I agree with Jon Gruber’s argument that the expectation that a large number of employers will dump coverage into the Exchanges is overstated. As Gruber writes, in response to this piece by Gov. Philip Bredesen (D-TN), this argument overlooks some fairly important real-world experiences:

The gist of Bredesen’s argument is pretty simple: Some firms will find it more attractive to stop offering insurance and let employees get coverage through the new insurance exchanges, where generous subsidies will be available. But the Affordable Care Act, which I’ve long supported, imposes strong penalties on firms that do not offer insurance, as well as sizeable tax credits for smaller firms that encourage them to offer. And in most firms, the majority of employees will make too much money to be eligible for large subsidies anyway. It is for this reason that the Congressional Budget Office estimated that PPACA will reduce employer sponsored insurance in the U.S. by only about 2.5 percent by 2019. In other words, the effect on employer sponsored coverage will likely be small.

CBO projections aren’t perfect, of course. But this particular projection is consistent with the best evidence we have–evidence that, once again, Bredesen completely ignores. In 2006, the state of Massachusetts put in place a system much like the one the Affordable Care Act will create nationally–with subsidies for low income groups (subsidies that are even more generous than those in the Affordable Care Act) and an individual mandate, but without the small group tax credit or meaningful penalties on firms that don’t offer insurance. The result? Employer-sponsored insurance has risen in the state by more than 100,000 persons.

Bredesen’s claim that employees would move from employer coverage to subsidized insurance in the exchange also ignores that the government is already subsidizing employer plans through the tax code and will continue to do so (at lower levels due to the excise tax) under the Affordable Care Act.

Economists and many Democrats generally agree that the ACA’s employer responsibility requirement could be strengthened and many supported a true pay or play provision that would have ensured less employer coverage erosion. But they were opposed by the very same conservative Democrats and Republicans who are now echoing Bredesen’s claims. Rather than shoring up employer sponsored insurance (ESI), these lawmakers instead listened to the hysterical arguments of groups like the National Federation of Independent Businesses (NFIB) and the Chamber of Commerce and strongly opposed the very provisions that would have avoided what they’re now predicting.

However, the general question of why employers choose to offer coverage is a good one and the best explanation I’ve heard argues that employers feel more comfortable with the existing system within which they themselves can define their contribution towards health care. In other words, rather than leaving it up to the government to set the amount they’ll have to contribute, companies want to be more in control of their own costs. Austin Frakt believes CEOs are wrong for thinking this, but agrees that employer coverage is here to stay.