The authorizing legislation for the federal crop insurance program states that the purpose of the program is to promote the national welfare by improving the economic stability of agriculture. According to RMA’s mission statement, the agency provides risk-management tools, such as crop insurance, to strengthen the economic stability of agricultural producers and rural communities. Specifically, RMA’s fiscal years 2011 to 2015 strategic plan states that the agency’s goal for the federal crop insurance program is that it will provide a broad-based financial safety net for producers. The fiscal years 2011 to 2015 strategic plan includes the agency’s strategic goals and core values in support of its mission. These goals are, among other things, to continue to expand participation, ensure actuarially sound products, safeguard the integrity of the program, and to do so as responsible stewards of taxpayer dollars and with transparency. Through the federal crop insurance program, farmers insure against losses on more than 100 crops. These crops include the five major crops (corn, soybeans, wheat, cotton, and grain sorghum), as well as nursery crops and certain fruits and vegetables. According to an RMA document, the amount of federal crop insurance purchased based on planted acres is relatively high in comparison with the past for the five major crops. In 2012, corn acreage was 84 percent insured, soybean acreage was 84 percent insured, wheat acreage was 83 percent insured, cotton acreage was 94 percent insured, and grain sorghum acreage was 74 percent insured. As shown in table 1, the federal government’s crop insurance costs generally increased for fiscal years 2003 through 2013. A widespread drought and crop losses in crop year 2012 contributed to the spike in government costs to $14.1 billion in fiscal year 2012.weather conditions were more favorable, so government costs were lower than in fiscal year 2012. According to an April 2014 CBO estimate, for fiscal years 2014 through 2023, program costs are expected to average $8.9 billion annually. In crop year 2013, The 2014 farm bill included a provision that affects the dollar value that a farmer can insure when the farmer’s county has experienced substantial crop losses in previous years. RMA uses the actual production history (APH)—4 to 10 years of historical crop yields— to establish a farmer’s insurance guarantee. Existing law before the 2014 farm bill allowed a farmer to replace a low actual yield in the APH with a yield equal to 60 percent of the historical county crop yield. The 2014 farm bill enhanced this provision by allowing farmers to exclude without replacement any recorded or appraised yield from the APH calculation if the average crop yield in the county for any particular year is less than 50 percent of the 10-year county average. According to a USDA document, this provision will provide relief to farmers affected by severe weather, including drought, by allowing them to have a higher approved crop yield. In general, RMA will set increased premium rates for farmers who choose to use this option, meaning the subsidy provided by the federal government will increase. CBO estimated that this provision change will cost $357 million over the 10 years from fiscal year 2014 through fiscal year 2023. The government’s crop insurance costs are substantially higher in areas with higher crop production risks than in other areas. From 2005 through 2013, government costs per dollar of crop value in areas with higher crop production risks were over two and a half times the costs in other areas. However, RMA does not monitor and report on the government’s crop insurance costs in these higher risk areas. According to an RMA official, RMA’s county target premium rates are the best available measure of crop production risks. In the 20 percent (510) of U.S. counties with the highest average county target premium rates, these rates ranged from 20 percent to 83 percent, with a median rate of 25 percent. In comparison with other types of property and casualty insurance, 25 percent is a relatively high premium rate. For example, at 25 percent, the annual homeowner’s insurance premium on a house valued at $400,000 would be $100,000. The remaining 80 percent (2,044) of U.S. counties had lower average county target premium rates. Those rates ranged from 0.6 percent to nearly 20 percent, with the median rate of 9 percent. Figure 1 shows counties organized in groups of 20 percent based on average county target premium rates, with the darker areas representing counties with higher average county target premium rates. The color- shaded counties represent all 2,554 counties that had county target premium rates for at least one of the five major crops. Figure 2 shows the riskiest 20 percent of counties (510) in terms of average county target premium rates. These 510 higher risk counties are color-shaded on the basis of their 2013 premium dollars to show which counties purchased the most crop insurance. The Great Plains, which has areas with relatively high drought risk, had a large portion of the higher risk counties’ premium dollars. Figure 3 compares the estimated government crop insurance costs per dollar of expected crop value for the five major crops in the 510 higher risk counties with the costs in the 2,044 other U.S. counties from 2005 through 2013.year depending on weather-caused crop losses, crop prices, and farmers’ decisions about how much insurance coverage to purchase. To control for variations in crop prices and farmers’ purchase decisions, and to normalize the costs for higher risk counties and lower risk counties while still reflecting weather-caused crop losses, we expressed the estimated government costs in relation to expected crop value. As shown in figure 3, the costs in higher risk counties were substantially greater. Over the 9- year time frame, government costs averaged 14 cents per dollar of expected crop value in the higher risk counties and 5 cents per dollar in the other counties. For example, if two farms each had an expected crop value of $1 million, the higher risk farm would have had an average annual government cost of $140,000, and the lower risk farm would have had an average annual government cost of $50,000. In 2013, the higher risk counties had a government cost of 17 cents per $1 of expected crop value, 3 cents higher than the average during the time frame, and the other counties had a government cost of 5 cents per $1 of expected crop value, the same as the time frame average. RMA implemented changes to premium rates in 2014, decreasing some rates and increasing others, but our analysis of RMA data shows that, for some crops, RMA’s higher risk premium rates may not cover expected losses. RMA made changes to premium rates from 2013 to 2014, but its practice of phasing in changes to premium rates over time could have implications for actuarial soundness. Further, many premium rates in areas with higher production risks were lower than they should have been to cover expected losses and RMA’s increases to these premium rates were not as high as they could have been under the law to fully cover expected losses. We found that RMA adjusted higher risk county base premium rates and county target premium rates from 2013 to 2014 for the five major crops. The revisions in premium rates were in response to a 2010 study of its methodology and its periodic reviews of crop loss history. The changes included increases and decreases of higher risk county base premium rates and county target premium rates for each of the five major crops. On average, RMA’s various changes to premium rates from 2013 to 2014 resulted in decreases to county base premium rates and county target premium rates for corn and soybeans and increases for grain sorghum.These changes also represented an increase in the percentage of county base premium rates that were aligned with county target premium rates for corn, soybeans, cotton, and grain sorghum, but not for wheat. RMA has indicated in agency documents that it phases in new rates, especially those that require an increase, to keep premiums stable and provide farmers with predictable rates. For example, in a 2013 document, the agency reported that it planned to slowly phase in changes to county base premium rates to mitigate the impact of a 2012 drought. However, phasing in changes to premium rates can have implications for improving actuarial soundness. For example, USDA’s Office of Inspector General (OIG) reported in 2005 that, from crop years 2000 through 2003, when cotton crop losses were high relative to premiums, premium rates for cotton were decreased, unchanged, or increased only moderately and, in these same 4 years, premiums were not sufficient to cover losses. An RMA official told us that RMA uses judgment when changing county base premium rates, factoring in the agency’s goal of maintaining stability for farmers in its decisions. When county base premium rates are lower than county target premium rates, RMA is required by statute to limit annual increases in premium rates to 20 percent of what the farmer paid for the same coverage in the previous year. However, RMA uses discretion in deciding whether to raise rates by the full 20 percent or by a lesser amount (as indicated by its practice of phasing in rate changes). Based on our analysis, for the higher risk premium rates, half of county base premium rates for corn, cotton, and grain sorghum, and nearly half of county base premium rates for wheat are lower than the county target premium rates.the lower risk premium rates, most of the county base premium rates for In contrast, for corn, cotton, grain sorghum, and wheat meet or exceed county target premium rates. Figure 7 shows the percentage of county base premium rates that meet, exceed, or are lower than county target premium rates in 2014. We calculated percentage differences between county base premium rates and county target premium rates. This provided a measure of the gap between the premium rate RMA charges a farmer (the county base premium rate) and the premium rate RMA should charge a farmer (the county target premium rate).