Cap Crop Insurance Subsidies Suggested by GAO

April 13, 2012 01:23 AM

The Agriculture Committees are getting suggestions from all over regarding budget cuts for farm policy spending, and the General Accountability Office (GAO) has weighed in will likely be an increasingly frequent suggestion in the years ahead: cut crop insurance subsidies by capping the payouts. The GAO study was conducted in response to a request by Sen. Tom Coburn (R-Okla.). Link to GAO report

Taxpayers could save up to $1 billion a year on crop insurance if Congress capped the subsidies for the premiums paid by farmers and USDA took more aggressive steps to monitor for fraud and abuse in the program, GAO said in a report released Thursday.

The GAO estimated the savings from capping crop insurance subsidies to individual farmers at $40,000, the limit set for other farm programs. Without restrictions, the GAO said the federal government will spend an average of $8.9 billion per fiscal year from 2013 through 2022.

GAO cited recent record farm income as one of the reasons for its suggestion. "At a time when the agriculture sector is enjoying record farm income and higher farmland values, and the nation is facing severe deficit and long-term fiscal challenges, we believe that crop insurance premium subsidies — the single largest component of farm program costs — is a potential area for federal cost savings," the GAO report noted. These subsidies increased fourfold, from $1.7 billion in 2002 to $7.4 billion in 2011.


But Michael Scuse, acting USDA undersecretary for Farm and Foreign Agricultural Services, cautioned against congressional action to further limit or reduce premium payouts without additional study. "In recommending a $40,000 limit in premium subsidy per individual, the report does not fully account for all potentially negative impacts and costs resulting from such a change," Scuse said, in a response attached to the GAO report. He said the report fails to show "whether some commodities or regions of the country may be disproportionately impacted by a limit on subsidy," he noted that some higher-risk and higher-value crops, such as potatoes, cotton, sunflowers, canola and specialty crops, would be disproportionately affected. A steep reduction in subsidies, he said could have ripple effects throughout farm country. 

House Agriculture Committee Chairman Frank Lucas, in a statement, warned that subsidy caps would discourage participation and endanger the crop insurance program’s integrity. "Over and over again we have heard from our farmers about the importance of crop insurance because it forms the backbone of the safety net," Lucas said.

U.S. taxpayers pay around 62 percent of policy premiums. It also provides underwriting subsidies to the network of private insurance companies that write the policies and to private insurance agents who sell and service the policies.

Regarding fraud investigations, GAO said Farm Service Agency (FSA) offices do not always complete reviews of anomalous claims that might suggest fraud. The GAO recommended that more of the inspections be completed and the results sent to the insurance companies. In turn, during their annual reviews, the insurance companies should focus on agents and adjusters with losses beyond the norm.

An often-repeated suggestion was also made – that USDA's Risk Management Agency, which oversees the insurance program, and the insurance companies need to share more information that could aid the federal agency’s data mining efforts. Those efforts, GAO calculated, could lead to more robust detection of waste, fraud and abuse.

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