President Obama Proposes Cuts in Crop Insurance Subsidy, Insurer Costs

President Barack Obama proposed reducing the most expensive part of the farm safety net by cutting the subsidy to farmers for buying crop insurance.

At present, the government pays 62 cents of every $1 of insurance premium. Farmers collected a record $16.2 billion in payments on 2012 crops, chiefly due to drought. They paid $4 billion for the policies and the government added $7 billion.

Obama on Wednesday proposed a reduction of 3 percentage points in the federal subsidy for policies with higher levels of coverage – the most popular policies – and a reduction of 2 points in the subsidy to buy so-called harvest price policies that pay more if commodity prices go up during the year.

Farm income is forecast at record levels, said the White House, so it is time to adjust farm supports. As part of that, it proposed elimination of the $5 billion a year “direct payment” subsidy that is paid regardless of need.

Besides lowering the premium subsidy, Obama said the government should pay less of the administrative cost for the privately run system and insurers should be held to a “reasonable rate of return” on crop insurance, forecast to cost $9 billion a year.

Roughly $1 billion a year would be saved under the administration’s proposal.

Leaders of the House and Senate Agriculture committees oppose major changes in the federally subsidized crop insurance system. Senate Agriculture chairwoman Debbie Stabenow said on Tuesday, “We need to make sure it is affordable to farmers.”

Last year, the Senate voted to reduce the premium subsidy for farmers with more than $750,000 a year in adjusted gross income and to require farmers to practice soil conservation to qualify for subsidized insurance. The House farm bill omitted those reforms.

Topics Carriers Agribusiness