Download: Crop Insurance Administrative Policy Changes
While Congress struggles to tackle our $16 trillion debt, the Congressional Budget Office predicts the federal crop insurance program will cost taxpayers at least $90 billion over the next decade. Instead of reforming the program, through recent Farm Bill proposals Congress plans to plow more money into this and other agricultural business income guarantee programs. But without waiting on Congress, the U.S. Department of Agriculture (USDA) could provide leadership and save taxpayers billions by implementing simple administrative changes while retaining farmers’ access to subsidized crop insurance. As an example, in 2010, $6 billion was saved by slightly reining in out-of-control spending on subsidies for crop insurance companies. Simple administrative policy changes could help rein in the spiraling cost of federal crop insurance while limiting the program’s market distortions.
Both Congress and USDA exercise authority over various components of the highly subsidized federal crop insurance program. Congress primarily sets premium subsidy rates and authorizes program outlays. USDA’s Risk Management Agency (RMA) and a government-owned corporation overseen by RMA - the Federal Crop Insurance Corporation (FCIC) - administer program regulations, approve new policy applications, authorize changes to existing policies, and establish premium rates. Since 1998, RMA has also entered into Standard Reinsurance Agreements (SRAs) with private crop insurance companies that sell federal crop insurance to establish subsidy rates for administering insurance policies. Finally, USDA is charged with reducing fraud, waste, and abuse in the program. Over time, USDA’s administration of the program has affected crop insurance enrollment rates and planting decisions.
Administrative Policy Changes Affecting Enrollment
As crop insurance participation rates increased over time, so too have total taxpayer costs, market distortions, and unintended consequences. Participation rates are affected by two primary factors – the level of subsidies available and administrative policy changes that have been implemented over time to make the program more attractive to producers. As the average individual premium subsidy rate doubled from approximately 30 percent in 1980 to 62 percent today, producers responded by enrolling three times as many acres in the federal program. Today, 282 million acres are insured, representing about 80 percent of eligible farm acreage. But higher subsidies are not solely responsible for this jump since generally, new policies are not approved without USDA’s rubber stamp. The types of policy changes highlighted above will be addressed in turn.
Read the full fact sheet here: Crop Insurance Administrative Policy Changes
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