MILWAUKEE (AP) -- Wisconsin Reps. Ron Kind and Tom Petri put forward a crop insurance reform plan Wednesday that they say will save the federal government $11 billion over the next 10 years.
Kind, a Democrat, and Petri, a Republican, announced their plan as work continued in Congress on a new farm bill. Kind said they will introduce their legislation as an amendment to the farm bill when it hits the House floor.
Farmers buy crop insurance from private companies, but the federal government subsidizes premiums, picks up the tab for losses over a certain amount, covers some of insurers' costs and guarantees them a certain profit. The Wisconsin representatives' plan would cap the government's costs on most of these elements, shifting some of the burden to farmers and insurance companies.
"We feel the current version of the farm bill being worked on is in need of improvement . . . so it is more fiscally responsible," said Kind, of La Crosse. He continued, "Our fear is that by loading up the current crop insurance program, the way it is right now, it's virtually taking all risk out of planting decisions, which will leave the taxpayers on the hook, which will distort the market and which could potentially get us into trouble through (World Trade Organization) violations in the future."
Crop insurance pays farmers when their harvest is damaged by flooding, drought and other natural disasters. According to the Federal Crop Insurance Corp., a record $17.2 billion in claims have been filed for 2012 after the worst drought in decades struck two-thirds of the nation. That follows $10.8 billion in claims filed for 2011, when there was a severe drought in Texas and the Southwest and massive flooding along the Mississippi and Missouri rivers.
Farmers have pushed for expanded crop insurance to protect them from such disasters. They say it is a better, more predictable alternative to disaster aid, which requires Congressional action and can take a long time to pay.
But Kind said current crop insurance programs disproportionately benefit the biggest farms. More than half of the money goes to just 10 percent of farmers, he said. To address that, he would cap the total value of crop insurance subsidies each farmer could receive at $40,000 per year and eliminate premium subsidies for those who earn more than $250,000.
An annual $40,000 per farmer cap would have saved the federal government $1 billion of the $7.4 billion it spent on premium subsidies in 2011, according to the U.S. Government Accountability Office.
The Kind-Petri plan also would cut insurers' government-guaranteed profit from 14 percent to 12 percent and limit the government's responsibility for insurers' administrative and operating costs to $900 million per year. It now pays all of those costs, which average about $1.3 billion per year. A summary provided by Petri's office said those two changes would save more than $4.8 billion over 10 years.
Petri, of Fond du Lac, said the changes would force farmers to reassess where they plant and how much.
"When you have crop insurance that is subsidized, farmers are encouraged to plant each year on land that's very marginal," he said. "It's bad for the environment that way too, and the crop fails but they get — they basically are farming the government or the insurance rather than the land."
Kind and Petri both advocate requiring farmers in the crop insurance program to participate in land conservation efforts.
The Crop Insurance and Reinsurance Bureau, which represents insurers, issued a statement opposing the Kind-Petri plan, saying it would weaken a system "already stretched thin by more than $12 billion in legislative and administrative cuts since 2008."
"Making crop insurance protection unaffordable would cause producers to reduce program participation and result in a higher risk pool of insured producers, higher loss ratios over time and increased premium rates for those who remain in the program," it said.
The U.S. Department of Agriculture and American Farm Bureau did not immediately respond to requests for comment on the plan.