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Agriculture: Crop Insurance

To achieve up to $1.4 billion per year in cost savings in the Federal Crop Insurance program, Congress could consider (1) limiting the subsidy for premiums that an individual farmer can receive each year, reducing the subsidy, or some combination of limiting and reducing these subsidies and (2) making changes to the program to reduce its delivery costs.

Action:

Congress may wish to consider either limiting the amount of premium subsidies that an individual farmer can receive each year—as it limits the amount of payments to individual farmers in many farm programs—or reducing premium subsidy rates, or both limiting premium subsidies and reducing premium subsidy rates.

Progress:

As of February 2018, Congress had not enacted legislation to reduce premium subsidy rates or limit premium subsidies available to individual farmers, as GAO suggested in March 2012. The Senate approved farm bill legislation in June 2013 that included a provision that would have reduced premium subsidies for some farmers. Farm bill legislation approved by the House in July 2013 did not include a similar provision, although the House subsequently approved a resolution by voice vote to agree with the Senate’s provision reducing premium subsidies for some high-income farmers. However, the Agricultural Act of 2014 did not include the Senate’s provision to reduce premium subsidies. In August 2014, GAO issued another report on premium subsidies, again suggesting that Congress consider reducing the level of premium subsidies for revenue insurance policies, the most common type of crop insurance policy. 

In a March 2015 report, GAO found reducing crop insurance subsidies for the highest income participants would have a minimal effect on the program and save millions of dollars. During the debate leading up to passage of the Agricultural Act of 2014 (the 2014 farm bill), various proposals were offered that would have reduced premium subsidies for crop insurance participants with incomes exceeding a certain limit. However, none were included in the final version of the 2014 farm bill. Some stakeholders expressed concern that high-income participants represent less risk than the other participants, and that they would drop out of the program if their premium subsidies were reduced, threatening the financial soundness and viability of the entire program. However, GAO determined that if Congress enacted statutory provisions to reduce premium subsidies for the highest income participants, it would most likely not affect the actuarial soundness or viability of the program because, among other things, the highest income participants do not have lower losses than the other participants. In addition, GAO found that the highest income participants accounted for only about 1 percent of the premiums annually, on average, from 2009 through 2013.

In May 2017, legislation was introduced in the House and Senate that included a provision that would limit the amount of premium subsidies made on behalf of a person each year. In February 2018, the President’s fiscal year 2019 budget included a proposal to reduce premium subsidy rates. Without congressional action to limit or reduce crop insurance premium subsidies, opportunities may be missed for savings of up to $1.4 billion annually.

Implementing Entity:

Congress

Action:

To reduce the cost of delivering the crop insurance program, Congress should consider repealing the 2014 farm bill requirement that any revision to the standard reinsurance agreement not reduce insurance companies’ expected underwriting gains, and directing the Risk Management Agency to, during the next renegotiation of the agreement, (1) adjust the participating insurance companies’ target rate of return to reflect market conditions and (2) assess the portion of premiums that participating insurance companies retain and, if warranted, adjust it.

Progress:

As of February 2018, Congress had not enacted legislation to  repeal the 2014 farm bill requirement that any revision to the standard reinsurance agreement not reduce insurance companies’ expected underwriting gains, and direct the Risk Management Agency to, during the next renegotiation of the agreement, (1) adjust the participating insurance companies’ target rate of return to reflect market conditions and (2) assess the portion of premiums that participating insurance companies retain and, if warranted, adjust it, as GAO suggested in July 2017. In February 2018, the President’s fiscal year 2019 budget included a proposal to reduce companies’ expected underwriting gains. Without congressional action to reduce companies’ expected underwriting gains, opportunities may be missed for savings of hundreds of millions of dollars annually.

 
  • portrait of
    • Steve D. Morris
    • Director, Natural Resources and Environment
    • morriss@gao.gov
    • (202) 512-3841