Yesterday, we had posted on proposed reductions in the crop insurance premium subsidy that the farmer normally pays based upon our review of the actual budget released by the White House. Today, I received more information on the actual proposed changes.
First, President Obama calls for reducing the premium subsidy by 10% for revenue coverage that includes additional coverage for the price at harvest. Many of payments made in the last few years have been as result of this coverage. This is not a 10% reduction, but a 10% point reduction. So if the old premium subsidy was 55%, the new one would be 45%. The government expects to save $14.6 billion over 10 years due to this change.
Second, the President proposes adjusting payment rates for prevented planting to reflect rates suggested in a recent USDA study, eliminating prevented planting optional 5 and 10 coverage, and requiring a 60 percent transitional yield be applied to a producer's Actual Production History (APH) who receives a prevented planting payment. This change is expected to save $1.4 billion over 10 years.
We estimated when fully phased-in, that these changes could result in a 27% reduction in overall crop insurance premium subsidies. As you can see, your reduction would be determined based on if you currently take advantage of either of these programs. If you do not, you may not see much of a change.