Ever wonder how AI might impact not just your health,
but like your wallet too.
Oh yeah, for sure.
We're diving deep today into this paper.
The fiscal frontier, projecting AI's long-term impact
on the US fiscal outlook.
It's from the Brookings Institution.
And this paper tackles the pretty fascinating question
of how AI in healthcare could like totally revolutionize
the US federal budget.
Yeah, it's interesting because we usually hear about
like AI doing things like, you know,
beating chess grandmasters or powering self-driving cars.
But this paper focuses on something way more tangible.
Like how AI could actually change healthcare
and the government's bottom line.
So okay, so less about robots taking over the world.
More about robots taking our temperatures.
Exactly, this paper walks us through how AI
is already changing healthcare.
Written by a group of economic experts by the way.
Oh cool.
That lays out some pretty thought-provoking scenarios
for the future.
So before we get to the sci-fi stuff,
let's talk about what's happening right now.
Okay, sure.
What are some examples of AI
already making waves in healthcare?
Well, one example is AlphaFold 2.
Okay.
This AI system is revolutionizing
how we predict protein structures.
Wow.
So imagine like being able to design new drugs way faster
because an AI can figure out how proteins fold.
That's like a game changer
for treating all sorts of diseases.
That's incredible.
It sounds like something straight
out of a science fiction movie.
It really does.
And then there's AME, Google's large language model.
This AI is essentially a super smart chat bot
for healthcare.
Oh wow.
And get this, it's actually outperforming human doctors.
What?
In diagnosing some complex medical cases.
Wait, hold on.
Yeah.
AI that's better at diagnosing than human doctors.
Yeah.
That's a bit unsettling, isn't it?
It definitely raises some questions.
But it also highlights the potential for AI
to improve diagnostic accuracy.
Potentially reducing errors,
which as you know is a huge issue in healthcare.
Right.
Fewer misdiagnoses would mean like better outcomes
for patients.
Exactly.
And lower costs.
Yeah.
Are there any other areas where AI
is already making a difference?
Absolutely.
AI algorithms are already being used to detect diseases.
Okay.
Like diabetic retinopathy earlier.
And more accurately than traditional methods.
Okay.
And early detection is key.
Yeah.
For effective treatment and preventing long term
complications.
So AI is like a super powered early warning system
for our health.
Exactly.
And think about the potential for AI
to help prevent future pandemics.
Oh wow.
By analyzing data and identifying patterns,
AI could alert us to potential outbreaks sooner.
Okay.
And help us allocate resources more effectively.
That's pretty amazing.
It sounds like AI could really be a game changer
in public health.
Yeah.
But this paper isn't just about the cool things
AI can do right.
Right.
It's also about the economic impact.
Right.
The paper then shifts gears to look at how all these AI
advancements could impact the US budget.
They focus on four key areas.
Right.
Mortality rates.
Mm-hmm.
Healthcare demand.
Okay.
Healthcare prices.
Mm-hmm.
And overall productivity.
Okay.
Let's break those down first.
Mortality rates is AI gonna make us all live forever.
Well, maybe not forever.
Okay.
But it could significantly extend lifespans.
Okay.
And that has huge implications for programs
like social security and Medicare.
Right.
If people are living longer,
they'll be collecting benefits for a longer period of time.
Exactly.
Which could put a strain on the budget.
Exactly.
Then there's a question of healthcare demand and utilization.
Okay.
Will AI lead to more efficient healthcare,
reducing the need for expensive interventions?
Okay.
Or will its increased efficacy actually drive up demand
for services?
Oh, that's interesting.
It's a complex equation.
So it's possible that AI could make healthcare
more affordable.
Right.
But it could also make it so good that everyone wants it.
Right.
Which could end up costing more.
Exactly.
That's a tricky balance.
Yeah.
It is.
And then there's the question of healthcare prices themselves.
Okay.
Will AI-driven efficiencies translate into lower costs
for individuals and the government?
Yeah.
Or will other factors offset those savings?
Right.
Like the cost of developing and implementing
all these AI technologies.
Exactly.
And finally, they consider the impact of AI
on overall productivity.
Okay.
Will it boost the economy leading to higher tax revenues?
Yeah.
Or will there be job displacement
and other economic consequences?
Right.
It's a multifaceted issue.
Mm-hmm.
With both potential positive and negative impacts.
So it's not just about how AI will affect healthcare costs.
Right.
But how it will affect the entire economy.
Yeah.
That's a big picture view.
It is.
And to illustrate these potential impacts.
Okay.
The authors have created four distinct scenarios.
Okay.
Each with different assumptions about how AI evolves
and is implemented.
So they're basically saying here are four possible futures.
Uh-huh.
Depending on how things play out with AI.
Exactly.
And by comparing these scenarios,
we can get a better sense of the potential range of outcomes.
That's really helpful.
Okay, so let's dive into these scenarios.
Okay.
What does the first scenario look like?
The first scenario focuses on a modest reduction
in mortality rates.
Okay.
Without any major changes to other factors.
Right.
It's sort of a baseline scenario
to compare the others against.
Okay, so a slightly longer lifespan.
Yeah.
But no major disruptions to the healthcare system.
Right.
Or the economy.
Exactly.
What about scenario two?
Scenario two assumes modest efficiency gains
in healthcare delivery.
Okay.
To slightly slower growth in utilization and prices.
Mm-hmm.
Along with higher tax revenues from productivity gains.
So in this scenario,
AI starts to make healthcare a bit more efficient.
Right.
Which helps control costs and boost the economy.
Right.
Scenario three takes those efficiency gains
a step further.
Okay.
Imagining major improvements in care delivery.
Mm-hmm.
Even slower growth in utilization
and healthcare inflation.
Okay.
And even higher tax revenue.
So this is the optimistic scenario
where AI really starts to deliver on its promises.
Exactly.
But then there's scenario four,
which is where things get a little more complicated.
Uh-oh, what happens in scenario four?
It also assumes major improvements in care delivery.
Okay.
But it predicts that increased utilization.
Okay.
Meaning more people seeking care.
Mm-hmm.
Due to its increased effectiveness
will actually offset those price decreases.
Oh, wow.
This scenario still factors in those higher tax revenues.
Okay.
The increased demand for care
throws a wrench in the equation.
So even if AI makes healthcare more efficient and effective.
Right.
It might also make it more desirable.
Exactly.
Which could lead to higher overall costs.
Exactly.
It highlights the delicate balance
between increased efficacy.
Yeah.
And potentially higher costs.
Right.
And it shows that the impact of AI on the US budget
is not a simple equation.
No.
A lot of moving parts.
Absolutely.
And that's why the authors of this paper
go to great lengths to explain their methodology.
And the assumptions they've made,
they want to be transparent about the uncertainties.
Yeah.
Involved in predicting AI's impact.
That makes sense.
They're not claiming to have all the answers.
Right.
But they're providing a framework
for thinking about these complex issues.
Exactly.
You're saying here's how we approach this problem.
Here are our assumptions.
And here are some possible outcomes.
Okay.
So we've got these four scenarios.
Yeah.
Each with different assumptions about how AI will affect
healthcare and the economy.
Right.
But how do they actually measure the impact
on the US budget?
Yeah.
What are they looking at?
They're looking at a bunch of factors.
Okay.
But one of the most important is Medicare spending.
Okay.
It's a huge part of the federal budget.
And it's likely to be like significantly impacted by AI.
That makes sense.
So how do they go about projecting how AI will affect
Medicare spending?
Right.
It seems like a pretty tricky thing to predict.
It is.
They're very upfront about the challenges.
But they've developed a pretty clever approach.
They start by breaking down Medicare spending
into changes in price and utilization.
Okay.
So they're trying to separate out how much of the change
in spending is due to lower prices for healthcare services.
Exactly.
And how much is due to fewer people needing those services.
Exactly.
And to get a handle on these factors.
Okay.
They look back at historical trends and events
to help estimate potential future impacts.
So they're using the past to try to predict the future.
Right.
What kind of historical events are they looking at?
For example, they look at Japan's dramatic decline
in death rates.
Okay.
Post World War II.
To help model how AI might impact longevity.
Okay.
It's a clever way to ground their projections
in real world examples.
So instead of just speculating about how AI might extend
life spans.
Right.
They're looking at a case where something similar happened
in the past.
Exactly.
That's a smart approach.
It is, and they use a similar approach for other factors.
Okay.
For instance, to estimate how AI might impact healthcare prices.
They look at events like the Affordable Care Act.
Okay.
Which had a significant impact on healthcare costs.
So they're trying to identify historical parallels.
Right.
To give their projections more weight.
Exactly.
So they're saying, okay, we can't predict the future
perfectly.
Right.
But we can learn from the past and use that knowledge
to make some educated guesses.
Exactly.
And they're also transparent about the limitations
of their model.
Okay.
They emphasize that these are exploratory simulations
designed to illustrate a range of plausible outcomes.
Right.
Not to provide definitive answers.
Which is important because AI is such a rapidly evolving
field.
Right.
Even the most sophisticated models can't capture
every nuance.
Right.
And then there's the question of productivity.
Okay.
How do they factor in the potential impact of AI?
Yeah.
On overall economic output.
Yeah.
That seems like a crucial piece of the puzzle.
Right.
If AI can boost productivity and lead to higher tax revenues.
That could offset some of the potential increases
in healthcare spending.
Exactly.
And they use historical data from the 1990s productivity
boom.
Okay.
Which was fueled by the adoption of the internet.
To estimate how AI might similarly boost economic output.
So they're looking at a time when technology led to a surge
in productivity.
Right.
And using that as a model for how AI might do the same.
Precisely.
They're essentially asking.
Okay.
What if AI has a similar impact on the economy
as the internet did?
That's a fascinating question.
Yeah.
And it seems like the answer could have a huge impact
on the US budget outlook.
It absolutely could.
And to explore those potential impacts.
They combine these variables.
Mortality rates.
Healthcare prices.
Healthcare utilization.
And overall productivity.
Right.
Into those four distinct scenarios we talked about
earlier.
Four possible futures depending on how things play out
with AI.
Exactly.
And the results of their simulations are well,
pretty eye opening.
Okay.
I'm on the edge of my seat.
What do they find?
They found that depending on which scenario plays out,
the impact on the US fiscal outlook could vary dramatically.
Okay.
Over the next two decades.
Give me some specifics.
What's the best case scenario?
Okay.
And what's the worst case scenario?
Well, in the most optimistic scenario.
Okay.
Scenario three.
Project major improvements in care delivery.
Okay.
And slower growth in utilization and prices.
They estimate that annual budget deficits could be reduced.
Okay.
By as much as 1.5% of GDP by 2044.
Wow, that's huge.
Imagine the US erasing a sizable chunk of its debt.
Right.
Thanks to AI driven healthcare savings.
That's incredible.
That's the powerful potential upside this paper highlights.
Right.
It's like finding a trillion dollar bill
just from smarter healthcare.
It is a remarkable possibility.
But then in scenario four.
Okay.
Where increased healthcare utilization
offsets those price decreases.
Yeah.
Outcome is completely different.
Oh no.
They actually project that annual budget deficits
could be nearly 1% of GDP higher
than the baseline by 2044.
So in the worst case scenario.
Yeah.
AI could actually make the US budget deficit worse.
Right.
That's a sobering thought.
It is and it underscores the importance of making
thoughtful choices about how we develop and implement AI.
Right.
It's not a magic bullet.
Right.
It's a powerful tool that could be used for good or for ill.
Exactly.
Depending on how we wield it.
Exactly.
And this paper really highlights the potential
for both positive and negative impacts.
Yeah.
It's a reminder that we need to be proactive
in shaping the future of AI.
Rather than just letting it happen to us.
So what are some of the key takeaways from this paper?
Yeah.
We'll boil it down to a few key points.
OK.
What would they be?
I think one of the biggest takeaways
is that AI's impact on the US fiscal outlook
is far from certain.
It really depends on how this technology evolves
and how we choose to implement it.
So it's not a foregone conclusion
that AI will either save or bankrupt the country.
Exactly.
There are a lot of factors at play
and the outcome is very much in our hands.
That's both empowering and a bit daunting.
I agree.
Another key takeaway is that simply boosting productivity
while helpful might not be enough to offset
the potential increase in health care spending,
especially if AI leads to longer lifespans.
So even if AI makes us all a bit richer,
we can still end up with a bigger budget deficit
if health care costs continue to rise.
That's the concern the authors raise.
It's like they're saying, hey, don't get complacent.
Even with higher tax revenues, we
need to be smart about how we manage health care costs,
especially as the population ages.
So what's the solution?
How do we make sure AI leads to a more sustainable
fiscal future?
The authors argue that the key lies in AI's ability
to bend the cost curve for health care.
In other words, AI needs to make health care more efficient
and effective, not just more expensive.
I've heard that phrase before, bend the cost curve,
but I'm not sure I fully understand it.
It basically means slowing down the rate at which health care
costs increase.
If we can do that, it would have a huge impact
on the budget outlook.
OK, that makes sense.
So how can AI help us bend the cost curve?
We've already talked about things like early detection
and more accurate diagnoses.
But are there other ways AI could
make health care more efficient?
Absolutely.
AI could help streamline administrative tasks,
personalize treatment plans, optimize hospital operations,
and even develop new, more cost effective drugs and therapies.
The possibilities are really quite vast.
So AI could help us save money at every stage of the health
care process, from diagnosis to treatment to ongoing care.
Exactly.
But there's a catch.
The authors also warn about the potential for AI
to exacerbate health care inequality.
What do you mean how could AI make health care inequality worse?
Well, imagine if all these amazing AI powered tools
and treatments are only available to the wealthy,
that would create a two tiered system
where the rich have access to the best care
while everyone else is left behind.
That would be a real tragedy.
So how do we prevent that from happening?
How do we make sure the benefits of AI and health care
are shared by everyone?
That's the million dollar question, isn't it?
It requires a multifaceted approach.
We need policies that promote equitable access
to AI powered health care investments
in training and education to ensure everyone has the skills
to thrive in an AI driven economy and regulations
that prevent AI from being used in discriminatory ways.
So it's not just about developing the technology.
It's about creating a system where everyone can benefit from it.
Exactly.
And that's why this paper is so important.
It's not just a dry economic analysis.
It's a call to action.
It's a plea for us to think carefully
about the future we want to create with AI
and to take steps to ensure that it's a future that
works for everyone.
That's a powerful message.
This has been a really thought provoking deep dive.
What are some final thoughts for our listeners
as they grapple with these complex issues?
I think the most important thing is to stay informed and engaged.
The future of AI is not predetermined.
It's something we're actively shaping
through our choices and actions.
So stay curious, ask questions, and demand a future
where AI is used to create a more just and equitable world.
That's a great note to end on.
This paper is business.
It's given us a lot to think about.
And I encourage everyone to check it out for themselves.
It's a fascinating and important read.
Until next time, keep diving deep and keep thinking critically.