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States Seek Cure for Unemployment Systems Socked by Pandemic

March 18, 2021, 9:31 AM

In addition to killing more than a half million people in the U.S., the coronavirus pandemic wreaked havoc on the American economy, shuttering businesses and scattering workers, millions of whom turned to—and quickly overwhelmed—state agencies responsible for processing and paying unemployment benefits.

Twelve months after the onset of the crisis, many states are still grappling with a fallout that included massive delays, billions of dollars being paid to fraudulent applicants and the dismissal of department heads held responsible for those failures.

“It was an avalanche of claims, like nothing that anyone could see coming,” said Amy Pechacek, who was appointed to lead Wisconsin’s Department of Workforce Development in September and tasked with clearing the claims backlog after her predecessor was asked to resign. “Like many states, Wisconsin struggled in the beginning.”

State agencies have paid out roughly $675 billion in state and federally funded jobless benefits since January 2020, with 65.5% of last year’s initial claims paid within two to three weeks, what federal standards traditionally consider to be timely. That’s down from 85.8% of claims in 2019, when states paid out only $27 billion in benefits, according to U.S. Labor Department data.

A Wisconsin audit found 96,000 people’s unemployment claims awaiting adjudication—a review process for submissions with missing information or other issues preventing their approval—as of mid-October. The pile-up was cleared by December, Pechacek said.

The U.S. Labor Department’s inspector general identified $5.4 billion in potentially fraudulent claims paid out by state agencies last year and suggested better state-federal coordination to prevent future fraud. Washington state was tricked into paying $600 million in bogus claims, though it later recovered more than half of that. California’s Employment Development Department estimates it paid out $10.4 billion last year claimed under false pretenses.

Now, with President Joe Biden enacting a $1.9 trillion relief package, which includes the continued expansion of federal benefits such as an extra $300 per week through September, those agencies remain under pressure to manage the workload while avoiding those pitfalls. The U.S. Labor Department is allowing about six weeks for them to get set.

And, through a combination of technology improvements, staff increases, and simple process changes, states have begun to chip away at these administrative problems in ways that might offer hope for faster and less fraud-prone benefit payments.

User-Friendly Applications

Designing more user-friendly processes is a key lesson that states are beginning to learn, although they have a long way to go, said Andrew Stettner, a senior fellow at The Century Foundation who researches and writes on unemployment policy.

“By necessity states have taken some moves there,” he said. Agencies have begun using social media to distribute policy changes or reminders, plus communicating via text message to remind people to complete weekly certifications to continue receiving benefits.

Many state systems for receiving and processing claims, though, remain clunky and incomprehensible for those seeking help for the first time, he added.

“Looking at the way the technology was designed, it wasn’t user-friendly,” Stettner said, noting the systems often were tested by state agency staff, not potential users. “If this stuff doesn’t make sense to the person on the street, then it’s not going to work.”

Some states also tried rewriting applications and other forms in plain language. That includes Wisconsin, where a revamped form will debut March 31.

“There was a lot of legalese and jargon on the application language,” Pechacek said. “Because our questions were so hard to understand, people were unnecessarily being held in adjudication because they answered the question incorrectly.”

California’s Employment Development Department has reached out to the Wisconsin agency and expressed an interest in imitating its plain-language initiative, she said.

Meanwhile, legislation proposed in Washington state would require its Employment Security Department to undertake a plain-language project and make its notices to applicants available in the state’s 10 most commonly spoken languages.

21st Century Tech

Wisconsin also is rolling out an online portal where applicants can upload photos of documents to verify past income or identity, Pechacek said. The state agency previously accepted documents only via mail or fax.

Similarly, Colorado, New York, North Carolina, and other states have deployed the ID.me identity verification process to fend off false claims for benefits. The service asks applicants to submit cell-phone photos of their driver’s license, answer credit-history questions, or video chat with a service representative to confirm their identity.

“This new ID verification tool and these additional resources add to the Department of Labor’s constantly-expanding arsenal of weapons to combat fraud,” New York State Labor Commissioner Roberta Reardon said in announcing the adoption of the service last month.

Many tech changes involve the behind-the-scenes processing of claims using data analytics, artificial intelligence, and cloud computing.

Wisconsin’s clearing of its claims backlog required using Google Cloud’s predictive analytics to make quicker decisions about which claims could be approved. The technology also scans for red flags, such as multiple claims filed under different names but listing the same bank account or email, Pechacek said.

While these and other short-term fixes helped, Pechacek and Gov. Tony Evers (D) are also calling for replacement of the UI system’s 1970s computer mainframe technology. Similar systems are still in use in New Jersey and other states.

“It is literally a black screen with the green blinky cursor where you have to hit, like F5, to navigate a screen to do 40 different functions,” Pechacek said.

Florida also used cloud services to expand its server capacity for claims processing, a state official who oversaw the state’s unemployment program for part of 2020 told state auditors. The audit found much of the Sunshine State’s trouble resulted from its CONNECT system—less than a decade old—which couldn’t handle large numbers of users filing claims at once without crashing.

Florida was one of several states where difficulties in disbursing benefits effectively cost its unemployment agency chief his or her job.

Staffing and Training

Washington’s plain-language bill also calls for the state agency to rethink how its staff interacts with applicants by piloting a case manager model—meaning one person follows each claim to resolution and can better answer an applicant’s questions.

John Tirpak, who directs the state’s Unemployment Law Project, is backing the bill. His organization provides legal aid to claimants who need help getting approved or appealing a denial of benefits, and he said his clients have been stymied by the agency’s short staffing and the way it silos staff members into narrow areas of expertise.

“It’s staffing, but it’s also their philosophy. Their philosophy is to not have people handle the claims one on one,” Tirpak said. “Even if you get through, the person on the phone cannot help you because they’re not on the right level or it’s outside their training.”

Inadequate training and a lack of best practices for call-center staff at California’s agency played a part in the state’s difficulties in paying claims quickly, a claims processingaudit found.

Some agencies hired staff, borrowed from other areas of state government, and contracted with private companies. But getting enough people in place to handle the spike of jobless claims was a huge challenge, he said—partly because people qualified for the higher-skilled adjudicator jobs are in short supply.

It’s possible the pandemic will inspire states to invest more in staffing and training for their unemployment agencies, but it’s unlikely they’ll hire enough to prepare for another pandemic-like claims spike, said Dale Ziegler. A former unemployment official at the U.S. Labor Department and the Washington state agency, Ziegler now works for the UI software provider On Point Technology.

“The harsh reality politically is I don’t see it happening,” Ziegler said, adding that better technology can help but can’t fully replace human staff. “It gets down to where somebody has to touch it. It has to be a knowledge worker.”

Program Design

Abetting the unexpected flood of claims was the way Congress set up the expanded federal jobless benefits last March.

Congress tasked the states with administering new benefit types alongside traditional unemployment insurance, in particular the Pandemic Unemployment Assistance for independent workers who fall outside the standard employer-employee relationship and don’t qualify for traditional unemployment.

This program required state agencies to evaluate eligibility without an employer to verify the applicant was laid off and to determine the weekly benefit amount without W-2 tax forms to show prior year income.

“I’m not sure there was a better, faster way to give these people benefits,” under the circumstances, said Isabel Soto, director of labor market policy at the American Action Forum. But looking forward, she suggested creating a portable benefits-type program to extend unemployment benefits to independent workers.

“My view is that looping these independent workers into the traditional unemployment system is a mistake,” she said, noting they have irregular work hours, frequently change jobs, and sometimes work for multiple employers—factors that don’t mesh well with eligibility and benefits determination rules for traditional unemployment.

Policymakers also hurt state agencies by setting the expectation that laid-off workers would get money quickly, presumably within the standard two or three-week timeframe, Ziegler said. “One of the biggest lessons learned was that the messaging was unrealistic.”

Kentucky last week split the difference, enacting legislation requiring more aggressive cross-checking of federal state and commercial databases, including incarceration lists, to guard against improper payments but also allowing those who received accidental overpayments to keep them.

— With assistance from Alex Ebert

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editor responsible for this story: Andrew Harris at aharris@bloomberglaw.com