WASHINGTON—Congressional support for once politically popular extensions of federal COBRA premium subsidies for laid-off workers finally may be waning.

Facing a rebellion from party members concerned about costs, House Democratic leaders stripped numerous provisions from a tax bill passed prior to the Memorial Day recess, including one that would have extended the 15-month, 65% COBRA premium subsidy to employees involuntarily terminated through year-end.

Due to that failure to act, the subsidy is not available to employees who lose their jobs after May 31.

It was the cost of the provisions, including the COBRA extension, that triggered opposition.

“While there were many worthwhile and important elements in this bill, it was not paid for and therefore I could not support it,” Rep. Gerald Connolly, D-Va., said in a statement after the House approved the stripped-down bill.

“Congress needs to get serious about spending and the deficit,” Rep. Connolly said.

In the Senate, Democratic leaders pared back the COBRA subsidy provision by a month to bring down the cost of the nearly $8 billion extension. Under the revised version, the COBRA subsidy would be available to employees laid off through Nov. 30, compared with Dec. 31, under the original version.

Even with that and other costly provisions being cut back, the Senate declined to take up the broader bill before recessing, a sign, observers say, that the measure lacked the 60 votes needed to stop floor debate.

The House's jettisoning of the COBRA subsidy provision is a dramatic contrast to legislators' prior endorsements of subsidy extensions.

Three times—last December, then in March and April—Congress approved measures to extend the subsidy, with little opposition. The subsidy first was put in place as part of a massive economic stimulus bill federal lawmakers approved in February 2009.

Last December, the subsidy was extended to 15 months, while the measures passed in March and April extended the subsidy by one and two months respectively.

No legislator has publicly opposed the COBRA subsidy. Instead, the opposition is grounded in taking action on measures that would expand the deficit.

“As the election approaches, there is a growing concern in Congress” about the public nervousness about the deficit, said Helen Darling, president of the National Business Group on Health in Washington.

“It is not as easy as it was a year ago,” during the depths of the recession, for legislators “to write a blank check,” she added.

“There is a greater reluctance in Congress to pass unpaid-for items” such as COBRA subsidy extensions, said Gretchen Young, vp-health policy for the ERISA Industry Committee in Washington.

Still, no one says subsidy extension measures are dead. Some observers say that rather than passing multi-month extensions, legislators might pass shorter extensions, which individually have lower price tags than longer extensions.

“You might have a series of one-month extensions,” said Chantel Sheaks, a principal in the Washington office of Buck Consultants L.L.C.

If that scenario develops, employers and employees would face the uncertainty each month about whether the subsidy will be continued.

Still, that uncertainty would pale in comparison to the problems employers faced shortly after the passage in February 2009 of the original COBRA subsidy legislation, which was embedded in the American Recovery and Reinvestment Act of 2009.

That provision went into effect almost immediately and was retroactive, requiring employers to locate employees laid off as far back as September 2008 to tell them that they had a new right to COBRA, with the federal government now picking up 65% of the premium.

At the same time, in the absence of regulations, employers had to take their best guesses in interpreting the law, such as whether a layoff would be considered an involuntary termination of employment, the only situation qualifying for the subsidy.

“Administratively, there were some real headaches at the beginning,” said Ms. Young of the ERISA Industry Committee.

But the speedy development of guidance from federal regulators soon eased administrative issues, while COBRA administrators revamped their own systems to handle beneficiary notification and premium payments.

At the same time, the subsidy has enabled millions of individuals to retain employment-based coverage that likely would have been unaffordable without the subsidy.

Surveys conducted by Hewitt Associates Inc. of Lincolnshire, Ill., found a doubling of average COBRA opt-in rates for laid-off employees after the enactment of the subsidy legislation.

From March 1, 2009, when the subsidy first generally became available, through Nov. 30, the monthly COBRA enrollment rate for eligible laid-off employees averaged 39%. That compares with an average monthly rate of 19% from Sept. 1, 2008, through Feb. 28, 2009, the Hewitt survey of 200 large employers found.

It isn't known how much this surge of enrollment has cost employers. A general rule of thumb is that individuals enrolled in non-federally subsidized COBRA incur $1.50 in claims for every $1 in premium they paid. That is because the high cost of coverage—monthly premiums for single coverage often are about $400 a month for individual coverage and $1,200 for family coverage—results in a disproportionate number of enrollees who are above-average users of health care services.

Benefit consultants say the federal premium subsidy has reduced adverse selection, but employers still pay out more in claims than they collect in premiums.

“Certainly, employers are paying more,” Ms. Sheaks said. Even if adverse selection decreases, that will be offset by a higher opt-in rate, she said.

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