If Crop Insurance Subsidy Disappears, Will Premiums Rise For All?

Published on: 16:57PM Sep 02, 2015

Congress continues to discuss reducing or eliminating the subsidies for crop insurance premiums for those producers whose adjusted gross income exceeds a certain level ($750,000 is a current number discussed).  If these subsidies are eliminated for these farmers, it is likely that those farmers may stop participating in the RMA managed crop insurance system.  Instead, they may take advantage of private insurance along with the use of captive insurance companies.  A captive insurance company provides a pooling of insurance risk for these farmers along with some potential tax advantages.

If this happens at a large enough level, it is likely that the remaining pool of farmers utilizing RMA managed crop insurance may be of a "higher" risk and thus the premiums for these farmers may have to rise accordingly to offset the extra risk associated with these farmers.   Even with a subsidy from the US government, the cost of crop insurance for all farmers will rise since the farmers with lower risk profiles and higher income will elect to not participate.

Therefore, Congress may need to review the unattended consequences of removing this premium subsidy for higher income farmers since it is likely it will raise all premiums for the remaining "lower-income" farmers which may not be want Congress wants to do.