Most employers are taking a wait-and-see approach before sending their early retirees to public exchanges to get health insurance.

The health care reform law opened up that approach, which is being analyzed but has rarely been implemented by employers still offering the costly coverage.

Last year, 22% of employers with at least 500 employees provided coverage to their pre-Medicare eligible retirees, a nearly 50% drop since 1995, according to Mercer L.L.C.

Provisions in the Patient Protection and Affordable Care Act that went into effect this year could lead to a further drop in employer plan sponsorship. Those provisions established public insurance exchanges in every state, as well as federal premium subsidies for lower income retirees who buy health insurance through the exchanges.

“This is something employers are seriously looking at. It is a way of getting out of the hassle of offering coverage” to the retirees, said Bruce Richards, a partner and marketplace individual insurance exchange leader in Mercer's Richmond, Virginia office.

Under the public exchange approach, employers can terminate their early retiree health plans and establish and contribute to health reimbursement arrangements for retirees.

Retirees then have a choice: tap the HRA to pay health insurance premiums purchased through a public exchange or, particularly for lower-income retirees, skip the HRA contribution in favor of a likely larger federal premium subsidy to buy coverage.

While the IRS last year said retirees cannot take an HRA contribution and a premium subsidy to buy health insurance in a public exchange, it left it to retirees to decide which option to choose.

Before the health care reform law, “retirees would have had no place to go” if an employer terminated health care coverage, said Richard Stover, a principal at Buck Consultants at Xerox in Secaucus, New Jersey. “This approach could be a win for all.”

But employers are not yet adopting the HRA approach in large numbers, experts said.

“There has been a lot of discussion and analysis, but not much action yet,” said John Grosso, health care actuary and leader of Aon Hewitt's retiree health care task force in Norwalk, Connecticut.

“We are not ready yet. We want to see what is happening at the exchanges,” said Dijana Predich, director of benefits strategy and retirement administration at North Shore-LIJ Health System in New Hyde Park, New York.

“There have been some early adopters, but very few,” said John Barkett, director of health policy affairs at Towers Watson Exchange Solutions in Arlington, Virginia.

One reason many employers are waiting to make changes concerning their early retirees is several lawsuits challenging IRS rules authorizing premium subsidies in both federal- and state-run exchanges. Federal appeals courts have split on whether the subsidies can be used in federally operated exchanges, with the U.S. Supreme Court agreeing earlier this month to review the issue.

“There will be slow movement” on the early retiree approach until the Supreme Court rules, Aon Hewitt's Mr. Grosso said.

Other uncertainties include whether insurers writing exchange coverage will be able to hold down costs and their ability to attract medical providers to their networks.

“That is an employer concern. Will there be relative rate stability, and how broad will the networks be,” said Eric Stanger a Buck Consultants at Xerox principal in East Greenwich, Rhode Island.

“Employers are examining this very intensively,” said Mercer's Mr. Richards. But once the first “big name” employer does adopt the approach, others will follow, he said.

Public exchanges provide “a market for pre-Medicare-eligible retirees that did not exist before, and that is a good thing” for retirees and employers, said Brian Marcotte, president of the National Business Group on Health in Washington.