Individuals who lost their jobs in the last several months may be eligible for employer-sponsored health insurance coverage at greatly reduced rates.

The federal government will pay 65% of Cobra continuation coverage premiums as part of the American Recovery and Reinvestment Act of 2009, which was signed into law on Feb. 17. The coverage will apply to individuals who lost or lose their jobs between Sept. 1, 2008 and Dec. 31, 2009 and are eligible for continuing coverage under Cobra, a federal law called the Consolidated Omnibus Budget Reconciliation Act.

The new subsidy "makes Cobra much more affordable for a lot of people," says Scott Keyes, a senior health-care consultant at Watson Wyatt, a consulting firm. He expects participation could double or triple.

The new subsidy would last up to nine months for individuals who are not eligible for other insurance such as Medicare or a spouse's plan. It applies to employees, their spouses and any children who lost health coverage because of an involuntary termination.

Participants also can't earn more than $125,000 in the year they receive the subsidy if they are single or more than $250,000 for couples who file jointly.

Laid-off workers already can extend their job-related health coverage for up to 18 months under Cobra. The law applies to companies with 20 or more workers, which continue to offer a group health plan.

"I think this is aimed at helping people stay insured," says Amy Bergner, a principal at Mercer, a consulting firm in Washington.

She says employees who didn't elect Cobra coverage initially now have a second chance to sign up.

Individuals who lost their jobs before the law was signed on Feb. 17 should be notified by their former employer by April 18 that they are eligible for this benefit, even if they initially did not sign up for Cobra.

Until now, only a small percentage of individuals extended their insurance coverage through Cobra because of the high cost. Employers are allowed to charge former workers up to 102% of the cost of premiums. Individuals paid on average about $370 a month and families $1,000.

The subsidized coverage would lower premiums to about $130 a month for single coverage and $350 a month for a family, based on 2008 data from a survey by the Kaiser Family Foundation and the Health Research & Educational Trust.

Ms. Bergner says that workers who have already paid their insurance premiums for coverage after Feb. 17 may get a refund. "It's really important that they sign up right away and don't miss the deadlines," says Sharon Cohen, health-care counsel for Watson Wyatt.

Individuals can wait up to 60 days after they get a notice from their employer that they're eligible for Cobra. Once they agree to enroll, they have 45 days to begin to pay their share of the premium.

"They don't want a break in coverage," says Mr. Keyes. As long as you don't have more than a 63-day break in coverage, a medical plan cannot refuse to cover any pre-existing conditions, even if it is not the Cobra coverage.