Can artificial intelligence be transformative enough to solve one of the U.S. economy’s biggest problems: its skyrocketing budget deficit? According to three economists from the Brookings Institution, the answer is yes: AI could constitute a positive “critical shock” for the country’s fiscal health.
A working paper published last month of the Brookings Center on Regulation and Markets predicts that, in the most optimistic scenario, AI could reduce the annual U.S. budget deficit by up to 1.5% of gross domestic product by 2044, or about $900 billion in nominal terms, thereby reducing annual budget deficits. by about a fifth at the end of the 20-year period.
“The use of AI presents a rare, if not unique, opportunity to expand access to healthcare information and services while simultaneously reducing the burden on the conventional healthcare system,” the paper’s authors wrote , Ben Harris, Neil Mehotra and Eric So.
While the authors cite various channels through which AI can increase productivity, they highlight AI’s potential to significantly improve healthcare services and public health.
Not only could AI make American health care more efficient, but it could also “democratize” access to the system by giving people more options for preventive medical care — changing the “who” and the “where” of health care,” the economists write.
AI could ease deficit pressure
The economic impacts of a more efficient health care system and giving individuals more ways to manage their own health could ease pressure on the government’s yawning budget deficit, which has topped $1.8 trillion over the past for the financial year ending September 30. the national debt stands at $36 trillion.
But the adoption of AI in healthcare is not a certainty. There are many barriers to large-scale implementation of AI, largely related to regulation and incentives.
Economists’ views on 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 conducts research. research on the economics of artificial intelligence.
“Excitement, because there’s probably no industry that would benefit more from AI than healthcare. …But there’s friction because of regulation, because of incentives – because of the way things are “structured and how people get paid for things – and friction due to the associated risks and responsibilities,” Agrawal said.
“So yes, there are a lot of implementation challenges, and at the same time, the reward for getting there is very great,” Agrawal said.
Health care and the deficit
The federal government spent about $1.8 trillion on health insurance in 2023, or about 7% of GDP, according to the Congressional Budget Office. From 2024 to 2033, the CBO projects that federal health care subsidies will reach $25 trillion, or 8.3% of GDP.
The problem is that much of healthcare spending in the United States is not related to treatment or patient outcomes. Instead, it is estimated that around a quarter of all spending, public and private, is on administrative functions.
“Nearly every industry in the United States has experienced substantial improvements in productivity over the past 50 years, with one major exception: health care,” according to a report from McKinsey analysts.
This is an area where AI could 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 carried out by AI programs.
Although the three economists acknowledge that the impact of AI on federal spending is still “highly uncertain,” the co-authors believe it could ultimately be more transformative for the economy than past technological advances, as use of personal computers in the 1990s. Today’s AI shock “looks different. It’s not a typical technology shock,” Harris told CNBC.
AI affects “the way people receive health care,” the way the pharmaceutical industry discovers new products and the way researchers make medicine more precise, Harris said.
Illness and death rates
Harris notably highlighted AI’s impact not only on productivity, but also its potential to transform the cost of care and rates of illness, disease and death.
“Such changes could have profound impacts on spending on social security and public health programs,” he and his coauthors wrote.
To be sure, it is also possible that advances in AI will counterintuitively increase federal spending if average lifespans increase thanks to the technology. Not only could improving technology lead people to seek more medical care, but a longer life expectancy could also result in a larger retiree population.
But the Brookings paper takes a more optimistic approach, 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 population that will need fewer medical interventions, the authors write – and could also increase labor force participation rates if a healthier workforce remains employed for more years .
“AI’s ability to improve diagnostic accuracy can not only improve patient outcomes, but also reduce unnecessary spending on inappropriate treatments,” the economists said. “From a more optimistic perspective, existing AI systems could reduce expenses across all healthcare spending, including Medicare, with cost reductions occurring through multiple channels, with personalized medicine being a prominent 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 a greater impact on retirees or workers” will determine how the numbers evolve, Agrawal said.
AI is already proliferating
So far, it is diagnostics that has shown the most progress and greatest potential in the application of AI to healthcare. Agrawal cited the influence of AI across almost every stage of diagnostic care, from receiving input data, medical images such as X-rays and MRIs, as well as doctor’s notes and charts .
“In almost every area of diagnostics, AI has, in some cases, already demonstrated what they call ‘superhuman performance’ – better than most doctors,” Agrawal said.
AI has also shown “great promise” in better optimizing patient treatment plans through data analysis. Artificial intelligence can develop more effective and less expensive plans for each patient, according to the paper’s authors.
Agrawal believes it is too early to tell whether public or private healthcare systems will benefit more from AI. In the United States, private insurers are generally more supportive of AI technology combined with preventative treatments, he said. There is less interest in using AI in diagnostic applications, which could eventually lead to increased cases and more treatments, he said.
“There are no clear economic incentives for the private sector to implement this,” Agrawal said. “In the public sector, even though there are incentives, there are a lot of privacy frictions on the data side.”
He believes public-private partnerships will be key to deploying AI in healthcare.
The public health sector “will need very strong incentives to drive change, because otherwise everyone is in their routine. There is a lot of resistance to change,” Agrawal said.
“So to overcome that resistance requires a very strong motivator, and the private sector generally provides a much stronger motivator, either because users are trying to reduce costs or because the creators of the technology are trying to generate profits,” he said. continued.
Large technology companies have already made progress in developing large language models specifically for healthcare services. Google’s AI system, Articulate Medical Intelligence Explore (AMIE), mimics diagnostic dialogue. It is Med-Gemini The platform uses AI to facilitate diagnosis, treatment planning and clinical decision support. Amazon And Microsoft have their own ongoing projects to expand the application of AI programs in healthcare services.
Outlook under Trump
President-elect Donald Trump’s second term could change the deployment of AI in healthcare and, ultimately, its economic impact. Trump pledged to cut government spending and formed an external committee called the Department of Government Effectiveness, designed to “dismantling government bureaucracy, reducing excessive regulations, cutting wasteful spending, and restructuring federal agencies.“Public health funding is one area that could be cut, making the ability to deploy AI applications frustrating.
“Now it’s possible that if you see a retreat from the federal government’s role in providing health care to people, more effective AI could help offset the cost of that retreat,” Harris said. “If AI means every dollar goes further, then I think we’ve timed everything in a pretty lucky way.”
It’s also possible that rolling back regulations under a second Trump administration could 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 completely legitimate concern. But very often what they also fail to factor into their equation is the harm we’re causing to people by not introducing” the news technologies, he added.
“Some areas require a lot more technical development, but some areas of diagnostics are already ready to go, and it’s just regulation that prevents their use,” Agrawal said.