Republicans Want to Incentivize States to Recover Stolen Unemployment Benefits

In an effort to recoup the nearly $2 billion in unemployment benefits that were improperly handed out during the pandemic, House Republicans are hoping to incentivize states to recover the money. 

Democrats and the U.S. Department of Labor, however, say the proposal would actually be a step back in helping states avoid improperly giving out unemployment benefits in the future. The measure, they point out, would claw back $400 million the Labor Department received to prevent improper unemployment payments, including sending grants to states to modernize antiquated computer systems.

In a partisan vote earlier this week, the influential Republican-controlled House Ways and Means Committee approved a bill that would let states keep 25% of the money they get back. As it is, states have little incentive to go after benefits that were fraudulently obtained or improperly given out because it costs them staff time and resources and the money recovered all goes back to the federal government.

“Enough is enough. It's time for Congress to go after fraudsters and recover the dollars that have been lost,” Ways and Means Chairman Jason Smith, a Missouri Republican, said during the bill’s hearing on Wednesday.

The measure, which is expected to be passed by the full House but faces an uncertain future in the Democratic Senate, would allow states to use their share of the recouped money to prevent improper payments in the future, including modernizing the antiquated computer systems in many state unemployment offices and hiring investigators and prosecutors to go after fraudsters.

In addition, if states are able to get back payments that were mistakenly given to people, they would be able to use some of that money in the operations of their unemployment agencies.

The bill “gives states the tools they need to not only take back the funds lost, but also ensure that we never see this level of theft again,” said Rep. Kevin Hern, an Oklahoma Republican.

To help people who lost their jobs during the pandemic, Congress increased the amount of benefits the unemployed received, lengthened how long they could get the help and widened eligibility to include the self-employed and gig workers. 

At a Ways and Means committee hearing in February, the Labor Department’s Inspector General Larry Turner said in written testimony that the department estimates that 21.5% of the enhanced Covid unemployment benefits Congress approved were improperly paid out. Of the $888 billion in the enhanced benefits, he estimated $191 billion in federal dollars were improperly paid either by mistake or fraud.

One of the main culprits for improper payments is that states were overwhelmed by the flood of claims that came in. That and loosened rules around verifying an applicant’s unemployment status, said Turner, made the “program extremely susceptible to improper payments, including fraud.”

“The unprecedented infusion of federal funds into the [unemployment insurance] program gave individuals and organized criminal groups a high-value target to exploit,” he added. 

In opposing the bill, Democrats pointed out that the measure actually claws back $400 million that’s still left over from the $2 billion Congress gave the Labor Department in the American Rescue Plan Act (ARPA) to reduce improper payments. 

Much of that money is being spent on grants “to detect and prevent future fraud in state UI [unemployment insurance] programs, modernize state IT systems, and improve efficiency and accuracy of payments,” Brent Parton, acting assistant secretary of the employment and training administration at the Labor Department, wrote in a Feb. 27 letter to Massachusetts Rep. Richard Neal, the top Democrat on the committee. “The department is deeply concerned that a  move to repeal [the funding] will throttle essential, ongoing efforts to strengthen and protect the UI program from fraud.”

The Labor Department is planning to announce $200 million in grants next month to improve their identity verification and $600 million to “modernize vulnerable state IT systems that led to chronically high levels of improper payments in the UI program before and after the COVID-19 pandemic.”

The Republican proposal would also take away funding included in ARPA to send “tiger teams” of unemployment experts to states to assess their unemployment systems and recommend fixes, said Michele Evermore, the former deputy policy director for the Labor Department’s Office of Unemployment Insurance Modernization, and now a senior fellow at the progressive Century Foundation. 

“It seems counterintuitive that if you want to fight fraud, you take away the funding that the Department of Labor is using to fight fraud,” she said.

Evermore added, “I think there's a lot of misunderstanding about what the Department of Labor is doing with the funds,” referring to the $400 million the bill would claw back. 

Republicans have taken aim at spending federal dollars for purposes they consider to be “woke.” Smith, in particular, criticized money being used for “equity” purposes, which he does not see as helping to prevent fraud.

But Evermore says that the Labor Department’s efforts to advance equity involve such things as getting states to provide information about uninsurance in more languages to lessen the chance for mistakes in the future.

“If you ask the people the right questions, and you give people an understandable application, then they're going to answer questions right,” she said. “You're going to minimize confusion.”

Evermore also argued that allowing states to keep some of the recouped money would not necessarily lead to more modern IT systems because states have no way of knowing how much they’ll recoup and therefore whether they’ll have the money for an upgrade.

During the debate, Republicans regularly touted their proposal as an effort to recover improperly given funds on behalf of taxpayers. 

“Democrats in Washington—they turned a blind eye,” said Smith, the chairman.

He and other Republicans, for instance, were angered last year when the Labor Department issued a guidance excusing states from tracking down the money in entire categories of cases, like those in which people were paid unemployment despite saying they were not available to find work.

“The Biden administration changed the rules to make it easier for states to sweep potential cases of fraud under the rug,” Smith said.