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Unemployment Compensation Overpayments: Not as Simple as It Seems

Employment

Unemployment Compensation Overpayments: Not as Simple as It Seems

Date Posted: 
02/22/2013

Recent news stories have reported that U.S. Department of Labor (USDOL) data indicates that Pennsylvania has the highest amount of unemployment compensation (UC) overpayments in the country for 2012. These reports will surely spark immediate outrage in the Commonwealth.

There are several points on which all can agree. First and foremost, fraud must not be tolerated. Second, UC should not be paid to people who are not entitled to it.

But the issue is not nearly as simple as it seems. While we need to address the problem of overpayments, we should not punish the unemployed unfairly, but rather to act after fully understanding the problem.

1. Overpayments ≠ Fraud.

The federal government’s report addressed overpayments, which are all circumstances in which people received benefits for which they were later determined to be ineligible. In the vast majority of cases, these overpayments are “non-fault,” meaning that the worker was not trying to defraud the system. Fewer than one out of four overpayments were found to be fraudulent. There are simply many cases in which there is a good faith dispute or misunderstanding about eligibility, and the worker is found ineligible after initially having been paid benefits.

2. Employers play a large role in these overpayments by failing to contest claims on a timely basis.

The UC system was set up as an adversary system. A worker files a claim; then his employer is supposed to respond within 15 days of getting notice of the claim. However, many employers do not initially contest claims, which are then paid based on the information given by the worker. When it comes time for the employer to face increased tax rates based on the paid claim, it may then still contest the claim, even if many months of payments have been made, without any penalty or limitation. By contrast, workers must file appeals within 15 days if their claims are denied.

Workers who received benefits under these circumstances are harmed, as are the UC Trust Fund and other employers that play by the rules. These workers now are burdened by large overpayments owed to the Commonwealth, which could have been avoided if the claim had been properly adjudicated at the beginning if the employer had responded as it is supposed to do.

Federal law requires that this failure to respond be addressed by the General Assembly in 2013. The General Assembly should not allow employers to get “relief from charges” if they have not responded to a claim in a timely or adequate fashion, unless they had good cause for their failure.

3. There are reasons why Pennsylvania’s overpayment rate was so high in 2012.

  • The UC Service Centers (UCSC) have been difficult or impossible to access.

Workers who were trying to report changes, such as earnings, faced a herculean task of trying to get through to provide their information. They also were hampered from asking questions to understand the many complexities of the UC program and rules. Better access to UC staff and better communications about UC program rules so that workers clearly understand them would cut down on overpayments.

  • The work search rules are still being implemented.

Failure to comply with the work search requirements was cited as the biggest reason for overpayments, constituting about one-third of the total. 2012 was the first year that Pennsylvania had specific rules for work search in our UC Law. We understand from the PA Department of Labor and Industry that USDOL has counted many cases as being work search overpayments simply because the new rules have not yet been fully implemented, overstating the amounts of the overpayments by close to 35%.

  • Overpayments for ineligibility could have been avoided.

Ineligibility because of the reason that the worker left the job was the second biggest reason for overpayments, constituting about one-quarter of the overpayments. As noted above, this problem could be greatly reduced by incentivizing employers to contest claims as soon as possible, and as anticipated by the current design of the adjudication system.

Pennsylvania’s unemployed have already taken their lumps in our UC system over the past year. Eligibility changes made in Act 60 of 2012 (the solvency bill) that went into effect in 2013 are anticipated to eliminate over $300 million of payments per year. The administrative system essentially failed our unemployed by being completely broken.

So changes should be made to reduce UC overpayments, but they should be fair to the unemployed. The solutions should include the following changes.

  • The General Assembly should not allow employers to get “relief from charges” if they have not responded to a claim in a timely or adequate fashion, unless they had good cause for their failure. Rep. Boyle will be sponsoring such a bill.

  • Adequate investment must be made in the UC Service Centers, so that they work again. HB 26 or SB 281 should be enacted, to provide an additional $10 million from employee taxes that otherwise would be paid to the UC Trust Fund.

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