John Phipps: How Much Does Crop Insurance Really Cost?

Customer Support April 20, 2019
Does the government make any money on crop insurance? That's a viewer's question during Customer Support. John breaks down is explanation. ( MGN )

“Years ago, a reporter was asked a question about the net cost of crop insurance. As I recall, she spent a couple months researching the question. Answer was that government put premium in one pocket, withdrew indemnity from another pocket. Net result was a profit to the government. Comments?”

That’s from William Jameson, in Nebraska. Please send an address. Luckily for both of us the Congressional Research Service just completed a detailed report on the cost of the crop insurance program, and the quick answer is it not even close to breakeven, but some explanation will help.

JW 1

One quick way to disprove the government makes money on crop insurance is the fact that if that were true, it wouldn’t need any appropriations in the farm bill. (Please note that along with identifying the source, I will try to label the search engine term to get you to the original data) As you can see crop insurance is the largest portion of the non-nutrition part of the bill. It is budgeted at about $8 billion a year.

JW 2

This is a more detailed breakdown. Farmers pay the green section in premiums. The indemnities or payments back to farmers are in red. Everything below the line was effectively paid by the government. The net cost is the black line, which sums the positive bars and negative bars. Keep in mind the government does not pay the indemnities to farmers – insurance companies do.  What the government does pay is about 60% of the total premium to those companies, along with much-argued amount for operating and administration and some other fees.

JW 3

This chart shows the split between how much of the total premium farmers pay and how much is picked up by the USDA. What I think you might be referring to is whether farmers themselves receive as much in loss payments as they pay in premiums. And this chart that shows that 10 year history shows that only in one year – 2010 – were premiums close to indemnities.

To sum up the government is not just shifting funds between accounts because the money goes to private crop insurance companies. The net cost to the taxpayer is about $8 billion dollars and is why farm organization lobbyists follow the farm bill debate very closely. Farmers benefit significantly, and without government subsidies would pay about 150% more for the same policy.