Could artificial intelligence be so transformative that it could solve one of the U.S. economy's biggest problems: the skyrocketing budget deficit? According to three economists at the Brookings Institution, the answer is yes: AI could prove a positive “critical shock” to the country's fiscal health.
A working paper published last month by the Center on Regulation and Markets in Brookings predicts that under the most optimistic scenario, AI could reduce the US annual budget deficit by as much as 1.5% of gross domestic product by 2044 , which amounts to approximately $900 billion in face value. reducing annual budget deficits by about a fifth by the end of the 20-year period.
“The use of AI offers the rare – possibly unique – opportunity to expand access to healthcare information and services while reducing the burden on the conventional healthcare system,” wrote the paper's authors, Ben Harris, Neil Mehotra and Eric So.
While the authors mention several channels through which AI can increase productivity, they emphasize AI's potential to dramatically improve healthcare and public health.
Not only could AI make America's healthcare system more efficient, it could also “democratize” access to the system by giving people more options for preventive medical care — “changing the 'who' and 'where' of healthcare,” they wrote the economists.
AI could ease deficit pressure
The economic impact of a more efficient healthcare system, and giving individuals more power to manage their own health, could ease pressure on the government's gaping budget deficit, which has exceeded 1.8 in the fiscal year ending September 30. trillion dollars reached. $36 trillion.
But the adoption of AI in healthcare is not a certainty. There are numerous barriers to large-scale AI implementation, largely related to regulations and incentives.
Economists' view of AI and healthcare is “a mix of enthusiasm and desperation,” says Ajay Agrawal, a professor at the University of Toronto's Rotman School of Management, where he researches the economics of artificial intelligence.
“Enthusiasm because there is probably no sector that benefits more from AI than healthcare. … But there is friction because of regulations, because of incentives — because of the way things are structured and how people get paid for things — and friction because of the associated risks and liabilities,” Agrawal said.
“So yes, there are a lot of implementation challenges, and at the same time the price for succeeding is very high,” Agrawal said.
Healthcare and the shortage
According to the Congressional Budget Office, the federal government will spend an estimated $1.8 trillion on health insurance in 2023, or about 7% of GDP. The CBO predicts that federal subsidies for health care will total $25 trillion, or 8.3% of GDP, between 2024 and 2033.
The problem is that so much of healthcare spending in the US is not dependent on patient treatment or outcomes. Instead, it is estimated that about a quarter of all expenditure, both public and private, goes to administrative functions.
“Nearly every sector in the U.S. has experienced substantial productivity improvements over the past fifty years, with one major exception: healthcare,” according to a report by McKinsey analysts.
This is an area where AI could improve business operations, according to economists at the Brookings Institution. Basic tasks such as scheduling appointments can be automated, while tasks such as patient flow management and preliminary data analysis can also be handled by AI programs.
While the three economists acknowledge that AI's impact on federal spending is still “highly uncertain,” the co-authors believe it could ultimately be more transformative for the economy than past technological leaps such as the use of personal computers in the nineties. The current AI shock “feels different. This is not your typical technology shock,” Harris told DailyExpertNews.
AI influences “how people receive health care,” how the drug industry discovers new products and how researchers make drugs more precisely, Harris said.
Disease and death rates
In particular, Harris underscored not only AI's impact on productivity, but also its potential to transform healthcare costs and rates of illness, disease and death.
“Such changes could have profound implications for spending on Social Security and public health programs,” he and his co-authors wrote.
To be fair, there is also the potential that AI developments could counterintuitively increase federal spending as average lifespans increase as a result of the technology. Not only could improved technology lead people to seek more medical care, longer lifespans could also result in a larger retired population.
But the Brookings article takes a more optimistic tack, predicting that one of AI's biggest benefits will come from accelerating the effectiveness of preventive care and disease detection. This will create a healthier population that requires fewer medical interventions, the authors wrote — and could also increase labor force participation if a healthier workforce stays in the workforce longer.
“AI's ability to improve diagnostic accuracy can not only improve patient outcomes but also reduce wasteful spending on inappropriate treatments,” the economists said. “From a more optimistic perspective, existing AI systems can reduce spending on all healthcare expenses, including Medicare, with cost savings occurring across channels – personalized medicine being a prominent example.”
Evaluating whether AI can ultimately translate into a positive or negative shock to fiscal policy will depend on the stage of the age distribution it affects, Agrawal said. Whether AI has “a bigger impact on retirees or around working people” will be an answer to how the numbers play out, Agrawal said.
AI is already proliferating
To date, diagnostics has shown the most progress and potential in the application of AI in healthcare. Agrawal mentioned the influence of AI in almost all steps of diagnostic care, from receiving input data, medical images such as X-rays and MRIs, as well as doctor notes and charts.
“In almost every area of diagnosis, AI has already demonstrated what they call 'superhuman performance' in some cases – better than most papers,” Agrawal said.
AI has also shown “significant promise” in better optimizing treatment plans for patients through data analytics. Machine intelligence can develop more effective and cheaper plans for individual patients, the paper's authors said.
Agrawal believes it is too early to say whether public or private healthcare systems will benefit better from AI. In the U.S., private insurers are generally more interested in AI technology related to preventive treatments, he said. There is less interest in using AI in diagnostic applications, potentially leading to an increase in cases and more treatments, he said.
“There are no clear economic incentives for the private sector to do this [implement] That,” Agrawal said. “In the public sector, even though there are incentives, there are a lot of frictions related to privacy on the data side.”
He believes that public-private partnerships will be critical in driving the rollout of AI in healthcare.
The public health sector “will need very strong incentives to bring about change, because otherwise everyone is stuck in their routine. There is a lot of resistance to change,” said Agrawal.
“So to overcome that resistance you need a very strong motivator, and the private sector generally provides a much stronger motivator, either because the users are trying to reduce costs or because the creators of the technology are trying to generate profits” , he says. continued.
Major 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 dialogues. The Med-Gemini platform uses AI to assist with diagnosis, treatment planning and clinical decision support. Amazon And Microsoft have their own projects underway to expand the application of AI programs in healthcare.
Prospects under Trump
President-elect Donald Trump's second term could change the rollout of AI in healthcare, and ultimately its economic impact. Trump has vowed to reduce government spending and has formed an outside panel called the Department of Government Efficiency, which is designed to “dismantle government bureaucracy, eliminate excess regulations, reduce wasteful spending and restructure federal agencies.” Public health funding is one area where funding could decline, frustrating the ability to roll out AI applications.
“Now it's possible that if you see a retreat in the federal government's role in providing health care to people, that more efficient AI could help offset the costs of that retreat,” Harris says. “If AI means every dollar goes further, then I think we've timed everything in a kind of fortunate way.”
There is also the chance that regulatory rollbacks under a second Trump administration could hasten the implementation of AI in healthcare.
“Many people are afraid to reduce regulation because they don't want immature technologies to be brought into the healthcare system and harm people,” Agrawal said. “And that's a very legitimate concern. But what they often don't factor into their equation is the harm we're doing to people by not adding new technologies,” he added.
“Some areas need a lot more technical development, but there are some areas in diagnostics that are already ready for use, and it's just the regulations that prevent them from being used,” Agrawal said.
