Impact of Scaling Back
Crop Insurance Premium Subsidies
View and Download the report here: Impact of Scaling Back Crop Insurance Premium Subsidies
In a drive to get farmers to insure more of their crops, Congress voted in 2000 to make major changes in how the federal crop insurance program works. The Agricultural Risk Protection Act (ARPA) passed that year had two important consequences:
- It dramatically increased the share of premiums paid by taxpayers.
- It extended the premium subsidy system that had previously applied only to insurance against lost crop yield to policies that protected farmers against lost revenue.
Together, these two changes more than doubled the cost of the program and gave farm operators powerful incentives to buy the most expensive insurance options.
Congress acted in response to farmers’ complaints in the mid-1990s that buying insurance that covered more than the then-standard 65 percent of their crop’s value was prohibitively expensive. They were right, but the reason for the high costs wasn’t that the existing subsidies were inadequate. The real reason was that the federal agency that set the premiums, USDA’s Risk Management Agency, was using a flawed process to price the policies that resulted in overcharging most farmers.