For more than 80 years, the people of Webb Furniture crafted wooden dressers and other furniture here at the foot of the Blue Ridge Mountains. In January, under pressure from Chinese imports, Webb shuttered its Galax plant and fired all 309 employees.

Tonya Graber lost more than her job painting furniture. The single mother also lost health insurance for herself and her 12-year-old son. Under a government program aimed at helping workers harmed by trade, Ms. Graber was eligible for federally subsidized health insurance, but she couldn't afford it.

She isn't alone. The Health Coverage Tax Credit, tucked into a 2002 trade bill to win support in Congress, is supposed to cushion the blow to factory workers hurt by imports by paying 65% of the cost of health insurance. (The subsidy is also available to workers whose companies have dumped their pension plans on the government's pension insurer.) More than four years after the program began, just 11% of those potentially eligible for the subsidy are taking it -- or about 28,000 of the roughly 250,000 people the government estimates may qualify in a given year.

"It's just not realistic to say that a laid-off worker who's uninsured is going to come up with 35% of the premium," says Stan Dorn, who has studied the program at the Urban Institute think tank. Even those who can find the money say they're struggling to figure out the rules and deal with as many as five state and federal agencies.

The troubles illustrate the shortcomings of a program pivotal to the debate over free trade and the globalization of business. A common political compromise in Washington involves keeping trade barriers low in exchange for programs compensating those hurt by imports. Free-trade advocates are generally happy to make such a compromise. They figure the winners from trade -- principally consumers who save money on imported goods -- can afford, through the government, to help compensate the losers. (See related article.)

The problem is that compensation programs often add bureaucracy without helping many people. Even if the health-insurance assistance program were working well, it would aid only a fraction of those who lose their jobs. The Labor Department must certify that workers have lost their jobs to imports from certain countries or to a shift in production there. Most workers in call centers or other service industries whose jobs are sent overseas don't qualify.

Another struggling program is wage insurance, designed for workers over 50 who lose their jobs because of trade and then take a lower-paying job. The government makes up half the difference in wages, up to $10,000 a year, but it requires that workers prove they don't have "easily transferable skills." Some can't do that.

The issue: Should Washington give up on such programs, or should it expand them and try to make them work better? For the moment, people on both sides on Capitol Hill say President Bush will need to beef up programs for those hurt by imports if he wants congressional backing for new trade legislation.

Mr. Bush wants Congress to extend his authority to negotiate trade deals and put them to an up-or-down vote in Congress. The administration also is trying to restart the Doha Round of global trade talks.

The White House has promised to offer legislation to "extend and improve" the Trade Adjustment Assistance program, which includes both the health-insurance assistance and wage insurance. However, it didn't include many specifics in its budget for the year beginning in October. Several Democrats and Republicans in Congress are proposing to expand TAA to cover more workers, including those in service industries.

"There has to be more cushioning for people caught in the maws of free trade," says Sen. Charles Schumer, a New York Democrat who has criticized China's trade policy. "The fact that TAA has not done the job gives those who want to build walls around the U.S. greater currency."

Town's Lost Jobs

The issue is on vivid display in Galax, population 6,800. More than 2,000 jobs in this western Virginia town have been eliminated over the past two years as several furniture manufacturers and textile plants either closed or reduced their work forces in the face of cheaper imports, mostly from China.

Almost all of the displaced workers were eligible for the federal health-insurance subsidy, yet only about 100 have signed up, says Linda Nuckolls, who works in Galax for the Virginia Employment Commission. "These people have worked in a furniture factory for $7 or $9 an hour and they just don't have the money," she says.

Results were similar in a January 2006 survey by the Government Accountability Office, the investigative arm of Congress. The GAO looked at five trade-related plant closures and found that no more than 12% of workers at any site were taking the credit. Among those who knew of the program but didn't use it, the most common complaint was that they couldn't afford to pay their part of the premium, the GAO said.

Laid-off employees usually can buy insurance through their old employers, who are required by federal law to offer it temporarily but not to pay for it. Another option in many states is to buy insurance through a health plan arranged by the state. On average, according to the Internal Revenue Service, the insurance costs $720 a month, with the federal government picking up $468, or 65%, of the cost and the former employee paying the $252 remainder. Although the program is officially called a tax credit and is run by the IRS, in practice it works like a federal subsidy.

Law's Constraints

David Williams, who oversees the program at the IRS, says the agency is working hard to make eligible people aware of it. He notes that the law Congress passed includes constraints that mean some of the 250,000 or so people reported each year as potentially eligible actually aren't. "Some may be ineligible if they may be entitled to Medicare, may not meet the age requirements, may be using a spouse's insurance or may be in a plan that doesn't qualify," he says.

The administration acknowledges problems. The White House Office of Management and Budget has called the program "not performing," and cited as a reason "the affordability of coverage to potential recipients." Mr. Bush's budget for fiscal 2008 proposes several changes to the program, though none to make it cheaper.

Ms. Graber, 32 years old, followed her family into the furniture mills. Factory jobs, like the hardwood used in furniture, were long plentiful here. Ms. Graber says it was hot and dirty work, but the $7.66-an-hour job came with health benefits, which were a big draw since her son has asthma and needs medication. "The reason I held on to that job was because of the health insurance," she says.

At Webb, Ms. Graber paid about $200 a month for insurance, which included dental and vision care. She looked into the tax credit and discovered that coverage for herself and her son would run about $400 a month, not including dental or vision. After the government picked up 65% of the tab, her portion would have been $140 a month -- plus a $500 annual deductible and $20 co-payments for doctor's office visits and medication.

"It was way too much with what I was drawing in unemployment," she says. She gets an unemployment check of $404 every two weeks, meaning her monthly income is under $900.

She enrolled her son in a children's health program that falls under Medicaid, the state-federal program for low-income families. She didn't qualify for Medicaid herself -- she says she was told her income is too high -- so she goes without health insurance. "I just pray to God and try not to get sick," says Ms. Graber, who is training at Wytheville Community College near Galax to become a respiratory therapist. Her tuition is paid through the TAA program.

Larry Kenny of Galax was making $45,000 a year as a maintenance mechanic at National Textiles LLC when he was laid off in May 2006. Mr. Kenny, 61, took the tax credit, in large part because his wife has lupus. His portion of the insurance bill takes $240 of the $1,200 a month he draws in unemployment benefits.

"I told my wife the only way we could afford it is if we don't owe anything to anyone," Mr. Kenny says. He cashed out $43,000 in his 401(k) retirement plan, sold his truck for $6,000 and used the money to pay off his mortgage and his car loan. "It's kind of scary because I was always used to having $20,000 in my savings account and now when I look there's just $200, if that much," he says.

Some in Congress argue it's unreasonable to expect someone who lost a job to pay 35% of his health-insurance bill. Those who get health coverage on the job typically pay closer to 15% to 25% of the total cost of their insurance. The Senate Finance Committee chairman, Max Baucus of Montana, says he plans to introduce legislation this year "to make this benefit work better."

Workers who seek the health-care tax credit must bear upfront costs. The federal subsidy often doesn't begin until 60 days after they lose their jobs because of a government-imposed waiting period before they are eligible to apply for benefits, so any insurance they hold in the interim is their responsibility.

Also, IRS paperwork often holds up final approval until well after the 60-day period. While waiting for the official sign-off, people must continue to pay the full cost of insurance. Some states have received grants from the Labor Department to help people with the upfront costs.

If laid-off workers decide to let the dust settle for a few months before doing anything about their health care, they may lose out. Forty-three states offer group plans that may have better terms than the insurance available from the former employer, but workers must apply for the state plans quickly. Under the Bush administration's interpretation of the law, workers applying for the new insurance must have three months of continuous health coverage prior to enrolling in the tax credit, with no more than a 63-day gap. Otherwise they can be rejected for pre-existing health conditions.

Applicants 'Overwhelmed'

The health-care tax credit "is a program you can be overwhelmed by," says Ms. Nuckolls of the Virginia Employment Commission. "The people we deal with don't have the education level to understand it."

Last April, Virginia Gov. Tim Kaine established the Galax Strike Force to help displaced workers navigate the bureaucracy. On a recent Monday morning, dozens of people crammed into the Strike Force's office in a strip mall with questions about the tax credit.

John and Barbara Farmer, who both lost jobs at National Textile, said they got a letter informing them their premiums would be increasing in 2007 and asking them to fill out a form they didn't understand. Ralph Ellis, who lost his job at Webb Furniture in January 2006, said the Strike Force helped him each of the three times his tax credit was canceled and when he was denied coverage because of earlier heart surgery.

However, privacy rules prevent state officials from talking directly to the IRS about individual clients. Ms. Nuckolls says she'll often dial the IRS from her desk and then put the client on the phone to relay information.

"On more than one occasion I've wanted to pull my hair out because the IRS would say, 'We can't tell you that,' " says Anna Rice-Wright, who oversaw administration of the health coverage tax credit in Virginia. "I would ask something as simple as, 'Can you tell me when their packages are going to be mailed out?' and they'd say, 'No.' " The IRS says it needs strict rules to ensure the confidentiality of financial information.

Other states offer less assistance. John Lewia, 62, was laid off in August 2004 from his job at the Eastern Paper Mill in Brewer, Maine. His wife, Sheila, says she got plenty of information from state and federal agencies but could make little sense of it, and had nowhere to get help. Her husband, who worked in the mill for 23 years, isn't able to read, she says.

The couple is going without health insurance for now, although Ms. Lewia suffers from diabetes and recently battled breast cancer. They try to avoid going to the doctor, and pay out of pocket when they do. "I think we paid $300 or something like that the last time we went," she says.