To amend title XIX of the Social Security Act to permit the Secretary of Health and Human Services to waive recoupment of Federal government Medicaid claims to tobacco-related State settlements if the State uses the funds only for programs to reduce smoking and for public health purposes.

Amends title XIX (Medicaid) of the Social Security Act to prohibit as the treatment of an overpayment for Medicaid-related purposes any amount recovered or paid to a State as part of comprehensive settlement or judgment reached in litigation initiated or pursued by a State against one or more manufacturers of tobacco products (recovered amounts), if (and to the extent that) the Secretary of Health and Human Services finds that specified conditions will be met, including that the State has filed a plan with the Secretary that outlines specified expenditure guidelines requiring, among other things, that at least 40 percent of recovered amounts for a fiscal year be spent on certain smoking reduction programs such as smoking cessation programs and other anti-smoking programs and activities as well as school-based education programs. Requires recovered amounts not spent for such purposes to be spent only on various specified essential public health services, including described public health monitoring, enforcing, and evaluating activities.

Provides that: (1) if the Secretary determines that recovered amounts are not being spent accordingly the Secretary shall take appropriate action to offset such amounts from the amounts otherwise paid to the State under Medicaid; and (2) amounts equivalent to the reductions in payments under Medicaid that are attributable to such recoveries which are not recouped or offset because of the first paragraph of this Act shall be deposited by the Secretary in a separate fund in the Treasury for use in carrying out Federal grant- in-aid programs to reduce tobacco use among minors.

Makes this Act effective with regard to amounts recovered or paid to a State before, on, or after the enactment of this Act.