WASHINGTON—Employers will be dealing with COBRA premium subsidy issues for a lot longer if a newly-passed Senate bill receives final congressional approval.

The House this week is expected to take up H.R. 4213, which the Senate passed last week, to extend the 65%, 15-month COBRA premium subsidy for involuntarily laid-off workers through year-end. The broader bill also would extend numerous expiring provisions of the U.S. Tax Code and provide pension funding relief.

According to Senate Finance Committee Chairman Max Baucus, D-Mont., who sponsored the bill, the measure would provide significant relief for laid-off workers. “When families know they can count on unemployment and COBRA benefits in this bill, they know they can put food on the table while they continue to look for work.”

The COBRA provisions in the Senate-approved bill build on H.R. 4691, a stopgap measure that President Barack Obama signed into law earlier this month that extended the subsidy through March 31.

The two measures also include provisions that effectively overturn Internal Revenue Service guidance that has kept some laid-off employees from receiving the subsidy. The IRS had said that employees whose hours were reduced, making them eligible for regular, unsubsidized COBRA coverage, and then were terminated were not eligible for the subsidy.

That's because the initial event to qualify for the subsidy must be involuntary termination, the IRS said. However, the legislation would make such former employees eligible if they meet certain conditions.

Under the stopgap measure, the reduction in hours must have occurred between Sept. 1, 2008, and March 2, 2010, resulting in a loss of employer coverage, with termination of employment between March 2 and March 31.

The comparable provision in the longer extension is similar except that it would apply to a reduction of hours from Sept. 1, 2008, through the date of enactment of the legislation, which isn't yet known, for employees laid off from date of enactment through Dec. 31, 2010.

The 18 months of COBRA coverage would begin when workers' hours were reduced, even if they did not opt for COBRA then. However, their subsidy entitlement would begin when they were terminated, not when their hours were reduced.

Take the case of an employee whose hours were reduced on Jan. 31, 2010, resulting in eligibility for unsubsidized COBRA coverage that the employee declined. Then on March 31, the employee was laid off. In that situation, the employee could receive the 65% COBRA premium subsidy through June 30, 2011, which would be 15 months after April 1, 2010, which is when the individual first became eligible for the subsidy.

Administering the expanded right to subsidized coverage will be challenging, benefit experts say. Employers will have to identify and notify individuals whose hours were reduced as long ago as September 2008.

“It is going to be a significant task,” said Andy Anderson, a partner at Morgan, Lewis & Bockius L.L.P. in Chicago.

However, the number of individuals who will be eligible for the subsidy will be relatively small, said Jennifer Henrikson, a legal consultant with Hewitt Associates Inc. in Lincolnshire, Ill.

That is because it would apply only to employees terminated on or after March 2—the date of enactment in the stopgap bill—and on or after enactment of the longer extension bill now before the House.

“The pool of people eligible will be small,” said Mike Thompson, a principal with Pricewaterhouse-Coopers L.L.P. in New York.

If Congress approves the latest bill, it would be the third time legislators have extended the subsidy (see box). It also means that employers would be dealing with subsidy-related issues through June 30, 2012.

Unless the economy improves significantly, observers say additional extensions are likely.

The possibility of an extension will be “linked” to the health of the economy, said Sharon Cohen, an attorney with Towers Watson & Co. in Arlington, Va.

By increasing the number of individuals opting for COBRA, employer costs have risen. That is because COBRA beneficiaries tend to be above-average users of health care services, with employers' collected premiums well below claims incurred by beneficiaries.

For some employers who have laid off large numbers of employees, COBRA costs have become significant, Mr. Thompson said.