NU Online News Service, Sept. 20, 2:34 p.m. EDT

Crop insurance underwriters and producers are up in arms over a proposal in the Obama administration tax plan that would further reduce crop-insurance subsidies by an estimated $8.3 billion over 10 years.

Tom Zacharias, president of National Crop Insurance Services, Overland Park, Kan., says that "the federal crop-insurance program has already contributed more than $4 billion towards deficit reduction, and $12 billion overall in spending reductions since 2008.

"Congress needs to evaluate the economic impact of weakening the primary safety net on which farmers and our rural economy can rely," he adds. 

Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America, says the president's decision "will drastically change the program as we know it today and have a crippling effect on its intended beneficiaries—farmers and ranchers."

Symington says the program "is still reeling from the huge cuts" it sustained in both the 2008 Farm Bill and the 2010 Standard Reinsurance Agreement.

"When asked, farmers have consistently stressed that ensuring a strong safety net is vital to the future of the nation's farming communities," Symington said. The IIABA "urges the administration to focus on a strategy to improve this vital program, which promotes job growth and prosperity in rural America."

The new cuts are in addition to the $6 billion in budget cuts for the program over 10 years implemented last year. Those cuts included limits on commissions paid to insurance agents who sell crop insurance.

The proposals are included in an 80-page, 10-year deficit reduction plan that includes $1.57 trillion in tax hikes, mostly on the rich, as well as $580 billion in cuts to "mandatory" programs, including $320 billion in cuts to federal health programs such as Medicare and Medicaid. 

The 2010 standard reinsurance agreement, approved last July, was aimed at saving $6 billion over 10 years from administrative expense reimbursement and underwriting gains while also improving service to underserved states.

The new proposal calls for lowering crop insurance companies' return on investment from the current projected 14 percent to the 12 percent target of the program. This cut would save $2 billion over 10 years, President Obama says in the budget proposal.

The administration proposes to save an additional $3.7 billion over 10 years by capping administrative expenses based on 2006 premiums rather than the current 2010 premiums. This is designed to neutralize the spike in commodity prices over the last four years.

The administration also proposes to price more accurately the premium for catastrophic coverage policies, which will slightly lower the reimbursement to crop insurance companies.

Since the premium for Cat coverage is fully subsidized for the farmer, farmers would not be hurt by the change, the administration says, adding that it will save $600 million over 10 years.

The administration also proposes changes in subsidies for producers, which would save $2 billion over 10 years.

Farmers who have premium subsidies of 50 percent or less would not be affected, the proposal says.

In a statement, Zacharias said, "The plan is devastating to those in agriculture, particularly in a year that has seen extremely volatile commodity prices and weather events—from droughts in Texas and Oklahoma to floods in the Northeast and Midwest.