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Analysis of New Mexico's Financial Position Regarding MSA
  Research provided by Scott Goold, Ph.D.*
  Citizens for Clean Air in Apartment: August 16, 1999

This analysis demonstrates that the Master Settlement Agreement (MSA) is a horrible deal for New Mexicans. Through the year 2025, the State of New Mexico -- funded by New Mexico's taxpayers -- will have supported Medicaid costs totaling an estimated $4.3 billion. During this time, there will be a projected 75,000 deaths in New Mexico because of tobacco-related illness and disease.

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 (see Bill Godshall's analysis).

For this analysis, we increased the projected tobacco industry payments using a 3% cost of living adjustment. We adjusted the estimated Medicaid costs supported by the State of New Mexico using a 5% annual inflationary growth rate. Traditionally, medical costs increase at a rate higher than the general cost of living figures. We assume the difference between settlement payment increases and medical cost acceleration captures the actual economic reality.

One common misunderstanding is MSA payments to the state equal $40 million per year. In actuality, the settlement figures vary across the years. While adjustments may occur for a number of reasons, we use the stated figures and adjust only for inflation. We believe the actual payments to New Mexico will be significantly lower than the figures shown here.

Initial Reported Payments
YEAR
MSA PAYMENT
1998
$14.3
1999
$0.0
2000
$38.2
2001
$41.3
2002
$49.6
2003
$50.0
2004-2007
$41.8
2008-2017
$42.6
2018-2025
$47.7

Analysis of New Mexico's Master Settlement Agreement
MSA Payment Adjusted 3% Annually
Estimated Medicaid Costs Reflect 5% Inflationary Growth
There is no scheduled MSA Payment in 1999.
-- figures expressed in millions of dollars --

Year

MSA Payment

Estimated Medicaid Costs

% MSA Reimburses

Losses to State

1998

$14.3

$75.0

19%

-$60.7

1999

$0.0

$78.8

0%

-$78.8

2000

$40.5

$82.7

49%

-$42.2

2001

$45.1

$86.8

42%

-$41.7

2002

$55.8

$91.2

61%

-$35.4

2003

$58.0

$95.7

61%

-$37.7

2004

$50.0

$100.5

50%

-$50.5

2005

$51.4

$105.5

49%

-$54.1

2006

$53.0

$110.8

48%

-$57.8

2007

$54.5

$116.3

47%

-$61.8

2008

$57.3

$122.2

47%

-$61.8

2009

$59.0

$128.3

46%

-$69.3

2010

$60.7

$134.7

45%

-$74

2011

$62.6

$141.4

44%

-$78.8

2012

$64.4

$148.5

43%

-$84.1

2013

$66.4

$155.9

43%

-$89.5

2014

$68.4

$163.7

42%

-$95.3

2015

$70.4

$171.9

41%

-$101.5

2016

$72.5

$180.5

40%

-$108.0

2017

$74.7

$189.5

39%

-$114.8

2018

$86.2

$199.0

43%

-$112.8

2019

$88.7

$208.9

42%

-$120.2

2020

$91.4

$219.4

42%

-$128.0

2021

$94.1

$230.4

41%

-$136.3

2022

$97.0

$241.9

40%

-$144.9

2023

$99.9

$254.0

39%

-$154.1

2024

$102.9

$266.7

39%

-$163.8

2025

$106.0

$280.0

38%

-$174.0

Totals

$1,845.2

$4,305.2

43%

-$2,460.0

These projections clearly demonstrate the Master Settlement Agreement is a horrible deal for New Mexico. The media and New Mexico Attorney General's office report the MSA will return approximately $1.2 billion to the state (in 1998 dollars). Using the minimal 3% growth rate, we project the settlement equals $1.85 billion. This figure does not consider other possible adjustments. We assume these will negatively affect the settlement paymemts. Nevertheless, using this "best case" scenario, we anticipate New Mexico will lose nearly $2.5 billion over the first 25 years of the settlement (Medicaid Costs less Settlement Payments).

This issue should not be debated on the financial merits alone. Over the next 25 years, more than 13 million Americans will die due to tobacco-related illnesses and disease. There will be 75,000 New Mexicans in this group of victims.

Historically, the people of New Mexico have suffered more than the citizens in others states. The projections shown here should therefore be viewed as conservative estimates. The people of New Mexico will likely suffer more.