Premium subsidy rates vary by the  level of insurance coverage, the type of units covered by the policy, and  the geographic diversity of crops insured. About 1 Percent Would Have Been Affected if Subsidies Were Reduced for the Highest Income Crop Insurance Participants

About 1 percent of crop insurance participants that also applied for farm  and conservation programs with income limits would have been affected if  subsidies had been reduced for the highest income participants from  2009 through 2013, based on our analysis of RMA and FSA data. Highest Income Crop Insurance Participants Insured More Farmland and Had More Premium Subsidies Provided on Their Behalf Than Other Participants

The highest income participants insured more farmland and had more  premium subsidies provided on their behalf than other participants from  2009 through 2013. Reducing Crop Insurance Subsidies for the Highest Income Participants Would Have Minimal Effect on the Program and Save Millions of Dollars

If crop insurance subsidies had been reduced for participants with the  highest incomes from 2009 through 2013, the crop insurance program,  including its actuarial soundness, would not likely be affected, according  to our analysis of FSA and RMA data. The Crop Insurance Program Would Likely Remain Actuarially Sound if Subsidies Were Reduced for the Highest Income Participants

RMA is directed by law to adopt rates and coverages that will improve the  actuarial soundness of the crop insurance program. In addition, one of RMA’s goals is to continue to expand  We determined that if Congress enacted statutory provisions to reduce  premium subsidies for the highest income participants, it would most  likely not affect the actuarial soundness or viability of the program  because, based on our analysis of FSA and RMA data, the highest  income participants (1) do not represent a lower risk to the program than  participants in the remaining pool, (2) would be unlikely to leave the  program, and (3) represent only about 1 percent of all participants and  premiums in the program. In addition, since their premiums generally correspond to their  likelihood of collecting claims payments, their decisions to stay in or leave  the program would not affect its actuarial soundness at the national level. Reducing Subsidies for the Highest Income Participants Would Have Saved Millions from 2009 through 2013

If crop insurance premium subsidies had been reduced by 15 percentage  points for the highest income participants that applied to farm and  conservation programs with income limits each year from 2009 through  2013, the federal government would have saved more than $70 million  over the 5-year period, according to our analysis of FSA and RMA data. USDA Could Use Existing Procedures to Reduce Crop Insurance Subsidies for the Highest Income Participants

USDA could use existing procedures without adding requirements for a  majority of crop insurance participants if a statutory provision were  enacted directing USDA to reduce premium subsidies for the highest  income participants. FSA, in cooperation with the IRS, has existing procedures to verify  participants’ compliance with income limits applicable to farm and  conservation programs. About two-thirds of crop insurance  participants, on average, also participated in farm and conservation  programs that have income limits. For example, RMA and FSA would need to  reconcile their data on entities because members of entities—which are  subject to income limits—may be reported differently for crop insurance  and farm and conservation programs, according to RMA officials. RMA, FSA, and NRCS are also developing procedures to administer the  conservation compliance requirements in the 2014 farm bill that may help  administer premium subsidy reductions for the highest income crop  insurance participants. Conclusions

The federal crop insurance program plays a critical role in helping  participants manage the risk that is inherent in farming. Matter for Congressional Consideration

To reduce the cost of the crop insurance program and achieve budgetary  savings for deficit reduction or other purposes, Congress should consider  reducing premium subsidies for the highest income participants. In its  written comments, reproduced in appendix VI, USDA said it had no  comment on the draft report. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine, if premium subsidies were reduced for  participants with the highest incomes, (1) the percentage and  characteristics of participants that would be affected; (2) the impact, if  any, on the crop insurance program; and (3) how the U.S. Department of  Agriculture (USDA) could implement a reduction in premium subsidies for  the highest income participants. There are trade-offs in choosing the  number of years of data to examine. We  reviewed industry and academic publications and testimonies to identify  challenges that may be posed by administering a provision that would  reduce premium subsidies for the highest income participants.
Why GAO Did This Study

The federally subsidized crop insurance program helps about 1 million participants manage the risk inherent in farming. In recent years, the government's costs for the crop insurance program have increased substantially, and these costs have come under scrutiny as the nation's budgetary pressures have been increasing. Unlike farm and conservation programs, the crop insurance program provides the same level of subsidies to participants regardless of their income.
GAO was asked to examine the potential effects of reducing premium subsidies for the highest income crop insurance participants. This report examines: (1) the percentage and characteristics of participants that would be affected; (2) the impact, if any, on the crop insurance program; and (3) how USDA could implement a reduction in premium subsidies for the highest income participants. GAO analyzed RMA crop insurance data and FSA data on compliance with income limits from 2009 through 2013 (most recent year of available data), analyzed RMA data to examine the impact on the program and calculate potential savings, reviewed agency guidance and industry and academic publications, and interviewed USDA officials and stakeholders.

What GAO Found

About 1 percent of crop insurance participants would have been affected if premium subsidies had been reduced for the highest income participants from 2009 through 2013, based on GAO's analysis of data from the U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA) and Farm Service Agency (FSA). The highest income participants were those with incomes that exceeded limits in place for farm and conservation programs. In terms of characteristics, the highest income participants insured more farmland and had more premium subsidies provided on their behalf than other participants from 2009 through 2013. However, all crop insurance participants generally insured major crops, such as corn, soybeans, and wheat, while the highest income participants were more likely to insure specialty crops such as fruits, vegetables, and nursery crops. The highest income participants also made similar choices as other participants in terms of the type of crop insurance and the levels of coverage they chose.
Reducing crop insurance subsidies for the highest income participants would have a minimal effect on the program and save millions of dollars. RMA is directed by law to adopt rates and coverages that will improve the actuarial soundness of the crop insurance program. Actuarial soundness under the program means that premiums are adequate to cover expected claims and a reasonable reserve. Based on GAO's analysis of agency data, participants' premiums generally corresponded to their likelihood of collecting claims payments, regardless of their income level. Also, the highest income participants account for only about 1 percent of the premiums in the program. As a result, their decisions to stay in or leave the program would likely not affect the crop insurance program's actuarial soundness at the national level. If premium subsidies had been reduced by 15 percentage points for the highest income participants from 2009 through 2013, the federal government would have saved more than $70 million over the 5-year period, according to GAO's analysis of agency data. The current income limit, enacted in 2014 for farm and conservation programs, would likely affect fewer crop insurance participants than did the previous limit. Consequently, the savings would be smaller.
USDA could use existing procedures to implement a reduction in subsidies for the highest income participants. FSA has procedures to verify participants' compliance with income limits applicable to some farm and conservation programs. About two-thirds of crop insurance participants, on average, participated in programs that had income limits from 2009 through 2013 and would not need to provide additional information. Opportunities exist for RMA to access FSA's eligibility data system and work with insurance companies to apply the reduction in premium subsidies for the highest income participants. According to RMA officials, administering a provision that would reduce premium subsidies for the highest income participants would pose some challenges. For example, RMA and FSA would need to reconcile certain data on participants that are subject to the income limit. However, USDA is developing procedures to administer conservation compliance requirements in the Agricultural Act of 2014 that could help administer a premium subsidy reduction for the highest income crop insurance participants.

What GAO Recommends

To reduce the cost of the crop insurance program and achieve budgetary savings for deficit reduction or other purposes, Congress should consider reducing premium subsidies for the highest income participants. In written comments, USDA stated that it had no comments on the draft report.