Filed Under:Risk, Corporate Risk

GAO Says Government Should Cap Crop-Insurance-Premium Subsidies

Updated 4/13, 12:28 p.m.

NU Online News Service, April 12, 2:44 p.m. EST

The Government Accountability Office said today in a new report that the government should consider capping crop-insurance-premium subsidies for individual farmers or reducing subsidies for all farmers, or both.

In an example, the GAO report says that if a limit of $40,000 had been applied to individual farmers’ crop-insurance-premium subsidies, as it is for other farm programs, the federal government would have saved up to $1 billion in crop-insurance-program costs in 2011.

The report also says that the U.S. Department of Agriculture should accelerate the use of data-mining tools to prevent and detect fraud, waste, and abuse by either farmers or insurance agents and adjusters.

“GAO believes that when farm income is at a record high and the nation faces severe fiscal problems, limiting premium subsidies is an appropriate area for consideration,” the report concludes.

The report was requested by Sen. Tom Coburn, R-Okla. In a statement, he says, “This report shows that Congress could cap premium subsidies at $40,000 and save taxpayers $1 billion.”

He says high premium subsidies have hurt small and beginning farmers because the subsidies themselves have distorted the market.  For instance, he says, high subsidies have artificially increased the value of land and have created other barriers to entry and expansion.

“I applaud GAO for providing Congress with yet another way to save taxpayer dollars and reform government,” Coburn says.

Ironically, the report was issued as information surfaced that insurance agents are lobbying Congress to end caps on commissions imposed in the contract agreed to in 2011 that cut existing subsidies in the program by approximately 6 percent over 10 years.

Officials of the National Association of Professional Insurance Agents are trying to get the 2011 caps removed in the 2012 farm bill now being crafted by Congress.

Regarding the GAO report, Mike Becker, assistant vice president of PIA National, says, "We caution against additional cuts to federal-crop insurance. The program sustained multi-billion dollar cuts during the 2008 Farm Bill and additional multi-billion-dollar cuts during the most recent Standard Reinsurance Agreement. A continued array of cuts would lead to a derailed program causing catastrophic failure to America's agricultural safety net."

Becker adds, "When it comes to budget cuts, crop insurance has already done much more than its fair share."

Others in the industry sought to defend the current system. In a statement, officials of National Crop Insurance Services, Overland Park, Kansas, which represents crop underwriters, says, “The plan recently outlined by the GAO would adversely affect many of America’s full-time farmers.”

In addition, the statement says, “We fear it could prove particularly punishing to beginning and young farmers and other operators who are less likely to secure essential loans without adequate insurance coverage.”

Moreover, the NCIS officials say, “Having already shouldered more than $12 billion in funding reductions since 2008, the crop-insurance infrastructure must not be weakened further.

“As Congress writes the next farm bill, lawmakers should do no harm to crop insurance and keep rural America strong.”

Updated with PIA National comments.

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