Combating Fraud and Promoting Equity: A Holistic Approach to UI Modernization

Combating fraud has long been a goal in unemployment insurance (UI) policy. However, the substantial amount of fraud during the pandemic—when bad actors exploited already overwhelmed state programs and expanded federal benefits, taking over $100 billion—led stakeholders at all levels of UI administration to sharpen their focus. With a broader UI modernization initiative underway, fraud may be viewed as a separate issue from, or even in tension with, promoting equitable access to UI benefits. Increased fraud-prevention measures may restrict access for eligible claimants, highlighting the challenge of balancing these two priorities.

BPC’s recent engagement with several state UI directors and claimant advocates provides a crucial insight: these two goals are mutually reinforcing, vital components of a well-functioning UI system. Recognizing that combating fraud and promoting equitable access are complementary goals can help stakeholders approach choices and interventions holistically, advancing both more effectively for a stronger and more efficient system.

UI Integrity: A Holistic View

Enhancing UI integrity is more than just detecting and preventing fraud. It encompasses core principles of equitable access: ensuring that all eligible claimants, regardless of their background, have access to benefits and that all claims are processed in an impartial and timely manner. It also includes making the claims process easier to navigate and providing necessary services to claimants, such as assistance completing applications, language translation services, and access to information about their rights and available resources.

Equity touches all aspects of a claimant’s experience with their state’s program. During the pandemic, the U.S. Department of Labor (DOL) announced up to $260 million for states to support initiatives promoting equitable access. States could use these funds for various purposes, including simplifying the language in documents shared with claimants, targeted outreach to underserved communities, reducing backlogs that delay timely payments, and improving customer service.

Effective fraud prevention, however, is essential for maintaining equity. According to state UI directors, overwhelming levels of fraud during the pandemic diverted staff attention and resources away from service delivery and towards combatting fraud, limiting capacity to process claims and interact with claimants.

Moreover, a focus on equity helps states combat fraud. BPC’s UI Tiger Teams report highlights the challenges and confusion about the claims process, particularly for non-English speakers, which can lead to errors that inadvertently raise suspicion of fraud. This also diverts attention away from service delivery towards fraud investigations, underscoring the mutually reinforcing relationship between fraud and equity.

Removing Barriers with Effective Identity Proofing Methods

When states implement effective identity proofing methods, it prevents fraud and removes barriers to equitable access. During the pandemic, identity theft—when individuals apply for unemployment benefits using someone else’s personal information—emerged as an additional barrier for eligible claimants.  The surge in pandemic identity theft fraud prompted states to strengthen their identity proofing methods—ensuring that the identity claimed by an individual applying for UI benefits truly belongs to them—to combat fraud.

Many states have successfully reduced fraud by partnering with private vendors to develop digital identity-proofing tools using biometric data. For example, a Kentucky official shared that implementing their digital method in 2020 reduced fraud rates significantly, from upwards of 30% to approximately 2% of benefits paid. A crucial metric often overlooked, however, is the number of claimants deemed ineligible because someone else used their identity to receive UI payments. Tracking this data, both before and after implementing these tools, is essential to fully understand the impact of identity theft on the UI system and claimants.

Effective identity proofing goes beyond using biometric data. An over-reliance on these methods risks undermining equitable access to UI, as some claimants face challenges verifying their identity in this manner. State directors emphasized to BPC the need to provide claimants with multiple ways to verify their identity. DOL administrators have partnered with the U.S. Postal Service and the General Services Administration to pilot new in-person and digital pathways for claimants to verify their identity. These new identity-proofing options help ensure that all eligible claimants receive the benefits they are entitled to, regardless of their access to technology.

Data Collection is Essential to Combat Fraud and Promote Equity

Ensuring staff have enough time to assist eligible claimants and implement efficient identity-proofing methods is a crucial component of effective UI administration. States can significantly improve performance in these areas by enhancing claimant data-collection and data-sharing strategies. Recent initiatives, such as the data-sharing partnership between DOL and the U.S. Treasury department, aim to bolster fraud prevention in UI programs. This collaboration allows state unemployment agencies access to the Do Not Pay Working System’s data sources and services via the UI Integrity Data Hub, an important tool to prevent and detect fraud.

Moreover, leveraging advanced data analytics and artificial intelligence enables states to detect patterns of fraudulent behavior more effectively and differentiate between genuine claimant errors and fraud. These efforts strengthen the overall integrity of the UI system, as wrongful accusations of fraud can deter or delay eligible claimants from reapplying and may negatively impact public trust, as highlighted by claimant advocates.

Data can also play a crucial role in safeguarding eligible claimants against unintended consequences of stringent fraud prevention measures. For instance, it can be used to quantify the number of claimants encountering challenges in verifying their identity through digital methods, including biometric data. This enables states to refine verification processes and ensure they are accessible and effective.

Moving Forward

As program administrators and policymakers work to modernize UI administration, it is crucial to approach combatting fraud and promoting equitable access holistically. Progress in one support progress in the other and must be balanced. These goals collectively maintain UI integrity, while effective identity proofing, data-collection, and data-sharing strategies are essential to both. Viewing efforts to combat fraud and promote equity from a holistic perspective will enable the design of a stronger, fairer UI system that effectively delivers benefits to all eligible claimants.