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POLICY INSIGHT
BEYOND THE NUMBERS

Wyden-Crapo UI Bill a Limited But Positive Step Forward

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Bipartisan unemployment insurance (UI) legislation introduced today by Senators Ron Wyden and Mike Crapo, the chairman and ranking member of the Senate Finance Committee, includes provisions that are limited in scope but useful to reduce program fraud, while also establishing a sensible process to address pandemic-related overpayments not due to fraud.

In addition, the measure would take an important first step in pursuing federal standards to improve UI access by requiring states to adopt specific online procedures to ensure workers have a reasonable opportunity to apply for unemployment benefits. Much greater efforts, however, will be needed to ensure an equitable and effective UI system that helps workers and families weather a temporary period of joblessness. Senators Wyden and Bennet — and Representative Beyer in the House — introduced separate legislation in 2023, the Unemployment Insurance Modernization and Recession Readiness Act, to address many of these broader concerns.

The unemployment insurance system is a federal/state partnership designed to provide financial support to individuals who have lost work through no fault of their own and are seeking new employment that best matches their skills. States have broad latitude to set benefit amounts and duration, as well as eligibility criteria, and many have maintained or adopted overly restrictive requirements that have greatly diminished the UI system’s reach and impact.

As a result, fewer than one-third of unemployed workers received UI benefits in 2023 (see chart), and for those who did, average benefit amounts failed to reach the poverty level for a family of three in most states. These limitations deny needed assistance to workers searching for new jobs and can mean that temporary periods of joblessness create serious hardships for households. They also significantly reduce the effectiveness of the UI system in stabilizing the economy during periods of distress.

Given the severe weaknesses of the UI system, Congress created special temporary unemployment programs to respond to the over 20 million workers who lost their jobs in early 2020 as result of the pandemic. Due to how quickly these new programs needed to be implemented, the limited administrative capacity of many state UI programs, and the enormous number of claims filed during the pandemic, problems arose with both fraudulent claims (often pursued by criminals who had stolen identities) and overpayments that were not individual claimants’ fault or intent.

The Wyden-Crapo bill would extend the federal statute of limitations for pandemic unemployment insurance fraud from five to ten years, giving states more time to recoup fraudulent claims. It also would allow states to waive non-fraud overpayments of pandemic unemployment benefits if repayment is “contrary to equity and good conscience,” and would require them to do so if no overpayment is established by December 31, 2025.

These policies usefully distinguish between aggressively pursuing purposeful fraud and pursuing payment errors due to innocent mistakes by claimants or inaccurate determinations by state agencies. Collection resources should be focused on catching criminals who defrauded the system, not workers who lost their jobs during the pandemic and received inadvertent overpayments. This is especially true given that many overpayments were designated as such for technical reasons, such as workers receiving benefits from the wrong UI program during the confusion of the pandemic or failing to check the appropriate box on an application form.

In terms of future UI activity, the Wyden-Crapo bill would require state agencies to cross-match UI claims against several national databases, including those that track wages, to detect and prevent fraudulent claims. It also would allow states to retain 5 percent of all recovered overpayments of unemployment compensation to use toward a specified list of UI administrative activities, including enhancing fraud detection, improving technology, and increasing access to UI. Under current law, all such collections must be returned to a state’s trust fund, which pays for UI benefits. The bill’s provision would therefore be concerning if the 5 percent threshold is ever raised, which could limit the funds available to pay unemployment benefits. (A separate provision in the bill would allow states to keep 25 percent of recovered overpayments based solely on fraud in just the expired federal pandemic unemployment programs.)

In addition, the bill would require states to adhere to new federal access and technology requirements for online claims filing systems. These include requirements that the UI application process be in plain language that can be readily understood, including by those with limited English proficiency and by individuals with disabilities. The bill also would require states to have online systems that are accessible through a variety of devices (including mobile devices) and to offer alternative means of claiming benefits, such as by phone or in person. And it would require state UI agencies to provide guidance to employers on notifying separated employees of their potential eligibility for unemployment benefits. This recognition of the need for additional federal requirements aimed at improving access to unemployment benefits is an especially welcome aspect of the Wyden-Crapo legislation, though these provisions are themselves modest.

Our UI system needs a significant overhaul to reach its intended goal of providing adequate temporary assistance for those who have lost their jobs and are seeking work. While much more needs to be done, the Wyden-Crapo bill does take some important first steps toward improving the administration of the UI system.

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Interim Senior Director and Advisor, Income Security Policy