Published: May 04, 2010 11:29 AM EDT

WASHINGTON (AP) - Trying to entice cost-weary employers to keep

providing medical coverage to early retirees, the Obama

administration is making $5 billion available until the safety net

of the new health care law is in place.

Older baby boomers working for large companies - and looking to

downshift to less-demanding employment- could be the immediate


Effective next month, federal subsidies will allow employers to

recoup a big chunk of the cost of medical claims for retirees ages

55 to 64 not yet eligible for Medicare, according to a White House

official who spoke on condition of anonymity ahead of the official

announcement expected Tuesday.

However, in the long run, experts predict that President Barack

Obama's health overhaul will accelerate the decline of

employer-sponsored retiree coverage, by making it easier for people

to find and keep affordable coverage on their own.

Starting in 2014, the health care law forbids insurers from

denying coverage to people with medical problems, limits what the

companies can charge older individuals, and sets up competitive

health insurance markets called exchanges - where consumers can buy

a policy, in many cases with direct government assistance. Early

retirees will have options they don't currently enjoy.

"Employers have been offering these benefits because there is

no alternative source of coverage," said economist Paul Fronstin

of the Employee Benefit Research Institute. "I think they're going

to be asking themselves why they should continue offering retiree

coverage. There is no question this is something that is on

employers' minds."

Preventing an immediate rush to the exits by employers is one of

the main goals of the new subsidy program, authorized under the

health care overhaul law. Among employers with 500 or more workers,

only 28 percent offer health benefits to early retirees, down from

46 percent in 1993, according to Mercer, a benefits consulting


Under the program, employers can get reimbursed for up to 80

percent of the cost of medical claims between $15,000 and $90,000

for their early retirees. The government payments can be used to

reduce premiums for retirees and their dependents, or by employers

to keep their own costs in check. The benefit takes effect June 1.

Large companies and labor unions successfully lobbied to include

the early retiree subsidy in the broader health overhaul. Nearly 2

million people ages 55-64 currently have health insurance through a

former employer.

Congress set aside $5 billion to finance the benefit until Jan.

1, 2014, but it's unclear how long the money will last. Employers

are expected to sign up without delay.

Passage of the law has prompted employers to reassess whether

they need to keep any of their retirees on workplace health plans

over the long run.

In addition to the early retiree subsidy, the overhaul law

improves Medicare benefits by gradually closing the prescription

drug coverage gap called the "doughnut hole." That will benefit

retirees over age 65. Even now, some companies are starting to

provide their retirees with a fixed payment for health care, a

voucher that limits their own exposure.

"Once the insurance exchanges are up and running, it provides a

ready vehicle for early retirees that does not exist today,"

explained Ron Fontanetta, a principal with the benefits consulting

firm TowersWatson. "You couple that with an improved Medicare drug

program, and it begs the question whether employers really need to

be in the retiree game at all."