Mandatory Spending

Function 350 - Agriculture

Reduce Premium Subsidies for Crop Insurance Policies

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.

Lawmakers could lower the premium subsidies that account for four-fifths of the federal cost of the crop insurance program. Doing so would reduce the financial support provided to agricultural producers; as a result, producers' participation in the program would probably decrease, and some participants would probably reduce the extent of their coverage.

CBO estimated the budgetary effects of three options for reducing premium subsidies:

If lawmakers decreased premium subsidies by an average of 15 percentage points, from 62 percent of total premiums to 47 percent, federal spending from 2018 through 2027 would fall by $8.1 billion, producers would insure 1.5 million fewer acres (out of a total of 300 million acres) and would lower their levels of coverage for 5 million acres.
If lawmakers reduced premium subsidies by an average of 15 percentage points for producers whose total adjusted gross income (taxable income, minus certain deductions, from both farm and nonfarm sources) is greater than $500,000, federal spending from 2018 through 2027 would decrease by $0.4 billion. This option would probably affect very few producers.
If lawmakers limited the premium subsidy for each producer to $50,000 annually, federal spending from 2018 through 2027 would decrease by $3.4 billion, enrollment in the program would decline by 0.5 million acres (of a total of 300 million acres), and producers would to choose lower levels of coverage for 2 million acres.