Since its inception in 1938, the federal crop insurance program has expanded from an ancillary program with low participation to a central pillar of federal support for agriculture. In 2015, the program provided over $102.5 billion of insurance protection (liability) for over 100 crops (excluding hay, livestock, nursery, pasture, rangeland, and forage) on about 238 million acres, or 86% of eligible acres. Policy offerings and participation were smaller for the livestock sector—$1.3 billion in liability on less than 3% of total eligible livestock inventory. From 2007 to 2016, the federal crop insurance title had the second-largest outlays in the farm bill after nutrition. Total government spending on the federal crop insurance program from crop years 2007 to 2016 ($72.1 billion) can be separated into four categories: 1. Direct benefit to producers (indemnities minus producer-paid premium), $43.2 billion (60%); 2. Delivery subsidies paid to Approved Insurance Providers (AIPs), $14.8 billion (20%); 3. Net underwriting gains to AIPs, $13.4 billion (19%); and 4. U.S. Department of Agriculture (USDA) Risk Management Agency (RMA) appropriations, $754 million (1%). This report focuses entirely on the second federal spending category—delivery subsides. Program "delivery" generally refers to selling and servicing policies. Delivery subsidies are not based on actual delivery expenses. Instead, they are calculated as a percentage of premium based on a mutually negotiated rate agreed to by AIPs and the Federal Crop Insurance Corporation (FCIC). This report explains how delivery subsidies are calculated, the limitations of publicly available data on the actual delivery expenses of AIPs, and how AIPs spend delivery subsidies. The other federal crop insurance spending categories—direct benefits to producers, net underwriting gains and losses, and RMA appropriations—are broadly discussed in CRS Report R45193, Federal Crop Insurance: Program Overview for the 115th Congress . Since 1980, federal crop insurance has operated through a shared public-private arrangement funded by taxpayers and producers. Three principal entities operate the program: 1. Private insurance companies, known as AIPs, which are the primary insurers selling and servicing the insurance policies; 2. FCIC, which reinsures the policies and subsidizes the delivery expenses of AIPs; and 3. RMA, which determines policy terms, sets premium rates, and regulates AIPs. The terms of the financial arrangement between FCIC and AIPs are set out in a mutually negotiated Standard Reinsurance Agreement (SRA). Each AIP signs an SRA with FCIC annually. Prior to 1980, USDA was wholly responsible for "delivering" policies (selling and servicing) and retaining underwriting gains and losses. The Federal Crop Insurance Act of 1980 (7 U.S.C. §§1501 et seq. , P.L. 96-365 ) created the public-private partnership with AIPs, which brought AIPs into product delivery and risk-sharing with FCIC. FCIC started paying subsidies to AIPs for delivering policies. AIPs also started sharing in underwriting gains and losses with FCIC. FCIC subsidizes AIPs' delivery costs for the two main levels of insurance coverage—catastrophic (CAT) and buy-up coverage: 1. Catastrophic Loss Adjustment Expense subsidy (CAT LAE) is for policies with CAT coverage (higher deductible); and 2. Administrative and Operating subsidy (A&O) is for policies with buy-up coverage (lower deductible). FCIC does not reimburse AIPs for their actual delivery expenses. A&O and CAT LAE are calculated as a percentage of premium but are not taken from total premium. They are paid as a separate government subsidy to AIPs. The SRA sets their amounts as follows: A&O: for delivery of buy-up coverage (lower deductibles), equals between 12% and 21.9% of premium, depending on policy type. CAT LAE: for delivery of catastrophic level coverage (higher deductibles), is fixed at 6% of premium. The 2011 SRA and subsequent SRAs established a minimum (cup) of approximately $1.0 billion and a maximum (cap) of approximately $1.3 billion per year for A&O subsidies—subject to an adjustment for inflation from 2011 to 2015—to help stabilize A&O amounts. Previously, A&O payments fluctuated widely based on crop values. However, it is unclear how this $1.0 billion to $1.3 billion value, adjusted for inflation, relates to actual delivery expenses incurred by AIPs. Although the A&O cup and the cap are finite amounts, they are described as formulas in the 2011 and subsequent SRAs. The formulas use the following defined terms: Average A&O rate : (for all eligible crop insurance contracts for the 2008 reinsurance year) the total A&O subsidy paid to all AIPs divided by total net book premium earned by all AIPs for insurance contracts for which A&O subsidy was paid by FCIC as of the January 2010 monthly settlement report. Earned premium rate: the total net book premium earned by all AIPs for the 2008 reinsurance year on all eligible crop insurance contracts for which A&O subsidy was paid by FCIC divided by total liability as of the January 2010 monthly settlement report. Total liability : the amount of liability for all eligible crop insurance contracts written by all AIPs for the 2008 reinsurance year for which A&O subsidy was paid by FCIC as of the January 2010 monthly settlement report. The 2015 and subsequent SRAs sets the cup for A&O at $1,020,485,108 using the formula in Figure 1 and the above definitions, as calculated by CRS. The 2015 SRA and subsequent SRAs sets the cap for the A&O subsidy at $1,283,432,191, as calculated by CRS using the formula in Figure 2 and the above definitions. The inflation multiplier of 1.0509 used in the cup and cap formulas in Figure 1 and Figure 2 is different in the 2011, 2012, 2013, 2014, and 2015 SRAs. Since 2015, all SRAs have had the same multiplier—1.0509 ( Table 1 ). These multipliers, which started in 2011 and ended in 2015, have had the effect of making an inflationary adjustment. The inflationary adjustment is made on the base year 2011, which had an inflation multiplier of 1.0. From reinsurance year 2011 to reinsurance year 2015, the cup increased by $49,426,865 and the cap increased by $62,162,622. Despite the increase in potential delivery-subsidy outlays represented by the cup and the cap inflation adjustment, future inflationary adjustments are not mentioned in the 2011 SRA or in any subsequent SRA. Instead, an RMA Manager's Bulletin from June 30, 2010, on the "2011 Standard Reinsurance Agreement" mentions an enclosure that outlines the changes to the inflation multipliers to the A&O cup and cap for reinsurance years 2012-2015. For each year where an inflation multiplier was changed, RMA published an Informational Memorandum announcing the changes. Table 1 provides the inflation multipliers for the A&O cup and cap for reinsurance years 2011-2018. CAT LAE, SnapBack, and some policies are excluded from the A&O cup and cap ( Table 2 ). From 2007 to 2016, annual delivery subsidies (A&O and CAT LAE combined) averaged about $1.5 billion and represented about 15% of total premium ( Figure 3 ). Since the A&O cup and cap first went into effect in 2011, the total amount spent on delivery subsidies (A&O and CAT LAE combined) has exceeded the A&O cap every year ( Figure 3 ), reflecting policies, coverages, and SnapBack that are not subject to the A&O cup and cap ( Table 2 ). RMA sets premium rates for federal crop insurance policies and does not allow AIPs to compete on price (premium). All AIPs are directed to charge the same amount of premium for the same policy to the same farmer. Lack of price competition generated concerns among some observers around two issues in particular: (1) AIPs potentially paying excessive compensation to agents to grow their portfolios and (2) AIPs and agents potentially engaging in rebating mechanisms and other devices to indirectly compete on price. Although RMA has addressed both issues through regulations and guidance, some observers assert that these issues seem to be ongoing challenges. The largest single delivery expense reported by AIPs is compensation to crop insurance agents. Crop insurance agents are largely independent agents who sell policies for multiple AIPs. Because RMA determines premium rates, AIPs cannot compete for business based on the price of a policy. Instead they tend to compete by establishing relationships with agents and by providing superior customer service. Thus, it is generally in an AIP's interest to hire successful agents. This has made for a competitive market for federal crop insurance agents. Since 2011, the SRA has set limits on the amount AIPs are allowed to pay agents. Specifically, AIPs may not pay more than 80% of A&O and CAT LAE by state as base commission to agents. However, an AIP may pay compensation up to 100% of A&O and CAT LAE by state if certain conditions are met. There is no limitation on how much any given agent may receive so long as it is within the maximum amount allowable per state.