Unemployment Insurance, mandated by federal statute and administered by states, is designed to provide a temporary safety net for workers who lose their jobs. Due to the recent economic downtown and increase in unemployment, unemployment benefits paid have doubled nationally from $38B in 2008 to $75B in 2009. However, is this money really going to those who are indeed eligible and need it most? According to statistics released last month by the US Department of Labor, 10.3% of all UI benefits paid in 2009 were erroneous, with 2.3% being deemed outright fraud.

So who absorbs the $7.5B loss? Displaced workers who are rightfully entitled to benefits. Honest employers who are forced to pay higher premiums. And ultimately all consumers as we pay higher prices for goods a services. We all lose when dishonest recipients make claims for benefits they are not entitled to. Another statistic from the US Department of Labor suggests that tax payers may end up footing the bill as well. Current estimates are that state UI funds will be $90B in the red by 2013 – suggesting either a staggering increase in premiums for employers, or another government bailout will be needed to shore up the funds.

But all is not lost. Technology is available today to help address improper payments, fraud, waste and abuse in government. By applying innovative techniques and analytics, government UI programs can identify those claims most likely to be improper and stop payments before they are made in error. To ensure that honest citizens are not forced to foot the bill for those who seek to cheat the system, claims fraud needs to be treated as a preventable crime - not simply written off as an operating loss or cost of doing business.

And if the problem of claims fraud seems big, employer premium evasion constitutes an even more staggering loss. Look for more on that topic in a future post….