Representatives Ron Kind (D-WI) and Tom Petri (R-WI) teamed up to introduce the Assisting Farmers through Insurance Reform Measures or AFFIRM Act today. Packed with much-needed reforms for federal crop insurance, the bill could save taxpayers billions of dollars.
The current federal crop insurance program is rife with problems. Extremely generous subsidies that pay for 60 percent of a farmer’s premium and 100 percent of the administrative and operating costs of the PRIVATE insurance companies that provide coverage have turned the program into less of a safety net and more of a “farm income support program” as agricultural economist Bruce Babcock explains in this study. In 2011, the Environmental Working Group found that the top 10 percent of policyholders went home with 54 percent of the premium subsidy dollars. With taxpayers footing the bill for insurance costs – essentially guaranteeing profits regardless of market, weather, or other conditions – farmers have become less and less risk-averse, plowing under what would typically be unprofitable land that shouldn’t be tilled for environmental reasons.
The federal crop insurance program lacks caps, means testing, or transparency - all commonsense modifications that would bring it in line with other federal agriculture programs and help to prevent costly fraud, like that uncovered just this March:
Federal investigators have unraveled a massive scheme among dozens of insurance agents, claims adjusters, brokers and farmers in eastern North Carolina to steal at least $100 million from the government-backed program that insures crops.
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Forty-one defendants have either pleaded guilty or reached plea agreements after profiting from false insurance claims for losses of tobacco, soybeans, wheat and corn. Often, the crops weren't damaged at all, with farmers using aliases to sell their written-off harvests for cash.
With taxpayers, not farmers or insurance companies, on the hook for losses, it’s no surprise that that the program’s price tag for 2012 is a staggering $14 billion and growing – more than quadruple what taxpayers paid just ten years ago. Considered within the context of out-of-control spending and a looming debt crisis, it’s obvious real change is needed to protect taxpayers and help to end the perverse incentives caused by this upside-down insurance scheme.
In a press release this morning, the bill’s sponsors explained:
The AFFIRM Act limits the total value of crop insurance subsidies to $40,000 per person each year, eliminates crop insurance premium subsidies for individuals with an adjusted gross income (AGI) of more than $250,000, and requires more of the administrative and operating (A&O) costs to be shared by the private companies that offer coverage. It also limits renegotiation of the Standard Reinsurance Agreement (SRA) and lowers the “target rate of return” that USDA builds into premiums in order to guarantee long-term profitability for crop insurance companies.
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These reforms would be put in place while bringing more transparency into the crop insurance program by requiring the reporting of all parties that receive federally subsidized crop insurance.
Together, these important reforms will save taxpayers an estimated $11 billion over the next ten years.
Reps. Kind and Petri should be applauded for leading the bipartisan charge for federal crop insurance reform. The measures imposed by the AFFIRM Act will help get taxpayers out of the crop insurance business and encourage increased privatization of agricultural risk – just as other industries deal with their own hazards. Given that farmers continue to enjoy record-high profits that are expected to continue rising over the next decade even as other sectors of the economy struggle to recover, the time has never been better to undertake these fundamental changes in agribusiness.