GAO Study Points to Crop Insurance Savings

A review of the farm program shows a way to save up to $1 billion, by capping premium subsidies. But there's opposition to the idea.

Published on: Apr 13, 2012

A report from the Government Accountability Office released Thursday says that if a $40,000 limit were applied to farm crop insurance premium subsidies - as it is for other programs - the federal government would have saved $1 billion in crop insurance costs in 2011. GAO reviewed USDA data and selected that $40,000 as an example as a potential subside limit "because it is the limit for direct payments, which provide fixed annual payments to farmers based on a farm's crop production history," the report says.

The report notes that if a limit had been applied in 2011, it would have affected up to 3.9% of all participating farmers, who accounted for about one-third of all premium subsidies, and "were primarily associated with large farms."

CROP INSURANCE SAVINGS: In Washington the wrangling over crop insurance is a big part of the 2012 Farm Bill debate.
CROP INSURANCE SAVINGS: In Washington the wrangling over crop insurance is a big part of the 2012 Farm Bill debate.

As an example, GAO points to one farmer who insured crops in eight counties and received about $1.3 million in premium subsidies. The agency goes on to say "Had premium subsidies been reduced by 10 percentage points for all farmers participating in the program, as recent studies have proposed, the federal government would have saved about $1.2 billion in 2011. A decision to limit or reduce premium subsidies raises other considerations, such as the potential effect on the financial condition of large farms and on program participation."

GAO also says USDA could do more data mining to create more savings, noting that the work done since 2001 to prevent and detect fraud, waste and abuse could be used to realize more savings. According to a summary of the report, GAO provided a key example of potential savings:

"USDA’s Risk Management Agency (RMA), which is responsible for overseeing the integrity of the crop insurance program, has used data mining to identify farmers who received claim payments that are higher or more frequent than others in the same area. USDA informs these farmers that at least one of their fields will be inspected during the coming growing season. RMA officials told GAO that this action has substantially reduced total claims. The value of identifying these farmers may be reduced, however, by the fact that USDA’s Farm Service Agency (FSA)—which conducts field inspections for RMA—does not complete all such inspections, and neither FSA nor RMA has a process to ensure that the results of all inspections are accurately reported."

With the 2012 Farm Bill deliberations getting under way, crop insurance is going to come under more scrutiny. And this report will draw some significant attention. The report requested by Senator Tom Coburn, R-Okla., as part of his efforts to cut government spending.

Frank Lucas, R-Okla., and chair of the House Agriculture Committee responded noting that "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. I do not support the repeated attacks on an actuarial sound risk management program that serves as a good example of a public-private partnership where producers pay for coverage. This proposal would discourage participation in the crop insurance program and as a result endanger its integrity."