Key takeaways
- In 2024, state Unemployment Insurance (UI) programs collectively had a 15.9 percent improper payment rate, amounting to $6 billion. A key contributor to this problem is that agencies are often unable to verify eligibility before benefits must be sent out.
- Countries facing similar problems have responded by requiring employers to issue separation certificates with sufficient information to help verify eligibility for UI. Canada provides a fruitful model.
- The U.S. could substantially improve program integrity by adopting a similar system focused on verifying reasons for employment separation at the time of separation.
- A separation certificate that automatically verifies nonmonetary eligibility – that is, criteria besides earnings – would reduce the need for state agencies to reach out to employers with requests for separation information after claims are submitted, streamlining the process for agencies and applicants.
Introduction
The COVID-19 pandemic reminded the public that Unemployment Insurance (UI) is an important lifeline for workers and their families. Unfortunately, the pandemic also served to demonstrate that these vital state programs are susceptible to fraud and improper payments. Of the $888 billion in UI claims paid out over this period, an estimated $191 billion were improper payments, including up to $135 billion due to fraud.
While these issues came to the forefront during the pandemic, they are long-standing problems that have beleaguered UI for decades. According to the Government Accountability Office, the program’s improper payment rate was 15.9 percent in 2024, amounting to $6 billion. Improper payments include both those that should not have been made because the recipient was ineligible and payments made in the incorrect amount, whether recipients were paid too much or too little. The GAO identified several root causes, including fraud and the failure of employers to provide timely and adequate information. Given UI’s importance in providing stability for workers impacted by economic downturns and regular labor market churn, it is critical to ensure the program is paying the right amounts to the right people, among other overdue reforms. While advocates often look to other states for reform models, we can also draw lessons from abroad. Other countries have introduced effective methods for verifying the information required for processing UI claims at the time of separation. Canada, which has a much lower improper payment rate, stands out as a potential model for U.S. reformers.
In 1973, Canada introduced a Record of Employment (ROE) in response to concerns about program integrity. Canada’s ROE speeds up processing for legitimate claimants while making it easier to verify the information necessary to process claims. Additionally, it acts as a deterrent for fraudulent claimants who might have stolen identifying information but lack the needed ROE. As a result, Canada’s improper payment rate consistently hovers around 5 percent – one-third of the U.S. rate.
Some experts have suggested that U.S. employers could be required to submit an ROE to state UI agencies and to workers when they become separated from jobs. It would contain essential information required for determining the two key types of eligibility, monetary (ensuring a worker has earned enough to draw benefits) and nonmonetary (including a range of factors such as why the worker left the job). Examples include identification numbers, contact information, dates of employment, hours worked, earnings, and reason for separation. Several states have adopted ROE-style reforms, but the details of what is included in each vary considerably.
The details of what is included in an ROE are significant, however. The information employers are required to provide upon parting ways with a worker could be narrowly targeted at verifying eligibility or more broadly defined to ensure maximum access. Some types of information might also require broader reforms to data-sharing practices or technologies to be used most effectively.
We undertake a comparative analysis of UI claim verification in Canada and the United States in order to better understand which components of a Canadian-style ROE might improve UI program integrity in the United States. We find that although wholesale adoption of the Canadian ROE system would have its benefits, the U.S. could substantially improve program integrity by adopting a more limited ROE regime focused on verifying the reasons for an employment separation when it occurs.
We begin with an overview and analysis of UI eligibility verification processes in Canada and the United States, followed by a survey of current documentation practices in states that require it at the time of separation. We conclude with a set of recommendations for adopting components of a Canadian-style ROE regime to help reduce improper payments in UI.
