WASHINGTON—While a federal law authorizes COBRA health insurance premium subsidies to employees involuntarily terminated through Dec. 31, some employees laid off before then may be ineligible for the subsidy, the Labor Department said.

Last week, the Labor Department issued new guidance to end possible confusion. The guidance says for former employees to be eligible for the 65% federal nine-month COBRA premium subsidy, they must satisfy two conditions in that law: They must have been involuntarily terminated from Sept. 1, 2008, through Dec. 31, 2009, and been eligible to receive COBRA during that period.

It is that not-widely-understood second condition that could make employees laid off this month ineligible for the COBRA subsidy.

That could happen if employers allow laid-off employees to remain covered in the regular group health plan through the end of the month.

As a result, those individuals would not be eligible for COBRA until Jan. 1, 2010, one day short of the cutoff date.

“An individual who does not become eligible for COBRA until after Dec. 31, 2009, does not meet the qualifications,” Labor said.

Meanwhile, legislation that would extend and expand the nine-month subsidy picked up more support last week. Ten senators, including Majority Whip Richard Durbin, D-Ill., signed on as co-sponsors of S. 2730, which would extend the subsidy to 15 months and raise the premium subsidy to 75%. In addition, workers who lose their jobs through June 30, 2010, would be eligible for the subsidy. The bill now has 15 co-sponsors.