Mandatory Spending
Function 350 - Agriculture
Reduce Subsidies in the Crop Insurance Program
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of dollars | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2015-2019 | 2015-2024 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Outlays | |||||||||||||
| Reduce premium subsidies | 0 | -0.1 | -1.5 | -1.8 | -1.8 | -1.9 | -1.9 | -2.0 | -2.0 | -2.0 | -5.3 | -15.1 | |
| Limit administrative expenses and the rate of return | 0 | -0.1 | -0.5 | -0.6 | -0.6 | -0.6 | -0.6 | -0.6 | -0.6 | -0.6 | -1.7 | -4.5 | |
| Both of the above policies | 0 | -0.2 | -2.0 | -2.3 | -2.4 | -2.5 | -2.5 | -2.6 | -2.6 | -2.6 | -6.9 | -19.7 | |
Note: This option would take effect in June 2015. Estimates are relative to CBO’s August 2014 baseline projections.
The Federal Crop Insurance Program protects farmers from losses caused by drought, floods, pest infestation, other natural disasters, and low market prices. Premium rates for federal crop insurance are set by the Department of Agriculture so that the premiums equal the expected payments to farmers for crop losses. Of total premiums, the federal government pays about 60 percent, on average, and farmers pay about 40 percent. Insurance policies purchased through the program are sold and serviced by private insurance companies, which are reimbursed by the federal government for their administrative costs. The federal government reinsures those private insurance companies by agreeing to cover some of the losses when total payouts exceed total premiums.
This option would reduce the federal government’s subsidy to 40 percent of the crop insurance premiums, on average. In addition, it would limit the federal reimbursement to crop insurance companies for administrative expenses to 9.25 percent of estimated premiums (or to an average of $915 million each year for fiscal years 2016 through 2024) and limit the rate of return on investment for those companies to 12 percent each year.