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Why Not Fix It?, William H. Lane 2016 Gettysburg College

Why Not Fix It?, William H. Lane

English Faculty Publications

Have you felt the pinch of rising health care costs this year? If not, maybe you haven't actually needed to see a doctor or pay for a prescription. Even those of us who are lucky enough to be "covered" at work have noticed rapidly rising deductibles and copays - and shrinking networks of providers. Employers, facing a big, one-year increase in insurance costs, naturally enough go shopping for a new plan. But the big savings with a new plan often mean a big effective pay cut for everyone who's covered under it when employee contributions, deductibles and copays all ...


Time To Revisit Crop Insurance Premium Subsidies?, Bruce A. Babcock 2016 Iowa State University

Time To Revisit Crop Insurance Premium Subsidies?, Bruce A. Babcock

Bruce Babcock

In 2000, Congress decided to move away from a fixed-dollar-per-acre premium subsidy to a subsidy percentage that applies to any crop insurance product offered. This change reduced the cost to farmers of moving from yield insurance to revenue insurance by more than 50%. In addition, Congress decided to pay a large proportion of the additional premium for higher coverage levels, paying for more than half the cost of moving from the 65% to the 75% coverage level and about 25% of the additional cost of moving from 75% to 80% coverage. Not surprisingly, farmers responded to these lower costs by ...


Livestock Revenue Insurance, Chad E. Hart, Bruce A. Babcock, Dermot J. Hayes 2016 Iowa State University

Livestock Revenue Insurance, Chad E. Hart, Bruce A. Babcock, Dermot J. Hayes

Bruce Babcock

This study outlines several possible structures for livestock revenue insurance. The policies take the form of an exotic option—an Asian basket option. The actuarially fair premiums for these policies are equal to the prices of the options they represent. Due to the complexity of pricing Asian basket options, we have combined two techniques for pricing options to reach the actuarially fair premiums. Projected premiums, producer welfare, and program efficiency are evaluated for the insurance products and existing market tools. Using efficiency ratios and certainty equivalent returns, we compare the insurance policies to strategies involving existing futures and options.


Input Demand Under Yield And Revenue Insurance, Bruce A. Babcock, David A. Hennessy 2016 Iowa State University

Input Demand Under Yield And Revenue Insurance, Bruce A. Babcock, David A. Hennessy

David Hennessy

The question of how insurance programs affect agricultural input use is commanding increasing attention. Previous studies disagree on the likely effects of insurance on fertilizer application rates. Whether insurance is a complement or a substitute for fertilizer depends, in part, on whether the probability of low yields is positively or negatively affected by increased fertilizer rates. This study uses field-level data measuring the response of corn yields to nitrogen fertilizer to determine if the technical relationship between yield and nitrogen fertilizer supports the hypothesis that crop insurance or revenue insurance could induce increased application rates. Our results indicate no support ...


The Safety Net Of Farming: An Introduction And Literature Review Of Agricultural Insurance And Other Stabilization Policies And Proposals, Chad E. Hart, Darnell B. Smith 2016 Iowa State University

The Safety Net Of Farming: An Introduction And Literature Review Of Agricultural Insurance And Other Stabilization Policies And Proposals, Chad E. Hart, Darnell B. Smith

Chad Hart

With the pending debate on the 1995 Farm Bill, crop insurance and disaster assistance have become major topics for discussion. This paper explores the performance of the current MPCI program and presents alternative programs. The need for a unified approach to ease the problem of agricultural instability is addressed.


Price Analysis, Risk Assessment, And Insurance For Organic Crops, Ariel Singerman, Chad E. Hart, Sergio H. Lence 2016 Iowa State University

Price Analysis, Risk Assessment, And Insurance For Organic Crops, Ariel Singerman, Chad E. Hart, Sergio H. Lence

Chad Hart

In recent years, the organic sector has grown steadily and significantly. However, little economic research has been performed on risk management in organic agriculture, likely because of the lack of available data. This lack of data may also be why the creation of the current crop insurance policy for organic farmers has been so ad hoc.

The Agricultural Risk Protection Act of 2000 recognized organic farming as a “good farming practice,” making federal crop insurance coverage available for organic crops, and taking into account the idiosyncrasies of the organic production system. In addition to the production risks covered for conventional ...


Insuring Uncertainty In Value-Added Agriculture: Ethanol Production, Nicholas D. Paulson, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes 2016 Iowa State University

Insuring Uncertainty In Value-Added Agriculture: Ethanol Production, Nicholas D. Paulson, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes

Chad Hart

A wide variety of insurance products is available to agricultural producers to insure against yield or price risks in the markets for the raw commodities they produce. Value-added enterprises, such as ethanol production, have been expanding over the last decade. This paper outlines the development of an insurance product aimed at corn producers who are members of an ethanol production cooperative. The product has the potential to provide these producers with a new and useful risk management tool to insure against price risks in the markets for corn, distillers dried grains with solubles (DDGS), ethanol, and natural gas. Monte Carlo ...


Insuring Eggs In Baskets, Chad E. Hart, Dermot J. Hayes, Bruce A. Babcock 2016 Iowa State University

Insuring Eggs In Baskets, Chad E. Hart, Dermot J. Hayes, Bruce A. Babcock

Chad Hart

The vast majority of crop and revenue insurance policies sold in the United States are single-crop policies that insure against low yields or low revenues for each crop grown on a particular farm. This practice of insuring one crop at a time runs counter to the traditional risk management practice of diversifying across several enterprises to avoid putting all of ones eggs in a single basket. This paper examines the construction of whole-farm crop revenue insurance programs to include livestock. The whole-farm insurance product covers crop revenues from corn and soybeans and livestock revenues from hog production. The results show ...


Livestock Revenue Insurance, Chad E. Hart, Bruce A. Babcock, Dermot J. Hayes 2016 Iowa State University

Livestock Revenue Insurance, Chad E. Hart, Bruce A. Babcock, Dermot J. Hayes

Chad Hart

This study outlines several possible structures for livestock revenue insurance. The policies take the form of an exotic option—an Asian basket option. The actuarially fair premiums for these policies are equal to the prices of the options they represent. Due to the complexity of pricing Asian basket options, we have combined two techniques for pricing options to reach the actuarially fair premiums. Projected premiums, producer welfare, and program efficiency are evaluated for the insurance products and existing market tools. Using efficiency ratios and certainty equivalent returns, we compare the insurance policies to strategies involving existing futures and options.


Estimating The Costs Of Mpci Under The 1994 Crop Insurance Reform Act, Chad E. Hart, Darnell B. Smith 2016 Iowa State University

Estimating The Costs Of Mpci Under The 1994 Crop Insurance Reform Act, Chad E. Hart, Darnell B. Smith

Chad Hart

The 1994 Crop Insurance Reform Act addressed two major problems of MPCI (multiple peril crop insurance): low participation and additional disaster assistance. In this study, total government costs for the FCIC (Federal Crop Insurance Corporation) and MPCI are estimated to be more than $2 billion, on average, from 1996 to 2003, with half of this amount being in the form of premium subsidies paid by the government.


Crop Insurance Rates And The Laws Of Probability, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes 2016 Iowa State University

Crop Insurance Rates And The Laws Of Probability, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes

Chad Hart

Increased crop insurance subsidies have increased the demand for insurance at coverage levels higher than the traditional level of 65 percent. Premium rates for higher levels of yield insurance under the Federal Actual Production History (APH) program equal the premium rate at the 65 percent coverage level multiplied by a rate relativity factor that varies by coverage level but not by crop or region. In this paper, we examine the consistency of these constant rate relativity factors with the laws of probability by determining the maximum 65 percent premium rate that is consistent with a well-defined yield distribution. We find ...


Aflatoxin: Crop Insurance, Charles R. Hurburgh Jr., Chad E. Hart 2016 Iowa State University

Aflatoxin: Crop Insurance, Charles R. Hurburgh Jr., Chad E. Hart

Chad Hart

Aflatoxin is covered under multi-peril crop insurance. The settlement is done as a deducted percentage of actual yield depending on the aflatoxin level. Producers will receive the grain after settlement.


Insuring Eggs In Baskets, Chad E. Hart, Dermot J. Hayes, Bruce A. Babcock 2016 Iowa State University

Insuring Eggs In Baskets, Chad E. Hart, Dermot J. Hayes, Bruce A. Babcock

Bruce Babcock

The vast majority of crop and revenue insurance policies sold in the United States are single-crop policies that insure against low yields or low revenues for each crop grown on a particular farm. This practice of insuring one crop at a time runs counter to the traditional risk management practice of diversifying across several enterprises to avoid putting all of ones eggs in a single basket. This paper examines the construction of whole-farm crop revenue insurance programs to include livestock. The whole-farm insurance product covers crop revenues from corn and soybeans and livestock revenues from hog production. The results show ...


Insuring Uncertainty In Value-Added Agriculture: Ethanol Production, Nicholas D. Paulson, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes 2016 Iowa State University

Insuring Uncertainty In Value-Added Agriculture: Ethanol Production, Nicholas D. Paulson, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes

Bruce Babcock

A wide variety of insurance products is available to agricultural producers to insure against yield or price risks in the markets for the raw commodities they produce. Value-added enterprises, such as ethanol production, have been expanding over the last decade. This paper outlines the development of an insurance product aimed at corn producers who are members of an ethanol production cooperative. The product has the potential to provide these producers with a new and useful risk management tool to insure against price risks in the markets for corn, distillers dried grains with solubles (DDGS), ethanol, and natural gas. Monte Carlo ...


Input Demand Under Yield And Revenue Insurance, Bruce A. Babcock, David A. Hennessy 2016 Iowa State University

Input Demand Under Yield And Revenue Insurance, Bruce A. Babcock, David A. Hennessy

Bruce Babcock

The question of how insurance programs affect agricultural input use is commanding increasing attention. Previous studies disagree on the likely effects of insurance on fertilizer application rates. Whether insurance is a complement or a substitute for fertilizer depends, in part, on whether the probability of low yields is positively or negatively affected by increased fertilizer rates. This study uses field-level data measuring the response of corn yields to nitrogen fertilizer to determine if the technical relationship between yield and nitrogen fertilizer supports the hypothesis that crop insurance or revenue insurance could induce increased application rates. Our results indicate no support ...


Examining The Health Of The U.S. Crop Insurance Industry, Bruce A. Babcock 2016 Iowa State University

Examining The Health Of The U.S. Crop Insurance Industry, Bruce A. Babcock

Bruce Babcock

In late September the Risk Management Agency (RMA) of USDA released the results of commissioned studies that calculated the rate of return that U.S. crop insurance companies have received from selling multi-peril crop insurance (MPCI). Since 2000, the average annual rate of return on equity has been 19 percent. The study also estimated that a reasonable rate of return over the same time period for this line of business would be about 11 percent. One straightforward interpretation of this difference is that since 2000, the crop insurance industry has received a rate of return that is 72 percent higher ...


Crop Insurance Rates And The Laws Of Probability, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes 2016 Iowa State University

Crop Insurance Rates And The Laws Of Probability, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes

Bruce Babcock

Increased crop insurance subsidies have increased the demand for insurance at coverage levels higher than the traditional level of 65 percent. Premium rates for higher levels of yield insurance under the Federal Actual Production History (APH) program equal the premium rate at the 65 percent coverage level multiplied by a rate relativity factor that varies by coverage level but not by crop or region. In this paper, we examine the consistency of these constant rate relativity factors with the laws of probability by determining the maximum 65 percent premium rate that is consistent with a well-defined yield distribution. We find ...


Corn Belt Contributions To The Crop Insurance Industry, Bruce A. Babcock 2016 Iowa State University

Corn Belt Contributions To The Crop Insurance Industry, Bruce A. Babcock

Bruce Babcock

The crop insurance industry enjoyed another banner year in 2007, collecting $6.5 billion in premiums yet paying out only $3.2 billion in losses. I estimate that the industry will collect a record $2.8 billion from taxpayers. In contrast, the net amount that farmers received from the program in 2007 was only $750 million. Interestingly, since the beginning of this decade, the $11.3 billion in net payments to farmers (indemnities received minus farmer-paid premiums) is about equal to the amount that taxpayers have paid the industry ($11.1 billion). Overall, taxpayers have spent more than $22 billion ...


Boom Times For Crop Insurance, Bruce A. Babcock 2016 Iowa State University

Boom Times For Crop Insurance, Bruce A. Babcock

Bruce Babcock

Crop farmers are enjoying record high profi ts because of dramatically higher market prices. Farmers’ increased demand for land, seed, fertilizer, and machinery has resulted in higher prices and profi ts for sellers of these inputs as well. One industry that is also enjoying the higher crop prices is the crop insurance industry. It benefits from higher prices because the formulas used to determine industry revenue automatically generate higher expected subsidies as crop prices rise. Actual subsidies depend in part on crop losses, but administrative and operating subsidies are directly tied to crop prices. Figure 1 shows how total industry ...


Do Health Insurers Innovate? Evidence From The Anatomy Of Physician Payments, Jeffrey Clemens, Joshua D. Gottlieb 2016 University of California - San Diego

Do Health Insurers Innovate? Evidence From The Anatomy Of Physician Payments, Jeffrey Clemens, Joshua D. Gottlieb

Joshua D. Gottlieb

One of private health insurers' unique roles in the United States is to negotiate physician payment rates on their customers' behalf. When it comes to these rates, do private insurers meaningfully differ from the large public insurer operating alongside them, or is the private sector–which appears so prominent–a mirage? We investigate the frequency with which privately negotiated payments deviate from the government benchmark using two empirical approaches. The first exploits changes in Medicare's payment rates and the second applies ideas from the bunching literature. Although Medicare's rates are influential, we find that prices for 25 percent ...


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