Farm bill: Cutting crop insurance costs could fund other priorities

The big picture

The federal Crop Insurance Program offers subsidized crop insurance to protect farmers against financial losses from declining crop prices and bad harvests due to natural causes. According to the United States Department of Agriculture (USDA), in 2022 the program supported about 1.2 million policies covering 493 million acres. From 2011 to 2021, the total value of the program was about $90 billion.

To implement the crop insurance program, USDA partners with private insurance companies that sell and service insurance policies to farmers. Federal government spending on crop insurance includes (1) subsidies to pay a portion of the farmer’s crop insurance premium (over 60 percent in recent years) and (2) compensation to insurance companies for selling and servicing crop insurance policies .

Total premium and subsidy dollars and number of insurance policies

What the GAO’s work shows

In our work on the crop insurance program over the past decade, we have reviewed premium subsidies for farmers and compensation for insurance companies for sales and service policies. In each area, we have an open question for Congress to consider to reduce spending, as follows.

Reduce subsidies for high-income participants

By law, the program provides the same level of premium subsidies to participants regardless of income. In contrast, some other USDA agricultural programs have statutory limits on the income that participants can earn and remain eligible for payments. For example, under the 2014 Farm Bill, some farm and conservation programs are not available to individuals or entities whose average annual gross income (AGI) exceeds $900,000. The lack of an AGI limit for the crop insurance program sometimes results in relatively large subsidies for high-income participants. For example, in March 2015, we found that a participant whose AGI exceeded the limit in effect for Farm and Conservation programs from 2009 to 2013 received an average of $1.2 million in annual premium subsidies during those years. Participants whose AGI was below the limit received an average of about $7,480 a year in premium subsidies during the same period.

We also found that reducing crop insurance subsidies for participants whose AGI exceeds the limit would save millions of dollars in program costs while affecting less than 1 percent of program participants. If a provision establishing income limits is enacted, USDA has procedures from other agricultural programs that it can use to determine the appropriate income limit criteria for farmers participating in the crop insurance program.

  1. Open question: Congress should consider reducing premium subsidies for the highest-income participants.

Adjust claims to insurance companies

Payments to farmers and compensation to insurance companies can vary greatly from year to year. In some years, such as 2016, when insured losses were low, USDA compensation to insurance companies greatly exceeded payments to farmers. However, in other years, such as 2012, which saw historic droughts, payments to farmers far exceeded compensation from insurance companies.

Payments to farmers and compensation to insurance companies, 2011 to 2021.

Payments to farmers and compensation to insurance companies, 2011 to 2021.

Note: Annual periods are from July 1 to June 30. Data for 2022 was not available.

In July 2017, we found that the compensation that insurance companies are expected to earn annually under their agreement with USDA to participate in the program is, on average, higher than would be expected under general market conditions. However, a provision in the 2014 farm bill requires that any changes the USDA negotiates with the companies for a new financial settlement be budget neutral — meaning the changes cannot result in savings for the government. To allow the USDA to adjust the expected level of compensation to insurance companies to reflect market conditions so that the federal government can realize savings, Congress would need to repeal this provision.

  1. Open question: Congress should consider (1) repealing the 2014 Farm Bill requirement that any change to the standard reinsurance agreement be budget neutral, and (2) directing USDA to adjust the target compensation of participating insurance companies to reflect market conditions during the next renegotiation of the agreement.

Challenges and opportunities

  • Congress must decide how to allocate resources among competing priorities in the farm bill.
  • Savings from these changes could be available for other farm bill priorities, such as funding various agricultural programs.

More from the GAO portfolio

Crop Insurance Premium Grants: GAO-15-215, GAO-14-700, GAO-12-256

For more information, contact Steve Morris at (202) 512-3841 or [email protected]

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