WASHINGTON, D.C. — The problem with running a fine-tooth comb through government regulations is one is bound to find a tangle sooner or later. But to learn that giving a service for free actually saves taxpayer money over an inefficiently operated program is an interesting discovery.

The Environmental Working Group (EWG) commissioned Dr. Bruce Babcock, an economics professor at Iowa State University, to analyze the impact of offering farmers a free insurance policy that would cover 70 percent of average crop yield at 100 percent of the market price for the lost crop.

The EWG released its report April 18, with a proposal to reform the federal crop insurance program through the 2012 farm bill that it says could save taxpayers up to $18.5 billion over 10 years, and provide more farmers with a reliable safety net.

If farmers were charged a small fee to cover administrative costs, taxpayers would save $10.4 billion over 10 years and cover every acre planted with corn, cotton, rice, soybeans and wheat in 2011. Savings would grow to $18.5 billion over 10 years if only the acres insured in 2011 were covered by the new safety net.

“The reality that giving away free insurance would actually save money underscores how inefficient the current system is,” Babcock stated.

Under the current system, farmers only pay a small portion of the policy premiums, and the private insurers that sell the policies pay less than half of the damage claims from crop revenue losses. Taxpayers pick up the rest, along with “exorbitant” administrative costs and agents’ commissions.

The result is that one taxpayer dollar goes to insurance companies and agents for every dollar sent to farmers to pay claims. The cost to taxpayers of the current crop insurance system has soared from $2.4 billion in 2001 to nearly $9 billion in 2011 as a result of high commodity prices and the generous premium subsidies that lead farmers to buy the most expensive insurance available, the report said.

A new Government Accountability Office (GAO) report found one farm business that had insured its cotton, tomatoes and wheat across two counties received $1.8 million in premium subsidies in 2010, while the average farmer received only $5,339. More stunning, the GAO estimated taxpayers sent $309,000 to insurance companies to administer the policies for this one large business alone.

The Congressional Budget Office predicts taxpayers will spend $90 billion over the next 10 years on the highly subsidized insurance program – far more than $66 billion the CBO predicts will be spent on traditional farm subsidies.

Instead of trying to save money and fix the flaws of current insurance programs detailed by Babcock in a previous paper, some farm lobbyists and their allies in Congress have proposed layering an entirely new program on top of this insurance. It would guarantee business income for the same large farm businesses that have been collecting big shares of federal farm subsidies, and it would add $30 billion to the $90 billion taxpayers are already spending to insure farm business income.

The U.S. Senate Agriculture Committee passed its bill last week, creating an insurance-like program to compensate grain producers when crop revenue is 11-21 percent below the five-year average, with a maximum payment of $50,000. Revenue protection would be considered more comprehensive by responding to low prices and poor yields than the current program, which is triggered only by low prices.

Farmers would be required to practice land, water and wildlife stewardship to qualify for payments under the new program, called Agriculture Risk Coverage.

The EWG, which favors more money for conservation programs, said the Senate bill fails to control the rising cost of crop insurance due to natural disasters.