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updated 8/31/2010 11:38:53 AM ET 2010-08-31T15:38:53

Some states suing to toss out President Barack Obama's health care overhaul law are also lining up to claim a share of its subsidies for the medical costs of retired employees.

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An administration official said Tuesday seven states suing the federal government are among 16 already approved for subsidies to help with the health care costs of early retirees. The seven are Arizona, Idaho, Indiana, Louisiana, Michigan, Nebraska and Nevada. The official spoke on condition of anonymity ahead of Tuesday's official announcement.

About 2,000 employers have been approved for the extra help, mainly private businesses. More applications are pending. Interested employers include about half the Fortune 500 companies, as well as state and local governments, educational institutions, unions and nonprofit organizations.

The health care law provides $5 billion to help employers maintain coverage for early retirees, those age 55 and older but not yet eligible for Medicare.

The government subsidy amounts to 80 percent of medical claims between $15,000 and $90,000 — significant assistance to help cover high-cost retirees and eligible family members.

Companies can use the federal money to lower their own costs, or pass on the savings to their retirees through lower premiums and reduced cost sharing. Firms that receive federal help have to formally notify their retirees that they've gotten a subsidy.

As medical costs soared in the last 20 years, employers have dramatically scaled back retiree health coverage. The share of large companies providing the benefit dropped from 66 percent in 1988 to 29 percent last year.

The retiree assistance in the health care law is designed as temporary relief until the legislation is fully in place. The payments will stop in 2014, when the law calls for competitive insurance markets to open, and eligible individuals can get government tax credits to help pay premiums.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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