NCPA - National Center for Policy Analysis


July 13, 2005

Congress has created one program after another to insure individuals and businesses against an array of risks, but it is widely acknowledged that if a government insurer becomes swamped with claims, it will be the taxpayers who bail them out, says BusinessWeek.

Consider some of the major risks covered by Washington:

  • Federally subsidized private insurance coverage for American farmers who suffer losses from crop failure or low prices maintains a potential taxpayer risk of $41 billion.
  • The government insures homeowners, renters and businesses for flood damage, carrying a total risk to taxpayers of $643 billion.
  • After the September 11 attacks, Congress persuaded insurers to continue offering commercial terrorism insurance by guaranteeing payouts above certain limits; this guarantee has a potential taxpayer risk of $100 billion a year.
  • Bank deposits, insured by the Federal Deposit Insurance Corp. for up to $100,000, hold a potential taxpayer risk of $3.4 trillion.

While no one is suggesting an Armageddon scenario in which all these trillions come due at once, BusinessWeek says policymakers' failure to get a grip on the mountain of insurance programs piling up could be costly.

To complicate matters further, federal budgeting math often masks the true cost of insurance to taxpayers. The national budget shows annual cash flows from premiums and payouts on claims, with no money set aside for future liabilities.

Understandably, Congress shrinks from raising costs, either as premiums to employers or as another item in the budget. BusinessWeek believes, with no requirements for putting money aside for future liabilities, Congress will continue to expand its insurance commitments, thus increasing the potential risk to taxpayers.

Source: Amy Borrus, Mike McNamee and Howard Gleckman, "Uncle Sam: Up to His Neck in the Risk Pool," Business Week, June 6, 2005.


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