Unemployment benefits: how many claims have been denied?

The economic collapse induced by the covid-19 pandemic and measures put in place to mitigate it put the most Americans out of work since the Great Depression overloading state labor departments across the country. The task would have been daunting at any time but years of neglect, underfunding and rule changes have left the departments hobbled in the face of the deluge.

In the spring millions of Americans filing for unemployment insurance for the first time had an uphill climb to seek those benefits. Legislation over the years creating work requirements to receive benefits and other measures to restrict access meant that more and more claims have been denied over time. In addition, states had to implement the new programs passed in response to the pandemic into their antiquated systems.

Problems processing unemployment claims

The initial crunch began in the March when first time unemployment claims spiked. At the time the Economic Policy Institute released a report stating that “About half of potential UI applicants are actually receiving benefits.” This was due to the states' systems being unable to cope with the inundation of claims. The report said that for every 10 people who said they successfully filed for unemployment benefits, three to four additional people tried to apply but could not get through the system to make a claim and an additional two people did not try to apply because it was too difficult to do so.

States try to process claims automatically but if a claim gets flagged, it gets set aside for manual review which often takes months to resolve due to staffing shortages in light of the workload. Simple things like a typo or sending the wrong format of documentation can get an application flagged. Additionally extensive fraud prevention checks put in place after high profile scams, most notably that which occurred in California have caused states to apply extra scrutiny. On top of that implementing the new requirements into systems that were set up 40-plus years ago and running software developed when Steve Jobs was a four-year-old is time consuming.

Millions of unemployment benefit claims denied

In June Michele Evermore, a senior policy analyst with NELP testified to the US Senate Finance Committee that in addition to putting in more restrictions to filing for unemployment insurance she said “States have programmed their computer systems to pause applications at every decision point, which can generate multiple eligibility determinations and denials,” Normally the applicant would be able to appeal the decision and have a hearing within a matter of weeks but due to the volume of denials the process is taking months instead. The hurdles put in place to claim unemployment have lead to situation where the national average in the US for the share of unemployed that receive benefits was 28 percent in 2019.

Part of the CARES Act passed in March created federal unemployment programs to help the states meet the rising demand and extend payments. The Pandemic Unemployment Assistance program in particular was created to cover the jobless who do not normally have access to unemployment benefits. This covered gig workers and the self-employed, but also people who had to stop working to take care of a sick relative or watch a school-aged child when schools shut down in-person education. Conflicts between the state systems and the new federal requirements meant that many applications for benefits were initially denied.

There are approximately 1.2 million Americans that have been left waiting months for aid as states struggle to catch up with backlogs of unemployment claims stretching back to March, according to a Washington Post analysis.

States are working to get unemployment payments out

States across the US are making an effort to catch up with the backlog of claims and process new claims, but have had to do it on their own. In the $900 billion relief package passed in December that extended unemployment benefits to 50 weeks, there was no money set aside to help state unemployment offices upgrade their computers. New Jersey used $50 million of its original coronavirus relief funds to update its systems. Many states have taken on more staff to handle the workload and increased work hours.

The new measures put in place will be put to the test as unemployment claims increased in December for the first time since the start of the recovery. The number reduced slightly in the latest report to 900,000 new claims but remains nearly 200,000 more than in November. As of now only eight states are processing the bulk of new applications and sending out payments in three weeks, which was the standard time before the pandemic according to Labor Department data. Until herd immunity is reached through the vaccination program the economy will not be able to go back to business as usual.