Crop insurance reform could save billions of dollars — GAO

Congress could achieve significant savings in the crop insurance program by reducing guaranteed payments to insurers and requiring wealthy operators to pay more for taxpayer-subsidized coverage, said the Government Accountability Office on Monday. The reforms could save billions of dollars on a program estimated to cost $101 billion over the next decade.

Crop insurance is the largest strand of the farm safety net, sending more money to producers than traditional crop subsidies. The government pays an average of 62 cents for each $1 of coverage. For crop year 2022, the government paid $11.6 billion in premium subsidies and farmers got $19.3 billion in indemnities.

“We’ve found ways to reduce federal costs — for example, by reducing subsidies to the highest-income policyholders,” said the GAO, a congressional agency, in a report requested by two Democrats on the Senate Agriculture Committee. Along with higher premiums for wealthy operations, the GAO recommended repealing a 2014 provision that bars the government from saving money during its periodic negotiations with the industry over terms of the program. One-third of crop insurance spending, around $3.7 billion in 2022, goes to insurers to administer the program.

“As we have previously reported, and our analysis of more recent data reaffirms, Congress has opportunities to achieve significant savings to the federal government by reducing the cost of the program,” said the GAO. Higher premiums for high-income farmers could save millions of dollars annually, it said. “And if Congress repealed the ‘budget neutrality’ provision, as we suggested in June 2017, USDA would be able to take steps to reduce the cost of the program and save taxpayers billions of dollars over the next decade.”

Groups such as the Environmental Working Group, which favors more attention to land stewardship, and Taxpayers for Common Sense, a fiscal hawk, called for Congress to rein in the subsidies going to wealthy farmers and private insurance companies.

“Crop insurance companies are making billions of dollars each year, while some small farms cannot even get access to crop insurance policies,” said Anne Schechinger, EWG agricultural economist. “Congress needs to address the record profits being made by crop insurance companies, and instead use some of that money to improve insurance access for small, diversified, but struggling farms.”

New Jersey Sen. Cory Booker, one of the lawmakers who requested the report, is a sponsor of a bill to revamp crop insurance to encourage agents to write policies for small farmers and specialty growers.

One percent of policyholders, or roughly 5,500 operations, accounted for 22 percent of the premium subsidies from the USDA, an average premium subsidy of $464,900, said the GAO. The 19 policyholders with the largest subsidies each got more than $3 million of the benefits; the largest was a plant nursery in the South with $7.7 million in premium assistance.

A smaller group of 1,341 policyholders had adjusted gross incomes above $900,000 a year, the cutoff point for eligibility for crop supports. There is no income limit for access to subsidized crop insurance. “On average, high-income policyholders benefited from more in premium subsidies than other policyholders — about $43,000 in 2022, compared with about $26,000 for other policyholders,” said the GAO.

If the premium subsidy was reduced to 47 percent for high-income policyholders, the government would have saved $15 million in 2022, said the report. Such a reduction “likely would not affect the actuarial soundness of the program.”

To read the report, click here.