Pennsylvania spent $376 million in erroneous unemployment payments last year

Guest Column by Eric Boehm

Labor Department reports more than$1B in overpayments since July 2008.

HARRISBURG — Times are tough for Pennsylvania’s 516,000 unemployed workers, but some of those workers are getting by with a little extra help from the state.

Of the nearly $3.33 billion in unemployment compensation the state paid out between July 2010 and June 2011, an estimated $376 million, or 11 percent, were erroneous payments, according to data released this month by the U.S. Department of Labor.

Since July 2008, the state has paid out more than $1 billion, or about 10 percent, in over payments as a result of fraud or clerical mistakes.

The report covers only the 26 weeks of state-level unemployment compensation payments, not the additional levels of federal unemployment compensation that provides benefits for up to 99 weeks.

“Any overpayment is unfortunate and, obviously, we are working to detect and recover improper payments,” said Sean Yeakle, press secretary for the state Department of Labor and Industry. “We have investigators who look into it, and we have partnered with other states to find solutions.”

Yeakle said overpayments can occur for various reasons, including recipients who continue to collect benefits after returning to work, clerical errors on the part of employers or the department, and improper reporting of firings.

Nationally, more than $19 billion in state unemployment benefits were paid in error during the past three years, according to the data. That’s more than 10 percent of all payments made during that period.

Only California and Indiana had higher totals of benefits paid in error last year than Pennsylvania. Indiana paid out an estimated $567 million in overpayments, more than 59 percent of all payments, while California’s $455 million in overpayments accounted for less than 6 percent of the state’s total.

But the U.S. Department of Labor warns against making state-by-state comparisons, as every state has unique eligibility requirements and verification processes for unemployment payments.

Unemployment payments are important to workers who have lost their jobs, said John Casella, administrator of the state’s CareerLink program in Monroe County, which helps match unemployed workers with new jobs. The county’s unemployment rate is 9.5 percent, one of the highest in the state.

“For those people who have lost their jobs through no fault of their own, they rely heavily on the support from unemployment compensation while they are making their job search,” Casella said.

While 10 percent of all payments are made in error, less than 5 percent are the result of fraud, according to the U.S. Department of Labor estimates.

When fraudulent payments are made, the state will investigate and prosecute the offenders, Yeakle said. For non-fraudulent payments, a record of the payment is made and future payments will be withheld from that recipient until he qualifies for more than the amount of the overpayment, he said.

Pennsylvania’s $376 million in overpayments is burdening an exhausted system. The state’s unemployment compensation fund was drained when joblessness climbed during the recent economic downturn, forcing the state to borrow more than $3 billion from the federal government to cover payments. The interest on that loan is being paid off in the form of higher taxes on employers and employees, but the General Assembly has yet to address a plan to repay the actual debt.

While the U.S. Department of Labor report is only an estimate, state Sen. John Gordner, R-Columbia, said, “there is no doubt in my mind that fraud goes on in the system.”

Gordner, chairman of the Senate Labor and Industry Committee, said the unemployment debt would be a crucial issue on the fall legislative agenda, and any package dealing with the debt would include an anti-fraud provision.

State Rep. Ron Miller, R-York, chairman of the House Labor and Industry Committee, said he wants to invite members of the administration to come before the committee to address the problems with the system.

“The bottom line is that we need to do more to ensure the integrity of the system, but I don’t see a magic wand answer to this right now,” Miller said.

Democrats contacted for this story did not return calls.

Yeakle said the department will be announcing some new measures to cut down on fraudulent payments within the next few weeks, but declined to give details.

At the same time, the federal government plans to help states reduce payments made in error. Last week, the federal Department of Labor announced $191 million in grants to 40 states to improve unemployment insurance program integrity with the goal of reducing improper payment rates.

Pennsylvania is receiving $1.25 million from the initiative.

“The Unemployment Insurance system is a unique partnership between the federal government and the states,” said U.S. Secretary of Labor Hilda Solis in a statement. “States bear the responsibility of operating an efficient and effective benefits program, but as partners, the federal government must be able to hold them accountable for doing so.”