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Insurance by Any Other Name…?

Insurance by Any Other Name…?

Wednesday, February 10, 2016

Like most Americans, I have firsthand experience on how insurance is supposed to work. I’ve had auto insurance since the end of high school when I got the keys to my first car. And I’ve paid for health insurance since my first real job out of college.

It all works roughly the same. While the plan you get and the amount you pay is based on a number of factors, by and large the idea is that you pay a premium knowing that you only get a payout if something goes wrong. That policy gives you a safety net, theoretically, so you don’t go broke if you get sick or have an accident.

And just like many Americans, I’ve never needed crop insurance. But because it’s “insurance,” you would assume that the system works roughly the same way, right?

Wrong.

Imagine if much of the time you could not only make back what you paid in premiums but also collect payouts from your policy, regardless of the circumstances.  

That’s what a new report from EWG shows is the reality of the federal crop insurance program.

Bruce Babcock, a renowned agricultural economist at Iowa State University, did the numbers and found that between 2000 and 2014, farmers on the whole got back $2.20 in claims for each $1 they paid in premiums. That’s an annual return on investment of 120 percent.

In effect, Babcock concluded, federal crop insurance more nearly resembles a lottery with really great odds than it does health or life insurance. That’s because taxpayers subsidize around 60 percent of the cost of the policies’ premiums and other overhead costs.

As Babcock says, “It is as if half of a gambler’s bet came from the casino’s money.”

It’s hard to blame growers for buying that crop insurance lottery ticket when the odds are stacked in their favor. Who wouldn’t take that bet?

And it’s not just taxpayers who bear the burden of this bloated system that masquerades as insurance.

It also leads farmers to make riskier choices that have a major impact on the health of our land and water. A great example is so-called “prevented planting” insurance, which EWG studied last year. In North and South Dakota, growers are plowing up seasonal wetlands, known to be unsuitable for farming, because of the payouts they get when they’re inevitably unable to plant a crop.

This boondoggle is especially problematic because the seasonal wetlands in the “Prairie Pothole” region are vital habitats for migratory birds and other species.

In the 2017 federal budget proposal President Obama released yesterday (Feb. 9), he called for critical reforms in federal crop insurance that would save taxpayers around $18 billion over 10 years and help stem some of this riskier behavior that is so detrimental to the environment.

Now it’s the responsibility of Congress to accept these proposals and other reforms that would change the federal crop insurance program from a can’t-lose “lottery” to a true safety net that’s fair to both taxpayers and farmers.

 

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