Impacts of Premium Support Increase of Basic and Optional Units in House Reconciliation Bill

By Gary Schnitkey and Nick Paulson et.al

The House Reconciliation Bill includes provisions that would increase premium support rates on basic and optional units. Given that farmers do not change their policies, units, or coverage levels, we estimate this change would have increased Federal outlays and reduced farmers’ cost of premiums by $243 million for the 2024 crop year. This translates to an estimated increase in outlays of $2,178 million over CBO’s projection period from 2025 to 2034. Areas with higher total premiums — either because of higher-value crops or higher risk — would receive more benefits. The House Agriculture Committee chose not to propose increases in premium support rates on enterprise and whole-farm units, which are used on the majority of acres in much of the eastern United States.

Background on Premium Supports

Most farmers use farm-level products when insuring acres. Farm-level products include those under the COMBO plan such as Revenue Protection (RP), RP with the harvest price exclusion (RP-HPE), and Yield Protection (YP). The COMBO plan is available for most grain crops. The Actual Production History (APH) plan is a yield insurance available for specialty crops.

Farmers can make different unit choices when insuring farm-level products:

1. Basic units — all of one crop in a county with the same ownership split
2. Optional units — divisions of basic units, usually by township section,
3. Enterprise units — all of one crop in a county, and can include multi-county units which go across county,
4. Whole-farm units — combine all eligible crops in a county.

Premiums on federally insured crop insurance products are subsidized by the Federal government. Those support levels differ by coverage level and by unit. In the first column of Table 1, the current premium support rates are shown for basic and optional units. Premium support is 100% for Catastrophic coverage (CAT), a low-level coverage option. The 100% support means that farmers do not pay for CAT coverage, and the Federal government pays the entire premium. Premium support is the highest for lower coverage levels. For basic and optional units, the current premium support is 67% for the 50% coverage level, decreasing to 38% for the 85% coverage level. Enterprise and whole-farm units have a higher subsidy level than basic and optional units. For enterprise units, premium support is 80% at the 50% coverage level, decreasing to 53% for the 85% coverage level.