Shaheen, Flake Introduce Crop Insurance Reform Bill with $24 Billion in Savings

November 06, 2015

Washington, D.C.—U.S. Sens. Jeanne Shaheen (D-N.H.)  and Jeff Flake (R-Ariz.) yesterday introduced S. 2244, the Assisting Family Farmers through Insurance Reform Measures (AFFIRM) Act, a bipartisan bill that would reform the current crop insurance system to save taxpayers about $24.4 billion over the next 10 years. A companion bill was also introduced in the House of Representatives by Reps. Ron Kind (D-Wis.) and Jim Sensenbrenner (R-Wis.).

“The costs of this program are skyrocketing unnecessarily,” said Shaheen. “We can ensure protections for farmers without putting taxpayers on the hook for excessive subsidies to insurance companies and large agri-businesses that don’t need the help. We are proposing common-sense reforms that will save taxpayers billions of dollars, and Congress ought to act on this bipartisan proposal.”

“Taxpayers and farmers alike deserve a federal crop insurance program that realistically reflects our current fiscal situation, and – with over $24 billion in savings – that’s exactly what this bill delivers,” said Flake.

Specifically, the bill would:

Lower the Standard Reinsurance Agreement (SRA) rate of return from 14.5 percent to 8.9 percent, saving taxpayers an estimated $3 billion

The SRA is an agreement negotiated between the U.S. Department of Agriculture (USDA) and the private insurance companies that determines the amount of taxpayers subsidies that will be paid to those private insurance companies for participating in the federal crop insurance program. This same reduction in the SRA rate of return was already included in the recently approved a budget agreement, but crop insurance advocates have secured commitments to reverse those savings when Congress takes up an omnibus spending bill in the coming weeks. Reducing the SRA rate of return to 8.9 percent will only impact the profits that crop insurers make, and it will have no impact on farmers’ crop insurance prices or the availability of crop insurance.

Eliminate an unprecedented restriction buried in the 2014 farm bill that currently prohibits USDA from achieving any savings when it renegotiates the SRA

According to the Congressional Budget Office, USDA secured a total of $6 billion in taxpayer savings – including $4 billion to be applied solely to deficit reduction – when the agency last renegotiated the SRA in 2010. Under the 2014 farm bill, those savings would be prohibited by law, and in the event that minimal savings are realized, those funds are statutorily required to be funneled back to private insurance companies in the form of crop insurance subsidies.

Eliminate subsidies for a costly but little-publicized profit guarantee known as Harvest Price Option (HPO), saving $19 billion

Unlike traditional crop insurance plans that protect farmers from unanticipated losses, these taxpayer-subsidized HPO plans actually guarantee that farmers don’t miss out on unanticipated profits. The provision would not prohibit the U.S. Department of Agriculture from offering HPO profit guarantee plans, provided that individual policyholders pay the full insurance premium. The bill would do nothing to limit, reduce or alter subsidies associated with traditional crop insurance plans. Earlier this Congress, Flake and Shaheen introduced the Harvest Price Subsidy Prohibition Act, standalone legislation to eliminate HPO subsidies.

Limit the total value of crop insurance subsidies to $40,00 per person each year and eliminate subsidies for those with a gross income of more than $250,000, saving taxpayers an estimated $2.3 billion
While direct payments and counter-cyclical payments have been subject to means tests and payment limits of $40,000 and $65,000 per farmer respectively, crop insurance premium subsidies have no limits, setting up an unfair playing field that benefits the largest, most profitable farm businesses. The bottom 80 percent of policyholders received only 27 percent of subsidies in 2011, with an average subsidy of around $5,000.  Capping the premium subsidy would maintain the strong safety net for the vast majority of family farming operations while saving taxpayers money.