A year and a half before HHS plans to begin enrolling people in state and federal health insurance exchanges, it remains unclear how many employers will drop their employee coverage due to that option, said HHS Secretary Kathleen Sebelius.

In testimony before the Senate Finance Committee Wednesday on the administration's fiscal 2013 budget proposal, Sebelius said she expects the coming insurance marketplaces to bolster employer-sponsored coverage by allowing those companies to buy coverage there.

The healthcare law's exchanges “will increase incentives for small employers to stay in the marketplace” for insurance, she said.

To back up that claim, Sebelius cited the experiences of Massachusetts—which has the only similar exchange—where the rate of employer-sponsored insurance has increased.

The Congressional Budget Office estimated about 7% of workers would lose their employer-sponsored insurance when the exchanges created by the federal healthcare law launch in 2014 and some studies projected much higher rates.

“It seems to me the administration is grossly underestimating the number of employers who will drop their insurance,” Sen. John Cornyn (R-Texas) said at the hearing. He and other Republicans said this underestimate will balloon the cost of the exchanges as millions more enrollees than estimated qualify for federal subsidies of premiums for insurance sold on the exchanges.

Additionally, Sebelius said it is still “impossible to tell” how many states will decide to launch insurance exchanges by the federal law's January 2013 certification deadline. Only 14 states have either enacted legislation or issued executive orders required to create their own exchange or already had a pre-existing qualifying exchange.

States that cannot certify that they will have a functioning exchange will have one established for them by the federal government. The president's budget requested $860 million to design that federal version.

Enrollment in both state and federal exchanges will begin in fall 2013, Sebelius said, to ensure that beneficiaries are covered by the exchange launch in January 2014.