The American Legacy Foundation estimates that the federal Medicaid system could save $9.7 billion within five years if all current smokers receiving Medicaid benefits quit smoking.

That may be unlikely, but the Saving Lives, Saving Money II report also found that Medicaid costs could be cut 5.6 percent by implementing effective smoking-prevention programs. "These data make clear that investing in proven tobacco cessation programs is sound fiscal and public health policy," said Janet Napolitano, governor of Arizona and an American Legacy Foundation board member. "We can -- and must -- take the necessary steps to save both lives and taxpayer dollars."

"We hope that this report will serve as a tool for states to use when setting both long and short-term goals for reducing Medicaid expenditures associated with tobacco use." said Cheryl G. Healton, president and CEO of the American Legacy Foundation.