With $2B, Labor Dept. employs two-part strategy to fix unemployment insurance systems

The Labor Department’s new initiative to modernize the technology that underlies the country’s approach to delivering unemployment insurance is far from your typical IT project.

Labor has 50-plus customers, each at varying stages of development and with varying types of technology already in use.

The situation became critical over the last year as Congress allocated hundreds of billions to help citizens during the pandemic.

State governments and the Labor Department have found challenges across the claims submission process, call centers, claim adjudication, recertification process and all the assorted different components of the unemployment insurance program.

Michele Evermore, the deputy director for policy in the office of unemployment insurance modernization at the Labor Department, said while state agencies made do with their current systems that ranged from cloud infrastructures to COBOL during the pandemic, more needs to be done to ensure these systems meet future needs and remain resilient.

Michele Evermore is the deputy director for policy in the office of unemployment insurance modernization at the Labor Department.(Caroline Brehman/CQ Roll Call/Pool via AP)

To that end, Labor embarked on a modernization effort that isn’t trying to drive the same technology system across the nation, but provide process standards and modular capabilities that can be plug and play into any state infrastructure.

“We still have to recognize that there are 53 state systems that all require a great deal of customization because their laws are all different. There’s basically two tracks of activity that are dealing directly with technology. One is the immediate deployments to states to help them sort through their backlogs, promote equity in the system and fight fraud,” said Evermore in an interview with Federal News Network. “The second thing we are doing along the lines of modernization is developing modules for states. We are going to work on centrally developed technology modules that can be deployed into state systems. One thing we’ve learned from, for example, healthcare.gov, is if you try to build one big thing all at once and deploy it all on the same day, it’s definitely not going to work. If we tried to modernize all state systems on a federal level, we’d find the same challenges.”

Since launching the effort over the summer, Labor, working with the U.S. Digital Service and contractors across the entire effort, has deployed teams to six states to identify challenges and how technology can solve the problems. Evermore said those teams include technology experts, process flow experts, equity experts, fraud experts, and of course, unemployment insurance subject matter experts who can sort out the rules. These teams are mostly staffed by Grant Thornton experts.

“They all report back to a central backbone that will be federal employees. That team mirrors those teams in the field so that when we find a solution in one state, they can communicate that to the central team, and the central team, when we recognize the same problem in another state, in another set of deployments, can just pass that solution on to the next state,” she said. “The important input that we’re getting is from the National Association of State Workforce Agencies. They’ve been helping us a lot. They’ve already been engaged in a lot of assistance work across states, especially prior to the pandemic. We obviously can’t ignore the things that they’ve learned and the tremendous expertise they bring to the table.”

Labor receives Rescue Plan funding

Gundeep Ahluwalia, Labor’s chief information officer, said the first modular is the claimant experience pilot. He said for many states, the current process is burdensome and complex.

“We’ll be partnering with a few states to pilot that new process and learn from it, and try and come up with a module that hopefully can scale over time. It will uplift the user experience or the claimant experience across the board,” he said. “The other thing that we’ve been involved in heavily is providing an identity management service contract that we have done with various service providers. We are now working with states so that they can implement Authenticator Assurance Level (AAL) 2 and AAL 3, which are the NIST standard recommended solutions to prevent and catch fraud while not affecting equity adversely. The goal is trying to help states through the contract, which has been awarded, and now we are hopefully going to put out task orders. We will also leverage that capability for this claimant experience pilot.”

Fraud has been a major driver of this modernization effort. Labor’s inspector general estimated that as much as $36 billion was lost to fraud in the unemployment insurance program under the CARES Act in 2020.

Congress recognized that part of the reason for this fraud was old and poorly designed systems at the state level. Lawmakers gave Labor $2 billion in the American Rescue Plan Act to help modernize those technology platforms.

Ahluwalia said the module under development would test applying an identity verification piece to the claimant experience to prevent most of the fraud on the front end.

“There is a preventative kind of an effect of implementing identity assurance level (IAL) 2, but I think we are also acutely aware that this should not impact equity or timeliness of the claimant experience. We will be working hard to integrate and utilize the services of identity providers to do that,” he said.

Ahluwalia added that Labor is looking at multiple identity service providers, including Login.gov, but any decision will be informed by this pilot.

Modernization is more than tech

Evermore also pointed out that the fraudsters are not hacking state systems, but using stolen identities to obtain benefits, which is a common problem across most social service programs.

The Treasury Department through the paymentaccuracy.gov website says agencies lost more than $7.6 billion through fraud in 2020. That figure is only what can be confirmed through court cases and documents. Labor’s unemployment insurance program saw more than $300 million in confirmed fraud and an improper payment rate, which includes frauds as well as overpayments and underpayments, was 9.17% in 2020. In 2020, the governmentwide improper payment rate was 5.6% and the amount of money paid out inappropriately was $206 billion, $31.6 billion more than in 2019.

Data for 2021 is not yet available.

A 2018 anti-fraud playbook from Treasury says weaknesses in identity verification is a root cause that can lead to more fraud in a federal program.

Evermore said of the $2 billion Labor received from Congress, it already has awarded $140 million to states as grants to fight fraud and another $260 million in grants to states to ensure there is equity in their programs.

She said another $200 million is in the process of going to states to implement the technology and business process improvements from the six tiger teams.

Evermore said Labor expects another big portion of the funding to go to states to implement the decentralized modular systems they are overseeing the development in 2022 and beyond.

“Modernization is about a lot more than technology. So in order for the technology and the policy, the administration and the business practices to all come along together is going to be difficult, but I think all of this should layer on to a better, more resilient, underlying unemployment insurance system,” Evermore said. “Ideally the unemployment system can be made to scale automatically, during times of recession. Some of that definitely requires legislative fixes as well. So there’s a lot that goes into this.”

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