Letter from Langdon: Grow a Public Option

"Crop insurance reform" turned out to be doing away with a public option, subsidizing insurance companies and handing farmers high costs and high deductibles. Is health insurance reform headed this way?

Share This:

Just over the hill in Rock Port, they have one grocery store, one pharmacy, one doctor, two banks… and seven insurance agencies.

My wife and I do business with no fewer than five different insurers (Apologies to the other two, but there’s only so much I can handle). We have insurance on our cars, our trucks, our farm machinery, our livestock, our home, ourselves, and all the things we grow here in Langdon.

Sometimes we feel “insurance poor.” But there’s a reason why we have it: without insurance, 40 years of working to get ahead could disappear in a heartbeat. If we didn’t buy insurance we could lose everything to some catastrophic event like a big twister tornado, a flood, or a costly, serious illness.

Our coverage boils down to loss threats like liability, casualty, collision, comprehensive, fire, wind, hail, flood, earthquake, life, health — and a real biggie — crop failure.

A few years ago the government set out to reform crop insurance in the nation’s breadbasket because crop insurance cost too much and didn’t offer adequate protection. Farmers who bought crop coverage did so through the local USDA office, but we had to buy supplemental policies from private insurers, too, to cover things like hail or wind damage.

Back then there was one USDA service center in nearly every county. Once the USDA started trying to pare back its presence in rural America, closing some offices and reducing services, that’s when crop insurance reform really started to gain speed.

Up until then, crop insurance coverage had been based on productivity of the land where crops were grown. If a farmer had very good land, his coverage was better and cheaper than if his land were poor. It wasn’t an effective system because it didn’t take into account that a good farmer living on poor land might actually do a better job than a poor farmer living on good land. Consequently, some didn’t want crop insurance and others couldn’t afford it, so most farmers didn’t buy federal crop insurance.

With no real crop insurance options, a lot of pressure was placed on Congress to pass costly aid packages when farmers had financial troubles due to weather or market-related disasters. As the costs of growing crops continued to rise (because of increasing petroleum, fertilizer, land, and seed prices), the government had to keep one finger on the pulse of agriculture in order to be sure it got the right medicine before too many sickly farms passed away.

That’s the equivalent of trying to anticipate when catastrophic illness will strike. It can’t be done. What generally happened was that the government reacted so slowly that it took a trip to the emergency room and way more disaster money than if USDA and Congress had practiced financial preventive medicine.

Under crop insurance reform (1994), actual productivity determined a farm’s maximum level of coverage by establishing an individual average farm yield. The type of farmland and the abilities of the farmer didn’t matter. Under reform, all that mattered was how much the farm actually had produced over the last ten years. Farmers had the option of choosing coverage as high as 85% (15% deductible) of proven yield, or as low as only 50% (50% deductible). Farms could take a larger deductible to save money or buy better coverage if circumstances warranted it.

The main idea behind crop insurance reform was to save government dollars and eliminate farms’ dependence on disaster aid in bad years. The cash values of the crop and the yield were both insured, minus the deductible. When farm profits dropped sharply due to weather extremes or even poor markets, thanks to crop insurance we’d get the “treatment” we needed at the lowest cost possible.

No matter how bad a year we had, grain farms could be covered. Livestock farms didn’t get the same consideration. They still have to go to the disaster assistance “emergency room” (Today’s dairy and hog farm troubles are good examples).

In its first versions, crop insurance reform would have been purchased from USDA in the county offices. But it didn’t take long for insurance companies to see a huge opportunity — to market insurance on behalf of USDA.  A lobbying blitz was launched on Capitol Hill to allow private insurers to be the sole marketers of crop insurance.

That’s how we got the current program: government subsidizes individual premiums so that farmers pay around 40% to 50% of the costs, the rest coming from Uncle Sam. (Keep in mind that even just half of the total premium is still a lot of money for farmers to pay. Crop insurance is expensive.) Meanwhile big insurance collects 100%.

USDA then re-insures the insurance companies, guaranteeing that they will have nothing but profits. It’s a little like writing one insurance policy for the price of two. That’s a real sweetheart deal for insurers.

Current farm program rules state that any farmer who wants to collect disaster aid has to buy crop insurance. In the beginning, for farmers who wouldn’t or couldn’t pay due to high cost, there was a public option called a CAT policy (Minimum Catastrophic Risk Protection) that farmers purchased through USDA for $50 per crop. Even with crop insurance reform, CAT coverage didn’t offer much protection other than possible small disaster payments, but some farmers were satisfied because they just wanted cheap protection against rare occurrences.

After a few years and a little well placed lobbying, USDA stopped marketing CAT policies directly to farmers and turned those over to insurers as well, and the price was doubled to $100 per crop, per county. So much for the public option.

Is health care reform being modeled on the crop insurance reform of the 1990s?
That all got me thinking about my barely affordable, high-deductible health insurance. The same thing that happened to crop insurance is taking place in the early stages of healthcare reform. In fact, I wonder if health insurance companies are using what happened with crop insurance as a model. Under several of the health care reforms now under consideration, the federal government will require everyone to buy insurance, and then will insure that the insurance companies profit.

How can health care reform ever succeed if it doesn’t offer a choice that delivers value to potential patients without breaking the bank? The public option is the only antidote to the combined lobbying powers of big insurance, big pharmaceuticals, and big health care providers.

Part of the trouble with big deductibles and high premiums is that people can get stuck with both. We have to pay the premium no matter what. And before we can collect, we have to pay the deducible too. Health care can cost thousands out of pocket with no relief from high costs, even without a serious illness.

Crop insurance has worked the same way.

Without a public option, funded in public view, we have the same problem we had before: high costs and holes in our security blanket. Instead of giving people health care opportunity, we’re simply offering “profit insurance” to a few corporations with deep pockets and K Street connections. In the end, taxpayer-customers could be stuck with higher premiums — and higher taxes to boot.

Having been through crop insurance reform, this “insurance poor” farmer thinks it’s time to plant a public option for health insurance.

 

x

News Briefs