On Nov. 23, the Office of Management and Budget released its annual data on improper payments. The data shows a $59 billion decrease in the Unemployment Insurance (UI) program’s estimated improper payments, but a slight increase in the improper payment rate. “Improper payments” includes fraud, but the largest portion is overpayments or underpayments made through errors by claimants or state agencies that are not made willfully or fraudulently. The ongoing challenge of improper payments is a direct result of the continuing and compounding effects of the pandemic and the persistent squeeze that state UI systems – and workers – have experienced due to inadequate state administrative funding.
An unprecedented strain on state UI systems
Administrative funding, which supports core UI operations like staffing, training and claims review, was at record low levels – the lowest in at least 30 years – leading up to the pandemic. So, in March 2020, when unemployment claims spiked 3000% almost overnight, it created a perfect storm that left state UI programs ill-equipped and insufficiently resourced to meet the tsunami of claims triggered by the pandemic.
Congress enacted four new temporary unemployment programs that states had to stand up quickly, invariably on top of outdated and inflexible IT systems, while handling the unprecedented workload volume and issuing payments as quickly as possible to desperate claimants. It was a daunting task, but states rose to the challenge. Although states typically have up to two years to implement new UI-related federal legislation, the average timeline for implementing the brand-new Pandemic Unemployment Assistance program was 38 days.
The UI system was like a house with a leaky roof. The government ignored the leak for over a decade because, when unemployment was low, it could. But when the storm came, the approach of underfunding repairs proved grossly inadequate. And despite calls for overhauling the system in 2020 and 2021, you can’t change the roof in the middle of the storm.
Despite these unparalleled obstacles, state UI agencies delivered more than $870 billion in benefits to more than 53 million workers during the pandemic. Studies document that every $1 in UI benefits paid out results in a return of $1.60 to $2 to the economy. In other words, leaky roof and all, the UI system kept the economy from even further devastation and kept millions of Americans in their homes and able to afford food and necessities like medication during the worst of the pandemic.
And now that the storm has subsided, so have calls for fixing the roof. But now is exactly the time to get it right, to make the repairs before the next storm, to build a UI system that will serve the American people in the next crisis.
As the economy rebounds, challenges remain
As our nation’s economy continues to improve, states still face significant adjudication backlogs for pandemic-related claims but with fewer resources to address them because temporary pandemic-era funding increases have expired.
Between FY 2021 and FY 2022, states experienced a 22% drop in their administrative funding. Those decreases severely limit states’ ability to resolve backlogs, manage incoming regular caseload, and retain experienced staff.
Many of the barriers to UI access still need to be addressed, including access for limited English proficient claimants, those with limited access to technology, claimants with disabilities and those in rural areas. Black workers were both more likely to be unemployed during the pandemic and less likely to be able to access UI, a structural failure in our UI system that must be addressed if we are to build an economy that leaves no one behind.
The path forward
Looking forward, the U.S. Department of Labor is proactively working to reduce improper payments in the UI program. Already, the department has:
Invested $134 million in American Rescue Plan funds for fraud prevention grants to 50 states.
Invested in the UI Integrity Data Hub supporting various cross-matches to help determine UI eligibility more quickly and accurately, including the multi-state cross-match functionality to verify that UI applicants are who they say they are and to combat fraud (these efforts have resulted in a significant increase in usage of this cross match to 48 states).
Developed centralized tools to make it easier for states to use plain language and user-friendly interfaces to improve the claimant experience and accurately determine eligibility.
Launched an identity verification pilot to evaluate the use of GSA’s Login.gov as a possible identity verification service for the UI program.
The need for funding remains
Our efforts alone will not solve the problem. The need for state administrative funding to reduce improper payments cannot be overlooked.
The fiscal year 2023 president’s budget calls for updating the outdated UI administrative funding formula to give states adequate resources, both in regular times and times of crisis. Going forward, the department encourages Congress to take legislative action to better support states’ administration of the UI program, while the department continues to invest additional resources to empower states to prevent and detect fraud, ensure equitable access, and reduce improper payments in the UI program. The time to fix the roof is between the storms.
Julie Su is the deputy secretary of labor.