unemployment insurance application

As the pandemic drove applications for unemployment compensation to record highs, many states struggled to meet the demand.

Unemployment Overpayments: What States Are Doing

By Zaakary Barnes | Jan. 10, 2022 | State Legislatures News | Print

The onset of the COVID-19 pandemic led to the single largest increase in unemployment since data collection began in 1948. States issued stay-at-home orders, mandated capacity reductions at restaurants and businesses, and implemented a wide range of social distancing measures. The reported unemployment rate shot to 14.8%, although some economists estimated the rate actually tipped the scales at 22.9%.

Whether due to lack of resources to process this wave of new claims or insufficient funding in their state unemployment trust funds, many states simply could not meet the demand on their unemployment compensation systems.

To alleviate the pressure on states, Congress passed the Families First Coronavirus Response Act, which gave states funding for administrative costs and increased unemployment insurance benefits. The Coronavirus Aid, Relief and Economic Security (CARES) Act then temporarily expanded eligibility for compensation. As a result, national unemployment compensation spending skyrocketed from $33.1 billion in fiscal year 2019 to $502 billion in FY 2020.

Tracking Improper Payments

But amid the massive influx of claims, some cases of improper payment went undetected, including fraudulent, willfully misrepresented, and nonfraudulent claims. Nonfraudulent claims leading to benefit overpayment can stem from any number of errors made by claimants or agency administration. These include applying when unqualified after initial approval, inaccurate wage history, reporting incorrect earnings or other inaccuracies.

The CARES Act created three new unemployment compensation programs: Pandemic Unemployment Assistance, Federal Pandemic Unemployment Compensation and Pandemic Emergency Unemployment Compensation. As they were originally written, these programs lacked any provisions for states to waive repayment of overpaid benefits. States had no option but to undertake the costly process of seeking repayment.

However, the Continued Assistance for Unemployed Workers Act, contained in the Consolidated Appropriations Act, 2021, included new language to lay the groundwork for states to waive repayment of these benefits.

Although all state laws provide systems to recover overpayments to claimants, not all states have a mechanism by which repayment of those overpayments can be waived. States that do have provisions for waiving repayments usually do so for one of four reasons: there was an agency error; there was an employer error; repayment would violate equity or good conscience; or repayment would cause financial hardship. In 2020, the Office of Unemployment Insurance in the U.S. Department of Labor released a breakdown of which states had existing provisions to waive repayment.

Since the report’s publication, other states have acted on overpayment repayments. In light of the pandemic, Virginia updated its unemployment claims system to allow applicants to receive funds while their claims are being reviewed. If a claim is denied through no fault of the applicant’s but the applicant already has been paid a benefit, Virginia may waive repayment. Kentucky also created a path to waive repayments. However, the circumstances by which overpayments may be waived vary by case and by state.

State-Federal Authority

Later in 2021, the Employment and Training Administration issued an Unemployment Insurance Program Letter to clarify unemployment compensation overpayment recovery for benefits issued through CARES Act programs.

In its letter, the ETA noted “state[s] without such waiver provisions under state law may choose to waive recovery for these programs under this federal authority.” The ETA went on to specify the standard states must use when assessing whether an overpayment may be waived. States that defer to the federal standard must then determine if the individual is without fault and whether repayment would be “contrary to equity and good conscience,” with definitions given for both.

As the full scope of nonfraudulent overpayments comes into focus, more states will likely look to a combination of state and federal authority to tackle the issue. Since the Unemployment Insurance Program was originally created as a collaborative effort between the states and federal government, both levels of government will have to rely on each other to resolve overpaid benefits.

Zaakary Barnes is a policy associate in NCSL’s Employment, Labor and Retirement Program.

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