History of premium subsidies
University of Illinois
The Federal Crop Insurance Act of 1980 made numerous changes to the crop insurance program, which had existed since the 1930s as an experimental program. A 30% subsidy rate for crop insurance premiums was enacted, but the subsidy was limited to the dollar value when applied to the 65% coverage level. Over time Congress increased the premium subsidy rate at all coverage levels to encourage participation. Major changes in subsidy rates occurred in the Agricultural Risk Protection Act of 2000 and Food, Conservation, and Energy Act of 2008. As an example, the Agricultural Risk Protection Act of 2000 increased the subsidy rate for Crop Revenue Coverage insurance from 18% to 55% at 75% coverage.
Federal subsidies for crop insurance premiums did not consistently exceed $1 billion per year until 2000 (see Figure 3). They then increased by around 150% both before and during the period of farm prosperity. Because the per-acre value of a crop is a key determinant of premium subsidies, premiums subsidies will likely decline if prices continue to stay low. Besides per-acre crop value, other key determinants of premium subsidies are the premium subsidy rate set by Congress, the insurance products bought by farmers since subsidy rates vary by product, and changes in the rating of risk. For example, changes in per-acre crop value likely explain only a small part of the increase in premium subsidies that occurred through the 2006 crop year, or the beginning of farm prosperity.