Will employers drop coverage due to reform?

There’s been much publicity around a McKinsey survey that purported to indicate many employers would drop their employee health insurance plans, a finding markedly different from that predicted by several other studies.
Were the other surveys wrong, and is McKinsey right?
Give me a minute…
First, lets examine the McKinsey study. It was conducted by Ipsos, a firm contracted to McKinsey; the survey was done on line
Here are the key findings, as reported by McKinsey:
– Overall, 30 percent of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014.
– Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.
– At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.
Notably, the folks from the highly-regarded consulting firm initially refused to release the details of the survey, the methodology, and information on exactly who was surveyed. That’s weird. After significant pressure from Congress and others, they did provide additional information about the process and methodology, but details on who responded (other than broad characterizations) were not revealed. I read the Survey instrument itself; you can download the pdf http://www.mckinsey.com/en/US_employer_healthcare_survey.aspx.
What’s weird is why McKinsey delayed publishing the details. The instrument and methodology look to be pretty sound; results were weighted to account for differences in the actual employer population; and the survey firm itself is well-regarded. But, here’s the kicker. When asked how much their company paid for health benefits, almost three in five didn’t know. If these respondents were truly decision makers or influencers, you’d think they’d know this rather basic information.
WIth that rather major concern, it is clear this was not some cheap-shot Tea Party-funded hack job.
That said, there are two sets of questions that appear to deliver very different takes on the over-arching question – will employers drop coverage after 1/1/2014. In the initial question re would they maintain or drip coverage, 9.2% said they ‘definitely would’ drop coverage, and another 20.5% said probably. This question was preceded by a detailed description of individual subsidies and employer penalties, however, while the questionnaire (specifically around question 8) did include some details of the employer subsidies/premium support provided under ACA, it appears these were presented in a sidebar on the internet-based survey and may not have been shown to all respondents. Whether folks read this in detail, or understood what they read, is an open question.
The other question (hat tip to Kate Pickert of TIME’s Swampland) asks if the respondents knew what their competitors would do in response to reform. Not surprisingly, 31.4% said they didn’t know, but 27% said continue as is or with minor changes and 24.3% said continue offering coverage but with significant changes.
The folks at the Urban Institute published a response (based on their Health Insurance Policy Simulation Model (HIPSM)) to the McKinsey work in which they refute McKinsey’s central finding. From the report:

• Employers with fewer than 50 employees are expected to experience substantial savings on health care costs due to the benefits of the health insurance exchanges and subsidies for the smallest firms. These employers face no requirements to contribute to the health care costs of their workers under the ACA;
• Savings on premium contributions are offset by employer responsibility assessments for those employers with 50 to 100 workers, which is expected to result in a very small increase in total costs for this group;
• The smallest firms are expected to experience a significant increase in offer rates under the ACA, while offer rates for those with 25 or more employees are expected to remain stable;

Notably, the methodologies were markedly different, but, the conclusions were supported by the underlying data.
Which leads to this conclusion.
We don’t know what employers will do.
That said, here’s what I think. More smaller employers will offer coverage after reform than do today.
Some mid-size (50-100) employers will drop coverage and pay the penalty.
Remember, once people start seeing the benefits of an entitlement program, they are loathe to give it up. Just think about Part D, Medicare, and Social Security, and the unwillingness of (most) politicians to do anything material about these programs.