Does Congress Want to Eliminate Private Crop Insurance?
The “Bipartisan Budget Act of 2015” is winding its way through Congress and may get voted on as early as tomorrow. This appears to be the last piece of legislation that departing Speaker of the House Boehner will be involved in before he makes way for the new Speaker.
One of the “gotchas” in the Bill is Section 201 that calls for USDA to renegotiate the agreement with private crop insurance companies by December 31, 2016 and then to renegotiate the agreement(s) at least every five years thereafter. The current farm bill allows for USDA to renegotiate, but does not require it. Additionally, the proposed bill calls for a cap of 8.9% on the amount that crop insurance companies can earned on retained premiums for the 2017 to 2026 reinsurance years (again the 10 year scoring system comes into play).
This rate of return is a substantial drop from the current 14.5% cap on earnings. This represents an immediate 38% cut in potential earnings to these companies. With many of the larger companies exiting from the crop insurance business over the last year with the current ceiling, the drop in potential earnings for these companies may cause most if not all of them to exit the crop insurance business.
There is no call for any reduction in crop insurance subsidies by farmers, but if there are no crop insurance companies in the business, it may not matter. This bill is not law yet and most of the major farm organizations have called their members to action. If you want to have crop insurance from private companies versus the government or none at all, I would suggest getting on board quickly. If you wait a few days, you may be too late.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.