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 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | ||
Change in outlays | ||||||||||||||
Reduce premium subsidies | -1.2 | -3.4 | -3.4 | -3.4 | -3.5 | -3.5 | -3.5 | -3.6 | -3.6 | -3.6 | -14.9 | -32.7 | ||
Limit administrative expenses and the rate of return | -0.5 | -1.5 | -1.5 | -1.5 | -1.5 | -1.5 | -1.5 | -1.5 | -1.5 | -1.5 | -6.5 | -14.0 | ||
Total | -1.7 | -4.9 | -4.9 | -4.9 | -5.0 | -5.0 | -5.0 | -5.1 | -5.1 | -5.1 | -21.4 | -46.7 | ||
This option would take effect in June 2025.
The federal crop insurance program protects farmers from losses caused by natural disasters and low market prices. The Department of Agriculture sets premiums for federal crop insurance so that they equal the expected payments to farmers for crop losses. The federal government pays about 60 percent of total premiums, on average, and farmers pay about 40 percent.
Private insurance companies sell and service policies purchased through the program, and the federal government reimburses them for their administrative costs. The Standard Reinsurance Agreement limits those administrative expenses, which are expected to range from $2.4 billion to $2.5 billion per year over the 2025–2034 period, and establishes the terms and conditions under which the federal government provides subsidies and reinsurance on eligible crop insurance contracts, which are sold or reinsured by private insurance companies. The Congressional Budget Office estimates that between crop years 2013 and 2023, the rate of return fluctuated between 14.4 percent and 34.0 percent; it was 14.5 percent for crop year 2023.
This option would reduce the federal share of total crop insurance premiums to 40 percent, on average. It would also limit the reimbursement rate for crop insurance companies' administrative expenses and the targeted rate of return on investment for those firms. Reimbursement for administrative expenses would be limited to an average of 9.25 percent of estimated premiums, or roughly $1.5 billion each year from 2026 through 2034. (Currently, reimbursement rates depend on the type of policy, and the rates for all but the lowest level of insurance exceed 9.25 percent.) The rate of return on investment for crop insurance companies would be targeted at 12 percent.