Can artificial intelligence be so transformative that it solves one of the US economy's biggest problems: the massive fiscal deficit? According to three economists at the Brookings Institution, the answer is yes — AI could constitute a positive “critical shock” to the country’s financial health.
A working paper released last month by the Center for Regulation and Markets at the Brookings Institution suggests that under the most optimistic scenario, artificial intelligence could reduce the annual US budget deficit by up to 1.5% of GDP by 2044, or about $900 billion in nominal terms. . This would reduce the annual budget deficit by approximately one-fifth at the end of the twenty-year period.
“The use of artificial intelligence represents a rare—and perhaps unique—opportunity to expand access to healthcare information and services while simultaneously reducing the burden on the traditional healthcare system,” wrote the study's authors, Ben Harris, Neil Mehotra, and Eric Su.
While the authors mention different channels through which AI can increase productivity, they highlight the potential of AI to significantly improve healthcare and public health services.
AI could not only make American health care more efficient, the economists wrote, but it could also “democratize” access to the system by giving people more choices for preventative medical care — “changing the ‘who’ and the ‘where’.” health care”.
Artificial intelligence can relieve deficit pressure
The economic impacts of a more efficient health care system, giving individuals more paths to manage their health, could ease pressure on the government's spiraling fiscal deficit, which exceeded $1.8 trillion in the fiscal year ending September 30. $36 trillion.
But the adoption of AI in healthcare services is not a sure thing. There are many barriers to implementing AI on a large scale, largely related to regulation and incentives.
Economists' expectations for AI and health care are “a mix of enthusiasm and despair,” said Ajay Agrawal, a professor at the University of Toronto's Rotman School of Management, where he researches the economics of artificial intelligence.
“Excitement because there is probably no sector that benefits from AI more than healthcare. But there is friction because of regulation, because of incentives — because of the way things are regulated and how people pay for things — and friction because of the risks and liabilities associated with it,” Agrawal said. .
“So, yes, there are a lot of implementation challenges, and at the same time, the reward for success in this is very large,” Agrawal said.
Health care and disability
The federal government will spend an estimated $1.8 trillion on health insurance in 2023, or about 7% of gross domestic product, according to the Congressional Budget Office. From 2024 to 2033, the Congressional Budget Office projects that federal support for health care will total $25 trillion, or 8.3% of GDP.
The problem is that much of health care spending in the United States is not related to treatment or patient outcomes. Instead, it is estimated that about a quarter of total spending, both public and private, goes toward administrative functions.
“Almost every industry in the United States has seen significant improvements in productivity over the past 50 years, with one major exception: health care,” according to a report by McKinsey analysts.
This is one area where AI can improve operations, according to economists at the Brookings Institution. Basic tasks such as appointment scheduling can be automated, while tasks such as patient flow management and preliminary data analysis can also be performed by AI software.
While the three economists acknowledge that the impact of AI on federal spending remains “highly uncertain,” the co-authors believe it could ultimately be more transformative for the economy than previous technological leaps, such as the use of personal computers in the 1990s. Harris told CNBC that the current AI shock “feels different. This is not the typical technology shock.”
AI affects “how people get health care,” how the pharmaceutical industry discovers new products and how researchers make medicine more precise, Harris said.
Morbidity and mortality rates
In particular, Harris emphasized the impact of AI not only on productivity, but also on its ability to transform the cost of care and rates of illness and death.
“Such changes could have profound effects on Social Security and public health program expenditures,” he and his colleagues wrote.
To be sure, there is also the possibility that AI developments could unexpectedly increase federal spending if life expectancy increases as a result of this technology. Not only could improved technology prompt people to seek more medical care, but longer lives may also lead to a larger retirement population.
But the Brookings research takes a more optimistic tack, predicting that one of the biggest benefits of AI will come from accelerating the effectiveness of preventive care and disease detection. This will create a healthier society that will need less medical intervention, and may also increase labor force participation rates if a healthier workforce stays working for more years, the researchers wrote.
“AI’s ability to improve diagnostic accuracy could not only improve patient outcomes but also reduce wasteful spending on inappropriate treatments,” the economists said. “From a more optimistic perspective, current AI systems may lead to cost reductions on all health spending, including Medicare, with cost reductions occurring through several channels – with personalized medicine being a notable example.”
Assessing whether AI can ultimately translate into a positive or negative shock to fiscal policy will depend on which stage of the age distribution it affects, Agrawal said. Whether AI “has more of an impact around retirees, or around working people,” will answer how the numbers evolve, Agrawal said.
Artificial intelligence is already proliferating
To date, diagnostics has shown the most progress and the greatest potential in applying AI in healthcare. Agrawal cited the impact of AI in almost all steps of diagnostic care, from receiving input data and medical images such as X-rays and MRIs, as well as physician notes and charts.
“In almost every area of diagnostics, AI has, in some cases, already demonstrated what they call ‘super-human performance’ — better than most doctors,” Agrawal said.
Artificial intelligence has also shown “great promise” in better improving treatment plans for patients through data analysis. Machine intelligence could develop more effective and less expensive plans for individual patients, according to the research authors.
Agrawal believes it is too early to say whether public or private health systems will benefit better from AI. He said that private insurers in the United States have generally been more keen on AI technology associated with preventative treatment. He said there has been less interest in using AI in diagnostic applications, and this may lead to a rise in cases and more treatment.
“There are no clear economic incentives for the private sector to (implement) this,” Agrawal said. “In the public sector, even though the incentives are there, there are a lot of frictions associated with privacy on the data side.”
He believes public-private partnerships will be key in driving the deployment of AI across healthcare.
The public healthcare sector “is going to need very strong incentives in order to drive change, because otherwise, everyone will stay in their routine. There is a lot of resistance to change,” Agrawal said.
“So to overcome this resistance, you need a very strong incentive, and the private sector generally provides a much stronger incentive, either because the users are trying to reduce the cost, or the creators of the technology are trying to make a profit.” continued.
Big tech companies have already moved forward with developing large language models specifically for healthcare services. Google's AI system, Articulate Medical Intelligence Explore (AMIE), simulates the diagnostic dialogue. Its Med-Gemini platform uses artificial intelligence to aid diagnosis, treatment planning and clinical decision support. Amazon and Microsoft They have their own projects underway to expand the application of AI software in health services.
Expectations in the era of Trump
A second term for President-elect Donald Trump could transform the spread of AI in healthcare, and ultimately its economic impact. Trump pledged to cut government spending and formed an outside committee called the Department of Government Efficiency aimed at “dismantling government bureaucracy, cutting redundant regulations, cutting wasteful expenditures, and restructuring federal agencies.” Public health funding is one area that could reduce funding, thwarting the ability to roll out AI applications.
“Now, it's possible that if you see a decline in the federal government's role in providing health care to people, more efficient AI can help offset the cost of that decline,” Harris said. “If AI means every dollar goes further, then I think we've timed everything in a kind of lucky way.”
There is also the possibility that the rollback of regulations under the second Trump administration will accelerate the implementation of AI in healthcare.
“A lot of people are afraid of reducing regulation because they don't want immature technologies to be introduced into the health care system and harm people,” Agrawal said. “And that's a very legitimate concern,” he added. “But often what they fail to factor into their equation is the harm we're causing people by not bringing in” new technologies.
“Some areas need further technical development, but there are some areas in diagnostics that are already ready to go, and it is regulation that prevents their use,” Agrawal said.
