Crop insurance premiums for 2013 will be minimally different from last year. They will be less than 2012 because of the re-ratings by USDA’s Risk Management Agency, but not reflect any increase because of higher indemnity payouts from the 2012 drought. That may come in the 2014 crop year, along with even higher rates if Congress determines producers should pay a larger share of the premium.
Currently, USDA pays over 60 percent of the premium, compared to less than 40 percent in the early 1990’s, and many in Congress concerned about the budget want taxpayers to pay less. The debate over the next year could paint a different complexion for the crop insurance program, which could bring alternatives to the table for consideration. One of those is a plan that is modeled after health savings plans, which accumulate pre-tax funds to pay one’s own medical bills.
The same would be the case for a farmer who deposits pre-tax funds into a managed account to cover qualified crop losses.
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The Crop Insurance Savings Account program (CISA) is a risk management tool to protect against yield and revenue losses, smooth the farm income stream, and sustain the operation after a summer like 2012. The program would operate primarily on producer funds, not taxpayer funds, and unused money would become available to the producer following the end of a farming career. Instead of paying crop insurance premiums, at whatever rate, a producer would use those funds to manage risk in the case of a crop failure. The government would have a minimal role which would make the plan more palatable to critics of the current crop insurance program.
The concept is being promoted by a trio of agricultural economists from the University of Georgia, in part as a replacement for government subsidies, which they said were $36.5 billion over the past 10 years, plus another $12 billion to insurance companies to implement the program. They do not address the $16+ billion indemnity payments for the 2012 drought, but those include $6 billion in producer premiums received by the government. They believe if government subsidies increase, program opposition will increase, and subsequently change must be made.
The economists also say the insurance ratings, which determine premium levels, have been unfairly applied and ratings are not only disproportionate from one state to the next, but also from one farmer to the next even if they have the same yield and revenue risk.