The productivity of the economy depends upon a skilled, emotionally balanced, and physically healthy labor force. Mental illness negatively effects physical health, thus affecting physical labor, work habits, creativity and entrepreneurship. Research by Professor Jonathan Sperling, of Columbia Business School (May 28, 2024), shows that the cost of mental illness to the U.S. economy is around $280 billion annually. Mental illness and disorders lead to reduced investment in high-risk and high-return assets, reduction in productivity and wealth accumulation over the lifetime. Hence, it creates dependence of those Americans on the public sector for providing services and transfer payments. This creates an extra burden on taxpayers, especially when productivity and growth in the economy slow down, a double whammy.

It is especially worrisome when high school students suffer mental illness and commit suicide. They represent the future of the labor force, innovators and entrepreneurs, an essential part of the growth process of the economy. Therefore, increasing investment in providing treatment for mental illness is economically a gainful strategy. However, the National Institute of Mental Health, or NIMH, found that in 2022 overall, only around two-thirds of 18 and over U.S. adults got treatment for serious mental illness, or SMI; slightly more females than males and 61.1% of those 18-25 got treatment for SMI. (www.nimh.gov) However, overall treatment coverage for any mental illness, AMI, of adults is only at 23.1%, a very disappointing outcome. Therefore, the question arises, what are the possible solutions to provide effective and efficient treatment for mental illness to restore economic health of people and productivity of the economy.

Cynthia Shirk stated in her paper at the National Health Policy Forum (Oct. 23, 2008), that Medicaid is the largest payer of behavioral healthcare, including mental healthcare, in the U.S. There is some discussion in the current administration to trim down Medicaid spending, but behavioral health including mental health is still part of Medicaid services. Professor Michael Friedman, at Columbia University, in his Huffington Post blog (Feb. 22, 2011), states that United Hospital Fund, or UHF, of New York City reported that in 2013, Medicaid spending on beneficiaries’ behavioral health care was $28,451 (25% of this spending was for treatment of mental disorders) and only $15,964 on those without behavioral problems. 

Each state describes services and benefits including mental illnesses in its Medicaid plan, as long as their definitions and features meet federal statutes and regulations. As Shirk reports, in some states, including Utah, mental health care benefits are carved out from physical health care benefits in managed care plans.   However, in 2022, a law was passed in Utah to get the approval from the Centers of Medicare and Medicaid Services, or CMS, to move in the direction of combining physical and behavioral health care (carve-in system). In some other states, managed care organizations provide both types of benefits through their own provider networks or subcontracting mental health services to other specialized institutions.  

A UHF study finds that carving out benefits for mental health from nonmental health in managed care is ill advised, since mental health problems and physical health problems are closely interrelated. For example, Friedman states in his blog that Medicaid recipients with mental health disorders are 30% to 60% more likely to have hypertension, heart disease, pulmonary disorders, diabetes and dementia.  Therefore, carving out benefits for mental and behavioral disorders and care, as opposed to integrating them with physical and surgical healthcare, is an inefficient strategy.  

In addition, carve-outs create ‘adverse selection’ problems since specialty care organizations are dominated with high-cost patients, thus increasing Medicaid costs.  Insurance companies like to have enrollees with diversified health status to reduce cost of care and hence insurance rates. Carve-in care will have a large pool of enrollees and therefore would also have economies of scale. Covering a large mix of patients avoids the problem of leaving out well-deserved patients with behavioral disorders that were excluded by specialty mental illness care providers in carve-out system.  

It is hoped that mental and behavioral health care acquires an equal degree of importance in the U.S. economy and political recognition as physical and surgical healthcare, since both have significant impact on the lives of individuals, families and economic performance of the U.S. economy in the future.

Mathur is former chair and professor of economics, and now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.  He now resides in Ogden, Utah.