BOSTON—Massachusetts officials are integrating a two-decade-old state program that heavily subsidizes COBRA health insurance premiums with the new federal COBRA premium subsidy to further cut the costs of coverage for employees who lose their jobs.

Launched in 1988, the Massachusetts program—known as the Medical Security Program and administered by the Division of Unemployment Assistance—reimburses 80% of COBRA premiums for unemployed workers with adjusted gross incomes of up to 400% of the federal poverty level.

The Massachusetts program is the only one of its kind in the country.

Under economic stimulus legislation signed into law last month by President Obama, the federal government will pay 65% of COBRA premiums for employees who lose their jobs between Sept. 1, 2008, and Dec. 31, 2009. The subsidy is available for up to nine months, until an employee is eligible for coverage from a new employer or becomes eligible for Medicare.

Massachusetts will apply its 80% subsidy to COBRA beneficiaries' 35% share. That will result in beneficiaries paying 7% of the premium and the Massachusetts Security Program paying 28%.

That type of integration between the Massachusetts program and the federal COBRA premium subsidy is explicitly allowed under the stimulus law.

As of January, more than 3,500 Massachusetts unemployed workers were receiving the state-provided COBRA premium subsidy, state officials say.