The cost of the opioid crisis to governments

September is National Recovery Month, an issue that is near and dear to me. Over the years, I’ve touched on how the opioid crisis in particular has affected state and local government finances, most recently in my Route Fifty public finance newsletter. This week’s Long Story Short gives more context to this ongoing story. 

Photo by Christina Victoria Craft on Unsplash

The states where overdose deaths are increasing the most

Opioid overdose deaths have increased dramatically since the start of the pandemic, straining healthcare and social service providers far beyond what any have the resources to handle. In 2021, drug overdose deaths topped 100,000 for the first time—an increase of 15% from the previous year. Of those, nearly eight in 10 deaths were due to opioids, according to the Centers for Disease Control and Prevention.

The biggest percentage increase in overdose deaths in 2021 occurred in Alaska, where deaths were up 75.3%, while overdose deaths in Wyoming did not increase at all in 2021 and deaths in Hawaii declined 1.8%.

Since January 2020, a number of states have seen their 12-month drug overdose deaths increase at alarming rates:

• Alaska, Mississippi, South Carolina and Vermont’s annual overdose deaths have roughly doubled in two years.

• California, Colorado, New Mexico, Louisiana, Minnesota, North Carolina and Oregon have seen nearly twice as many overdose deaths in January 2022 than in January 2020.

The billions coming to state and local governments

The national opioid settlement is the largest collective case against the pharmaceutical industry for its role in the crisis although there are hundreds of others that have been settled, gone to trial, or are still being litigated. The national settlement agreement directs the three largest pharmaceutical distributors (McKesson, Cardinal Health and AmerisourceBergen) and manufacturer Janssen Pharmaceuticals and its parent company Johnson & Johnson to pay governments $26 billion.

This summer, the first payments were sent to governments and as of September, $310 million has gone out to 27 states. Pennsylvania has received the most so far ($40 million), followed by North Carolina ($29 million) and Tennessee ($23 million). 

The money is released to states and localities on a rolling basis as they complete required steps to accept the funds. California, for example, has received $23 million, which represents just one-quarter of its year-one funds. Meanwhile Ohio, one of the states worst-hit by the opioid crisis, has not yet received any payments.

Three key takeaways: 

• Unlike what happened with the 1998 tobacco settlement funds, the opioid settlement money is almost entirely expected to go toward defraying the public cost of the crisis. Many have created a dedicated fund from which opioid-related payments are managed, or mandated certain percentages toward treatment and prevention.

• The dramatic rise in deaths these past two years has strained resources even further—states and localities must be strategic in deciding how their settlement money is spent. As Johns Hopkins University research associate Sara Whaley told me, $26 billion dollars sounds like a lot of money, but spread out over 46 states over 18 years it’s really not that much. “It’s not a magic wand that’s going to solve this crisis,” she said. “So take that landscape analysis of what's happening, and ask, ‘What are we doing, what's working, and where can we leverage that?’”

• Keep in mind that the American Rescue Plan Act allows governments to spend their state and local fiscal relief funding on responding to the opioid crisis. That’s money on hand now that places can use to start ramping up programs, or to do that “landscape analysis” if they haven’t already.

How counties might spend their opioid funds