The idea of means testing measures (adjusted gross income [AGI] limits or premium support caps) or removing tools that insure against losses in revenue would have unintended consequences for all farmers and be detrimental to the long–term viability of crop insurance.
While it might only be a small number of farmers, initially, who are targeted by legislative efforts to make crop insurance less affordable and available, every single farmer in the program will be affected because all policies are interconnected to spread risk.
Capping crop insurance benefits for some translates to fewer policies sold and a higher concentration of risk. Likewise, the elimination of revenue-based tools, the product most utilized by producers, would undoubtedly lead to a decline in program participation – especially among lower risk farmers, crops and regions.
That would change the composition of the “risk pool,” which in turn would increase the premiums for every farmer with insurance coverage. When premiums start to increase for that reason, the exit from the program may accelerate, thus further exacerbating the problem.
Economic literature indicates that lower risk farmers, which are more likely to be affected by means testing, are more responsive to premium changes than higher risk farmers. The USDA has called a cap on premium support “ill advised,” noting regions with high-value crops, large-acreage farms, and/or a higher risk of crop loss would be especially hard hit. North Dakota, South Dakota, Texas, Minnesota, California, Arizona, Mississippi, Utah and Hawaii have all been singled out by USDA as shouldering disproportionate effects under a cap on premium support.
Reduced participation can only lead to an increase in calls for off-budget, ad hoc disaster programs that have been largely averted since the Federal crop insurance program was modernized in 2000. For example, there were no calls for disaster assistance in 2012, a major drought year.
Critics’ demands to release personal information of crop insurance participants is similarly flawed and serves no purpose other than an attempt to publicly shame and intimidate the agricultural community. The Federal government has numerous programs that make subsidy payments directly or indirectly to the public, such as tax expenditures. These programs do not require disclosure of an individual’s private information. There is no reason to single out crop insurance and require release of information not required of most other Federal programs.
While private information, such as recipient names, has been released for some traditional farm programs where the farmer received a check intended to support farm income, crop insurance is different. Crop insurance is designed to help farmers manage risk and to achieve high program participation to help protect the financial stability of the food production sector.
The farmer enters into a contract with a private-sector insurance provider and pays a premium for the policy. The farmer writes a check for crop insurance. The farmer only receives an indemnity after suffering a verifiable loss and shouldering a portion of the loss as a deductible. The farmer gets a discount on the actuarial-based risk premium rate established by the government and pays a discounted premium, depending on the level of coverage purchased.
In addition, the USDA’s Risk Management Agency provides wide-ranging data on the payments made and costs of crop insurance (see here, particularly the section titled Summary of Business Reports and Application). Additional analysis and data on the distribution of program benefits has been reported by the Government Accountability Office (GAO). The existing information provides all the data needed to evaluate the cost, efficiency and effectiveness of the crop insurance program.
* Updated August 2018