WASHINGTON—Senate Majority Leader Harry Reid, D-Nev., last week abruptly removed provisions from a fast-moving jobs bill that would extend the 65% COBRA premium subsidy in duration and to more people, but experts say the COBRA provisions remain very much alive.

Top members of the Senate Finance Committee last week released a draft of a bipartisan jobs creation bill in which several COBRA premium subsidy provisions had been embedded. Within two days of the release of the draft, though, Sen. Reid jettisoned COBRA and numerous other provisions from the measure and said he would seek immediate passage of a more narrowly focused bill.

“We are going to move a smaller package than talked about in the press,” the Nevada Democrat said at a news briefing.

But experts say the COBRA provisions remain very much alive and could be included as part of a subsequent jobs bill or legislation to be developed to extend several expiring provisions in the U.S. Tax Code.

“The COBRA provisions themselves are uncontroversial,” said Frank McArdle, a consultant with Hewitt Associates Inc. in Washington. “Instead of going out on this train, they may have to go out on the next train.”

The most significant COBRA provision in the latest proposal would extend the current 15-month premium subsidy to employees who are involuntarily terminated from March 1 through May 31. Another would extend the subsidy, in certain situations, to employees who lost group health coverage due to a reduction in hours and then were involuntarily terminated later.

While the latter provision as written would affect relatively few former employees, benefit experts say it would be a challenge to explain and administer.

“This is not something easy to understand and it is even harder to communicate,” said Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York.

The provision involves employees whose hours were reduced so much they no longer were eligible for their employers' health insurance plan, resulting in eligibility for regular, unsubsidized COBRA coverage. Later, the employees were terminated involuntarily.

In this situation under earlier Internal Revenue Service guidance, such individuals would not be entitled to the COBRA premium subsidy. The IRS said the initial event has to be involuntary termination of employment for former employees to qualify for the 65% subsidy of their COBRA premium.

The latest COBRA proposal would effectively overturn that IRS position as long as certain conditions are met.

To qualify for the subsidy under the proposal, the individual had to have a reduction in hours between Sept. 1, 2008, and May 31, 2010, that resulted in a loss of group coverage and which made the individual eligible for unsubsidized COBRA coverage. The provision also would require that the individual be involuntarily terminated after the jobs bill is signed into law.

The length of time in which a former employee would be entitled to COBRA coverage and the 15-month COBRA premium subsidy would be tied to when their hours were reduced—not when they were involuntarily terminated.

Take the case of an employee who lost group coverage after his or her hours were reduced on Jan. 1, 2009, and became entitled to unsubsidized COBRA coverage for up to 18 months. If the jobs bill were enacted on March 1 and the employee involuntarily terminated the next day, 14 months of the individual's initial COBRA entitlement would have elapsed. As a result, the individual would be entitled to the 65% federal COBRA premium subsidy for four months.

Implementing the provision will be challenging, experts say.

“First, employers are going to have to identify employees who had a reduction in hours going back as far as Sept. 1, 2008, and that will be an effort,” said Jennifer Henrikson, a legal consultant with Hewitt Associates Inc. in Lincolnshire, Ill.

Then, employers would have to find a way to clearly explain the new right to opt for COBRA and receive subsidized coverage to former employees.

“The issue here is trying to explain this to beneficiaries so that they understand this new opportunity,” Ms. Henrikson said.

Experts say, though, that given the nation's continuing high unemployment rate, it is nearly certain that COBRA subsidies—even in the wake of Sen. Reid's removal of the subsidy provisions from the jobs bills—will be extended again.

Extending COBRA premium subsidies “would be no surprise at all,” said Rich Gisonny, a consultant with Towers Watson & Co. in Valhalla, N.Y.

If the economy does not pick up, more COBRA premium subsidy extensions are likely.

“I expect this to run through the next election,” said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

If Congress extends the subsidy, it would be the second time lawmakers have done so since the original subsidy legislation was passed a year ago (see box).