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Image: Farm Economy

Wealth, Farm Programs, and Health Insurance

In a volatile-income industry like farming, a household's capacity to maintain its standard of living through periods of low prices or yields is important. Furthermore, aggregate statistics like the median reflect general tendencies in the population but do not reveal how income or wealth is distributed across the population. To describe the economic conditions across different types of farm households and to capture the ability of households to maintain their standard of living, this chapter presents information on:

Farm Household Wealth and Income

During years of low income, farm households may be able to borrow against, or liquidate, assets. Household net worth (assets minus debt) therefore reflects the potential for households to maintain their standard of living. Furthermore, because wealth is the accumulation of income over time, it provides a longer term measure of the returns that farm households have received from employing their labor and capital in farm and off-farm activities.

To jointly consider both income and wealth, farm households are divided into four groups, separated into low and high levels of income, and low and high levels of wealth, with the estimated median levels of U.S. household income or wealth as the dividing lines between low and high. Median income (or wealth) is the level at which 50 percent of households have greater income (wealth) and 50 percent have less.

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Farm and other U.S. households differ in the pattern of wealth compared to income. In 2012, about 2 percent all farm households—in contrast to 50 percent of all U.S. households—had wealth less than the estimated U.S. median household level. The 98 percent of farm households with high wealth are split into two groups, with many more having incomes above the U.S. median than below the U.S. median. It is not surprising that farm operator households have more wealth than the average U.S. household because capital assets, like farmland and equipment, are generally necessary to operate a successful farm business. In general, households with self-employed heads have greater wealth than the average U.S. household.

Increasing farm real estate values coupled with several years of high farm incomes have helped maintain and increase farm household wealth levels. In 2012, the typical farm household had more than $750,000 in wealth. Looking across farm types, households operating commercial farms had more than $2.5 million, substantially more than the households of residence or intermediate farms.

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Note that for the sections below, data on Federal crop insurance and health insurance were not collected in the 2012 Agricultural Resource Management Survey; 2011 data are the latest available.

Risk and Farm Programs

U.S. farm policy includes several programs that make cash payments to farm businesses, which are often passed on, at least in part, to farm households. Direct payments provide regular payments to farm businesses based on historic yields and acreage for particular row crops. Payments are made regardless of production outcomes or market prices. Direct payments therefore do not stabilize income as much as price-related payments like Countercyclical Program payments, which occur when prices fall below predetermined levels, or disaster payments, which are made in severe conditions such as during a drought or flood.

The quantity of payments and type of payment varies by farm type. Commercial farms and the households associated with them receive the majority of government payments. The distribution of farm program payments by farm type reflects, in large part, the fact that most government payments are made on a per-acre or per-output basis, meaning that larger farms will naturally receive more government payments than farms cultivating fewer acres. Direct payments, which are tied to historic production in a pre-defined period, account for most of the payments to commercial farms, while conservation payments account for most of the payments received by residence farms. Both types of payments change little from year to year in the period governed by the farm act that authorized them. 

Crop farms perennially face the risk that poor weather or pests will lower yields or even decimate a crop. The Federal Government subsidizes premiums for multiple-peril crop insurance. Although residence and intermediate farms have fewer resources to overcome a bad crop year, they depend less on Federal crop insurance than do commercial farms.

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Commercial farm households can bear more risk than other households because of their higher wealth, but they also typically plant more acres of crops. As crop acreage increases, the potential for the farm business, and ultimately the farm household, to experience financially devastating losses also increases. The possibility of such losses helps to explain why commercial farm businesses enroll a greater share of their cropland in a Federal crop insurance program.

Health Insurance Coverage

As with U.S. households in general, an important risk faced by farm households is illness or injury to household members and the potential for medical expenses to drain the household's resources. Health insurance provides individuals or groups with a contractual arrangement for personal medical expenses to be at least partially covered by insurance companies in return for a fee. Because medical attention is expensive and often essential for maintaining one's health, the incidence of health insurance among populations is an important indicator of their well-being. It also indicates how much health-related financial risk the household bears.

In 2011, 15.7 percent of the U.S. population had no form of health insurance. Among members of farm households, only 9.3 percent lacked health insurance.

Most Americans receive health insurance through their employers. Although farm operators are largely self-employed, the majority of farm households have an operator or spouse employed off the farm (see table on health expenditure and insurance coverage information of principal farm operator households, by off-farm work, 2011 Excel icon (16x16)). As with the general population, the most common source of health insurance for members of farm households is employment-based. In fact, farmers are as likely as the general U.S. population to receive their health insurance through an outside employer. Farmers are more likely than the general population to directly purchase their health insurance from an insurance company, and less likely to receive health insurance from a government-sponsored program, such as Medicare or Medicaid.

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In 2011, more than half of farm household members had health insurance coverage from an employment-based plan. One major reason that a farmer or rancher would work solely on the farm and not have access to employer-sponsored insurance through an off-farm job is the intensive time commitment for some commodity specializations (see table on Health expenditure and insurance coverage information of principal farm operator households, by commodity specialization, 2011 Excel icon (16x16)). An example of this is in dairy production. Farming is the major occupation for nearly all of those who specialize in dairy production—significantly more than the 48 percent across specialties. Compared to the 57 percent of all farm persons who receive insurance from employer-sponsored plans, only 36 percent of persons in dairy households do. The lack of off-farm employment likely contributed to the difference in health care coverage between persons in dairy farm households and those in the overall farm household population. In 2011, about 36 percent of persons in dairy households were uninsured, compared to 9.3 percent for all farm persons.

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Having health insurance and the source of health insurance are major determinants of household expenses for health care. The most expensive type of health insurance is direct purchase. Farm households with direct-purchase insurance had the highest premiums of all farm households, more than $6,000 per household. They also incurred the highest out-of-pocket expenses, spending more than $2,400 in 2011.

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Last updated: Tuesday, August 26, 2014

For more information contact: Daniel Prager