Santa couldn’t have done better.

Millions of Americans got a great gift when Congress passed and President Obama signed a defense spending bill that included a provision to extend a subsidy helping those out of work continue their health insurance coverage.

Last February, Congress established the subsidy under the Consolidated Omnibus Budget Reconciliation Act, commonly referred to as COBRA.

Under COBRA, former employees receive health coverage at their employer group rates. But they have to pay the full premium, including the share that the employer used to pay plus a 2 percent administrative fee.

Understandably, many who become unemployed cannot afford the premium, which on average can consume 83 percent of their unemployment income, according to a report by Families USA.

Laid-off workers first became eligible for the subsidy in March. Those who take advantage of the program pay 35 percent of the COBRA premium, and employers pick up the remaining 65 percent, which is then reimbursed by the government through a payroll tax credit.

Because the subsidy was only to last nine months, the first eligible group was cut off at the end of November. Others who were facing losing the subsidy at the end of the year became stressed at the prospect of unaffordable monthly payments.

“How can we, as unemployed American citizens, pay those ridiculous premiums?” asked Jeff Krebs of Reynoldsburg, Ohio.

Krebs and his wife, Marianne, are both unemployed. Jeff lost his job 16 months ago and his wife lost hers in April after 25 years with the same company. Thanks to the COBRA subsidy, their health insurance premium was $450 a month.

But without an extension, the Krebs were facing a jump in their premium to $1,550 by the new year.

“This is like winning the lottery for us, especially right before Christmas,” Krebs said. “You do not understand what a relief that has just been lifted off our shoulders.”

Extension highlights

The COBRA subsidy program extension included in the 2010 Department of Defense Appropriations Act will do the following:

• Expand the amount of time people can qualify for the subsidy from nine months to 15 months.

• Extend the eligibility period for the COBRA premium reduction an additional two months. Before the extension, you had to have been involuntarily separated from your job between Sept. 1, 2008, and Dec. 31, 2009, in order to qualify for the reduced COBRA payment. That period of eligibility has now been stretched out to Feb. 28, 2010.

• Give credit to people who paid the full premium in December. Individuals should contact their plan administrator or employer sponsoring the plan to discuss a credit against future payments, said Phyllis Borzi, assistant secretary of labor.

• Require employers to send out notices to laid-off workers outlining the most recent changes in the COBRA subsidy. For example, individuals who had lost the subsidy will now have additional time to pay the reduced premium to keep their coverage.

Enrollment jumps

After the subsidy was first passed, COBRA enrollment doubled, according to an analysis by Hewitt Associates. With the subsidy, the cost of maintaining the average policy is $398 per month for a family and $144 for an individual, according to the Kaiser Family Foundation. Without the subsidy, that cost jumps to $1,137 per month for family coverage and $410 per month for individual coverage. Unfortunately, if your company closed or went bankrupt and there no longer is a group health plan, the COBRA subsidy is not available.

For more details on the COBRA subsidy, contact your plan or go to the Department of Labor’s Web site at www.dol.gov/COBRA. You can also call the Employee Benefits Security Administration toll-free at (866) 444-3272.