Crop insurance premium subsidies are not payments to  farmers, but they can be considered a financial benefit. As shown in table 1, premium subsidies  reached $7.4 billion in 2011. A Limit on Crop Insurance Subsidies Would Lower Program Costs

According to our analysis of RMA data for 2011, the federal government  would have achieved savings in the crop insurance program by limiting  premium subsidies for crop insurance participants, as payments are  similarly limited for other farm programs. A decision to limit or reduce  premium subsidies to achieve cost savings raises other considerations,  such as the potential effect of such a limit on the financial condition of  large farms and on program participation. Alternatively, recent studies—noting the rising cost of premium  subsidies—have proposed reducing premium subsidy rates for all  participating farmers to achieve savings.subsidy rate for 2010 and 2011 had been reduced by 10 percentage  points—from 62 percent to 52 percent—for all participating farmers, the  annual cost savings for those years would have been about $759 million  and $1.2 billion, respectively. For example, if a limit of  $40,000 per farmer for both premium subsidies and administrative  expense subsidies had been applied to the crop insurance program for  2011, up to 52,693 farmers (6 percent of all participating farmers) would  have seen their subsidies reduced, at an annual savings of up to nearly  $1.8 billion to the federal government. In addition, we  identified considerations associated with either limiting premium subsidies  to large farmers or reducing premium subsidy rates for all farmers. Private insurance. RMA Has Not Maximized the Use of Data Mining Tools, Largely Because of Competing Priorities

Since 2001, RMA has used data mining tools to prevent and detect fraud,  waste, and abuse in the crop insurance program by either farmers or  insurance agents and adjusters, but it has not maximized their use to  realize potential additional savings, largely because of competing  compliance review priorities. The value of identifying farmers with anomalous claim payments may be  undermined, however, by the fact that FSA does not complete all field  inspections, and neither FSA nor RMA has a process to ensure that the  results of all completed inspections are accurately reported, in  accordance with USDA’s written procedures. If FSA does not  complete all field inspections requested by RMA, not all farmers who  have had anomalous claim payments will be subject to a review,  increasing the likelihood that fraud, waste, or abuse may occur without  detection. RMA generally does not provide insurance companies with field  inspection results for most FSA inspections—that is, those for fields in  good condition—but provides them with the field inspection results for a  small portion of the farmers—those with crops in worse condition than  their peers. Past cases have revealed that some farmers may harvest a  high-yielding crop, hide the sale of that crop, and report a loss to receive  an insurance payment. As a  result, insurance companies may not have information that could help  them identify claims that should be denied. Recommendations for Executive Action

To help prevent and detect fraud, waste, and abuse in the federal crop  insurance program, we recommend that the Secretary of Agriculture  direct the Administrator of RMA and the Administrator of FSA, as  appropriate, to take the following four actions:
For the list of farmers with anomalous claim payments, encourage the  completion of FSA county office inspections during the growing  season by requiring FSA state offices to monitor the status of their  completion. Maximize the use of the list of farmers with anomalous claim  payments by, for example, ensuring that insurance companies receive  the results of all FSA field inspections in a timely manner and directing  insurance companies to review the results of all completed FSA field  inspections before paying claims that occur after inspections showed  the crop was in good condition. Furthermore,  the Administration’s budget for fiscal year 2013 and the Congressional  Budget Office each proposed a reduction in premium subsidies. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine (1) the effect on program costs of  applying limits on farmers’ federal crop insurance subsidies, as payment  limits are applied to other farm programs, and (2) the extent to which the  U.S. Department of Agriculture (USDA) has used data mining tools to  prevent and detect fraud, waste, and abuse in the crop insurance  program. We  selected $40,000 as an example of a potential subsidy limit because it is  the payment limit for direct payments. Many participants in the crop  insurance program also participate in other farm programs that are  administered by USDA’s Farm Service Agency (FSA). Appendix V: Comments from the U.S. Department of Agriculture

	GAO Comments

1.
Why GAO Did This Study

The U.S. Department of Agriculture (USDA) administers the federal crop insurance program with private insurance companies. In 2011, the program provided about $113 billion in insurance coverage for over 1 million policies. Program costs include subsidies to pay for part of farmers premiums. According to the Congressional Budget Office, for fiscal years 2013 through 2022, the program costsprimarily premium subsidieswill average $8.9 billion annually.
GAO determined the (1) effect on program costs of applying limits on farmers premium subsidies, as payment limits are set for other farm programs, and (2) extent to which USDA uses key data mining tools to prevent and detect fraud, waste, and abuse in the program. GAO analyzed USDA data, reviewed economic studies, and interviewed USDA officials.

What GAO Found

If a limit of $40,000 had been applied to individual farmers crop insurance premium subsidies, as it is for other farm programs, the federal government would have saved up to $1 billion in crop insurance program costs in 2011, according to GAOs analysis of U.S. Department of Agriculture (USDA) data. GAO selected $40,000 as an example of a potential subsidy limit because it is the limit for direct payments, which provide fixed annual payments to farmers based on a farms crop production history. Had such a limit been applied in 2011, it would have affected up to 3.9 percent of all participating farmers, who accounted for about one-third of all premium subsidies and were primarily associated with large farms. For example, one of these farmers insured crops in eight counties and received about $1.3 million in premium subsidies. 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.
Since 2001, USDA has used data mining tools to prevent and detect fraud, waste, and abuse by either farmers or insurance agents and adjusters but has not maximized the use of these tools to realize potential additional savings. This is largely because of competing compliance review priorities, according to GAOs analysis. USDAs 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 USDAs Farm Service Agency (FSA)which conducts field inspections for RMAdoes not complete all such inspections, and neither FSA nor RMA has a process to ensure that the results of all inspections are accurately reported. For example, RMA did not obtain field inspection results for about 20 percent and 28 percent of these farmers, respectively, in 2009 and 2010. As a result, not all of the farmers RMA identified were subject to a review, increasing the likelihood that fraud, waste, or abuse occurred without detection. Field inspections were not completed, in part because FSA state offices are not required to monitor the completion of such inspections. In addition, RMA generally does not provide insurance companies with FSA inspection results when crops are found to be in good condition, although USDAs Inspector General has reported this information may be important for followup. Past cases have revealed that some farmers may harvest a high-yielding crop, hide its sale, and report a loss to receive an insurance payment. Furthermore, RMA has not directed insurance companies to review the results of all completed FSA field inspections before paying claims that are filed after inspections show a crop is in good condition. As a result, insurance companies may not have information that could help them identify claims that should be denied.

What GAO Recommends

To reduce crop insurance program costs, Congress should consider limiting premium subsidies for individual farmers, reducing subsidies for all farmers, or both. GAO also recommends, in part, that USDA encourage the completion of field inspections. In commenting on a report draft, USDA did not agree that Congress should consider limiting premium subsidies, but GAO believes that when farm income is at a record high and the nation faces severe fiscal problems, limiting premium subsidies is an appropriate area for consideration. USDA agreed with encouraging the completion of field inspections.