Farm Bill

Common Sense Savings in Crop Insurance Program

Feb 12, 2018 | 6 min read | Print Article

The President’s budget request proposes changes to the highly subsidized crop insurance program to rein in wasteful spending while also maintaining a strong safety net for farmers. Projected to cost nearly $8 billion annually, but spiking to as much as $14 billion in 2012, federally subsidized crop insurance is consistently the most expensive federal income entitlement available for agricultural businesses. It’s also the only federal agricultural income subsidy program with no payment limits or means-testing.

The budget request proposes nearly $26.1 billion in savings from the federally subsidized crop insurance program, slightly less than last year’s $28.6 billion, through policies that TCS has long advocated for. The budget generates $724 million in savings by limiting eligibility to receive crop insurance subsidies to agricultural businesses with less than $500,000 AGI (adjusted gross income).

This change would actually impact few businesses. In 2013, a year of record income in agriculture, less than 2.1 percent of all agricultural businesses had an AGI in excess of half a million dollars. In addition, the proposal calls for reducing the subsidies that taxpayers pay private insurance companies to manage the program ($3 billion). The bulk of the crop insurance savings comes from decreasing the taxpayer-paid portion of crop insurance premiums.

On average, taxpayers subsidizes 62 percent of the crop insurance premium while agricultural producers only pay 38 percent of the cost. The president’s budget would get this closer to an actual partnership by decreasing the average premium subsidy down to 48 percent. Specifically, the budget calls for reducing the premium subsidy for Harvest Price Option (HPO) coverage by 15 percent and reducing subsidy rates for all other coverage by 10 percentage points.

Reducing the federal taxpayer burden in the crop insurance program has been a focus of both President Trump and President Obama before him. These common sense reforms to federally subsidized crop insurance are a great step towards creating a safety net that taxpayers can afford. A number of bipartisan reform proposals have already been offered in Congress. These include HR 2332, Assisting Family Farmers through Insurance Reform Measures Act (AFFIRM) sponsored by Reps. Ron Kind (D-WI) and Sensenbrenner (R-WI), and its companion S. 1025 sponsored by Sens. Flake (R-AZ) and Shaheen (D-NH).

Crop Insurance Savings Proposed in President’s Budget Requests	Savings in FY2013 Request	Savings in FY2014 Request	Savings in FY2015 Request	Result of 2014 Farm Bill	Savings in FY2016 Request	Savings in FY2017 Request	Savings in FY2018 Request	Savings in FY2019 Request
Reduce taxpayer subsidy for private crop insurance company rate of return from 14% to industry average of 12%	$1.2 billion	$1.2 billion	$1.2 billion	Rejected	Abandoned	Included in 2015 Bipartisan Budget Agreement $3.038 billion. Reversed in the Transportation bill (FAST Act). -$3.038 billion	Not Included	$2.988 billion
Reduce crop insurance company subsidies for managing individual policies from $1.3 billion per year to $900 million	$2.9 billion	$2.8 billion	$2.9 billion	Rejected	Abandoned	Not included	Not Included	Not Included
Rescind the authority for funding a crop insurance pilot program for wild salmon	Not Proposed	Not Proposed	$10 million	Rejected	Abandoned	Not included	Not Included	Not Included
Decrease the subsidy on basic catastrophic crop insurance policies	$0.255 billion	$0.292 billion	Not Proposed	Rejected	Abandoned	Not included	Not Included	Not Included
Decrease by 3 percentage points the subsidy for buying highly subsidized crop insurance policies (was a 2% cut in FY2013 request)	$3.3 billion	$4.2 billion	$3.8 billion	Rejected	Abandoned	Not included	No across the board cut	Combined with HPO subsidy reduction
Decrease by 10 percentage points the subsidy for buying crop insurance for producers who elect greater price protection, called the Harvest Price Option (was 2% in FY14 and 4% in FY15. FY18 proposed full elimination of subsidy for HPO)*	Not Proposed	$3.2 billion	$6.3 billion	Rejected	$14.6 billion	$16.9 billion	$11.9 billion	Combined with across the board reduction
HPO subsidy reduction of 15% and across-the-board reduction (other than CAT) of 10%	Not Proposed	Not Proposed	Not Proposed	Not Proposed	Not Proposed	Not Proposed	Not Proposed	$22.371 billion
Tighten the rules regarding payments for prevented plantings	Not Proposed	Not Proposed	Not Proposed	Rejected	$1.4 billion	$1.1 billion	Not Included	Partially done administratively $TBD
Limit crop insurance premium subsidy to $40,000	Not Proposed	Not Proposed	Not Proposed	n/a	Not Proposed	Not Proposed	$16.2 billion	Not Included
Limit crop insurance eligibility to $500,000 AGI	Not Proposed	Not Proposed	Not Proposed	15% premium subsidy reduction for AGI over $750,000 rejected in conference committee	Not Proposed	Not Proposed	$0.420 billion	$0.724 billion
Total Proposed 10-Year Savings	$7.5 billion	$11.8 billion	$14.2 billion	$0 (Increased spending by $5.722 billion)	$15.999 billion	$18.013 billion	$28.56 billion	$26.083 billion