The Reconciliation Farm Bill: The Top Five Most Problematic Changes to Farm Policy, #5

This series of articles will review the top five most problematic changes in farm policy enacted in the Reconciliation Farm Bill. For these articles, the words of James Madison can be instructive: “the mild voice of reason, pleading the cause of an enlarged and permanent interest, is but too often drowned, before public bodies as well as individuals, by the clamors of an impatient avidity for immediate and immoderate gain” (Madison, Federalist No. 42). Were it not for the protective cover of the budget reconciliation process and its fundamental warping of the deliberative process as designed in the Constitution, it is extremely unlikely that these five changes would have become law—less likely they would not have been paid for by cutting food assistance in the Supplemental Nutrition Assistance Program (SNAP). While each of these will be considered for the potential consequences for farmers and American agriculture, none of them can escape fully the shadow of SNAP. The discussion begins with number 5: the increases in premium subsidy for crop insurance.

Background

Section 508(e) of the Federal Crop Insurance Act authorizes the Federal Crop Insurance Corporation (FCIC) to pay a portion of the premium for crop insurance policies purchased by farmers for the purpose of “encouraging the broadest possible participation of producers” (7 U.S.C. §1508(e)). Known as premium subsidy, the provisions reduce the cost of crop insurance to the farmer. The federal funds are not paid directly to farmers; however, they contribute to the overall insurance fund out of which indemnities are paid for qualified losses. Premium subsidy was designed as a percentage of the amount of the premium established for the coverage level purchased by the farmer. The current schedule of rates for premium subsidy were set by Congress in the Agricultural Risk Protection Act of 2000 (P.L. 106-224). Section 10504 of the Reconciliation Farm Bill modified the premium subsidy rates (P.L. 119-21). Table 1 provides the previous premium subsidy rates and the revised rates as enacted.

Noticeable in Table 1 are the different subsidy rates depending on the coverage level purchased in the crop insurance policy. The highest rates of premium subsidy are provided for the lowest coverage levels. The Reconciliation Farm Bill provision builds upon this difference with the lowest coverage levels (except those between 50% and 55%) receiving the highest increases in subsidy rates. If the purpose of premium subsidies is to encourage farmers to participate in crop insurance, this is a curious design of the subsidies. Both the schedule and the increases provide the most encouragement for the least coverage or riskiest participation in the program. All losses from 100% down to the coverage level are born by the farmer and are generally referred to as the deductible range. Thus, at 65% coverage the farmer has to suffer a 35% loss before crop insurance indemnities are paid out.

Discussion

Premium subsidy is designed as percentage of premium, which means the dollar amount of the subsidy increases with the premium cost for crop insurance policies (e.g., 69% of 1,000 is $690, but 69% of $25,000 is $17,250). Figure 1 illustrates the total amount of premium subsidy each year for individual buy-up coverage policies, as reported by USDA’s Risk Management Agency (USDA-RMA, Summary of Business).

Premium subsidy is the most expensive component of the crop insurance program. In the Congressional Budget Office (CBO) baseline projections, premium subsidy accounts for 84.5% ($111.5 billion) of the total projected outlays for crop insurance ($131.9 billion) for fiscal years 2025 to 2034. Figure 2 illustrates the CBO cost projections for premium subsidy in the January 2025 baseline, as well as the CBO score for the increased premium subsidy in the Reconciliation Farm Bill (CBO, January 2025; July 21, 2025).

The shadow of SNAP can also be seen in Figure 2. CBO projected a score for the increased premium subsidy just over $3.1 billion (FY2025-2034). As with all costs of the changes to farm policy, the increase in premium subsidy was paid-for by cutting SNAP food assistance. For perspective on that point, at the national average SNAP benefit per person ($187.34), the total cost of increasing premium subsidy equals SNAP assistance for 16.6 million people; or, using the CBO baseline for SNAP, the cost each fiscal year of increasing premium subsidy equals SNAP benefits for between 1.4 million and 1.6 million people each fiscal year.

Premium subsidy is one part of the federal government’s contribution to crop insurance. It reduces the cost to encourage farmer participation but is not a direct subsidy to the farmer. The indemnities paid out for losses further the contribution from the federal government, combined with the contributions from those farmers who pay more for crop insurance than they receive from it. The net farmer benefit is one measure, calculated as the total indemnities minus what farmers paid (farmdoc daily, September 7, 2023; Policy Design Lab, “Crop Insurance”). Figure 4 provides an interactive map for another perspective. For each State, the total premium subsidies and indemnities are added together and compared to the total farmer paid premium for individual buy-up crop insurance policies in the ten years 2015 to 2024. The map also includes the totals for each State in those years for premium subsidies, indemnities, and farmer paid premiums, as well as each State’s share of the national total and each State’s loss ratio for these policies.

The policy value of increasing premium subsidies will likely align with the comparisons in the map and impacted by risk of losses (e.g., loss ratios) and the total indemnities paid out. Where farmers pay more in premiums than they receive from indemnities, the value of increasing premium subsidies will be reduced (red states). The value of the change will increase where farmers receive more from indemnities than they pay for insurance (blue states).

Concluding Thoughts

The #5 position was a close call between the provisions increasing premium subsidies and those adding 30 million base acres to the farm payment programs (see, farmdoc daily, July 11, 2025; July 1, 2025). Increasing premium subsidies was selected because of crop insurance’s greater importance to farmers and the higher potential that changes could have more substantive and profound consequences. A policy design that raised questions before the Reconciliation Farm Bill becomes more problematic with those changes, especially in combination with the other policy changes in the top five list to be discussed subsequently. For example, the relationship between coverage levels and risks of loss are important. If increasing premium subsidies increases participation in the riskiest areas and for the highest risk crops, it will increase the costs of crop insurance to both the taxpayer and those farmers who pay more into the program than they receive from indemnities. If higher premium subsidies at lower coverage levels encourage more farmers to buy down coverage, those farmers are carrying more risk for their farm in the deductible. If farmers who pay more for insurance than they receive are encouraged by these changes to buy down coverage, this could also impact the overall performance of crop insurance and its actuarial soundness. Farmers and policymakers both have reason to be concerned about the impacts of this change to farm policy.