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GAO Says ‘Significant Savings’ Possible in Crop Insurance Costs

The government could pare as much as $464 million annually from the cost of running the taxpayer-subsidized crop insurance system if it sets more stringent terms with insurers, said a congressional watchdog agency. The recommendations hit different areas than the White House has targeted or that lawmakers are expected to pursue in writing the 2018 farm bill.

In May, President Trump proposed a 36% cut in crop insurance spending by making large operators pay more of the premium (the government pays an average 62¢ of each $1 in premium) and by ending the federal premium subsidy for policies with the so-called harvest price option. Farm group lobbyists have said they expect a new attempt to scale down the premium subsidy for the largest farmers. In work on the 2014 farm law, the Senate approved language by Illinois Senator Richard Durbin to reduce the premium subsidy to 47% for farmers with more than $750,000 in adjusted gross income annually.

In a report requested by California Senator Dianne Feinstein, the congressional Government Accountability Office recommended that USDA negotiate a lower rate of return for crop insurers, now set at 14.5%, and reduce the portion of premiums kept by the companies, now an average 77%.

The crop insurance industry said the proposals would be counterproductive and were poorly timed, considering the farm economy was in the fourth year of a slump in commodity prices. “Crop insurance is a cornerstone of America’s farm policy, farmers call it their top Farm Bill priority, and taxpayers are saving money because farmers and private-sector crop insurers help fund farm policy,” said the trade group National Crop Insurance Services.

“The agency could generate significant savings for the program,” if those changes were made, said the GAO. It estimated $364 million a year could be saved if the rate of return was set at 9.6%, and up to $100 million would be saved by allowing insurers to keep 72% of premium revenue. “To realize savings, such changes would require congressional action,” said the agency, because the 2014 farm law says any changes to the contract between USDA and insurers, called the Standard Reinsurance Agreement, must be budget-neutral.

At nearly the same time the GAO made its recommendations, the chairman of the Senate Agriculture Committee defended crop insurance as “the most valuable tool in the risk-management toolbox.” Chairman Pat Roberts of Kansas said, “Now is not the time for additional cuts to a program that producers rely on.” Farm groups are giving top priority to strong crop insurance and crop subsidy programs for the 2018 farm bill.

Trump suggested the cuts to crop insurance in May, as part of the administration’s budget proposal for fiscal 2018. The House and Senate Appropriations Committees ignored the ideas in drafting their USDA funding bills, leaving the question to their counterparts on the Agriculture Committees.

FERN’s Ag Insider. Produced by FERN
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