If Crop Insurance Subsidy Disappears, Will Premiums Rise For All?
Congress continues to discuss reducing or eliminating the subsidies for crop insurance premiums for those producers whose adjusted gross income exceeds a certain level ($750,000 is a current number discussed). If these subsidies are eliminated for these farmers, it is likely that those farmers may stop participating in the RMA managed crop insurance system. Instead, they may take advantage of private insurance along with the use of captive insurance companies. A captive insurance company provides a pooling of insurance risk for these farmers along with some potential tax advantages.
If this happens at a large enough level, it is likely that the remaining pool of farmers utilizing RMA managed crop insurance may be of a “higher” risk and thus the premiums for these farmers may have to rise accordingly to offset the extra risk associated with these farmers. Even with a subsidy from the US government, the cost of crop insurance for all farmers will rise since the farmers with lower risk profiles and higher income will elect to not participate.
Therefore, Congress may need to review the unattended consequences of removing this premium subsidy for higher income farmers since it is likely it will raise all premiums for the remaining “lower-income” farmers which may not be want Congress wants to do.
We will keep you posted.
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.
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