By enhancing healthcare through artificial intelligence, economists predict that the U.S. can reduce its budget deficit.

• A Brookings Institution study suggests that the potential positive impact of AI on the U.S.'s financial situation could aid in reducing the fiscal deficit.
• By 2044, the U.S. budget deficit could be reduced by 1.5% of GDP due to AI, according to the report.
• The implementation of AI in healthcare services is a topic of concern for the incoming Trump administration.

Could AI be a transformative solution to the U.S. economy's fiscal deficit problem? According to three economists at the Brookings Institution, AI has the potential to be a positive "critical shock" for the country's fiscal health.

The Center on Regulation and Markets at Brookings predicts that under the most optimistic scenario, AI could decrease the annual U.S. budget deficit by up to 1.5% of GDP by 2044, or around $900 billion in nominal terms, reducing annual budget deficits by approximately one-fifth over the course of 20 years.

The paper's authors, Ben Harris, Neil Mehotra and Eric So, stated that the application of AI presents a rare and possibly exclusive chance to increase the availability of health care information and services while at the same time decreasing the strain on the traditional health care system.

The authors emphasize AI's ability to significantly enhance healthcare services and public health through various channels.

The economists wrote that not only could AI improve the efficiency of American health care, it could also "democratize" access to the system by providing more options for preventative medical care, "changing the 'who' and 'where' of health care."

AI could ease deficit pressure

A more efficient health care system and greater individual control over health management could alleviate the strain on the government's massive fiscal deficit, which reached $1.8 trillion in the previous fiscal year. The national debt currently stands at $36 trillion.

The widespread adoption of AI in healthcare services is not guaranteed due to numerous obstacles, mainly related to regulations and incentives.

Ajay Agrawal, a professor at the University of Toronto's Rotman School of Management, stated that economists' views on AI and health care are a blend of optimism and pessimism.

"AI has the potential to greatly benefit the health care sector, but there are obstacles such as regulation, incentives, and associated risks and liabilities that create friction," Agrawal stated.

Agrawal stated that although there are numerous implementation challenges, the reward for successfully completing this task is substantial.

Health care and the deficit

In 2023, the federal government is estimated to have spent $1.8 trillion on health insurance, which is approximately 7% of GDP, according to the Congressional Budget Office. From 2024 to 2033, the CBO predicts that federal health care subsidies will amount to $25 trillion, or 8.3% of GDP.

In the U.S., approximately one-fourth of both public and private health care spending is estimated to be allocated towards administrative tasks rather than treatment or patient outcomes.

A McKinsey report states that while nearly every U.S. industry has seen productivity improvements over the past 50 years, health care is the major exception.

According to Brookings Institution economists, AI could enhance operations in this specific area. Automation can handle basic tasks such as appointment scheduling, while AI programs can also handle more complex tasks like patient flow management and preliminary data analysis.

The three economists agree that the impact of AI on federal spending is uncertain, but they believe it could be more transformative for the economy than past technological advancements, such as the use of personal computers in the 1990s. According to Harris, the current AI shock feels different and is not typical of a technological shock.

The drug industry, medicine research, and how people receive health care are all being impacted by AI, according to Harris.

Disease and death rates

Harris emphasized the transformative potential of AI beyond just increasing productivity, including its ability to reduce healthcare costs and illness rates.

The authors stated that such changes could significantly affect Social Security and public health program expenditures.

If AI advancements increase the average lifespan, there is a possibility that federal spending could increase due to the resulting demand for more medical care and a larger retired population.

The Brookings paper predicts that one of AI's greatest benefits will be accelerating the effectiveness of preventative care and disease detection, resulting in a healthier population that requires less medical intervention. Additionally, a healthier workforce may increase labor force participation rates if they remain employed for longer periods.

"By enhancing diagnostic accuracy, AI can improve patient outcomes and reduce unnecessary spending on inappropriate treatments, according to economists. Moreover, AI systems may decrease overall healthcare spending, including Medicare, through various channels, with personalized medicine being a significant contributor to cost savings."

The impact of AI on fiscal policy will depend on whether it affects retired or working people, according to Agrawal.

AI proliferating already

The application of AI in healthcare has shown the most progress and potential, with diagnostics being the most advanced area. Agrawal highlighted how AI has impacted every stage of diagnostic care, including receiving input data, medical imaging such as X-rays and MRIs, and doctor notes and charts.

AI has shown "superhuman performance" in many areas of diagnosis, surpassing most doctors, according to Agrawal.

The paper suggests that AI has shown promise in optimizing treatment plans for patients through data analysis, allowing for more effective and cost-efficient plans for individual patients.

Agrawal believes that it is too early to determine which type of health system, public or private, will better utilize AI technology. In the U.S., private insurers have shown more interest in AI technology related to preventative treatment, while there has been less interest in using AI in diagnostic applications. This could potentially result in an increase in cases and more treatment.

"Agrawal stated that there are no evident economic motivations for the private sector to implement that, while in the public sector, although there are incentives, there are numerous obstacles related to data privacy."

The rollout of AI in health care will be driven by public-private partnerships, according to his belief.

In order to drive change in the public health care sector, "very strong incentives" are necessary, as Agrawal stated, because "resistance to change" is prevalent and people are in their routines.

To overcome resistance, a strong motivator is required, and the private sector typically offers a more potent one, as users aim to cut costs or technology creators seek profit.

Large tech companies are actively working on developing language models for healthcare services. Google's AI system, AMIE, imitates diagnostic dialogue and uses its Med-Gemini platform to aid in diagnosis, treatment planning, and clinical decision support. Additionally, other companies have projects underway to expand the use of AI in healthcare services.

Outlook under Trump

The second term of President-elect Donald Trump could affect the implementation of AI in healthcare and its economic consequences. Trump has promised to reduce government spending and established an outside panel called the Department of Government Efficiency to "dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies." Public health funding is one area that could be reduced, hindering the ability to implement AI applications.

""If the federal government reduces its role in providing health care, AI could help offset the cost, making each dollar go further," said Harris."

The implementation of AI in healthcare could be accelerated if regulations are rolled back under a second Trump administration.

Agrawal stated that many people are concerned about reducing regulation in healthcare because they fear that immature technologies may harm people. However, he emphasized that this concern is legitimate. Yet, he pointed out that not bringing in new technologies can also cause harm to people.

Agrawal stated that while some regions require further technical advancements, certain diagnostic domains are already prepared, and only regulatory barriers are hindering their implementation.