CROP INSURANCE

Considerations in 

Reducing Federal 

Premium Subsidies 

Report to the Ranking Member, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate

August 2014

GAO-14-700

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-700, a report to the 

Ranking Member, Committee on Homeland 

Security and Governmental Affairs, U.S. 

Senate

August 2014

CROP INSURANCE

Considerations in Reducing Federal Premium 

Subsidies 

Why GAO Did This Study

Federally subsidized crop insurance, 

which farmers can buy to help manage 

the risk inherent in farming, has 

become one of the most important 

programs in the farm safety net. 

Revenue policies, which protect 

farmers against crop revenue loss from 

declines in production or price, are the 

most popular policy type and account 

for nearly 80 percent of all premium 

subsidies. The crop insurance 

program’s cost has come under 

scrutiny while the nation’s budgetary 

pressures have been increasing. 

GAO was asked to look at the cost of 

the crop insurance program. This 

report examines (1) trends in federal 

crop insurance costs and farm sector 

income and wealth from 2003 through 

2012 and (2) the potential savings to 

the government and impacts on 

farmers, if any, of reducing federal 

premium subsidies for revenue

policies. GAO analyzed USDA crop 

insurance program data and farm 

sector income and wealth data from 

2003 through 2012 (most recent year 

with complete crop insurance data);

reviewed economic literature and 

documents from stakeholders including

farm industry groups and researchers; 

and interviewed USDA officials. 

What GAO Recommends

To reduce the cost of the crop 

insurance program, Congress should 

consider reducing the level of federal 

premium subsidies for revenue crop 

insurance policies, including a phased 

reduction, if appropriate, and directing 

USDA to monitor and report on the 

impact, if any, of this reduction on crop 

insurance program participation. In 

written comments, USDA said it had no 

comments on the report’s findings.

What GAO Found

The cost of the federal crop insurance program and farm sector income and wealth 

grew significantly from 2003 through 2012. The cost of crop insurance averaged $3.4 

billion a year from fiscal years 2003 through 2007, but it increased to $8.4 billion a 

year for fiscal years 2008 through 2012. According to the U.S. Department of 

Agriculture’s (USDA) Risk Management Agency (RMA), the agency that administers

the crop insurance program, subsidies for crop insurance premiums accounted for 

$42.1 billion─or about 72 percent─of the $58.7 billion total program costs from 2003 

through 2012. Revenue policies, the most frequently purchased crop insurance 

option, accounted for $30.9 billion of the total premium subsidy costs for 2003 

through 2012. Crop insurance premium subsidy rates—the percentage of premiums

paid by the government—are set by Congress and would require congressional 

action to be changed. For most policies, the rates range from 38 to 80 percent, 

depending on the policy type, coverage level chosen, and geographic diversity of 

crops insured. As premium subsidy costs increased, farm sector income and wealth 

indicators also increased. For example, for each year from 2003 through 2012, 

median farm household income exceeded median U.S. household income. 

Specifically, on average, median farm household income was $7,205, or 13.8 

percent, greater each year than U.S. household income, in constant 2012 dollars. 

Farm sector income also grew from $73.8 billion in 2003 to $113.8 billion in 2012, in 

constant 2012 dollars. Farm real estate values, another measure of farm prosperity, 

increased by 72 percent from 2003 through 2012, in constant 2012 dollars, and 

farmers relied less on borrowed funds to finance their holdings. 

Reducing premium subsidies for revenue policies could potentially result in hundreds 

of millions of dollars in annual budgetary savings with limited costs to individual 

farmers. For example, the federal government would have potentially saved more 

than $400 million in 2012 by reducing premium subsidies by 5 percentage points, and 

the savings would have been nearly $2 billion by reducing these subsidies by 20 

percentage points. Although such reductions would have required farmers to pay 

more of their premiums, the impact on their average production costs per acre would 

have been limited, usually less than 2 percent, and often less than 1 percent. For 

example, for corn, premium subsidy reductions of 5 and 20 percentage points in 2012 

would have raised average production costs per acre by about $2.80 and $11.20, 

respectively. These increases would have been about 0.4 percent and 1.7 percent, 

respectively, of the total average production cost per acre of $656 that year for corn. 

The ultimate impact of such limited production cost increases on farmers’ income 

would depend on their individual profit margins. However, for the industry as a whole, 

the impact appears to be minimal. In 2000, when Congress enacted new premium 

subsidy rates, the new rates immediately became effective. In contrast, when RMA 

increases the premiums charged for policies, it generally phases in the increases 

over several years to lessen the impact on farmers. Documents from farm industry 

groups and some researchers note that reductions in premium subsidies could result 

in lower farmer participation in the program and lower insurance coverage levels. 

However, available economic literature indicates that farmers’ response to such

reductions may be small due to factors such as the attractiveness of revenue policies 

and increasing importance of crop insurance as other farm programs are reduced or 

eliminated. In addition, other stakeholders identified incentives that would help keep 

farmers in the program, including pressure from lenders to maintain crop insurance 

coverage and the importance of crop insurance to many farmers as their primary risk 

management tool. In the event that subsidy rates were reduced, actual information on 

the impact on farmer participation would be available if participation were monitored.

View GAO-14-700. For more information, 

contact Anne-Marie Fennell at (202) 512-3841 

or fennella@gao.gov.
Page i GAO-14-700 Crop Insurance Premium Subsidies

Letter 1

Background 4

Federal Crop Insurance Costs and Farm Sector Income and 

Wealth Grew Significantly from 2003 through 2012 7

Reducing Federal Premium Subsidies for Revenue Policies Would 

Potentially Save Millions of Dollars with Limited Costs to 

Individual Farmers 20

Conclusions 29

Matter for Congressional Consideration 29

Agency Comments and Our Evaluation 30

Appendix I Objectives, Scope, and Methodology 31

Appendix II Comments from the U.S. Department of Agriculture 34

Appendix III GAO Contact and Staff Acknowledgments 35

Related GAO Products 36

Tables

Table 1: Crops Eligible to Receive Revenue Crop Insurance 

Premium Subsidies, Crop Years 2003 through 2012 14

Table 2: Potential Savings from Reducing Federal Premium 

Subsidies for Revenue Policies, by Crop, for 2012 22

Table 3: Estimated Increases in Farmer Production Costs 

Resulting from Federal Premium Subsidy Reductions of 5 

and 10 Percentage Points, on Average per Acre and by 

Crop, 2012 24

Table 4: Estimated Increases in Farmer Production Costs 

Resulting from Federal Premium Subsidy Reductions of 

15 and 20 Percentage Points, on Average per Acre and 

by Crop, 2012 25

Contents
Page ii GAO-14-700 Crop Insurance Premium Subsidies

Figures

Figure 1: Federal Crop Insurance Costs, Fiscal Years 2003 

through 2012 8

Figure 2: Breakdown of Federal Crop Insurance Costs, Overall, for 

Fiscal Years 2003 through 2012 9

Figure 3: Federal Premium Subsidies for Revenue and Other Crop 

Insurance Policies, Crop Years 2003 through 2012 10

Figure 4: Acres Covered with Revenue and Other Crop Insurance 

Policies, Crop Years 2003 through 2012 11

Figure 5: Percentage of Acres Insured with Revenue Crop 

Insurance Policies by Coverage Level, Crop Years 2003 

through 2012 12

Figure 6: Top 10 States Receiving Revenue Crop Insurance 

Premium Subsidies in Crop Year 2012 13

Figure 7: Median Farm and U.S. Household Income, 2003 through 

2012 16

Figure 8: Net Farm and Cash Income for U.S. Farms, 2003 

through 2012 17

Figure 9: National Farm Real Estate Values, Average per Acre, 

2003 through 2012 18

Figure 10: Farm Sector Debt Ratios, 2003 through 2012 20

Abbreviations

CBO Congressional Budget Office

ERS Economic Research Service

RMA Risk Management Agency

USDA U.S. Department of Agriculture

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Page 1 GAO-14-700 Crop Insurance Premium Subsidies

441 G St. N.W.

Washington, DC 20548

August 8, 2014

The Honorable Tom Coburn, M.D.

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

Dear Dr. Coburn:

Federally subsidized crop insurance, which farmers can purchase to help 

manage the risk inherent in farming, has become one of the most 

important programs in the farm safety net, according to USDA officials 

and some farm industry stakeholders. Under the federal crop insurance 

program, farmers can choose various levels and types of insurance 

protection. For example, they can insure against losses caused by poor 

crop yields or declines in revenues for each insurable crop they produce. 

In 2012, the crop insurance program provided more than $117 billion in 

insurance coverage for about 283 million acres of farmland with almost 

1.2 million policies. The federal government’s crop insurance costs 

include subsidies to pay for (1) part of a farmer’s crop insurance 

premiums, which averaged about 62 percent of total premiums in 2012, 

and (2) administrative and operating expenses (administrative costs)—

provided on behalf of farmers—to insurance companies to cover their 

expenses for selling and servicing crop insurance policies.

In recent years, policies that protect against crop revenue loss resulting 

from declines in production, price, or both—known as revenue policies—

have become the most popular policy type. For example, as of 2012, the 

majority of crop insurance policies—almost 70 percent—was revenue 

policies, and they accounted for nearly 80 percent of all premium 

subsidies. In general, these policies include a harvest price provision, 

allowing farmers with this coverage whose insured crops experience a 

decline in revenue below the level guaranteed in their policy to file a loss 

claim based on the higher of either the preplanting price or the harvest 

price of the covered crop.

The cost of the federal crop insurance program has come under scrutiny 

at the same time that the nation’s budgetary pressures have been 

increasing. As of March 2014, the national debt was estimated at $17.6 
Page 2 GAO-14-700 Crop Insurance Premium Subsidies

trillion.1 Furthermore, in the last 15 years, debt held by the public has 

nearly doubled. As we discuss on our key issues website,2 the large 

national debt reduces the federal government’s flexibility to respond to 

new and unexpected challenges and, if interest rates rise, the payments 

on the debt will use up a growing part of the federal budget. Furthermore, 

increased attention to future fiscal exposures—responsibilities, programs, 

and activities that legally commit or create the expectation of future 

funding—that could affect the federal government’s fiscal condition is 

made more important because of the nation’s longer term fiscal 

challenges. In the past, we have identified numerous opportunities for the 

federal government to save tax dollars and enhance revenue, including in 

the federal crop insurance program.3

In this context, you asked us to look at the cost of the federal crop 

insurance program, specifically concerning the costs associated with 

revenue insurance policies. This report examines (1) trends in federal 

crop insurance costs and farm sector income and wealth from 2003 

through 2012 and (2) the potential savings to the government and 

impacts on farmers, if any, of reducing federal premium subsidies for 

revenue policies.

To address these objectives, we interviewed officials of the U.S. 

Department of Agriculture (USDA), including officials from the Economic 

Research Service (ERS) and Risk Management Agency (RMA), and 

reviewed documents they provided, including, for example, documents on 

crop insurance program costs and outlays. We also interviewed officials 

at the Congressional Budget Office (CBO). For the first objective, we 

reviewed and analyzed RMA crop insurance program data for 2003 

 1

According to the Department of the Treasury’s Bureau of the Fiscal Service, as of March 

2014, the total national debt was estimated at $17.6 trillion, including $12.6 trillion in debt 

held by the public. These mid-fiscal year amounts have not been audited. 

2

See http://www.gao.gov/fiscal_outlook/overview.

3

GAO, 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap, and 

Duplication and Achieve Other Financial Benefits, GAO-13-279SP (Washington, D.C.: 

Apr. 9, 2013); Crop Insurance: Savings Would Result from Program Changes and Greater 

Use of Data Mining, GAO-12-256 (Washington, D.C.: Mar. 13, 2012).
Page 3 GAO-14-700 Crop Insurance Premium Subsidies

through 2012,4 including data on the types of crops insured, the number 

of acres insured, and total program costs. In particular, we focused on 

these data as they relate to revenue policies. For these analyses we only 

included information on “buy-up” policies—that is, the portion of crop 

insurance for which a farmer pays a premium; “buy-up” policies account 

for any coverage that is purchased above the “catastrophic” level.5 We 

also reviewed and analyzed ERS data for 2003 through 2012 on the 

overall financial condition of the farm sector, including data on farm 

income and farmland values. For the purposes of this report, crop 

insurance costs and premium subsidies, which are budget-related data, 

are reported in nominal dollars, while data on median farm household and 

U.S. household income, net farm and net cash income, and farmland 

values are reported in inflation adjusted dollars, using 2012 as the 

reference year. In addition, as appropriate, we report these data in 

calendar, fiscal, or crop years,6

 4

We used USDA data for the period 2003 through 2012 to get a representation of the 

trend in program costs, usage of revenue policies, and financial condition of the farm 

sector. At the time of our review, 2012 was the most recent year with complete and stable 

crop insurance data, according to RMA officials

depending on how the data were reported 

in the source documents. Unless otherwise indicated, these data are in 

calendar years. To address the second objective, we analyzed the 

potential impacts of reducing premium subsides for revenue policies in 

2012, the most recent year for which we had complete data at the time of 

our analysis. Using RMA data, we estimated what the savings to the 

federal government would have been if premium subsidies had been 

reduced by 5, 10, 15, or 20 percentage points in 2012. We also estimated 

what a reduction in premium subsidies by each amount would have 

added to the production costs of farmers. Specifically, using ERS 

Agricultural Resource Management Survey data, we estimated what the 

additional production cost per acre, on average, would have been in 2012 

for a variety of crops, including the major field crops of corn, cotton, 

soybeans, and wheat that receive the majority of the revenue crop 

5

The most basic level of coverage is “catastrophic” coverage; premiums for these policies 

are completely subsidized by the federal government. Under “catastrophic” policies, the 

farmer receives a payment for losses greater than 50 percent of “normal” yield indemnified 

at 55 percent of the estimated market price of the crop. Farmers can select to “buy-up”

higher levels of insurance coverage for protection against wider yield or revenue losses; 

they pay a premium for these “buy-up” policies. 

6

According to ERS, a crop year (also known as a marketing year) is the 12-month period 

starting with the month when the harvest of a specific crop typically begins. For example, 

the 2008 wheat crop year was June 1, 2008 through May 30, 2009.
Page 4 GAO-14-700 Crop Insurance Premium Subsidies

insurance premium subsidies. We reviewed related documentation, 

interviewed knowledgeable agency officials, and reviewed related internal 

controls information to evaluate the reliability of the data discussed 

above. In each case, we concluded that the data were sufficiently reliable 

for the purposes of this report. In addition, we reviewed the agricultural 

economic literature for the period 1993 through 2013,7

We conducted this performance audit from May 2013 to August 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our objectives.

to get information 

on what impact, if any, premium subsidy reductions would have on 

farmers’ participation in the crop insurance program. A more detailed 

discussion of our objectives, scope, and methodology is presented in 

appendix I.

Farmers are exposed to financial losses because of production risks—

droughts, floods, and other natural disasters—as well as variations in the 

market price of their crops. The federal government has played an active 

role in helping to mitigate the effects of these risks on farm income by 

promoting the use of crop insurance. RMA has overall responsibility for 

administering the federal crop insurance program, including controlling 

costs and protecting against fraud, waste, and abuse. As of May 2014, 

RMA partnered with 19 private insurance companies that sell and service 

the program’s insurance policies and share a percentage of the risk of 

loss and opportunity for gain associated with the policies (known as 

“underwriting”). RMA administers the crop insurance program through a 

Standard Reinsurance Agreement that establishes the terms and 

conditions under which participating insurance companies sell and 

service federal crop insurance policies.

Through the federal crop insurance program, farmers insure against 

losses on more than 100 crops. These crops include major crops—such 

 7

We reviewed the agricultural economic literature for the period 1993 through 2013

because the studies within this time frame have more relevance to the current crop 

insurance program.

Background
Page 5 GAO-14-700 Crop Insurance Premium Subsidies

as corn, cotton, soybeans, and wheat, which accounted for more than 

three-quarters of the acres enrolled in the program in 2012—as well as 

nursery crops and certain fruits and vegetables. More specifically, 

according to RMA, federal crop insurance penetration based on planted 

acres is high for the principal crops of corn, soybeans, wheat, and 

cotton.8

Most crop insurance policies are either production-based or revenue 

policies. For production-based policies, a farmer can receive a payment if 

there is a production loss relative to the farmer’s historical production per 

acre. Revenue policies protect against crop revenue loss resulting from 

declines in production, price, or both. The federal government 

encourages farmers’ participation in the federal crop insurance program 

by subsidizing the insurance premiums and acting as the primary 

reinsurer for the private insurance companies that take on the risk of 

covering, or underwriting, losses of participating farmers.

For example, in 2012, about 84 percent of the planted principal 

crops were insured under the federal crop insurance program. More 

specifically, corn acreage was 84 percent insured, soybean acreage was 

84 percent insured, wheat acreage was 83 percent insured, and cotton 

acreage was 94 percent insured.

The federal government’s premium subsidies for crop insurance policies 

are not payments to farmers, but they can be considered a financial 

benefit to farmers. Without a premium subsidy, a participating farmer 

would have to pay the full amount of the policy premium. Congress sets

premium subsidy rates, meaning the percentage of the premium paid by 

the government. Premium subsidy rates vary by the level of insurance 

coverage that the farmer chooses and the geographic diversity of crops 

insured. For most policies, the statutory premium subsidy rates range 

from 38 percent to 80 percent. Premium subsidy rates increased, as a 

percentage of total premiums, from an average of 37 percent in 2000 to 

an average of 63 percent in 2012. In addition, premium subsidies rose as 

crop prices increased because higher prices meant the insured value of 

the crop increased, and premiums are based on the value of what is 

insured.

 8

RMA defines crop insurance penetration as a comparison of insured acres to planted 

acres.
Page 6 GAO-14-700 Crop Insurance Premium Subsidies

In addition, the federal government pays administrative and operating 

expense subsidies to insurance companies as an allowance that is 

intended to cover their expenses for selling and servicing crop insurance 

policies. In turn, insurance companies use these subsidies to cover their 

overhead expenses, such as payroll and rent, and to pay commissions to 

insurance agencies and their agents. Insurance companies also incur 

expenses associated with verifying—also called adjusting—the amount of 

loss claimed. These expenses include, for example, loss adjusters’

compensation and travel expenses of adjusters to farmers’ fields. The 

administrative expense subsidies also can be considered a subsidy to 

farmers; with these subsidies, crop insurance premiums are lower than 

they would otherwise be if the program followed commercial insurance 

practices. In private insurance, such as automobile insurance, these 

administrative expenses typically are captured through the premiums paid 

by all policyholders.

The federal government provides crop insurance premium subsidies in 

part to achieve high crop insurance participation and coverage levels.9

Higher participation and coverage levels may reduce or eliminate the 

need for disaster assistance payments from congressionally authorized 

ad hoc disaster programs to help farmers recover from natural disasters, 

which can be costly. For example, under three separate congressionally 

authorized ad hoc disaster programs, USDA provided $7 billion in 

payments to farmers whose crops were damaged or destroyed by natural 

disasters from 2001 to 2007. Farmers’ participation in the federal crop 

insurance program and spending on ad hoc disaster assistance have 

been policy issues for more than 30 years. A 2005 USDA publication10

 9

Farmers select a coverage level—that is, the percentage of their normal yield or revenue 

they want to insure. In 2012, more than half of the enrolled corn and soybean acres were 

at coverage levels above 70 percent.

asserts that Congress passed the Federal Crop Insurance Act of 1980 

and subsequent related legislation to strengthen participation in the crop 

insurance program with the goal of replacing costly disaster assistance 

programs. According to this publication, the government has historically 

attempted to increase participation in the federal crop insurance program 

by subsidizing premiums, including increasing the level of these subsidies 

over time.

10R. Dismukes and J. Glauber, “Why Hasn’t Crop Insurance Eliminated Disaster 

Assistance?”, Amber Waves, USDA Economic Research Service (June 2005).
Page 7 GAO-14-700 Crop Insurance Premium Subsidies

The 2014 farm bill introduced several changes to the crop insurance 

program. Regarding revenue policies specifically, the legislation added 

peanuts to the list of crops eligible for this policy type. The legislation also 

made “enterprise units” a permanent option for revenue and other policy 

types. An enterprise unit consists of all insurable acreage of the same 

insured crop in the county in which the farmer has a share on the date 

coverage begins for the crop year. In addition, separate insurable 

enterprise units for both irrigated and nonirrigated crops will be available. 

Separating the acreage can increase risk protection for farmers because 

losses on dryland crops would no longer be offset by higher yields on 

irrigated acreage when the two are combined.

The 2014 farm bill also added two new policy options to the crop 

insurance program—the Supplemental Coverage Option and the Stacked 

Income Protection Plan for upland cotton. The Supplemental Coverage 

Option is based on expected county yields or revenue, to cover part of the 

deductible under the farmer’s underlying policy (referred to as a farmer’s 

out-of-pocket loss or “shallow loss”). The federal subsidy as a share of 

the policy premium is set at 65 percent. The Stacked Income Protection 

Plan insures against losses in county revenue of 10 to 30 percent of 

expected county revenue based on the deductible level selected by the 

farmer for the underlying individual policy. The federal subsidy as a share 

of the policy premium is set at 80 percent. As of June 2014, USDA was 

developing implementing guidance for these new policies that it expects 

to issue before the start of the 2015 crop year. For now, it is uncertain 

how farmers will utilize these new policies and how their use will impact 

federal crop insurance premium costs, including for revenue policy 

premium subsides.

Federal crop insurance program costs and farm sector income and wealth 

grew significantly during the period 2003 through 2012. Costs of federal 

crop insurance are growing due to an increase in premium subsidies, 

particularly for revenue policies. Farmers are increasingly purchasing 

revenue policies and are choosing higher coverage levels for these 

policies. Meanwhile, indicators of farm business economic well-being—

such as farm income and real estate and asset values—all increased 

from 2003 through 2012.

Federal Crop 

Insurance Costs and 

Farm Sector Income 

and Wealth Grew 

Significantly from 

2003 through 2012
Page 8 GAO-14-700 Crop Insurance Premium Subsidies

The cost of the federal crop insurance program grew significantly from 

2003 through 2012, according to our analysis of RMA data. For fiscal 

years 2003 through 2007, federal crop insurance costs averaged $3.4 

billion a year, but for fiscal years 2008 through 2012, the crop insurance 

program cost an average of $8.4 billion a year. There were significant 

drought and crop losses in crop year 2012 that contributed to the spike in 

government costs to $14.1 billion. These trends are shown in figure 1. 

According to an April 2014 CBO estimate, for fiscal years 2014 through 

2023, program costs are expected to average $8.9 billion annually.

Figure 1: Federal Crop Insurance Costs, Fiscal Years 2003 through 2012

Note: In general, the decline in costs in 2010 was related to strong yields due to favorable weather 

conditions and lower crop prices, and the increase in 2011 and 2012 reflects crop losses due to 

drought and higher crop prices.

In fiscal years 2003 through 2012, according to our analysis of RMA data, 

premium subsidies comprised approximately $42.1 billion of $58.7 billion 

in total government costs for federal crop insurance, or almost 72 percent 

of total program costs. Revenue policy premium subsidies specifically 

accounted for $30.9 billion of the premium subsidy costs over that period. 

RMA offered 17 different crop insurance policies in crop year 2012, but 

revenue policies were the most frequently purchased and accounted for 

the majority of all premium subsidies. For example, for crop year 2012, 

revenue policy premium subsidies cost $5.5 billion that year, which 

Costs of Federal Corp 

Insurance Are Growing, 

Primarily Due to an 

Increase in Premium 

Subsidies for Revenue 

Policies
Page 9 GAO-14-700 Crop Insurance Premium Subsidies

accounted for 82 percent of the $6.7 billion in total premium subsidy costs 

to the government. Figure 2 shows the breakdown of costs for the overall 

crop insurance program into premium subsidies; administrative and 

operating expense subsidies; and other costs, such as the salaries of 

RMA staff, research and development initiatives for new crop insurance 

products, and the net underwriting loss for the period, for fiscal years 

2003 through 2012.

Figure 2: Breakdown of Federal Crop Insurance Costs, Overall, for Fiscal Years 

2003 through 2012

As shown in figure 3, overall crop insurance premium subsidies more 

than tripled from $1.8 billion to $6.7 billion from crop years 2003 through 

2012. The revenue policy premium subsidies increased from $1.1 billion 

in crop year 2003 to $5.5 billion in crop year 2012, a nearly 5-fold 

increase.

Farmers Are Increasingly 

Purchasing Revenue 

Policies and Choosing 

Higher Insurance 

Coverage Levels
Page 10 GAO-14-700 Crop Insurance Premium Subsidies

Figure 3: Federal Premium Subsidies for Revenue and Other Crop Insurance 

Policies, Crop Years 2003 through 2012

The total acreage covered by federal crop insurance also continued to 

increase from crop year 2003 through crop year 2012, from around 183.7 

million acres in 2003 to 265.2 million acres in 2012. As shown in figure 4, 

the amount of that acreage covered by revenue policies also increased, 

from about 112.2 million acres in 2003 to 180.9 million acres in 2012. In 

2012, revenue policies were purchased for about 68 percent of the acres 

covered by federal crop insurance.
Page 11 GAO-14-700 Crop Insurance Premium Subsidies

Figure 4: Acres Covered with Revenue and Other Crop Insurance Policies, Crop 

Years 2003 through 2012

Farmers have also increased their purchases of higher coverage levels of 

crop insurance—that is, the percentage of their normal annual revenue 

that they want to insure—for their revenue policies. These higher 

coverage levels equate to greater potential liability for the government 

and insurers in the case of loss and higher premium levels for the 

policies, both of which contribute to higher program costs. According to 

our analysis of RMA data, the percentage of acres insured at higher 

coverage levels has increased in recent years, as shown in figure 5. For 

example, in crop year 2003, 14.7 percent of all acres were insured under 

revenue policies at a coverage level of 80 percent or greater. By crop 

year 2012, that figure had nearly doubled, to 27.6 percent.11

 11Generally, individual crop insurance coverage is available at levels ranging from 50 to 

85 percent, at 5 percent increments, e.g., 50 percent, 55 percent, 60 percent, etc.
Page 12 GAO-14-700 Crop Insurance Premium Subsidies

Figure 5: Percentage of Acres Insured with Revenue Crop Insurance Policies by 

Coverage Level, Crop Years 2003 through 2012

Our analysis of RMA data showed that farmers in 10 states accounted for 

the majority of revenue policies purchased and, as a result, a majority of 

the premium subsidies in crop year 2012. As shown in figure 6, these 10 

states in descending order of subsidy amounts received were Texas, 

North Dakota, Iowa, Minnesota, Kansas, South Dakota, Illinois, Nebraska, 

Missouri, and Indiana. Combined, they received almost $4.1 billion in 

revenue premium subsidies in crop year 2012, which was approximately 

73.5 percent of the total amount of federal premium subsidies for revenue 

policies for that year. In crop year 2012, Texas led all states in premium 

subsidies, with farmers receiving more than $523.8 million in revenue 

premium subsidies for the approximately 11 million acres covered by 

revenue policies; over 60 percent of these premium subsidies and almost 

half of the acres covered were for cotton.
Page 13 GAO-14-700 Crop Insurance Premium Subsidies

Figure 6: Top 10 States Receiving Revenue Crop Insurance Premium Subsidies in Crop Year 2012

Note: The map also shows how the 48 continental states fall into 10 major economic regions 

determined by USDA.
Page 14 GAO-14-700 Crop Insurance Premium Subsidies

The list of crops eligible for revenue policy insurance coverage has 

continued to grow.12 Table 1 shows which crops were eligible to receive 

revenue policy premium subsidies from crop year 2003 through crop year 

2012. In crop year 2013, dry beans and dry peas also became eligible for 

revenue policy insurance.13

Table 1: Crops Eligible to Receive Revenue Crop Insurance Premium Subsidies, 

Crop Years 2003 through 2012

According to RMA documents, the estimated 

cost of these two additional crops was $28.3 million in revenue premium 

subsidies for crop year 2013. Further, as discussed, peanuts will be 

eligible for revenue policy coverage starting in crop year 2015.

Dollars (in millions)

Crop

Total revenue premium subsidies,

2003 through 2012 

Corn $13,671.6 

Soybeans $7,702.9 

Wheat $5,860.9 

Cotton $2,373.2 

Grain sorghum $632.7 

Sunflowers $248.3 

Canola $173.8 

Rice $124.9 

Barley $117.2 

Popcorn $2.5 

Source: GAO analysis of USDA’s Risk Management Agency crop insurance data. | GAO-14-700

 12According to RMA officials, the Federal Crop Insurance Act provides guidelines on the 

types of crops that are eligible for federal crop insurance.

13USDA’s Federal Crop Insurance Corporation Board of Directors approved the Pulse 

Crop Revenue Endorsements on March 1, 2012, providing revenue policy coverage for 

dry beans and dry peas starting in crop year 2013.
Page 15 GAO-14-700 Crop Insurance Premium Subsidies

The farm economy improved from 2003 through 2012, and 2012 was a 

record year for farm income, due in part to high crop prices. For example, 

median farm household income rose from 2003 to 2012 and was higher 

than the median income for all U.S. households every year during this 

period, according to ERS data.14

 14A median amount means half the households had incomes that were higher, and half 

had incomes that were lower than that figure.

More specifically, on average, median 

farm household income was $7,205, or 13.8 percent, more than median 

U.S. household income annually during this time period (in constant 2012 

dollars that reflect adjustments for inflation). Median farm household 

income was 33.9 percent higher than median income for all U.S. 

households in 2012—$68,298 compared with $51,017. Households 

associated with farms specializing in cash grains such as corn or 

soybeans had a median household income of about $82,300 in 2012, and 

median household income was even higher for those farms specializing in 

rice, tobacco, cotton, or peanuts, at about $101,400 in 2012. Figure 7 

shows the median income for farm households and for U.S. households 

from 2003 through 2012, in constant 2012 dollars that reflect adjustments 

for inflation.

Farm Income, Real 

Estate, and Asset Values 

Increased from 2003 

through 2012
Page 16 GAO-14-700 Crop Insurance Premium Subsidies

Figure 7: Median Farm and U.S. Household Income, 2003 through 2012

Farm sector income also grew from $73.8 billion in 2003 to $113.8 billion 

in 2012. Net farm and net cash income for U.S. farms from 2003 through 

2012 (in constant 2012 dollars that reflect adjustments for inflation) are 

shown in figure 8. Net farm income is the value of the agricultural goods 

produced by farm operators less the costs of inputs and services. Net 

cash income is the cash earned from the sale of these agricultural goods 

and the conversion of farm assets into cash.
Page 17 GAO-14-700 Crop Insurance Premium Subsidies

Figure 8: Net Farm and Cash Income for U.S. Farms, 2003 through 2012

Note: Net farm income is the value of the agricultural goods produced by farm operators less the 

costs of inputs and services. Net cash income is the cash earned from the sale of these agricultural 

goods and the conversion of farm assets into cash.

According to ERS data, however, net farm and net cash income are 

forecast to decrease in 2014, due principally to falling crop prices as 

compared with prior years. Net farm income is forecast to go up to $130.5 

billion in 2013, and then decline to $95.8 billion, or by about 26.6 percent

in 2014. The 2014 forecast would be the lowest since 2010, but it would 

still be $8 billion above the average of years 2004 to 2013. After adjusting 

for inflation, 2013’s net farm income would be the highest since 1973, and 

the 2014 net farm income forecast would be the seventh highest. Net

cash income is forecast at $101.9 billion for 2014, down almost 22 

percent from the 2013 forecast of $130.1.15

 15Net cash income is forecast to decline less than net farm income primarily because net 

cash income reflects the sale of more than $6 billion in carryover stocks from 2013. Net 

farm income reflects only the earnings from production that occurred in the current year.
Page 18 GAO-14-700 Crop Insurance Premium Subsidies

Farm real estate—a measurement of the value of all land and buildings 

on farms—accounted for 82 percent of the total value of U.S. farm assets 

in 2012. Because farm real estate comprises such a significant portion of 

the farm’s balance sheet, a change in the value of farm real estate is a 

strong indicator of the farm sector’s financial performance. U.S. farm real 

estate values increased by 72 percent from 2003 through 2012 due to 

high farm income and low interest rates, according to USDA data. Farm 

real estate value averaged $2,650 per acre for 2012, and the highest farm 

real estate values were in the Corn Belt region at $5,560 per acre.16

Figure 9: National Farm Real Estate Values, Average per Acre, 2003 through 2012

According to USDA data, this increase in national farm real estate values 

is forecast to continue, with an estimated average value of $2,900 per 

acre in 2013, up 9.4 percent from 2012 values. National farm real estate 

values for 2003 through 2012 (in constant 2012 dollars that reflect 

adjustments for inflation) are shown in figure 9.

According to ERS documents, a farm’s debt-to-equity ratio and the debtto-asset ratio are also major indicators of the financial well-being of the 

 16For a description of the Corn Belt region, see map in figure 6. 
Page 19 GAO-14-700 Crop Insurance Premium Subsidies

farm sector. The debt-to-equity ratio measures the relative proportion of 

funds invested by creditors (debt) and owners (equity). The debt-to-asset 

ratio measures the proportion of farm business assets that are financed 

through debt. Lower ratios signify that farmers are relying less on 

borrowed funds to finance their asset holdings. Farmers’ debt-to-equity 

ratio fell from 15.7 percent in 2003 to 12.0 percent in 2012, and their debtto-asset ratio fell from 13.6 percent in 2003 to 10.7 percent in 2012. The 

farm sector’s debt-to-equity and debt-to-asset ratios are forecast to 

continue a pattern of decline, falling to an estimated 11.8 and 10.5 

percent in 2014, respectively. According to ERS documents, these 

decreases would result in the lowest ratios for both measurements since 

1954. The historically low levels of farm debt, relative to equity and 

assets, attest to the sector’s strong financial position. ERS documents 

state that this also means the sector is better insulated from risks such as 

adverse weather, changing macroeconomic conditions in the United 

States and abroad, or fluctuations in farm asset values that may occur 

due to changing demand for agricultural assets. The steady decline in 

both ratios since the mid-1980s is due to relatively large growth in the 

value of farm assets, driven principally, according to ERS documents, by 

the increases in farm real estate values. Figure 10 shows these farm 

sector debt ratios from 2003 through 2012.
Page 20 GAO-14-700 Crop Insurance Premium Subsidies

Figure 10: Farm Sector Debt Ratios, 2003 through 2012

According to our analysis of RMA data, the federal government would 

have potentially saved more than $400 million in 2012 by reducing 

premium subsidies on federal crop insurance revenue policies by 5 

percentage points, and the savings would have been nearly $2 billion with 

a 20 percentage point premium subsidy reduction. Premium subsidy 

reductions of 5 to 20 percentage points would have in turn raised farmers’

average production costs per acre from about $1.90 to about $16.90 for 

crops such as corn, soybeans, and cotton.17

 17Production costs include, among other things, the cost of fertilizer, pesticides, fuel, labor, 

seed, and insurance.

As a percentage of the total 

production cost per acre, these increases would usually have been less 

than 2 percent and often less than 1 percent. Because farmers would be 

required to pay more for their crop insurance, reduced federal premium 

subsidies for revenue policies could affect the participation rate in the 

crop insurance program. However, the magnitude of the impact on 

Reducing Federal 

Premium Subsidies 

for Revenue Policies 

Would Potentially 

Save Millions of 

Dollars with Limited 

Costs to Individual 

Farmers
Page 21 GAO-14-700 Crop Insurance Premium Subsidies

farmers’ participation as a result of lower federal premium subsidies for 

revenue policies may be minimal.

Reducing premium subsidies for revenue policies would potentially result 

in significant savings to the federal government, according to our analysis 

of RMA data. For example, if the premium subsidies paid in 2012 had 

been reduced by 5, 10, 15, or 20 percentage points that year, the 

potential savings for corn would have been about $197 million, $394 

million, $592 million, or $789 million, respectively. Moreover, for the 10 

crops—barley, canola, corn, cotton, grain sorghum, popcorn, rice, 

soybeans, sunflowers, and wheat—that accounted for virtually 100 

percent of the premium subsidies paid for revenue policies in 2012, the 

potential savings with those levels of premium subsidy reductions would 

have been about $439 million, $878 million, $1.3 billion, and $1.8 billion, 

respectively. In 2000, when Congress enacted legislation to increase crop 

insurance premium subsidy rates, the new rates immediately became 

effective (i.e., upon enactment of the legislation).18 In contrast, according 

to RMA officials, when the agency increases the premiums charged for 

crop insurance policies based on new actuarial data, as it did in 2012, it 

generally phases in the increases over several years so the impact on 

farmers is less dramatic.19 Table 2 provides more information on the 

amount of potential savings that corresponds to the various levels of 

reduction in revenue policy premium subsidies, by crop.

 18On a policy-by-policy basis, the new rates took effect as individual farmer policies came 

up for renewal, according to RMA officials.

19According to RMA documents, as a result of a premium rate study that was completed in 

2011, RMA made adjustments to the premium rates of several crops including corn, 

soybeans, and wheat. RMA was concerned about the effect on the program if the changes 

were too dramatic and decided to phase in the rate adjustments.

A 5 Percentage Point 

Reduction in Federal 

Premium Subsidies for 

Revenue Policies Would 

Potentially Save Millions, 

and Larger Reductions 

Would Save More
Page 22 GAO-14-700 Crop Insurance Premium Subsidies

Table 2: Potential Savings from Reducing Federal Premium Subsidies for Revenue Policies, by Crop, for 2012

Dollars (in millions)

Crop

Percentage of total 

revenue policy 

premium subsidies 

received in 2012

Savings from 

5 point subsidy 

reduction

Savings from 

10 point subsidy 

reduction 

Savings from 

15 point subsidy 

reduction 

Savings from 

20 point subsidy 

reduction 

Barley 0.6% $2.5 $5.0 $7.5 $10.0 

Canola 0.7% $3.2 $6.3 $9.5 $12.6

Corn 44.7% $197.2 $394.4 $591.6 $788.8

Cotton 8.6% $36.0 $72.0 $108.0 $143.9

Grain sorghum 1.9% $8.3 $16.5 $24.8 $33.0

Popcorn 0.0% $0.2 $0.5 $0.7 $1.0

Rice 0.4% $1.4 $2.8 $4.2 $5.6

Soybeans 24.3% $106.6 $213.3 $319.9 $426.5

Sunflowers 0.8% $3.4 $6.7 $10.1 $13.5

Wheat 18.0% $80.2 $160.5 $240.7 $320.9

Total 100.0% $438.9 $877.9 $1,316.8 $1,755.8 

Source: GAO analysis of USDA’s Risk Management Agency crop insurance data. | GAO-14-700

Note: The higher savings amounts for some crops correspond to the greater share of total revenue 

policy premium subsidies received by these crops. These savings amounts also represent the 

increase in total farm costs as a result of the subsidy rate reductions.

These levels of potential savings are based on the assumption that 

farmers would not make any changes to their policies. For example, 

according to this assumption, farmers would not change from a revenue 

policy to a less expensive yield policy or leave the crop insurance 

program altogether. In addition, they are based on the assumption that 

farmers would keep their existing coverage levels. To the extent that 

farmers purchased less expensive policies, left the program, or 

purchased lower coverage levels, the potential savings would be greater 

because the total amount of federal premium subsidies required would 

decrease. In addition, the potential savings would decline if crop prices 

declined. This would occur because premiums are affected by crop 

prices—as crop prices decrease so does the value of the crops being 

insured, which results in lower crop insurance premiums. Since premium 

subsidies are a set percentage of the premiums, these subsidy amounts 

would decrease as premium amounts decreased.

We and other federal agencies have previously analyzed the potential 

savings to the federal government from reductions in premium subsidies 

to all or selected crop insurance policies. In our March 2012 report, based 
Page 23 GAO-14-700 Crop Insurance Premium Subsidies

on an analysis of RMA data, we found that if the premium subsidy rates of 

all participating farmers in 2010 and 2011 had been reduced by 10 

percentage points—from 62 percent to 52 percent—the annual cost 

savings for those years would have been about $759 million and $1.2 

billion, respectively.20

The president’s 2013 budget, which included a proposal to reduce 

premium subsidies, asserts that deep premium subsidies are no longer 

needed with the current high farmer participation rates in the crop 

insurance program. Further, in his 2014 budget, the president included 

two legislative proposals to reduce the premium subsidies to farmers. 

One proposal was to reduce the premium subsidies by 3 percentage 

points for all yield and revenue policies that had premium subsidy rates 

above 50 percent. According to the RMA’s analysis for this proposal, the 

premium subsidy reduction would save the federal government about 

$4.2 billion over 10 years. The second proposal was to reduce premium 

subsidies for revenue policies by 2 percentage points.21

In a 2013 report containing options for reducing the deficit, CBO also 

discussed a reduction in the federal government’s premium subsidy for 

crop insurance policies.

RMA estimated 

that this reduction in premium subsidies would save the government 

about $3.2 billion over a 10-year time frame. The president made a 

similar proposal in his 2015 budget but increased the subsidy rate 

reduction for revenue policies to 4 percent. RMA estimated the total 

expected savings over 10 years from that proposal would be $6.3 billion. 

However, any change in the premium subsidies would require action by 

Congress.

22

 20

According to the CBO report, of the total crop 

insurance premiums, the federal government pays about 60 percent, on 

average, and the farmers pay about 40 percent. CBO’s option proposed 

that those payment shares be reversed, with the government paying 40 

percent, and the farmers being responsible for 60 percent. If this option 

GAO-12-256.

21Specifically, the second proposal applied to revenue policies that include the harvest 

price provision. Such policies accounted for about 98 percent of the premium subsidies for 

all revenue policies in 2012. 

22CBO, Options for Reducing the Deficit: 2014 to 2023 (Washington, D.C.: November 

2013).
Page 24 GAO-14-700 Crop Insurance Premium Subsidies

were implemented, CBO estimated the federal government would save 

$22.1 billion over a 10-year period from 2014 through 2023.

Reductions to revenue policy premium subsidies of 5, 10, 15, and 20 

percentage points would result in increases in farmers’ production costs 

as the share of the premium that they pay would increase. However, our 

analysis of 2012 RMA crop insurance data indicates that changes in 

average production costs would be limited. For example, individual corn 

farmers would have experienced average premium cost increases per 

acre for their crop insurance policies of $2.81, $5.62, $8.43, or $11.24 

with premium subsidy reductions of 5, 10, 15, or 20 percentage points, 

respectively, in 2012. Those premium cost increases represent a limited 

increase in the average production costs per acre for corn farmers, 

usually less than 2 percent and often less than 1 percent. For example, 

the average production costs for corn farmers were about $656 per acre 

that year; with the premium cost increases, their production costs would 

have increased an average of 0.4 percent, 0.9 percent, 1.3 percent, and 

1.7 percent with premium subsidy reductions of 5, 10, 15, or 20 

percentage points, respectively. Table 3 provides information on the 

additional average per-acre premium costs per farmer and as a 

percentage of the average per-acre costs of production with premium 

subsidy reductions of 5 and 10 percentage points, and table 4 reflects 

those calculations with premium subsidy reductions of 15 and 20 

percentage points. Both tables are for 2012.

Table 3: Estimated Increases in Farmer Production Costs Resulting from Federal Premium Subsidy Reductions of 5 and 10 

Percentage Points, on Average per Acre and by Crop, 2012

Crop 

Percentage 

of total revenue 

policy premium 

subsidies 

received in 2012

Average 

cost of 

production 

per acre

Average 

farmer premium 

increase per 

acre with 

5 point subsidy 

reduction

Average 

increase in 

farmer premium

as a percentage

of cost of 

production for 

5 point reduction

Average 

farmer premium 

increase per 

acre with 10 

point subsidy 

reduction

Average 

increase in 

farmer premium

as a percentage 

of cost of 

production for 

10 point 

reduction

Barley 0.6% $421.44 $1.92 0.5% $3.84 0.9%

Canola 0.7% a $2.07 b $4.15 b

Corn 44.7% $655.79 $2.81 0.4% $5.62 0.9%

Cotton 8.6% $808.38 $4.23 0.5% $8.47 1.0%

Grain sorghum 1.9% $308.57 $2.51 0.8% $5.02 1.6%

Popcorn 0.0% a $3.23 b $6.45 b

Rice 0.4% $985.85 $2.16 0.2% $4.33 0.4%

Reducing Federal 

Premium Subsidies Would 

Increase Individual 

Farmers’ Average Costs 

per Acre, but the Increase 

Would Be Limited
Page 25 GAO-14-700 Crop Insurance Premium Subsidies

Crop 

Percentage 

of total revenue 

policy premium 

subsidies 

received in 2012

Average 

cost of 

production 

per acre

Average 

farmer premium 

increase per 

acre with 

5 point subsidy 

reduction

Average 

increase in 

farmer premium

as a percentage

of cost of 

production for 

5 point reduction

Average 

farmer premium 

increase per 

acre with 10 

point subsidy 

reduction

Average 

increase in 

farmer premium

as a percentage 

of cost of 

production for 

10 point 

reduction

Soybeans 24.3% $417.38 $1.92 0.5% $3.84 0.9%

Sunflowers 0.8% a $2.33 b $4.65 b

Wheat 18.0% $303.78 $2.09 0.7% $4.18 1.4%

Sources: GAO analysis of USDA’s Risk Management Agency crop insurance data and Economic Research Service (ERS) cost of production data. | GAO-14-700

a

These data are not available because, according to ERS officials, USDA is not required to collect 

such data for these crops.

b

We could not calculate the cost increases as a percentage of the production costs for these crops 

because of the missing data.

Table 4: Estimated Increases in Farmer Production Costs Resulting from Federal Premium Subsidy Reductions of 15 and 20 

Percentage Points, on Average per Acre and by Crop, 2012

Crop 

Percentage of 

total revenue 

policy subsidies 

received in 2012

Average cost 

of production 

per acre

Average farmer 

premium 

increase per acre 

with 15 point 

subsidy 

reduction

Average increase 

in farmer 

premium as a 

percentage of

cost of 

production for 15 

point reduction

Average farmer 

premium 

increase per 

acre with 20 

point subsidy 

reduction

Average increase 

in farmer 

premium as a 

percentage of 

cost of 

production for 20 

point reduction 

Barley 0.6% $421.44 $5.76 1.4% $7.69 1.8%

Canola 0.7% a $6.22 b $8.29 b

Corn 44.7% $655.79 $8.43 1.3% $11.24 1.7%

Cotton 8.6% $808.38 $12.70 1.6% $16.94 2.1%

Grain sorghum 1.9% $308.57 $7.53 2.4% $10.03 3.3%

Popcorn 0.0% a $9.68 b $12.91 b

Rice 0.4% $985.85 $6.49 0.7% $8.66 0.9%

Soybeans 24.3% $417.38 $5.76 1.4% $7.68 1.8%

Sunflowers 0.8% a $6.98 b $9.31 b

Wheat 18.0% $303.78 $6.26 2.1% $8.35 2.7%

Sources: GAO analysis of USDA’s Risk Management Agency crop insurance data and Economic Research Service (ERS) cost of production data. | GAO-14-700

a

These data are not available because, according to ERS officials, USDA is not required to collect 

such data for these crops.

b

We could not calculate the cost increases as a percentage of the production costs for these crops 

because of the missing data.
Page 26 GAO-14-700 Crop Insurance Premium Subsidies

We note that the ultimate impact of such limited production cost increases 

on farmers’ income would depend on their individual profit margins. 

However, for the industry as a whole, the impact on farmers’ income 

appears to be minimal. For example, as noted in table 2, for a 5 to 20 

percentage point reduction in subsidies, total farm costs in 2012 would 

have increased from about $0.4 billion to $1.8 billion.23 Further, as 

discussed, farm sector income in 2012 was about $114 billion. Thus, 

these increased costs, as a percentage of farm sector income, would 

have been about 0.4 to 1.6 percent.

Information on the impact to farmer participation from reductions in 

federal crop insurance premium subsidies is limited, but the economic 

literature and government information that is available suggest the impact 

may be minimal. Farm industry groups and some researchers have stated 

that changes to crop insurance premium subsidies could result in 

reductions in farmer participation and insurance coverage levels. 

However, available economic literature on the impact on farmer 

participation due to premium subsidy reductions indicates that farmers’

response to changes in premium subsidies may be small due to factors 

such as their heavy reliance on crop insurance, the attractiveness of 

revenue policies, and the increasing importance of crop insurance as 

other farm programs are reduced or eliminated.

Government studies of this issue have reached similar conclusions. A 

limited RMA analysis in support of the president’s 2014 budget proposal 

determined that a 5 percentage point premium subsidy reduction for yield 

and revenue policies would result in a limited number of farmers leaving 

the crop insurance program; that analysis determined that it was more 

likely that some farmers would purchase lower levels of policy coverage. 

According to RMA’s Chief Actuary, it is difficult to determine the effect of a 

premium subsidy change in part because of the lack of data. The task of 

determining the effect of a change is easier if there has been a major 

change in premium subsidy rates, and the impact can be assessed, this 

official said. A major change in premium subsidy rates creates a “natural 

experiment” in which to better analyze the impact to farmer participation 

from a change in subsidy rates. According to the Chief Actuary, this 

 23Table 2 amounts that show the potential savings to the government from premium 

subsidy rate reductions also represent the increase in total farm costs as a result of those 

reductions.

Impact to Farmers’

Participation in the Crop 

Insurance Program 

Resulting from Premium 

Subsidy Reductions

May Be Minimal
Page 27 GAO-14-700 Crop Insurance Premium Subsidies

“natural experiment” last occurred with the passage of the Agricultural 

Risk Protection Act in 2000 that significantly raised premium subsidy 

rates. This in turn led to an increase in farmer participation in the crop 

insurance program. However, there has been no “natural experiment” to 

analyze how reduced premium subsidy rates impact farmer participation 

because, since 2000, premium subsidy rates generally have not been 

reduced.24

CBO, in its 2013 report on options for reducing the federal deficit, also 

determined that cutting premium subsidies for crop insurance policies 

would not have a substantial effect on farmer participation in the 

program.

In the event that premium subsidy rates were reduced, actual 

information on the impact on farmer participation would be available. 

According to an RMA official, it would be a good idea to monitor the 

impact on farmer participation if Congress reduced premium subsidy 

rates.

25 Furthermore, a 2013 independent study by an ERS economist 

of the impact on farmer participation of reductions in premium subsidies 

noted that the overall demand for crop insurance appeared to be 

relatively unaffected by moderately small changes in premium 

subsidies.26

 24According to RMA officials, the subsidy rate for the risk income group policy was 

reduced in 2008 and then again in 2009. For example, in 2008, the rate was reduced by 5 

percentage points for the 75 percent coverage level. This type of policy makes up a 

relatively small component of the crop insurance program; in 2008, acres insured with this 

group policy accounted for 2.4 percent of the total insured acres. The reduction of the 

subsidy rate corresponded with a decrease in the number of acres insured with this type 

of policy, according to RMA officials. This may have been especially true after 2008 when 

the subsidy rate was increased for enterprise unit individual coverage, such as an 80 

percent subsidy rate for a 70 percent coverage level.

In addition, this study estimated that if there was a 5 percent 

reduction in crop insurance premium subsidies, corn farmers would drop 

insurance coverage for about 3 percent of their acres (i.e., leave the crop 

insurance program), soybean farmers would drop coverage for about 2 

percent of their acres, and wheat farmers would drop coverage for about 

25CBO, Options for Reducing the Deficit: 2014 to 2023 (Washington, D.C.: November 

2013).

26Erik J. O’Donoghue, The Demand for Crop Insurance: How Important are the 

Subsidies? Selected paper prepared for presentation at the Agricultural & Applied 

Economics Association’s 2013 Crop Insurance and the Farm Bill Symposium (Louisville, 

KY: Oct. 8-9, 2013). 
Page 28 GAO-14-700 Crop Insurance Premium Subsidies

4 percent of their acres.27

Stakeholder and government officials we interviewed, as well as 

documents and data we reviewed, have identified several different 

incentives that could lessen the likelihood of significant changes in farmer 

participation in the crop insurance program even if premium subsidies are 

reduced. First, even with the premium subsidy reduction, farmers would 

receive substantial premium subsidies for revenue policies. For example, 

with a premium subsidy reduction of 20 percentage points for revenue 

policies, farmers would receive an average premium subsidy rate of about 

40 percent for their premium cost, based on our analysis of 2012 RMA 

data. Second, crop insurance is important to lenders that provide loans to 

farmers to help finance their operations. According to lending 

associations that represent agriculture credit providers, crop insurance 

provides lenders with greater certainty that loans made to farmers will be 

repaid. In addition, according to an economic paper published by two 

ERS economists and a professor from the University of Illinois,

However, the study further noted that, because 

farmers rely heavily on crop insurance, these results could overestimate 

the potential impact to farmer participation and the overall number of 

farmers leaving the crop insurance program could be smaller.

28

 27ERS published a study in July 2014 that reached similar conclusions. This study 

generally showed a lower effect on farmer participation in the crop insurance program as a 

result of a 5 percent reduction in premium subsidies than shown in the 2013 independent 

study. See ERS, The Effects of Premium Subsidies on Demand for Crop Insurance, 

Economic Research Report 169 (Washington, D.C.: July 2014).

participation in crop insurance lowers revenue risk and might allow 

lenders to accept loan applications with lower collateral or applications for 

farm operations that are more leveraged. Third, farmers may not be 

inclined to exit the crop insurance program since it has emerged as the 

main safety net for farmers. According to some farm industry 

stakeholders, many farmers have made crop insurance their primary risk 

management tool. Finally, another incentive for farmer participation may 

be growing concerns among farmers about the frequency and severity of 

adverse weather events, such as floods, droughts, heat waves, and 

strong storms. According to the Secretary of Agriculture, other USDA 

officials, and some state extension officials and academic researchers, 

farmers are increasingly concerned about such weather events and their 

impact on agricultural production, including crop losses.

28Jennifer Ifft, Todd Kuethe, and Mitch Morehart, Farm Debt Use by Farms with Crop 

Insurance. Choices, Agricultural & Applied Economics Association (3rd Quarter 2013).
Page 29 GAO-14-700 Crop Insurance Premium Subsidies

Federal crop insurance plays an important role in protecting farmers from 

losses caused by natural disasters and price declines, and it has become 

one of the most important programs in the farm safety net for farmers, 

according to USDA officials and some farm industry stakeholders. 

However, with increasing budgetary pressures, it is critical that federal 

resources are targeted as effectively as possible. With record farm 

income in recent years, the subsidies, including premium subsidies, 

provided for federal crop insurance have come under increasing scrutiny. 

Reductions in premium subsidies for farmers who purchase revenue 

policies, the most common and expensive crop insurance policy type, 

present an opportunity to potentially save hundreds of millions of dollars 

per year for taxpayers with limited increases in individual farmer’s 

production costs. The president has included proposals for premium 

subsidy reductions in his fiscal year 2013, 2014, and 2015 budgets. Such 

a change would require congressional action and could either be 

implemented immediately, as in 2000, when Congress enacted legislation 

to increase premium subsidy rates, or phased in, as when RMA increases 

the premiums charged for crop insurance policies based on new actuarial 

data.

One point of discussion in the debate over premium subsidy reductions is 

the possible impact on farmer participation in the program. The crop 

insurance industry and some researchers suggest that even a modest 

premium subsidy reduction would result in some farmers lowering their 

coverage levels or dropping coverage altogether. However, the 

administration, CBO, and other researchers say that a modest reduction 

in premium subsidies would have little impact on program participation, 

and that incentives, such as the continued high level of premium 

subsidies, would likely keep farmers in the program. Although the impact 

of such a reduction is unknown, in the event that Congress reduced the 

crop insurance premium subsidy rates, actual information on the impact 

on farmer participation would be available if participation were monitored.

To reduce the cost of the crop insurance program and achieve budgetary 

savings for deficit reduction or other purposes, Congress should consider 

reducing the level of federal premium subsidies for revenue crop 

insurance policies. In doing so, Congress should consider whether to 

make the full amount of this reduction in an initial year, or to phase in the 

full amount of this reduction over several years. In addition, Congress 

should consider directing the Secretary of Agriculture to monitor and 

report on the impact, if any, of the reduction on farmer participation in the 

crop insurance program.

Conclusions

Matter for 

Congressional 

Consideration
Page 30 GAO-14-700 Crop Insurance Premium Subsidies

We provided the Secretary of Agriculture with a draft of this report for 

review and comment. In its written comments, which are reproduced in 

appendix II, USDA said it had no comment with the report’s findings. In 

addition, USDA provided technical comments, which we incorporated as 

appropriate.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to the 

appropriate congressional committees; the Secretary of Agriculture; the 

Director, Office of Management and Budget; and other interested parties. 

In addition, this report will be available at no charge on the GAO website 

at http://www.gao.gov.

If you or your staff members have any questions about this report, please 

contact me at (202) 512-3841 or fennella@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. Key contributors to this report are listed in 

appendix III.

Sincerely yours,

Anne-Marie Fennell

Director, Natural Resources and Environment

Agency Comments 

and Our Evaluation
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-14-700 Crop Insurance Premium Subsidies

Our objectives were to examine (1) trends in federal crop insurance costs 

and farm sector income and wealth from 2003 through 2012 and (2) the 

potential savings to the government and impacts to farmers, if any, of 

reducing federal premium subsidies for revenue insurance policies.

To address these objectives, we interviewed officials of the U.S. 

Department of Agriculture (USDA), including officials from the Economic 

Research Service (ERS) and Risk Management Agency (RMA), and 

reviewed documents they provided such as, for example, crop insurance 

program costs and outlays documents. We also spoke with officials at the 

Congressional Budget Office (CBO).

To address our first objective, we reviewed and analyzed RMA data on 

the government’s cost for the federal crop insurance program for the 

period 2003 through 2012. We are reporting federal crop insurance 

program costs, not outlays, because the cost numbers more accurately 

reflect the true costs for a given year. For example, much of the actual 

costs for 2012 were not determined until the following year after the 

claims adjustments were completed and the underwriting gains and 

losses determined. In contrast, outlays for 2012 do not include many of 

the costs actually incurred that year, but they do include many costs 

incurred the prior year (i.e., 2011) because of the lag time in completing 

the claims adjustments for that year. Finally, in reporting costs, not 

outlays, we are being consistent with how the program reports its costs, 

including in the audited financial statements of the Federal Crop 

Insurance Corporation. We analyzed RMA crop insurance program data 

including data on the level of premium subsidies for revenue policies, the 

top 10 states that received revenue policy premium subsidies, the 

insurance coverage levels chosen by farmers with revenue policies, and 

the crops that received the most revenue policy premium subsidies. For 

overall program costs, we analyzed fiscal year data presented in RMA’s 

cost and outlay tables. RMA data contain more detailed crop insurance 

information by crop year, which is what we used for our revenue policy 

analyses. For these analyses, we only included information on “buy-up”

policies—that is, the portion of crop insurance for which a farmer pays a 

premium. Any coverage that is purchased above the “catastrophic” level 

is considered “buy-up” coverage; this type of coverage represented 99.9 

percent of the revenue policy premium subsidies for the 2003 through 

2012 period. In addition, we only included information for individual 

revenue policies and excluded group revenue policies because these 

latter policies made up only a small portion (less than 2 percent) of the 

total premium subsidies associated with revenue policies. We selected 

the time period of 2003 through 2012 to get a representation of the trend 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-14-700 Crop Insurance Premium Subsidies

in program costs, usage of revenue policies, and financial condition of the 

farm sector. At the time of our analysis, USDA officials said that 2012 

would be the most recent year with complete and stable crop insurance 

program data. To get an understanding of trends in farm sector income 

and wealth, we reviewed and analyzed ERS data and reports on the 

overall financial condition of the farm sector, including information on net 

farm and cash income, production costs, and farm debt ratios from 2003 

through 2012, as well as information from USDA’s National Agricultural 

Statistics Service on farmland values for these years. We also reviewed 

and analyzed ERS information on forecasts for these elements of the 

farm economy, including net cash income and net farm income for 2013 

and 2014. For the purposes of this report, crop insurance costs and 

premium subsidies, which are budget-related data, are reported in 

nominal dollars, while data on median farm household and U.S. 

household income, net farm and net cash income, and farmland values 

are reported in inflation adjusted dollars, using 2012 as the reference 

year. In addition, as appropriate, we report these data in calendar, fiscal, 

or crop years,1

To address our second objective, we analyzed RMA revenue policy crop 

insurance program data for 2012 to estimate the savings to the federal 

government from reductions in premium subsidies of 5, 10, 15, and 20 

percentage points. We selected these percentages because they were in 

line with previous reductions proposed by the president’s 2014 budget 

proposal, a 2013 CBO report,

depending on how the data were reported in the source 

documents. Unless otherwise indicated, these data are in calendar years.

2 and a 2012 GAO report.3

 1

According to ERS, a crop year (also known as a marketing year) is the 12-month period 

starting with the month when the harvest of a specific crop typically begins. For example, 

the 2008 wheat crop year was June 1, 2008 through May 30, 2009.

We also 

estimated the additional production cost per acre, on average, and by 

crop type, to individual farmers as a result of these premium subsidy 

reductions. Furthermore, we compared these additional production costs 

with the total cost of production, on average, and by crop, to determine 

the percentage increase represented by these additional production 

costs. We used ERS Agricultural Resource Management Survey data for 

2

CBO, Options for Reducing the Deficit: 2014 to 2023 (Washington, D.C.: November 

2013).

3

GAO, Crop Insurance: Savings Would Result from Program Changes and Greater Use of 

Data Mining, GAO-12-256 (Washington, D.C.: Mar. 13, 2012).
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-14-700 Crop Insurance Premium Subsidies

2012, where available, to determine the average production costs, per 

acre, for barley, canola, corn, cotton, grain sorghum, popcorn, rice, 

soybeans, sunflowers, and wheat. These were the crops eligible to 

receive revenue policy premium subsidies during the period covered by 

our review. We also reviewed the available agricultural economic 

literature,4

For the various data used in our analyses, as discussed, we generally 

reviewed related documentation, interviewed knowledgeable officials, and 

reviewed related internal controls information to evaluate the reliability of 

these data. In each case, we concluded that the data were sufficiently 

reliable for the purposes of this report.

and studies by CBO, ERS, and RMA, and we spoke with 

officials from those agencies to determine any potential savings from 

reductions in crop insurance premium subsidies and the impact, if any, on 

farmers’ participation in the crop insurance program as a result of 

premium subsidy reductions. Finally, we reviewed documents from farm 

industry stakeholders on the crop insurance program.

We conducted this performance audit from May 2013 to August 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our objectives.

 4

As the focus of our work was on the sensitivity of farmer participation in the crop 

insurance program to changes in premium subsidies, we selected studies relevant to that 

question. The studies we reviewed were published between 1993 and 2013—

approximately the past 20 years. The literature goes back further, but the more recent 

studies have more relevance to the current crop insurance program. In order to ensure the 

studies were reliable and reputable, we considered mainly studies that were published in 

peer-reviewed publications or by federal agencies. In addition, the studies were reviewed 

by GAO’s Chief Economist, who is an expert in the area of agricultural economics, and 

another GAO senior economist.
Appendix II: Comments from the

U.S. Department of Agriculture

Page 34 GAO-14-700 Crop Insurance Premium Subsidies

Appendix II: Comments from the

U.S. Department of Agriculture
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 35 GAO-14-700 Crop Insurance Premium Subsidies

Anne-Marie Fennell, (202) 512-3841 or fennella@gao.gov

In addition to the individual named above, James R. Jones, Jr., Assistant 

Director; Kevin S. Bray; Michael Kendix; David Moreno; Sophia Payind; 

Kelly Rubin; and Jerry Sandau made key contributions to this report. In 

addition, Cheryl Arvidson, Gary T. Brown, and Thomas M. Cook made 

important contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
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Page 36 GAO-14-700 Crop Insurance Premium Subsidies

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Increasing the Nation’s Resilience. GAO-14-364T. Washington, D.C.: 

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Fiscal Exposures: Improving Cost Recognition in the Federal Budget. 

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Crop Insurance: Opportunities Exist to Reduce the Costs of Administering 

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Crop Insurance: Continuing Efforts Are Needed to Improve Program 

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Suggested Areas for Oversight for the 110th Congress. GAO-07-235R. 

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