1. Purpose.To provide states with data analyses that suggest effective ways to improve detection, prevention and recovery of UI benefit overpayments.
2. References. Unemployment Insurance Program Letter (UIPL) 33-02, Development of An Unemployment Insurance Payment Accuracy/Integrity Measure (July 31, 2002); UIPL 15-03, Government Performance and Results Act (GPRA) Fiscal Year (FY) Unemployment Insurance (UI) Program Goals (January 22, 2003).
3. Background.
Since 1987, when the Department of Labor (Department) instituted a Benefits Quality Control program (now called Benefit Accuracy Measurement, BAM), states have developed estimates of benefit overpayments and underpayments by thoroughly examining samples of payments each week to determine whether the initial decisions related to benefit qualifying and eligibility were correct and whether all eligibility requirements for the week in question were met.
In developing a GPRA goal for FY 2003 related to improving benefit payment integrity, the Department examined the various reasons for overpayments that make up the BAM rate. It developed an "operational" overpayment rate that reflects an estimate of the types of overpayments that states can be expected to detect and recover through their program operations. About one quarter of recoverable overpayments found through BAM investigations cannot be detected through normal program operations, work-search violations being the principal example. However, a significant portion of recoverable overpayments, such as those involving claiming benefits while working, are almost all detectable. The preliminary operational overpayment rate for CY 2002 is 4.9%.
| RESCISSIONS | EXPIRATION DATE |
| None | March 31, 2004 |
The GPRA goal that the Department adopted following consultations with state partners uses the operational overpayment data compared with the amount of overpayments actually established for recovery. The goal for FY 2003 is for states to detect and establish for collection at least 59% of the estimated total detectable and recoverable overpayments.
4. Displays and Analyses of Erroneous Payments. The data analyses provided here are intended to help states develop and adopt procedures that will increase the level of overpayments that are prevented or detected. These include analytical displays of error rates and overpayment amounts by reason (cause) for the various states; and benefit-cost analyses of various methods of detection and recovery. Highlights from some of the analyses are discussed briefly below. A short synopsis of each analysis is attached and the complete analyses are available on the ETA/OWS Web site, https://ows.doleta.gov and by e-mail from Burman Skrable at skrable.burman@dol.gov.
Causes of Overpayments. Analyses of BAM data show that three "causes" of overpayments accounted for about two thirds of all overpaid benefits. These causes are (a) benefits claimed while working (31% in CY 2001); (b) voluntary quits and discharges that should result in disqualifications but do not (21%); and (c) failure to meet work search requirements (15%).
- Benefits Claimed While Working. Many if not all of these overpayments can be detected by crossmatch with state new hire data and wage record data. Use of new hire data can also prevent some overpayments by early detection. Data from states using new hire data suggest that they prevented about $55 million in CY 2002.
- Voluntary Quits and Discharges. Payment errors resulting from incorrect "separation" eligibility decisions at the time a new or additional claim is filed tend to be large because many weeks of overpaid benefits can result from that erroneous decision and each involves the full weekly benefit amount. The agencies' greatest obstacle to making the right decision, affecting about three fifths of error cases, is their inability to detect a potential eligibility issue, often because they lack employer information about the reason for separation. In addition, agencies allow about a third of all separation overpayment errors by mishandling information or failing to follow procedures.
- Work Search Requirements. Failure to meet work search requirements cannot be detected cost-effectively; however, periodic reviews of work search efforts may increase compliance.
Detectable and Recoverable Overpayments. There are two dimensions of overpayment detection. The first dimension is whether an eligibility issue can be detected when payment decisions are being made-the time when an overpayment could be prevented. BAM determined that in FY 2001 states could not have prevented about $1.7 billion, or 73%, of the estimated $2.3 billion dollars overpaid because the eligibility issues could not be detected when payment decisions were being made. For example, information necessary to detect when individuals inappropriately continue to claim UI benefits after returning to work is typically not available until much later.
The second dimension is detection of actual overpayments, after the fact. Current BPC procedures are likely to be able to detect slightly over half of all overpayments. For example, the overpayments made to individuals who continue to claim UI benefits after returning to work, almost impossible to detect when payment decisions are being made, are almost all detectable after the fact using various crossmatches. Comparing the actual detected (and established) and recovered amounts with the estimated "detectable and recoverable" overpayment amount--$1.24 billion in 2001--is the most reasonable basis for judging the completeness of state BPC efforts. Certain overpayments, such as work search violations, are very difficult and expensive to detect, both at the time the decision is made to pay the week claimed, and later, after the payment has been made. BAM estimates that in 2001 there were between $550 and $600 million of such overpayments that state laws would have allowed the state to recover, but their current BPC methods were very unlikely to detect. Work search violations and base period wage errors accounted for two thirds of these recoverable-but-hard-to-detect overpayments.
Cost-Benefit Analyses. Cost-benefit calculations of different approaches for preventing or recovering overpayments were made using BAM and BPC data. One approach for preventing erroneous payments that appears to be cost-effective is to interview separating employers via telephone to ensure that the agency has complete information before making a nonmonetary determination to pay UI benefits. The analysis showed that interviewing separating employers prior to making a decision to pay benefits is cost effective: for every dollar spent this way the agency could prevent about $1.20 in overpayments. This type of follow-up with employers not only helps to prevent potential overpayments, but also fulfills one of the key requirements for quality nonmonetary determinations.
A recovery approach that appears to be very cost-effective for some states is to increase their current BPC efforts to detect and establish overpayments, e.g., by making more intensive use of New Hire and wage-benefit crossmatches. Nationally, over four dollars could be recovered per additional dollar expended for BPC, even after allowing for some drop-off in establishment and recovery productivity. This is a cost-effective approach in states where overpayment amounts established for recovery are less than 80% of the amount estimated by BAM to be recoverable and which seem to be most detectable using current BPC methods. Using this measure of overpayment management, 41 states showed values of less than 80% for FY 2001. (This overpayment management measure is a new measure under the Government Performance and Results Act. Nationally, the target for FY 2003 is to establish for recovery 59% of the overpayment amount BAM estimates is detectable and recoverable. See UIPLs 33-02 and 15-03.)
The analyses suggest that it is not cost-effective to expand BPC efforts to include additional steps to identify, establish and recover the types of overpayments that are not usually identified through BPC operations, e.g., work search verifications.
5. Recommended State Actions. The subject analyses are intended to provide ideas for changes in processes and their likely payoff. We recommend that states use them as models for their own analyses. In certain state environments, some of the process changes may prove to be highly cost-effective and should be given serious consideration for implementation.
6. Action Required. State Workforce Administrators are requested to:
- Provide this information to all interested parties;
- Replicate benefit-cost calculations using BAM data and data on how long claimant and employer contacts would take, to see whether the additional contacts referenced in papers cited above might be cost-beneficial in their state; and
- Focus on remedying errors in benefit payment operations where BAM indicates that sufficient data were available to make a correct decision or procedures were not used that could have detected ineligibility issues.
7. Inquiries. Please refer any questions to the appropriate Regional Office.
8. Attachment.
Synopses of Erroneous Payments and Integrity Analyses