As welfare booms during pandemic, so do fraud and waste

Since the coronavirus pandemic began, California has made unemployment payments to more than 20,000 ineligible prisoners, with $42 million going to inmates in other states. In December, the state Employment Development Department estimated fraud consumed $4 billion of the state’s pandemic relief money.

In response, California suspended many unemployment claims until it could verify people’s identities. But that action hurt recipients such as Irene Flores, who told the Los Angeles Times she was a Lyft driver before the pandemic. She said she applied for unemployment in March but had to submit documents to confirm her identity two different times, delaying payments. Now her payments are pending again, leaving her with no money for rent and groceries.

Since the federal government quickly expanded several welfare programs last spring, much of the money went to waste and fraud. Now as the distribution of a vaccine puts a potential end to the pandemic on the horizon, lawmakers are trying to figure out how to keep supporting the needy while adding controls.

The first coronavirus economic relief bill adopted by Congress gave paid sick leave to certain workers, expanded Medicaid funding and unemployment insurance, and authorized the Department of Agriculture to give Supplemental Nutrition Assistance Program (SNAP) households the maximum amount of benefits. The CARES Act followed in March with support for businesses and more benefits to households. Relief measures included in an omnibus budget passed at the end of December will give Americans another round of stimulus checks and revive unemployment bonuses—this time $300 a week instead of $600—through mid-March. It also will extend the increase in SNAP benefits, include funds for rent assistance and childcare, and prolong an eviction moratorium until Jan. 31.

The welfare expansions enacted last spring cut American poverty—the extra unemployment payments were essentially a raise for some workers—but when those expired in July, poverty increased. Columbia University researchers found the poverty rate was 1.7 percentage points higher in September than in February. Enrollment in Medicaid and SNAP also increased—often by more than 10 percent—in nearly every state in 2020.

Some of the pandemic safety net changes introduced redundancy and waste. The CARES Act gave parents money to feed children who qualified for free school lunches while also letting schools deliver meals, for example. Many recipients of individual stimulus checks didn’t need them. An analysis by the American Enterprise Institute found that at least 40 percent of households that made $75,000 or more per year and received stimulus payments put the money toward savings or debt payments, not basic expenses. AEI’s Angela Rachidi suggested future stimulus payments should have a lower income threshold to receive the full amount. Families above the threshold would receive decreasing amounts depending on income.

The coronavirus relief bill passed Dec. 21 provides some checks on fraud. It asks states to verify that applicants are eligible to receive unemployment payments, for example.

“It’s going to be somewhat of a headache for the states,” especially if the enhanced unemployment benefits expire in March, said AEI’s Matt Weidinger. “It will be interesting to see how much effort the states go to enforce all the stuff they’re now being told they have to.” He said states should also require people receiving unemployment benefits to search for work. Initially, Congress told states to waive that requirement to keep people home safe from the virus. But now more jobs are available, and workers can safely search virtually and by phone.

Overall, Weidinger said, Congress should act when necessary but tie assistance to need. The pandemic affects the whole country, but individual states vary widely. Places like Nebraska have low unemployment, while states like Nevada still have high levels of joblessness. But people in both states can get the additional weekly $300 in federal unemployment payments. “That’s one of the flaws of the approach Congress has taken,” Weidinger said.