Massive unemployment fraud has been a significant, but largely ignored, feature of the nation’s response to the pandemic. Of the roughly $900 billion in unemployment benefits paid during the 18 months between March 2020 and when federal pandemic benefits expired last Labor Day, the Department of Labor’s inspector general in March testified that “at least” $163 billion was misspent. That shocking amount is the equivalent of five typical years of spending on all unemployment benefits, but it still took the Washington Post almost two months to mention the inspector general’s extraordinary testimony.
The $163 billion figure is sure to rise, since it doesn’t include elevated losses from the most widely abused federal program, called Pandemic Unemployment Assistance (PUA). Counting PUA losses, others estimate the total ripoff has been an astonishing $400 billion. Whatever the ultimate figure, Rep. Kevin Brady (R-TX) was correct in calling this episode “the greatest theft of tax dollars . . . in American history.”
Brady and other senior House Republican lawmakers recently proposed legislation called the “Chase COVID Unemployment Fraud Act” (H.R. 8000). That bill seeks to prevent further fraud through better data matching and identity and income verification, closing loopholes left wide open during the pandemic. Those reforms would better protect a system the nonpartisan Government Accountability Office (GAO) recently said remains at “high risk” for abuse.
As the title suggests, the “Chase” Act also focuses on chasing down and recovering more misspent pandemic benefits. A summary of the legislation explains that the new bill “incentivizes state workforce agencies to recover fraudulently paid Federal COVID unemployment compensation benefits by allowing states to retain 25 percent of federal funds recovered.” That raises the question—why do state agencies need incentives to recover fraudulently paid federal funds in the first place?
The reason is simple: In most cases, it’s not their own money that
state agencies are expected to recover. Roughly $700 billion of the $900
billion spent during the height of the pandemic was supported by federal funds,
and the most-defrauded program (PUA) was entirely federally funded. Meanwhile,
if states—which administer both state and federal unemployment benefits—actually
recover misspent federal funds, any recovered money simply gets returned to the
federal government. That’s why federal lawmakers propose letting states keep 25
percent of whatever misspent federal pandemic benefits they recover, which
states can then use to improve their own unemployment systems. In short, from
the federal perspective, getting back 75 percent of something is a lot better
than getting 100 percent of nothing.
Recoveries to date show why such an incentive might help. Of the $163 billion in benefit misspending noted by the Department of Labor inspector general in his March 2022 testimony, less than $1 billion had actually been recovered, or one half of 1 percent. Congressional Democrats have shown no interest in Republican anti-fraud measures. But if Republicans win control of the House, expect anti-fraud legislation, including recovering more of the enormous misspending during the pandemic, to be a major theme next year.
With a recession looming, lawmakers may also soon be pressed to revive federal extended unemployment benefits. If they do, they should avoid mistakes that contributed to record fraud and misspending during the pandemic: (1) Don’t allow individuals to “self-certify” their eligibility for benefits; (2) don’t rush to get benefits out the door without first confirming claimants’ identity and prior work history; and (3) don’t waive the work search requirement for claiming benefits.
They might consider a fourth policy that would be a significant departure from recent practice: Don’t usurp state responsibility for assisting their own residents, such as when the federal government pays for 100 percent of benefit costs. That’s what federal lawmakers have done with the normally 50/50 federal/state Extended Benefits program during the last two recessions. And for decades before that, they also created temporary 100 percent federally funded programs providing other expanded benefits for those exhausting state aid. Especially with states flush with federal COVID aid dollars, they have the funds to help support at least some of such additional benefit costs. That might help temper the amount wrongly going out the door in the first place, as well as avoid the need to “incentivize” states into recovering misspent funds down the line, since it won’t be just other people’s money they are spending—and expected to recover.
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