Crop Insurance: Reducing Subsidies for Highest Income Participants Could Save Federal Dollars with Minimal Effect on the Program
Published: 2015-03-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federally subsidized crop insurance program helps about 1 million participants manage the risk inherent in farming. In recent years, the government's costs for the crop insurance program have increased substantially, and these costs have come under scrutiny as the nation's budgetary pressures have been increasing. Unlike farm and conservation programs, the crop insurance program provides the same level of subsidies to participants regardless of their income.
GAO was asked to examine the potential effects of reducing premium subsidies for the highest income crop insurance participants. This report examines: (1) the percentage and characteristics of participants that would be affected; (2) the impact, if any, on the crop insurance program; and (3) how USDA could implement a reduction in premium subsidies for the highest income participants. GAO analyzed RMA crop insurance data and FSA data on compliance with income limits from 2009 through 2013 (most recent year of available data), analyzed RMA data to examine the impact on the program and calculate potential savings, reviewed agency guidance and industry and academic publications, and interviewed USDA officials and stakeholders.
section_title: What GAO Found
paragraphs: About 1 percent of crop insurance participants would have been affected if premium subsidies had been reduced for the highest income participants from 2009 through 2013, based on GAO's analysis of data from the U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA) and Farm Service Agency (FSA). The highest income participants were those with incomes that exceeded limits in place for farm and conservation programs. In terms of characteristics, the highest income participants insured more farmland and had more premium subsidies provided on their behalf than other participants from 2009 through 2013. However, all crop insurance participants generally insured major crops, such as corn, soybeans, and wheat, while the highest income participants were more likely to insure specialty crops such as fruits, vegetables, and nursery crops. The highest income participants also made similar choices as other participants in terms of the type of crop insurance and the levels of coverage they chose.
Reducing crop insurance subsidies for the highest income participants would have a minimal effect on the program and save millions of dollars. RMA is directed by law to adopt rates and coverages that will improve the actuarial soundness of the crop insurance program. Actuarial soundness under the program means that premiums are adequate to cover expected claims and a reasonable reserve. Based on GAO's analysis of agency data, participants' premiums generally corresponded to their likelihood of collecting claims payments, regardless of their income level. Also, the highest income participants account for only about 1 percent of the premiums in the program. As a result, their decisions to stay in or leave the program would likely not affect the crop insurance program's actuarial soundness at the national level. If premium subsidies had been reduced by 15 percentage points for the highest income participants from 2009 through 2013, the federal government would have saved more than $70 million over the 5-year period, according to GAO's analysis of agency data. The current income limit, enacted in 2014 for farm and conservation programs, would likely affect fewer crop insurance participants than did the previous limit. Consequently, the savings would be smaller.
USDA could use existing procedures to implement a reduction in subsidies for the highest income participants. FSA has procedures to verify participants' compliance with income limits applicable to some farm and conservation programs. About two-thirds of crop insurance participants, on average, participated in programs that had income limits from 2009 through 2013 and would not need to provide additional information. Opportunities exist for RMA to access FSA's eligibility data system and work with insurance companies to apply the reduction in premium subsidies for the highest income participants. According to RMA officials, administering a provision that would reduce premium subsidies for the highest income participants would pose some challenges. For example, RMA and FSA would need to reconcile certain data on participants that are subject to the income limit. However, USDA is developing procedures to administer conservation compliance requirements in the Agricultural Act of 2014 that could help administer a premium subsidy reduction for the highest income crop insurance participants.
section_title: What GAO Recommends
paragraphs: To reduce the cost of the crop insurance program and achieve budgetary savings for deficit reduction or other purposes, Congress should consider reducing premium subsidies for the highest income participants. In written comments, USDA stated that it had no comments on the draft report.

section_title: Letter
paragraphs: Federally subsidized crop insurance, which about 1 million participants  purchase to help manage the risk inherent in farming, has become one of  the most important programs in the farm safety net. Under the federal  crop insurance program, participants can insure against losses caused by  poor crop yields resulting from natural causes, declines in crop prices, or  both, for each insurable crop they produce. The U.S. Department of  Agriculture’s (USDA) Risk Management Agency (RMA) has overall  responsibility for administering the crop insurance program. RMA partners  with 19 private insurance companies that sell and service the insurance  policies and share a percentage of the risk of loss and opportunity for  gain associated with each policy. The federal government pays for (1)  part of participants’ crop insurance premiums, which averaged about 62  percent of total premiums in 2014, and (2) administrative and operating  expenses to insurance companies to cover the expense of selling and  servicing crop insurance policies.
In recent years, the government’s costs for the federal crop insurance  program have increased substantially. Federal costs for the program  averaged $3.8 billion annually for fiscal years 2004 through 2008 and  increased to $8.5 billion annually for fiscal years 2009 through 2014.  Those costs are expected to average $8.9 billion per year for fiscal years  2015 through 2024, according to the Congressional Budget Office.same time, farm income has been high. According to USDA’s Economic   At the  Research Service, net farm income reached a high of $129 billion in  2013, and although it is forecast to fall from that record beginning in 2014,  it remains above the average of the 2001 to 2010 decade. Further, other  measures of financial well-being for the farm sector have been strong. For  example, farm real estate values increased by 83 percent from 2005  through 2014, and farm debt, relative to equity and assets, has  decreased, to some of the lowest levels since the 1950s, according to  USDA. With increasing constraints on the federal budget, the cost to the  federal government of the crop insurance program has come under  scrutiny. In an October 2013 review of the federal government’s long-term  fiscal outlook, we concluded that current fiscal policy is unsustainable  over the long term and that addressing future fiscal challenges will require  looking at the entire range of federal activities and making difficult choices  in setting priorities. In 2012 and 2013 reports, we suggested that  Congress should consider reducing crop insurance costs by limiting the  amount of premium subsidies that an individual participant can receive  each year, reducing premium subsidy rates for all farmers, or using some  combination of limiting and reducing these subsidies. In August 2014, we  suggested that Congress should consider reducing the level of federal  premium subsidies for revenue crop insurance policies, and in February  2015, we recommended that RMA increase its adjustments of premium  rates in areas with higher crop production risks.
The federal crop insurance program provides the same level of premium  subsidies to participants regardless of their income. In contrast, since  2003, benefits from farm and conservation programs administered by  USDA’s Farm Service Agency (FSA) and the Natural Resources  Conservation Service (NRCS) were not available to individuals or legal  entities with incomes exceeding certain limits. Under the 2014 farm bill,  participants in those programs are not eligible for farm and conservation  payments if their 3-year average adjusted gross income (AGI) exceeds  $900,000. This income limit also applies to participants in the  Noninsured Crop Disaster Assistance Program, which provides  insurance-like protection for crops that are not covered by the federal  crop insurance program. During the debate leading up to passage of the  Agricultural Act of 2014 (the 2014 farm bill), which shifted emphasis and  funding from traditional farm programs to the crop insurance program,  various proposals were offered that would have reduced premium  subsidies for crop insurance participants with incomes exceeding a  certain limit. However, none were included in the final version of the  2014 farm bill. Some stakeholders expressed concern that high-income  participants represent less risk than the other participants, and that they  would drop out of the program if their premium subsidies were reduced,  threatening the financial soundness and viability of the entire program.  They also said that these proposals could be difficult for USDA to  implement, particularly for entities that had multiple members, all of which  would have been subject to income limits under the proposals. However,  other stakeholders said that the proposals would have saved the federal  government money and not adversely affected the program or its  participants.
You asked us to examine the potential effects of a provision that would  reduce premium subsidies for crop insurance participants with incomes  exceeding a certain limit. This report examines, if premium subsidies  were reduced for participants with the highest incomes, (1) the  percentage and characteristics of participants that would be affected; (2)  the impact, if any, on the crop insurance program; and (3) how USDA  could implement a reduction in premium subsidies for the highest income  participants.
To address these objectives, we reviewed relevant provisions of the  Food, Conservation, and Energy Act of 2008 (2008 farm bill) and the  2014 farm bill; other legislation; and USDA regulations. To address the  first objective, we matched RMA data on crop insurance participants’  characteristics and FSA data on participants’ compliance with income  limits for farm and conservation programs from 2009 through 2013, the  most recent years available. We used the FSA data because they were  the most complete data available on participants’ general income levels.  In matching the two datasets, we identified crop insurance participants  that were in both datasets and determined the percentage of participants  whose incomes exceeded limits in effect under the 2008 farm bill. For  this group, which included about two-thirds of crop insurance participants,  we also analyzed RMA data to identify other characteristics of the  participants, including their location, the crops they insured, and the  insurance plans they selected. Because we did not have FSA data for   we supplemented our  about one-third of crop insurance participants,analysis with USDA’s annual survey data about the income and other  characteristics of a sample of U.S. farm operations from 2009 through  2012, the most recent years available.
To address the second objective, we identified potential effects on the  financial soundness of the program and calculated potential government  savings. To identify any effects on the financial soundness of the crop  insurance program, we analyzed RMA data on loss experiences of, and  premiums paid for, (1) participants with the highest incomes, those whose  incomes exceeded limits under the 2008 farm bill, and (2) other  participants, from 2004 through 2013. We chose this time period to  capture variability in weather and other factors that change over time,  such as crop prices. To determine potential savings, we analyzed RMA  and FSA data to estimate the amount of subsidies paid on behalf of  participants with incomes that exceeded the limits from 2009 through  2013, and we calculated the savings that would have resulted if these  subsidies were reduced by 15 percentage points (the amount proposed in  a Senate-passed bill) or eliminated. We chose this time period because  recent years more closely reflect current program provisions and  participation levels. In addition, we reviewed USDA and other studies and  interviewed RMA officials, actuarial professionals, and academics  regarding the potential effects of reducing premium subsidies for the  highest income participants and the costs of the crop insurance program.
To address the third objective, we reviewed USDA regulations, guidance,  and other documents and prior GAO reports for information on how FSA  implements income limits for farm and conservation programs and how  RMA, FSA, and NRCS are implementing other provisions for crop  insurance participants. We also interviewed RMA, FSA, and NRCS  officials regarding the implementation of income limits and other  provisions. A more detailed discussion of our objectives, scope, and  methodology is presented in appendix I.
For the data used in our analyses, we reviewed agency documentation  related to the data systems, interviewed knowledgeable officials, and  reviewed applicable 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. We conducted this performance  audit from December 2013 to March 2015 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 audit  objectives.
subsections: section_title: Background
paragraphs: Farmers are exposed to financial losses because of production risks— droughts, floods, and other natural disasters—as well as variations in the  market prices of their crops. Through the federal crop insurance program,  participants can insure against losses on more than 100 crops. These  crops include five major crops (corn, cotton, grain sorghum, soybeans,  and wheat), which accounted for 86 percent of the program premiums in  2013, minor crops (field crops other than major crops and livestock), and  specialty crops (fruits, vegetables, nursery crops, and tree nuts). Crop  insurance participants may be individuals or legal entities—such as trusts,  partnerships, and corporations—and members of an entity may share  ownership of an insurance policy.
Participants can generally select various types of crop insurance policies,  including yield-based plans, which protect against declines in production,  and revenue-based plans, which protect against declines in production,  price, or both. Some plans, however, are not available for all crops or in  all locations. Participants may also choose between two types of  coverage: (1) catastrophic coverage, which insures 50 percent of normal  yield and 55 percent of the estimated market price of the crop, and (2)  additional or “buy-up” coverage, which insures 50 percent to 85 percent of  normal yield and up to 100 percent of the estimated market price of the  crop. Beginning in 2015, participants have the option of buying insurance  policies designed to reimburse “shallow losses,” to cover the portion of  losses that is applied toward meeting a plan’s deductible. In addition,  participants may choose what type of units (certain number of acres for a  specific crop) to insure. Basic units cover all plantings of a crop in a single  county with the same tenant and landlord; optional units are basic units  divided into smaller units by township section; and enterprise units cover  all plantings of a single crop in a county, regardless of the tenant and  landlord structure. Enterprise units are generally more geographically  diverse, so this type of unit is less risky and is charged a lower premium.
The federal government has played an active role in helping to mitigate  the effects of production risks on farm income by promoting the use of  crop insurance through subsidies of premiums. The federal government’s  premium and administrative expense subsidies for crop insurance policies  are not payments to participants, but they can be considered a financial  benefit to participants. Without a premium subsidy, crop insurance  participants would have to pay the full amount of the policy premium. And,  without an administrative expense subsidy, premiums would likely be  higher because insurance companies would have to reflect the full cost of  administering the policies in those premiums. The federal government  provides crop insurance premium subsidies in part to achieve high  participation and coverage levels. High participation and coverage levels  may reduce or eliminate the need for congressionally authorized ad hoc  disaster programs to help farmers recover from natural disasters, which  can be costly. For example, under three separate 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. In  2012, Congress did not enact ad hoc disaster assistance legislation  despite a major drought affecting a large portion of the United States.
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, the type of units covered by the policy, and  the geographic diversity of crops insured. For most policies, the statutory  subsidy rates range from 38 percent to 80 percent of the premiums. On  average, premium subsidy rates were 62 percent in 2014 for these  policies. The two new shallow loss insurance plans have premium  subsidy rates of 80 percent and 65 percent. For catastrophic coverage,  the federal government pays 100 percent of premiums, and participants  pay a $300 administrative fee for each crop that they insure in each  county. Administrative expense subsidies, which are paid to insurance  companies, are determined as a percentage of total premiums and vary  by policy type.
Unlike the crop insurance program, for more than a decade, USDA’s farm  and conservation programs have had statutory income limits setting the  maximum amount of income that participants can earn and still remain  eligible for program payments. Participants subject to the income limits  are individuals, entities, and members of entities. The 2008 farm bill set  separate limits for an individual’s or a legal entity’s farm income and  nonfarm income, and those limits were in effect from 2009 through 2013,   The income subject to both  but the limits changed in the 2014 farm bill.limits was based on AGI, as defined by the Internal Revenue Service  (IRS), or a comparable measure, and averaged over the 3 most recent  tax years. These limits varied by program and changed over time but, in  general, they specified that participants in farm programs could not  receive payments if their nonfarm income exceeded $500,000 or if their  farm income exceeded $750,000. Participants in conservation programs  generally could not receive benefits if their nonfarm income exceeded $1  million, unless at least two-thirds of their total AGI was farm income. The  2014 farm bill established a single income limit of $900,000 for farm and  conservation programs. Appendix II provides additional information  about the income limits established under the 2008 farm bill and FSA’s  enforcement of these limits.
Although the crop insurance program has no income limits for its  participants, Congress has considered establishing an income threshold  above which participants would receive reduced subsidies. In the Senate- passed version of the 2014 farm bill, crop insurance participants with AGI  in excess of $750,000, averaged over 3 years, would have had their  premium subsidies reduced by 15 percentage points. Implementation of  this provision would have been contingent on the results of a study on the  limitation’s effects. that supported the provision in the Senate-passed version of the farm  bill, but the provision was not included in the final version of the farm  bill. Also, in the House of Representatives, an amendment to its version  of the farm bill was proposed that would have eliminated premium  subsidies for participants with average AGI exceeding $250,000, but the  amendment was defeated.
The provision would not have reduced subsidies for catastrophic coverage. S. 954, 113th  Cong. § 11033, (as passed by Senate, June 10, 2012). to be eligible for premium subsidies, crop insurance participants that plant  certain crops on land that is prone to erosion must have a conservation  plan, and participants must not convert wetlands for crop production.
section_title: Few Crop Insurance Participants Would Have Been Affected if Subsidies Were Reduced for the Highest Income Participants from 2009 through 2013
paragraphs: About 1 percent of crop insurance participants would have been affected  if subsidies were reduced for the highest income participants. These  participants had some characteristics that differed from other crop  insurance participants but overall had characteristics similar to other  participants. Specifically, the highest income participants insured more  farmland and were provided more in premium subsidies than other  participants, on average. In general, however, the highest income crop  insurance participants and other participants insured farmland in the  same states, insured major crops most frequently, and made similar  choices about insurance protection.
subsections: section_title: About 1 Percent Would Have Been Affected if Subsidies Were Reduced for the Highest Income Crop Insurance Participants
paragraphs: About 1 percent of crop insurance participants that also applied for farm  and conservation programs with income limits would have been affected if  subsidies had been reduced for the highest income participants from  2009 through 2013, based on our analysis of RMA and FSA data. The  number of highest income crop insurance participants was about 7,500  annually on average but, as shown in table 1, the annual number  decreased from 2009 through 2013. An FSA official told us that this  decrease in recent years may be the result of fewer crop insurance  participants applying for farm and conservation programs after they had  been determined ineligible for these programs’ payments because of their  income. As a result, this analysis may understate the annual number of  highest income crop insurance participants. In terms of premiums, the  highest income participants accounted for about 1 percent of the  premiums annually, on average, from 2009 through 2013.
Our analysis does not include all crop insurance participants because we  relied on FSA data to determine whether they exceeded income limits,  and FSA only had data on those that also participated in farm and  conservation programs. Our analysis included about 66 percent of crop  insurance participants, which accounted for about 73 percent of  premiums. Nevertheless, results from USDA’s annual survey of a sample  of all U.S. farms confirm that less than 1 percent of crop insurance  participants would have been affected from 2009 through 2012, the most  recent year for which survey data were available. Our analysis also  does not include data from 2014, which were not available when we  conducted our review. The number of participants affected would have  been smaller if the $900,000 income limit that went into effect for farm  programs in 2014 had applied to crop insurance participants. According to  preliminary FSA data, fewer than one-half of 1 percent of farm program  participants were found to exceed this limit in 2014.
section_title: Highest Income Crop Insurance Participants Insured More Farmland and Had More Premium Subsidies Provided on Their Behalf Than Other Participants
paragraphs: The highest income participants insured more farmland and had more  premium subsidies provided on their behalf than other participants from  2009 through 2013. The highest income participants each insured about  490 acres of farmland on average, compared with about 310 acres  insured by the other participants. The highest income participants were  also associated with larger farms compared with other participants. On  average, the highest income participants were associated with policies  insuring about 2,920 acres, while other participants were associated with  policies insuring about 1,330 acres.also had more premium subsidies provided on their behalf than other  participants. Specifically, each of the highest income participants had an  average of about $8,500 in premium subsidies provided on their behalf  each year, while other participants had an average of about $7,480 each  year. Premiums, and hence premium subsidies, are based on the value of  the insured crops, and would be greater if more acres were insured and  the crop values were higher. In some cases, the highest income  participants insured considerably more acres and had considerably more  than the average amount of premium subsidies provided on their behalf.  Some examples we identified from USDA data and our analysis of the   The highest income participants  highest income crop insurance participants from 2009 through 2013  included the following:
One of the participants insured an average of more than 150,000  acres annually in multiple states. This participant grew major, minor,  and specialty crops, and operated livestock farms and other business   About $6.1 million in premium subsidies were provided  enterprises.on behalf of this participant, and the participant also collected about  $4.0 million in claims payments during the 5-year period.
The participants with the 10 highest dollar amounts in premium  subsidies each insured an average of about 39,000 acres, had an  average of about $2.6 million in premium subsidies provided on their  behalf, and collected about $2.5 million in claims payments during the  5-year period.
Some of the highest income participants received income from operating  large farms, but others received some of their income from nonfarming  sources, according to our analysis. For example, more than 70 of the crop  insurance participants we identified as among the highest income during  1 or more years from 2009 through 2013 were managers or  professionals, including attorneys, executives, or physicians. Four others,  who had net worth over $1.5 billion each in 2013, earned their wealth  from a variety of sources in addition to farming, such as mining, real  estate, sports, and information technology, according to publicly available  information. Those participants each insured an average of about 18,200  acres, had approximately $118,400 in premium subsidies provided on  their behalf, and collected about $38,300 in claims payments during the  5-year period. Further, participants that operated farms with higher annual  gross sales ($250,000 or more) were more likely to have employment in  nonfarm professions with higher wages, according to a USDA study.
section_title: Highest Income Crop Insurance Participants and Other Participants Generally Insured Farmland in the Same States and Insured Major Crops Most Frequently
paragraphs: About half of the highest income participants and 38 percent, on average,  of the other participants in the crop insurance program reported an  address in five states (Texas, Kansas, Illinois, Iowa, and California),  according to our analysis of USDA data from 2009 through 2013. The  highest income participants made up an average of about 1 percent of  crop insurance participants in three of these five states, as shown in table  2, similar to the share of highest income crop insurance participants  nationwide. Of these five states, California had the largest percentage of  highest income participants in the state. In terms of premiums, the highest  income participants accounted for 1 percent of the premiums in three of  these five states, similar to the highest income crop insurance  participants’ share of premiums nationwide. They accounted for about 11  percent of the premiums in California and 2 percent of the premiums in  Texas. The higher share of premiums in California may be partially the  result of the type of crops grown there. Specifically, specialty crops are  commonly grown in California, and such crops are often higher value and  associated with higher premiums. In Texas, FSA officials said there may  be additional sources of revenue for landowners who farm, such as  revenue from oil and gas development on their land. Appendix III contains  a complete list of the numbers and percentages of the highest income  participants in each state.
We also identified more than 20 crop insurance participants among the  highest income in 1 or more years from 2009 through 2013 that had  foreign residences such as in Canada and France.
The highest income participants insured major crops most frequently but  were more likely than other participants to insure minor and specialty  crops and receive some income from livestock. The highest income and  other participants in the crop insurance program both insured major crops  most frequently, but fewer of the highest income participants did so than  other participants. As shown in figure 1, major crops accounted for about  64 percent of the premiums of the highest income participants but 90  percent on average of the other participants’ premiums. The highest  income participants insured minor and specialty crops more frequently  and, among those crops, potatoes had the largest share of premiums.  Potatoes made up about 8 percent of the highest income participants’  premiums and about 1 percent of the other participants’ premiums.
According to USDA’s analysis of an annual survey of U.S. farms from  2009 through 2012, the highest income participants were more likely  than other participants to receive income from livestock. Specifically, an  average of 65 percent of the highest income participants received some  income from livestock, compared with 57 percent of other participants.
section_title: Highest Income Participants and Other Participants Made Similar Choices about Crop Insurance Protection
paragraphs: In selecting insurance plans, a majority of the highest income and other  participants both chose revenue plans, rather than yield plans from 2009  through 2013, but a smaller percentage of highest income participants  picked revenue plans. Revenue plans, which protect farmers against  crop revenue loss from declines in production or price, are the most  popular plan type. Revenue plans accounted for an average of about 58  percent of the highest income participants’ premiums and 82 percent of  the premiums of other participants. One reason the highest income  participants may have chosen revenue plans less often than other  participants was because they insured minor crops and specialty crops  more frequently, based on our analysis of USDA data, and not all those  crops are eligible for revenue plans, according to RMA documents. For  major crops only, revenue plans accounted for nearly the same  percentage of the highest income participants’ and other participants’  premiums (about 88 and 90 percent, respectively), according to our  analysis.
In selecting coverage levels, a majority of the highest income and other  participants chose to insure 65 to 75 percent of the expected value of  their crops from 2009 through 2013.chose catastrophic coverage and coverage levels lower than 65 percent  more often than other participants. They were less likely to choose  coverage levels higher than 75 percent than other participants. This may  be because the highest income participants insured specialty crops more  frequently, and these crops are more likely to be irrigated, which reduces  the likelihood of losses due to drought, according to academic and  industry publications.
In selecting crop insurance units, both the highest income and other  participants chose optional units more often than basic or enterprise units  from 2009 through 2013. Specifically, optional units accounted for 45 percent of the highest income participants’ premiums and 43 percent of  the other participants’ premiums. Crop insurance participants using  optional units have a higher probability of claiming losses because these  units are associated with less geographic diversity than basic units.  Enterprise units accounted for 30 percent of the premiums of the highest  income participants and 39 percent of the premiums of the other  participants. In general, enterprise units are regarded as less risky  because compared with basic or optional units they include more land  and so reflect more geographic diversity. Appendix IV contains additional  information on the characteristics of crop insurance participants.
section_title: Reducing Crop Insurance Subsidies for the Highest Income Participants Would Have Minimal Effect on the Program and Save Millions of Dollars
paragraphs: If crop insurance subsidies had been reduced for participants with the  highest incomes from 2009 through 2013, the crop insurance program,  including its actuarial soundness, would not likely be affected, according  to our analysis of FSA and RMA data. In addition, the government would  have saved tens of millions of dollars over the 5-year period. The savings  would have been greater or smaller if other factors changed, such as  participants’ choices about insurance protection, crop prices, participants’  income, or policy provisions.
subsections: section_title: The Crop Insurance Program Would Likely Remain Actuarially Sound if Subsidies Were Reduced for the Highest Income Participants
paragraphs: RMA is directed by law to adopt rates and coverages that will improve the  actuarial soundness of the crop insurance program. For the federal crop  insurance program, actuarial soundness means that the amount expected  to be paid for claims is not greater than the portion of premiums collected  that are designated to cover anticipated losses and a reasonable  reserve.participation, according to its fiscal years 2011 to 2015 strategic plan.
In addition, one of RMA’s goals is to continue to expand  We determined that if Congress enacted statutory provisions to reduce  premium subsidies for the highest income participants, it would most  likely not affect the actuarial soundness or viability of the program  because, based on our analysis of FSA and RMA data, the highest  income participants (1) do not represent a lower risk to the program than  participants in the remaining pool, (2) would be unlikely to leave the  program, and (3) represent only about 1 percent of all participants and  premiums in the program.
First, our analysis of several measures that reflect risk indicates that the  highest income participants do not represent a lower risk to the program  at the national level than do other crop insurance participants. One  measure that reflects risk— the average ratio of claims payments to total  premiums, known as the loss ratio—was 0.84 for the highest income  participants and 0.82 for other participants, from 2004 through 2013,  suggesting that premiums were commensurate with claims payments,  regardless of the income level of the participants.
Another measure that reflects risk─the loss cost ratio, which is a measure  of claims payments per unit of liability─was lower for the highest income  participants than for other participants. However, according to our  analysis, the difference could be explained by the participants’ choices in  insurance plans, suggesting that the highest income participants do not  represent a lower risk to the program. Specifically, from 2004 through  2013, the average loss cost ratio was about 6.3 percent for the highest  income participants and 8.5 percent for other participants. The lower loss  cost ratio for the highest income participants reflects, in part, that they  chose yield, rather than revenue, insurance more often than did other  participants. With yield insurance, which covers losses resulting from  declines in production, participants have a lower likelihood of making a  claim than with revenue insurance. Revenue insurance, which covers  losses resulting from declines in production, price, or both, was picked  more frequently by other participants. The highest income participants  also chose lower coverage levels, including catastrophic coverage, more  often than did other participants and, with lower coverage levels  participants are less likely to make claims under crop insurance policies.
One other measure that reflects risk, the premium rate, was about 7.5  percent charged to highest income participants compared with 10.5  percent charged to other participants. As with the loss cost ratio, this  difference is in part a reflection of participants’ choices in insurance plans.  Also, the lower premium rate for the highest income participants  corresponds to their lower likelihood of filing claims (which results in part  from their choices in insurance plans), so the portion of premiums  designated for losses for the highest income participants nationwide  would not be likely to surpass the amount of money needed to cover their  claims. Table 3 summarizes data on loss ratio, loss cost ratio, and  premium rates for the highest income and other participants from 2004  through 2013.
Second, we determined that the highest income participants would be  unlikely to leave the program in response to a reduction in subsidies. A  reduction in subsidies would require participants to pay more of their  premiums, but the effect on their overall costs would be limited because,  as we found in August 2014, premium subsidies generally represent a   Given their income  small fraction of average production costs per acre.levels, participants in the highest income category would likely be able to  afford this small increase in costs. Also, academic literature and  government information suggest that participants would not likely leave  the program because of their heavy reliance on crop insurance and the  increasing importance of crop insurance. Further, several incentives  encourage participants to retain crop insurance, such as some lenders’  requirement that farmers have crop insurance in order to obtain loans.  Rather than leaving the program in response to a reduction in subsidies, it  is more likely that participants would select lower levels of policy  coverage than they currently have, according to an RMA analysis.
Third, if all of the highest income participants left the crop insurance  program, the actuarial soundness of the program would not likely be  affected because the highest income participants represent only about 1  percent of all participants and about 1 percent of premiums in the  program. In addition, since their premiums generally correspond to their  likelihood of collecting claims payments, their decisions to stay in or leave  the program would not affect its actuarial soundness at the national level.  Consequently, RMA would not generally need to raise premium rates for  participants remaining in the pool.
section_title: Reducing Subsidies for the Highest Income Participants Would Have Saved Millions from 2009 through 2013
paragraphs: If crop insurance premium subsidies had been reduced by 15 percentage  points for the highest income participants that applied to farm and  conservation programs with income limits each year from 2009 through  2013, the federal government would have saved more than $70 million  over the 5-year period, according to our analysis of FSA and RMA data.  If premium subsidies had been eliminated altogether for this group of  highest income participants, the federal government would have saved  about $290 million over the 5-year period. However, these estimates may  understate what the actual savings would have been because, as  mentioned earlier, our analysis does not cover all crop insurance  participants. For example, our analysis does not include participants  that decided not to apply for farm and conservation programs after they  realized their incomes were too high but did participate in the crop   Furthermore, the crop insurance program is  insurance program.expanding with the new shallow loss programs under the 2014 farm bill,  and savings would be higher if these programs were subject to a subsidy  reduction for the highest income participants. The savings estimate we  discuss in this report is one of several such estimates we have calculated  in reports on the crop insurance program; these estimates are  summarized in appendix V.
Other factors, such as participants’ choices about insurance protection,  could also affect the amount of savings. For example, if some of the  highest income participants selected less expensive insurance plans or  lower coverage levels, or if they left the program in response to a  reduction in subsidies, the potential savings would be greater because  the total amount of federal premium subsidies would decrease.  Participants’ decisions could be influenced by multiple factors, including  the availability of other risk management tools to protect against crop and  revenue losses. For example, some risk management tools—such as  forward contracts that lock in a price to be paid on a future date—are not  generally available for all crops. Other risk management tools for  participants include producing a diverse range of crops and livestock,  working in off-farm occupations, or accruing enough savings to self- insure, according to some agricultural economists.
In addition to participants’ choices, several other factors could influence  federal government savings, such as crop prices, participants’ income, or  policy provisions. If crop prices changed, savings could be smaller or  larger because premiums are affected by crop prices and, as the value of  the crops being insured goes up or down, so do crop insurance  premiums. Since premium subsidies are a set percentage of the  premiums, these subsidy amounts would rise or fall along with premium  amounts. If participants’ incomes changed, the number of participants  with incomes exceeding a given threshold could also change, affecting  the amount of federal government savings. Policy provisions could also  influence savings by specifying an income threshold or reduction in  subsidies that differs from the ones used in our analysis. For example, the  $900,000 income limit for individuals that went into effect for farm  programs in 2014 affected less than one-half of 1 percent of farm  program participants, according to preliminary FSA data. If this limit  applied to crop insurance participants, and one-half of 1 percent of these  participants had their premium subsidies reduced by 15 percentage  points, assuming other factors did not change, the federal government  would save about $35 million over 5 years.
section_title: USDA Could Use Existing Procedures to Reduce Crop Insurance Subsidies for the Highest Income Participants
paragraphs: USDA could use existing procedures without adding requirements for a  majority of crop insurance participants if a statutory provision were  enacted directing USDA to reduce premium subsidies for the highest  income participants. According to FSA officials, FSA has existing  procedures to administer income limits for farm and conservation  programs that could be used to identify the highest income crop  insurance participants if such a provision were enacted. According to  RMA officials, even with information from FSA, RMA and the insurance  companies could face some challenges in administering a provision that  would reduce premium subsidies for the highest income participants.  However, RMA has procedures in place or under development that may  help administer a premium subsidy reduction for the highest income  participants.
FSA, in cooperation with the IRS, has existing procedures to verify  participants’ compliance with income limits applicable to farm and  conservation programs. FSA officials told us that these procedures could  be used to identify the highest income participants in the crop insurance  program, if required. As we reported in August 2013, FSA and the IRS  implemented an income verification process in 2009. As part of this  process, applicants certify whether their income is above or below the  limits and provide consent for the IRS to disclose certain tax-related  information to FSA. Entities that participate in farm and conservation  programs identify their members and the percentage share they comprise  in the entity because individuals, entities, and all members of those  entities are subject to income limits. FSA also verifies compliance with the  income limits for applicants that only participate in NRCS’s conservation  programs. NRCS accesses FSA’s eligibility data system—used to  document whether applicants comply with requirements including income  limits and are eligible for program benefits—to determine applicants’  compliance with income limits. FSA has existing procedures to  safeguard the privacy and confidentiality of applicants’ income  information, according to agency documents. Appendix II contains  additional information on the procedures that FSA uses to administer  income limits for farm and conservation programs.
If premium subsidies were reduced for the highest income crop insurance  participants, a majority of crop insurance participants would not need to  provide additional information to FSA, according to our analysis of agency  data from 2009 through 2013. About two-thirds of crop insurance  participants, on average, also participated in farm and conservation  programs that have income limits. In order to be eligible for these  programs, participants complete forms certifying their compliance with the  limits. This information could be used for the crop insurance program if a  similar provision were enacted. The approximately one-third of crop  insurance participants that do not already provide information to FSA  would need to complete a form certifying that their income was below the  limits and authorizing FSA to verify this information. Entities also would  need to provide FSA with information about their entity structure and their  members if they do not already provide that information. As we found, in  September 2013, participants in certain farm programs have had to  submit this information and update it as needed. FSA is currently  responsible for determining whether participants have incomes exceeding  the limits for both FSA and NRCS programs. FSA officials told us that  they could also make these determinations for crop insurance participants  that are not participating in farm and conservation programs, if needed.
If premium subsidies were reduced for the highest income crop insurance  participants, there are opportunities for RMA to work with FSA to obtain  access to FSA’s eligibility data system. This would allow RMA to identify  crop insurance participants with the highest income. Administering the  reduction of premium subsidies would involve  informing crop insurance participants and insurance companies of the  requirements, including when participants need to certify their income  and provide other needed information to FSA, and  calculating the appropriate premium subsidy amount for each crop  insurance participant.
RMA officials told us that administering a provision that would reduce  premium subsidies for the highest income participants would pose some  challenges, but these could be addressed through discussions with FSA  and the insurance companies. For example, RMA and FSA would need to  reconcile their data on entities because members of entities—which are  subject to income limits—may be reported differently for crop insurance  and farm and conservation programs, according to RMA officials.  Additionally, RMA officials said crop insurance participants’ income status  would need to be known in advance of the application for or renewal of  crop insurance policies, to allow insurance companies to quote accurate  premiums and participants to make informed decisions about their  insurance protection.
RMA has existing procedures to administer the eligibility requirements of  the crop insurance program and to reduce benefits, including premium  subsidies, under certain conditions. Some of these procedures may be  similar to those that would be needed to reduce premium subsidies for  the highest income participants. For example, RMA’s regulations and  guidance direct insurance companies to proportionally or fully reduce  coverage in policies where some or all members of an entity are ineligible  for crop insurance. In addition, RMA revised its procedures to comply  with a modification in the 2014 farm bill that calls for reducing program  benefits, including premium subsidies, for some crop insurance  participants that newly till land in certain states.insurance companies are responsible for reporting when a crop insurance  participant tills land covered in the provision, according to RMA officials.
RMA, FSA, and NRCS are also developing procedures to administer the  conservation compliance requirements in the 2014 farm bill that may help  administer premium subsidy reductions for the highest income crop  insurance participants. Agency officials told us that they expect to  promulgate program rules and issue guidance for implementation in 2015.
The 2014 farm bill expanded conservation compliance requirements,  applicable to farm program payments since 1985, to crop insurance  premium subsidies, that had been excluded from the requirement since  1996. Under the 2014 farm bill, participants are prohibited from receiving  premium subsidies if they produce agricultural commodities on land that  is prone to erosion without implementing an approved conservation plan  or obtaining an exemption or if they convert a wetland to grow agricultural  commodities. All crop insurance participants must certify their compliance  with conservation requirements by submitting a one-time form to FSA.  Some participants may also need to take additional steps, such as  developing and implementing a conservation plan that has been reviewed  and approved by the NRCS. To administer these requirements, FSA and  RMA officials said that they are currently expanding their information  sharing capabilities. For example, FSA and RMA officials told us that they  expect RMA will have access to FSA’s eligibility data system.
section_title: Conclusions
paragraphs: The federal crop insurance program plays a critical role in helping  participants manage the risk that is inherent in farming. The federal  government has promoted the use of crop insurance through premium  subsidies in part to achieve high participation and coverage levels.  However, as budgetary pressures persist, it is crucial that federal  resources are targeted as effectively as possible. Reducing premium  subsidies for the highest income crop insurance participants presents an  opportunity to save millions of taxpayer dollars with minimal effect on  participants and the program. From 2009 through 2013, if the income  thresholds in effect for farm and conservation programs had applied to  crop insurance, we estimate that about 1 percent of crop insurance  participants would have exceeded the thresholds and had their subsidies  reduced. These participants would still have access to crop insurance  and, given their income level, they would be able to afford the higher  premiums if their subsidies were reduced. Further, reducing subsidies for  the highest income participants would not likely affect the program’s  actuarial soundness or viability. USDA has existing procedures and some  under development that would help it implement a reduction in premium  subsidies for the highest income participants.
section_title: Matter for Congressional Consideration
paragraphs: To reduce the cost of the crop insurance program and achieve budgetary  savings for deficit reduction or other purposes, Congress should consider  reducing premium subsidies for the highest income participants.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for review and comment to USDA. In its  written comments, reproduced in appendix VI, USDA said it had no  comment on the draft report.
We are sending 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, the  report is 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. GAO staff who made key contributions to  this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine, if premium subsidies were reduced for  participants with the highest incomes, (1) the percentage and  characteristics of participants that would be affected; (2) the impact, if  any, on the crop insurance program; and (3) how the U.S. Department of  Agriculture (USDA) could implement a reduction in premium subsidies for  the highest income participants.
To address the first objective, we matched Risk Management Agency  (RMA) data on crop insurance participants, including individuals, entities,  and members of entities, and the Farm Service Agency (FSA) data on  farm and conservation programs’ participants from 2009 through 2013.  We used the FSA data because the agency had data on participants’  compliance with income limits for farm and conservation programs. We  chose this time frame because FSA had implemented procedures to  verify the income of program participants starting in 2009, and 2013 was  the most recent year available.
We identified crop insurance participants that were in both the RMA and  FSA datasets, either directly or through an entity, to determine whether  they exceeded income limits in effect for farm and conservation  programs. For this group, which included about two-thirds of crop  insurance participants, we determined the percentage of participants  whose incomes exceeded limits in the Food, Conservation, and Energy  Act of 2008. Specifically, these limits included, depending on the  program, average adjusted gross farm income of $750,000; average  adjusted gross nonfarm income of $500,000; or average adjusted gross  nonfarm income of $1 million, unless at least two-thirds of the average  adjusted gross income was average adjusted gross farm income. For  2012 and 2013 only, there was an additional limit of average adjusted  gross income of $1 million, including both farm income and nonfarm  income, applied for certain farm payments. We identified the number of  participants that FSA determined to be ineligible because their incomes  exceeded statutory limits, and we considered those the “highest income  participants.” We did not determine, for each statutory limit, the number of  participants with incomes exceeding it because some participants were  subject to multiple income limits, and FSA data did not always specify  which limit or limits had been exceeded by a given participant. We  included in our estimates of the number of highest income participants  those that had catastrophic coverage policies. We also used a second  analytical approach in which we assumed participants that exceeded  income limits in at least 1 year, exceeded the limits during all 5 years.  This approach allowed us to include some of the highest income  participants that may have left farm and conservation programs because  they were identified as exceeding income limits. We considered this to be  an upper estimate because some of these participants may have left for  other reasons.
We analyzed RMA data to identify the characteristics of these and other  participants for which we had income information, including the states  listed on their policies, the crops they insured, and the insurance plans  and coverage they selected. Some crop insurance participants had  shares in multiple policies in more than one state. In those cases, when  determining the number and percentage of participants in each state, we  used the state on the crop insurance policy closest to the address in  FSA’s records. The address in the FSA records is generally the  participant’s residence or business address, according to an FSA official.  We used premiums as the basis of our analysis for the crops and  insurance plans and coverage, and we assigned the dollars proportionally  based on the share of the policy or policies insured by the participants.  For example, if a policy had two individuals listed as policyholders, we  assigned 50 percent of the premium for that policy to each one. If a single  individual had shares in multiple policies, we added up his or her shares  to determine the total premiums attributed to that individual. Unless  otherwise indicated, the data we report are based on crop years.
We used additional sources of information to corroborate our analysis of  RMA and FSA data, including USDA survey data, agency documents  and reports, information from other sources such as state and state  university reports and company websites, and interviews with USDA  officials. Because about one-third of crop insurance participants did not  participate in farm and conservation programs, we did not have FSA data  on their income. To learn about the income and characteristics of the  entire population of crop insurance participants, we therefore analyzed  USDA survey data of a sample of U.S. farm operations from 2009 through  2012, the latest year available. Specifically, we reviewed data for U.S.  farm operations that had crop insurance expenditures. Of these farm  operations, we compared operations that reported exceeding any of the  income limits in effect for farm and conservation programs with those that  reported exceeding none of them. We analyzed RMA program  information such as RMA’s summary of business reports and crop policy  provisions to determine the extent to which different insurance options  were available for certain crops. For illustrative examples of the highest  income crop insurance participants, we used publicly available sources of  information such as company web sites. For example, we used  information from the websites of companies to identify the professions of  the highest income crop insurance participants. In addition, we  interviewed FSA, RMA, and Economic Research Service officials  regarding the number and characteristics of the highest income  participants and other participants in the crop insurance program.
To address the second objective, we reviewed RMA’s authorizing  legislation and analyzed RMA data to determine the effects, if any, on the  actuarial soundness of the program if premium subsidies were reduced  for the highest income crop insurance participants and savings to the  federal government. To calculate the effect, if any, on the actuarial  soundness of the crop insurance program, we analyzed the value of the  crops insured, loss experiences of, and premiums provided on behalf of  (1) the highest income participants and (2) other participants, from 2004  through 2013. Specifically, we analyzed data on three measures that  reflect risk (loss ratio, loss cost ratio, and premium rate) to determine  whether the highest income participants represented a lower risk to the  program than other participants. We reviewed USDA and other studies  and interviewed agency officials, academics, and actuarial professionals  to consider whether the highest income participants would be likely to  leave the crop insurance program if their subsidies were reduced, and we  used our findings about the percentage of crop insurance participants  who would be affected to assess the potential effects on the program if  the highest income participants did leave.
We chose the 10-year time frame to capture the effects of factors that can  change from year to year, such as crop prices, and others that are  infrequent, such as extreme weather. There are trade-offs in choosing the  number of years of data to examine. A group of actuarial experts told us  that using 5 years of data is not enough to cover the weather cycle, while  using older data is less relevant because the crop insurance program has  changed, and that at least 10 years of data are needed. Also, RMA, in its  most recent study of its methodology for setting premium rates in 2010,  found that its methodology was sound but concluded that the agency  should place more weight on loss experience from more recent years to  better account for current risks faced by farmers. Because we did not  have complete income information for 10 years, we assumed that  participants that had incomes that exceeded the limits in 1 or more years  from 2009 through 2013 were highest income for the entire period. This  method assumes that any participant identified as highest income from  2009 through 2013 was highest income from 2004 through 2013. This  does not take into account that some of these participants may not have  been highest income in each of those years. Also, there may be  participants that were not identified as highest income in 2009 through  2013 but that were highest income from 2004 through 2008. For these  estimates, the data we report are based on crop years. In addition, we  reviewed USDA studies, our prior reports, and other studies. We also  interviewed RMA officials, academics, and actuarial professionals  regarding the costs of the crop insurance program and the potential  effects on the actuarial soundness and participation in crop insurance if  premium subsidies were reduced for the highest income participants.
To calculate the potential government savings if premium subsidies were  reduced for the highest income participants, we analyzed RMA and FSA  data to estimate the amount of subsidies paid on behalf of participants  with incomes that exceeded the limits from 2009 through 2013, and we  calculated the savings that would have resulted (excluding catastrophic  policies) if these subsidies were reduced by 15 percentage points or  eliminated. These calculations were consistent with proposals raised  during the 2014 farm bill debate.have resulted if the subsidies were eliminated to provide an upper  estimate for the potential savings. We chose the 5-year time period  because recent years more closely reflect current program provisions and  participation levels.
We estimated the savings that would  To address the third objective, we reviewed USDA documents and our  prior reports to determine how USDA could administer a provision that  would reduce premium subsidies for the highest income crop insurance  participants. We reviewed the Agricultural Act of 2014, USDA regulations  and guidance, and we interviewed RMA, FSA, and NRCS officials to  determine how the agencies are implementing conservation compliance  for crop insurance and to obtain an update from FSA on how it is  administering income limits for farm and conservation programs. We  reviewed industry and academic publications and testimonies to identify  challenges that may be posed by administering a provision that would  reduce premium subsidies for the highest income participants. We also  interviewed RMA and FSA officials regarding the potential feasibility of  administering such a provision and potential challenges.
For the data used in our analyses, we generally reviewed agency  documentation, such as guidance, handbooks, and reports related to the  data systems, interviewed knowledgeable officials, and reviewed  applicable 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. We conducted this performance audit from  December 2013 to March 2015 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 audit objectives.
section_title: Appendix II: Farm Service Agency’s Procedures for Administering Income Limits for Farm and Conservation Programs
paragraphs: The Food, Conservation, and Energy Act of 2008 (2008 farm bill),  modified eligibility rules for many farm and conservation programs,  including setting separate income limits for an individual’s or legal entity’s  farm income and nonfarm income. In October 2008, we recommended  that the Farm Service Agency (FSA) work with the Internal Revenue  Service (IRS) to develop a system for verifying income eligibility for all  recipients of farm payments. FSA, in cooperation with IRS, implemented  procedures for verifying whether farm and conservation program  participants’ incomes exceeded statutory limits starting in 2009. In 2014,  FSA made changes to incorporate income limits applicable to farm and  conservation programs in the Agricultural Act of 2014 (2014 farm bill), and  made other adjustments to its procedures.
Under the 2008 farm bill, income limits for farm and conservation  programs were based on adjusted gross income (AGI) limits averaged  over the 3 most recent tax years. Specifically, participants were not  eligible to receive some farm payments if their average adjusted gross  nonfarm income exceeded $500,000; another type of farm payment if  their average adjusted gross farm income exceeded $750,000; and  conservation payments if their average adjusted gross nonfarm income  exceeded $1 million, unless at least 66.66 percent of their average AGI  was average adjusted gross farm income. Further, for 2012 and 2013  only, a $1 million average limit on total AGI, both farm and nonfarm,  applied for certain farm payments. Because these income limits applied to  individuals, under certain conditions, a married couple could collectively  earn up to $2 million in average AGI and be eligible for certain farm  payments in 2012 and 2013. The 2008 farm bill also allowed the U.S.  Department of Agriculture (USDA) to waive the income limit for  conservation payments in cases involving environmentally sensitive land  of special significance.
FSA developed procedures to apply the income limits to program  participants, as we found in August 2013. Starting in 2009, all applicants  to farm and conservation programs have had to both (1) certify their  compliance with income limits and (2) provide written consent for the IRS  to release certain information to FSA to verify their income. In 2009 and  2010, participants provided the certification and consent in two separate  forms; starting in 2011, they could use a single form. Participants that  chose not to submit a consent form were ineligible for farm and  conservation programs subject to income limits and had to refund all  payments received under these programs. For participants that provided  consent, IRS used its tax database to estimate farm income and nonfarm  income according to USDA instructions. IRS computer programs  compared these income estimates against the 2008 farm bill’s income  limits to identify participants that may have exceeded these limits, and  IRS provided the resulting list to FSA. FSA then notified potentially  ineligible participants to give them the opportunity to provide  documentation, such as tax returns, if they believed their income did not  exceed the eligibility limits. FSA state offices were to review the  information provided and determine whether participants had income  exceeding the limits. FSA also deemed participants to be noncompliant  with the limits if they (1) provided an acknowledgment that their incomes  exceeded the limits or (2) did not respond at all. FSA state offices  informed their state-level Natural Resources Conservation Service  (NRCS) counterparts of participants that were determined to have  exceeded income limits for conservation programs, so that NRCS could  recover any overpayments made to participants in its programs.
Under the 2008 farm bill, FSA also established procedures to apply  income limits to entities, members of entities, and couples who filed joint  returns, according to FSA’s regulations and handbook on payment  eligibility, payment limitations, and average AGI. Entities had to provide a  form including information about the entity, its members, and the  percentage ownership share of each member, and update it as needed.  FSA required this information to verify entities’ compliance with provisions  other than income limits that are applicable to farm programs.  Compliance with income limits was tracked through four levels of legal  entity ownership. If some individuals or entities within the four levels did  not comply with the income limits, payments were reduced by an amount  commensurate with the ineligible share. For married couples who filed  joint tax returns, FSA considered the joint income levels to make eligibility  determinations, unless a certified public accountant or attorney provided a  statement of what each individual’s income would have been had the  couple filed separate tax returns.
FSA is revising its procedures to incorporate the income limit enacted in  the 2014 farm bill and to help improve its operation, although the  procedures established to implement the limits under the 2008 farm bill  will generally remain in place. FSA is updating its forms, handbook, and  eligibility data system to reflect the revised procedures. These changes  were made because the 2014 farm bill now includes an average AGI limit  of $900,000, calculated over the 3 most recent tax years, rather than  multiple limits, and makes no distinction between farm and nonfarm  income. According to FSA officials, this limit is expected to simplify the  administration of income limits. FSA is also making changes aimed at  improving its operation. For example, starting in December 2014, FSA  has announced that it has largely automated its process for ensuring it  has certification and consent forms on file for all participants subject to  income limits.
section_title: Appendix III: Average Number and Percentage of the Highest Income Crop Insurance Participants by State, 2009 through 2013
paragraphs: States had varying numbers and percentages of the highest income crop  insurance participants of all crop insurance participants that applied to  farm and conservation programs with income limits, according to our  analysis of agency data from 2009 through 2013. About half of the  highest income participants reported an address in five states: Texas,  Kansas, Illinois, Iowa, and California. We calculated the percentage of the  highest income participants in each state of all crop insurance participants  in that state, based on (1) the number of participants and (2) premiums.  About 1 percent of crop insurance participants were highest income, on  average. The percentage of highest income participants ranged from 0.4  percent through 6.1 percent in each state. About 1 percent of the crop  insurance participants’ premiums were attributed to the highest income  participants, on average. The percentage of highest income participants’  premiums ranged from 0.3 percent through 13.9 percent in each state.  Table 4 shows the average number and percentages of the highest  income crop insurance participants by state, listed in order from highest to  lowest average numbers from 2009 through 2013.
section_title: Appendix IV: Characteristics of Crop Insurance Participants, 2009 through 2013
paragraphs: The tables below provide information on crop insurance participants by  income level. The tables provide information on the number, percentage,  and selected characteristics of the highest income and other crop  insurance participants that applied to farm and conservation programs  with income limits, as well as insurance protection choices for the highest  income participants and other participants by crop.
Table 5 shows the average annual number and percentages of the crop  insurance participants that were highest income and other participants by  number of participants, premiums, and value of insured crops. The table  shows that the percentage of crop insurance participants that were  highest income is about 1 percent, regardless of the measure used.
Table 6 shows selected characteristics per participant. The table shows  that the highest income participants had higher acres, premium subsidies,  claims, and value of insured crops per participant, on average, than other  participants.
Table 7 shows the insurance protection choices by crop insured for the  highest income and other participants. The table shows that both the  highest income participants and other participants varied in their choices  depending on the crops they insured.
section_title: Appendix V: Summary of Potential Actions and Estimated Savings for the Crop Insurance Program, 2012-2015
paragraphs: From 2012 through 2015, in addition to this report, we issued three other  reports that identified potential actions that could be taken by Congress or  the Risk Management Agency to reduce the cost of the crop insurance  program and achieve budgetary savings. Table 8 shows the reports,  potential government actions we reviewed, and estimated federal dollar  savings associated with each potential action, at the time we issued these  reports.
section_title: Appendix VI: Comments from the U.S. Department of Agriculture
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Susan Offutt (Chief  Economist), Frank Todisco (Chief Actuary), Thomas Cook (Assistant  Director), Cheryl Arvidson, Kevin Bray, Christine Feehan, Michael Kendix,  Anne Rhodes-Kline, and Ruth Solomon made key contributions to this  report.
section_title: Related GAO Products
paragraphs: Crop Insurance: In Areas with Higher Crop Production Risks, Costs Are  Greater and Premiums May Not Cover Expected Losses. GAO-15-215.  Washington, D.C.: February 9, 2015.
Crop Insurance: Considerations in Reducing Federal Premium Subsidies.  GAO-14-700. Washington, D.C.: August 8, 2014.
Farm Programs: Changes Are Needed to Eligibility Requirements for  Being Actively Involved in Farming. GAO-13-781. Washington, D.C.:  September 26, 2013.
Farm Programs: Additional Steps Needed to Help Prevent Payments to  Participants Whose Incomes Exceed Limits. GAO-13-741. Washington,  D.C.: August 29, 2013.  2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap,  and Duplication and Achieve Other Financial Benefits. GAO-13-279SP.  Washington, D.C.: April 9, 2013.
High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February  14, 2013.
Crop Insurance: Savings Would Result from Program Changes and  Greater Use of Data Mining. GAO-12-256. Washington, D.C.: March 13,  2012.
Crop Insurance: Opportunities Exist to Reduce the Costs of Administering  the Program. GAO-09-445. Washington, D.C.: April 29, 2009.
Crop Insurance: Continuing Efforts Are Needed to Improve Program  Integrity and Ensure Program Costs Are Reasonable. GAO-07-944T.  Washington, D.C.: June 7, 2007.
Crop Insurance: Continuing Efforts Are Needed to Improve Program  Integrity and Ensure Program Costs Are Reasonable. GAO-07-819T.  Washington, D.C.: May 3, 2007.
Suggested Areas for Oversight for the 110th Congress. GAO-07-235R.  Washington, D.C.: November 17, 2006.