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COVID-19 and Unemployment Insurance

The government scrambled to get relief packages up and running when the pandemic shut down the economy, but most state unemployment offices were understaffed and ill-equipped from a technology standpoint to handle the barrage of requests for help. Add to that the fact that many first-time unemployed workers were thrown into a panic of trying to figure out if they qualified and what they had to do to get the funds needed just to survive. The combination led to months of confusion, chaos, and long wait times. For some, it also resulted in the overpayment of benefits.

To put the situation in perspective, a record 3.28 million people filed for unemployment assistance in the week ending March 21, 2020, up from just 282,000 in the prior week.3 State unemployment offices were handling roughly one million new claims every week in 2020, resulting in more than $580 billion of unemployment insurance benefits being paid out to some 40 million Americans.4 As of September 2021, California alone has processed 24.5 million claims and paid out $173 billion in total benefits since March 2020.5

In addition to regular unemployment benefits, many Americans who lost their jobs due to the pandemic and normally would not qualify for unemployment did so under the government’s Pandemic Unemployment Assistance (PUA) program, which was extended several times before ultimately expiring on September 6, 2021.67 This further complicated a system that was already struggling to keep up with demand and led to billions of dollars being overpaid.

How Much Has Been Overpaid? According to the U.S. Department of Labor Statistics, states reported more than $3.6 billion of PUA overpayments from March 2020 through February 2021.8 In addition, states flagged overpayments of regular unemployment insurance totaling $12.9 billion from April 2020 through March 2021, according to a July 2021 report from the U.S. Government Accountability Office.9

Historically, the bulk of overpayments have been tied to unintentional errors on the part of filers or the agencies with which they are filing. Some reasons that overpayments occur are:

  • Reporting incorrect earnings (such as gross instead of net)
  • Incorrect wage history
  • Applying when unqualified (even if initially approved)
  • Application inaccuracies
  • Fraud

What About Fraud? Fraud generally accounts for only a small portion of unemployment overpayment. The New York State Department of Labor said it had identified more than 425,000 fraudulent claims during the pandemic and prevented $5.5 billion of payments from being doled out to fraudsters. That’s not small change, but as the state paid $65 billion to more than four million New Yorkers from March 2020 through January 2021, it’s still less than 11% of the total number of legitimate claims paid.10

As the U.S. government scrambled to roll out relief programs and expand unemployment, systems were flooded with new claims that created the perfect storm for fraudsters. The U.S. Department of Justice created an anti-fraud task force in 2020 that charged fraud or money laundering in a dozen cases specifically tied to unemployment insurance.11

If that doesn’t sound like much, then consider this: One man was recently arrested and charged with allegedly using over 250 stolen identities to defraud the New York State Department of Labor of $1.4 million in unemployment benefits.12

11% The approximate percentage of unemployment insurance claims that were fraudulent in the state of New York during the pandemic.

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