreement," research by Scott Goold, August 16, 1999 (Complete analysis here).

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