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March 2, 2000

Ridge proposes breakdown of state's share of tobacco settlement funds

Over the next 25 years, Pennsylvania's share of the national settlement with tobacco makers is expected to total $11 billion.

It's estimated that the money will be distributed in annual payments ranging from $397 million to $459 million, beginning this year and continuing through the year 2025.

Gov. Ridge and the state General Assembly are still wrangling over how to allocate the tobacco money, but the following is the governor's plan:

* 40 percent of the funds, under Ridge's proposal, would provide health insurance for low-income Pennsylvanians who lack coverage and for disabled and chronically ill adults who don't qualify for Social Security income.

* 15 percent would combat tobacco addiction through prevention (10 percent) and cessation (5 percent) programs.

* Another 15 percent would provide in-home and other community-based, long-term care for older Pennsylvanians.

Thomas Paese, the gov-ernor's secretary of administration, told the House appropriations committee during a Feb. 18 hearing in the William Pitt Union Assembly Room: "Surveys have consistently shown that the elderly prefer aging in their homes and with their families, rather than being forced into an institution…. Gov. Ridge hopes this initiative will entice the long-term care industry to move in the direction of consumer desire."

* 10 percent would reimburse hospitals for free care they give to uninsured patients. In 1999, UPMC Health System alone provided more than $85 million in uncompensated care, said Ronald Ott, president and CEO of UPMC McKeesport.

* Another 10 percent would fund health research by Pennsylvania-based researchers and institutions, targeting projects that have passed peer review but have not yet been funded. These projects could focus on a wide variety of illnesses and health-related topics, not necessarily tobacco-related diseases.

* 5 percent of the payments for three consecutive years would go into a venture capital fund to establish biomedical start-up firms and other health care companies in Pennsylvania.

* The governor also wants to create a permanent endowment account that would enable future generations to benefit from the tobacco settlement should payments fall short or be discontinued. "To access these funds, the governor and a two-thirds majority of the General Assembly would have to agree to dip into the account," Paese said. "We intend to allocate 5 percent annually, plus an initial payment of $142 million, to the endowment account. At a conservative 8.5 percent earnings rate, at the end of 25 years this account will contain $4.2 billion."

Paese emphasized that Pennsylvania's $11 billion share of the tobacco settlement is an estimate. It could be reduced by litigation, he said. "Presently, we face a class action suit by tobacco resellers and another recently filed class action suit seeks to preempt a portion of Penn-sylvania's payments as a financial windfall for Medicaid recipients. The attorney general is currently responding to these suits," Paese said.

House appropriations committee chairperson John E. Barley, R-Lancaster, suggested that if the state begins providing health insurance to low-income people, it might encourage employers to drop coverage for those workers.

Vince Phillips, lobbyist for the Independent Insurance Agents of Pennsylvania, suggested using the tobacco money to fund tax credits encouraging companies that don't offer health coverage to begin doing so.

But Barley, a private businessman who said he's always provided health coverage to his own employees, complained: "There's no equality in giving tax credits. Businesses that have been doing the right thing all along get a raw deal, while others that haven't offered [health benefits] get the tax break."

Ridge's proposed insurance program for uninsured adults would provide basic benefits including preventative care, physician services, diagnosis and treatment of serious illness or injury, inpatient hospitalization, outpatient hospital services and emergency accident and medical care.

To be eligible, an uninsured adult would have to earn less than 200 percent of the federal poverty level. That works out to $16,480 for an individual, $34,000 for the head of a family of four.

In 1998, 13.3 percent of Pennsylvanians ages 18 to 64 had no health insurance, according to the state's hospitals trade group. That's still below the national average percentage of uninsured working-age residents. But according to the U.S. Census Bureau, from 1991 to 1998 the 34 percent increase in Pennsylvania's rate of uninsured was more than double the national rate.

House appropriations committee chairperson Barley called Ridge's plan for spending Pennsylvania's tobacco settlement money "an excellent starting point," although he said he doesn't back it 100 percent.

The governor and the General Assembly are seeking to agree on a tobacco money spending plan by July 1, the beginning of Pennsylvania's fiscal year.

Barley and other speakers praised Ridge for recommending that all of Pennsylvania's tobacco money go toward health-related programs. Other states have used their shares to fix roads, build schools — even, in California, to cover legal bills incurred in defending against police brutality lawsuits.

Pennsylvania received its first tobacco money installment of $123 million in December and second installment of $142 million last month. The next installment is expected in April.

— Bruce Steele


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