Senators look to harden the unemployment system for the next crisis

Sens. Ron Wyden, D-Ore., (L) and Mike Crapo, R-Ida., shown here leading a Finance committee hearing in February 2023, are backing legislation to retool the unemployment insurance system.

Sens. Ron Wyden, D-Ore., (L) and Mike Crapo, R-Ida., shown here leading a Finance committee hearing in February 2023, are backing legislation to retool the unemployment insurance system. Tom Williams/CQ-Roll Call, Inc via Getty Images

The White House-backed framework for forthcoming unemployment insurance legislation will retool the way states go after fraud and allows for for oversight of federal investments in UI systems and technology.

The top Democrat and Republican on the Senate Finance Committee have a bipartisan framework for legislation they say would equip the unemployment system for the next economic crisis.

Sens. Ron Wyden, D-Ore., and Mike Crapo, R-Idaho, announced their plans last week. 

Although the framework itself is not a bill — the details of forthcoming legislative text are still being hammered out, a Wyden staffer told Nextgov/FCW — the hope is that the coming proposal will shore up the system in the long term following the pandemic, when states struggled to deliver benefits and prevent fraud.

The plan includes an oversight community request that Congress extend the statute of limitations for pandemic unemployment insurance fraud from five to 10 years. 

The proposal would also give states the go-ahead to waive pandemic unemployment insurance overpayments where “repayment would be contrary to equity and good conscience,” as opposed to fraud, the senators’ announcement states. 

Currently, states’ approaches to overpayments made due to innocent mistakes vary because they lack a common interpretation of what constitutes the fault of a claimant in an overpayment, said Michele Evermore, an unemployment insurance expert at the Century Foundation who formerly worked for Labor as the deputy director for policy in its Office of Unemployment Insurance Modernization. 

The senators would also like to let states keep a cut of recovered payments to use for administering the program, while establishing a raft of new data-matching requirements for states, meant to cut down on payments to fraudsters. 

Although the exact toll of fraud during the pandemic is unclear, the Labor Department’s watchdog has estimated that $191 billion of the more than $888 billion total pandemic unemployment spending was paid improperly, with much of that being attributable to fraud.

The legislative framework also supports program integrity measures to make sure beneficiaries aren't working and collecting at the same time, and to support checks of UI applications against multiple data sources to guard against fraud. Additionally, the framework institutes new oversight of federal investment in state UI systems.

“This bipartisan framework takes crucial steps toward providing states’ unemployment systems with much-needed tools to recoup and prevent fraudulent claims,” Crapo said in a statement.

The proposal also includes some “basic requirements” for states, the staffer said, including that they offer phone and in-person options for filers in addition to the online option, make applications available in multiple languages and online systems mobile friendly.

States already have requirements from Labor on things like in-person options and online accessibility, but don’t necessarily follow them across the board, said Evermore, so the proposal would put some requirements in statute. 

Many of these ideas have been priorities for unemployment-interested lawmakers for a long time, said Evermore, but “I’m starting to see a lot more people talking across the aisle seriously about how to fix unemployment insurance,” as opposed to partisan fighting over the issue.

The framework has already gotten the blessing of the White House, with Gene Sperling, the White House’s senior advisor and American Rescue Plan coordinator, noting in a statement that it includes some provisions the White House requested as part of an anti-fraud proposal last year.

“The President looks forward to further action from Congress on additional components of his plan to prevent fraud, punish systemic fraud, and recover funds, while ensuring equitable access for legitimate claimants,” said Sperling. 

In 2022, President Biden also previewed an executive order focused on identity fraud in government programs, although that has not yet come to fruition. The White House did not respond to a request for comment on that order by the time of publication. 

Wyden and Crapo aren’t the only lawmakers interested in following up on fraud in the system. 

House Republicans introduced a proposal last year that included some similarities to the new one, like data matching requirements. 

But it faced opposition from Democrats and the White House because of a clawback provision to withdraw some American Rescue Plan Act funding from the system — something that ended up happening anyway under last year’s debt ceiling deal, which cut the $2 billion given to Labor for unemployment insurance modernization in half. 

The old House Republicans’ proposal also aimed to extend the time states have to go after overpayments made due to things such as state administrators themselves making an error, rather than fraud.

“The key is understanding that better serving workers in a crisis and preventing fraud are not mutually exclusive,” Wyden said of the new, bipartisan proposal in a statement. “This framework would help states detect and prevent fraud while also ensuring that eligible workers can more easily apply for benefits and quickly receive what they are owed.”

The Labor Department did not comment on this story.