WASHINGTON—Employers' obligation to extend COBRA health care continuation coverage to former employees and dependents would be expanded dramatically under an amendment tucked into sweeping health care reform legislation approved by a House panel.

The House Education and Labor Committee on Friday approved H.R. 3200. It includes the COBRA expansion amendment proposed by Rep. Susan Davis, D-Calif., which the panel approved in an earlier voice vote.

After COBRA coverage expires—typically 18 months for those who have been laid off or quit, and 36 months for those entitled to COBRA due to death, divorce or marital separation—the amendment would allow beneficiaries to continue COBRA coverage until becoming eligible under a new employer's health care plan or through a federal or state-based health insurance exchange. Those exchanges, which would be authorized under the broader bill, would not be established until at least 2013.

The amendment, which would apply to individuals receiving COBRA on or after the reform legislation is passed, would allow COBRA beneficiaries, in many cases, to obtain years of additional COBRA coverage from their former employers.

“This certainly would increase employers' costs,” said Gretchen Young, vp-health policy at the ERISA Industry Committee in Washington. “The result would be to punish those employers who are staying in the system and providing coverage to their employees.”

“This would have the effect of discouraging employers from offering health care coverage,” said Andy Anderson, partner-elect at Morgan, Lewis & Bockius L.L.P. in Chicago.

If the amendment were to become law, it would be the second time this year that Congress has sweetened COBRA coverage. As part of an economic stimulus measure, legislators earlier this year included a provision that provides a 65% COBRA premium subsidy for employees who are terminated involuntarily from Sept. 1, 2008 through Dec. 31, 2009. The subsidy is available up to nine months.

While the House committee approved adding the COBRA provision, there is nothing comparable in health care reform legislation that the Senate Health, Education, Labor and Pensions Committee approved last week.