Health Care Costs Linked To Ability To Repay Farm Loans

While the value of the U.S. dollar has gained strength, higher interest rates have increased farmers’ debt obligations on new loans despite stabilizing credit conditions. Meanwhile, supply outpaces demand across all sectors of agriculture, causing lower commodity prices and restricting cash flow.  Liquidity has deteriorated while cost of living expenses move upward.

Health insurance is just one of the major expenses farmers are having to reevaluate. At the American Society of Farm Managers and Rural Appraisers workshop in Des Moines, Iowa, agricultural economist Cortney Cowley explained just how much of an impact higher health insurance expenses have on a farm family’s total cost of living.

“In line with some of the struggles farms have had with the farm business side, more recently there has been an uptick in household spending,” says Cowley, who works for the Omaha Branch of the Kansas City Federal Reserve. “Farm household health insurance expenses have doubled since 2001. In relatively a short period of time, health insurance costs, health care costs in general and childcare cost have increased.”

Debt-to-asset ratios have held relatively constant, Crowley explains, but there is more concern about debt-to-income ratios, which show deterioration in farm liquidity.

 “We have found these high health care expenses are highly correlated with a farm family’s ability to repay farm loans,” Cowley says. “Higher health insurance expenses as a share of total family living expenses are really taking a toll on America’s farm families.”

One contributing factor to the increased concern for health care costs is the rising age of today’s farmers. With many farmers now surpassing the age of 60, health issues, visits to doctors and medications are becoming more prevalent, causing heightened financial pressure.

Farm families are looking for off-farm employment specifically to help cover health insurance costs, Cowley notes. Providing additional income to help balance higher living expenses is becoming the norm for the upcoming generation of farmers.

Agricultural economists such as Cowley are looking for ways to help farmers shrink total debt. In response to recent credit conditions, bankers have taken steps to manage the risk in their agricultural loan portfolios. Reduced farm income has restricted cash flow and contributed to more farm loan denials in recent years, according to Cowley. As a result, bankers are pressed to restructure debt for their farm clients as well as tighten their lending standards. 

With ever-changing commodity prices and tight margins, the push to lower household spending, which includes finding affordable yet adequate health care coverage, remains a challenge.