Monday, October 19, 2009

We're off to see the Wizard

Phil Ellis, the man behind the curtain.

Sometimes the projections are straightforward. If lawmakers want to impose a $6 billion tax on health insurance companies, the CBO -- and its revenue-estimating partner, the Joint Committee on Taxation -- assumes that it will generate $6 billion a year. Other provisions are more complex, and that is Phil Ellis's world.

Ellis heads the CBO's health insurance modeling unit, which examines plans to expand coverage to people who don't have it. The team's primary job is figuring what it would cost the government. But to do that, Ellis and his colleagues have to predict how people and businesses would react to a bewildering array of new economic incentives.

To help with this task, the CBO has constructed a computer model built on a government survey of 70,000 people, who were asked about family structure, health status and insurance options. The data are layered with scholarly research that suggests how those people might respond to various policies. The CBO also has assigned each worker to a "synthetic firm," whose virtual executives also have decisions to make, such as whether to offer insurance to their workers or pay a penalty to the government.

Ellis compares the model to SimCity, a computer game that reacts as players construct a virtual metropolis. Ideas go in (What happens if there's a $750 fine for not having insurance?), and a forecast comes out (Some people would choose to pay it, generating about $1 billion a year for the government.). Each legislative package contains dozens of such provisions, and they interact in infinitely variable ways.

Via young master Klein.



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