Viewpoint: State Socialism Meets Insurance

A free market with limited government intervention has long been a pillar of Republican economic orthodoxy. Today’s Republican party has deviated from its laissez-faire economic roots. It has instead embarked headlong on populist economic policies. Policy initiatives exemplifying its populist agenda span a broad swath of the economy.

They include pharmaceutical price fixing, restrictions on investors buying single family homes, imposition of tariffs, price controls, industrial policy, paying stay-at-home parents, controls on defense contractor executive compensation, and capping credit card interest rates. The GOP’s enthusiastic embrace of populist policies has even extended to property & casualty insurance. The administration’s interventions in insurance policy, like its other interventions, will disrupt private markets, while failing to address the issues at hand.

The last time a U.S. president introduced wide-ranging price controls was 1971, when the Nixon administration imposed a nationwide 90-day wage and price freeze in an effort to tame inflation. The law of unexpected consequences kicked in, and instead of falling, inflation ballooned to 12%. Price ceilings caused shortages that led to long gas station lines and empty supermarket shelves. This failed experiment should be remembered as we watch an administration desperately trying to deliver on today’s “affordability” crisis.

The most recent administration intrusion in insurance matters is waiving tariffs on Brazilian beef imports in an attempt to drive down rising beef costs, which have grown 13% in the past year. In the short term beef prices may come down, but there will be blowback from lower beef prices causing the government to pay out more to ranchers from an obscure government insurance program in the bowels of the federal crop insurance program, the Livestock Risk Protection Program (LRP).

The LRP introduces a floor price – if the price of beef drops below the floor, ranchers get paid more from the insurance program. Like other components of the Crop Insurance Program that are heavily government-subsidized, ranchers never lose, getting payouts regardless of what the market dictates. Subsidies for ranchers’ insurance premium range from 35% to 55%. There is an additional 10% premium subsidy for young ranchers and for veterans who become ranchers.

Brazilian Beef Stampade

The U.S. cattle herd has shrunk in recent years from the impact of drought, higher fertilizer and diesel costs, and rising prices for grazing land. The administration’s tariff rollback would apply to 300,000 metric tons of beef, mainly from Brazil, beginning on September 1. While 300,000 metric tons sounds like a lot of beef, it translates into just two pounds of beef for every American. Prior to the rollback, there was a 26.5% tariff on Brazilian products. The tariff suspension, which began on Sept. 1, lasts three months. The president announced that the imported Brazilian beef will be sold at a discounted price, 25% less than the market price. It has not been made clear how discounted Brazilian beef prices will be calculated.

Bad Brazilian Beef

Brazil’s beef was recently at the epicenter of a large bribery scandal. In 2017 an operation was launched in Brazil to investigate allegations of collusive corruption among lawmakers and meat inspectors. The investigation revealed that dozens of health inspectors and lawmakers were bribed to stay silent in the face of a massive scheme involving tainted Brazilian beef.

The “Operation Weak Meat” investigation uncovered a scheme to buy the silence of inspectors. Meatpackers were bribed into selling rotten or salmonella-infected beef and changing expiration dates. They applied acids to the meat to reduce the stench of decaying beef. Companies that engaged in this corruption included JBS, a Brazilian company that is the world’s largest meatpacker.

When the extent of the Brazilian beef scandal was revealed, the U.S. Department of Agriculture (USDA) took action, implementing 100% re-inspection and pathogen testing on all Brazilian meat imports. There was so much meat unfit for consumption found in the inspection that the U.S. instituted a two and a half year suspension of Brazilian beef purchases, ending in February 2020.

Populist Insurance Policy

The administration’s promise to sell beef at a 25% discount is reminiscent of a promise made by President Trump to implement a 50% reduction in automobile insurance premiums. During the 2024 presidential campaign candidate Trump promised to cut automobile insurance premiums by 50%. He delivered this claim via social media, stating, “Your Automobile Insurance is up 73% – VOTE FOR TRUMP, I’LL CUT THAT NUMBER IN HALF!” This was a brazen claim that had no basis in reality.

Perhaps emboldened by efforts at the federal level, some states have also been toying with strict price controls of insurance prices. For example, Illinois Governor JB Pritzker signed HB 4273 and SB 714 in August 2026, granting the state authority to review, audit, and block excessive home and auto insurance rate hikes starting July 1, 2027.

Vanderbilt Proposal

Another federal initiative to bring down insurance costs is described in a recent report from Vanderbilt University. The report alleges that insurance companies have been overcharging insurance buyers since the 1980s. It argues for the creation of federal oversight bodies to limit profit margins by dictating the allowable elements in an insurer’s expense load. It also argues for insurers to “rebate” premium if it deems the loss and expense ratios to be excessive.

Remember McCarran-Ferguson?

There are two main reasons why federal government attempts to control insurance are inappropriate. First, The McCarran-Ferguson Act, passed in 1945, declares clearly that insurance is regulated by states, not the federal government. Second, federal price controls, such as price ceilings, don’t work. They suppress or distort market signals, crowd out the private market, and lead to stubborn shortages and inferior quality.

Looking back at proposals to manipulate federal insurance programs to achieve policy goals, including tariff suspension on Brazilian beef, we see vain attempts to stage manage the economy. Turning coarse economic tuning knobs and fine tuning knobs to control the economy are as effective as dancing around a campfire to make it rain. The correct approach is to refrain from foolhardy attempts to control something as complex and interconnected as the economy. Instead, get back to what classical liberal economic theory holds regarding free markets.

Don’t be seduced into the belief that the ability to dole out subsidies and playing games with tariffs makes one powerful. Simply get out of the way.