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Mental Health

Mental Health. Econ 737.01 11/4/10. Outline. I. Introduction II. Imperfect information III. Externalities IV. Public provision of care V. Moral hazard VI. Adverse selection VII. Quality. I. Introduction. Broad category: mental health and substance abuse (MH/SA)

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Mental Health

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  1. Mental Health Econ 737.01 11/4/10

  2. Outline • I. Introduction • II. Imperfect information • III. Externalities • IV. Public provision of care • V. Moral hazard • VI. Adverse selection • VII. Quality

  3. I. Introduction • Broad category: mental health and substance abuse (MH/SA) • Mental illnesses range from relatively mild (mild depression, AD/HD) to severe and debilitating (schizophrenia, manic and major depression) • Often stigmatized, more than physical illness • Care provided by primary care physicians, psychiatrists, psychologists, social workers, counselors, and nurses • Inpatient care provided in surgical section of general hospital, psychiatric unit of general hospital, private psychiatric hospital, and state mental hospital

  4. I. Introduction • Key statistics • Spending $75 billion (8.3% of health expenditures) in U.S. in 1995 • 30% of population estimated to experience diagnosable MH/SA illness during 12-month period • 4% of population suffer from the most major, and the bulk of costs are from this group • Indirect costs twice direct costs (Rice et al., 1990) • Employment, earnings, productivity, crime, accidents, child abuse and neglect, homelessness, divorce • Only 25% of those with MH/SA illness get treatment; 4.5% of those without one get treatment anyway

  5. I. Introduction • “Mental health economics is like health economics only more so” (Handbook, p. 895) • Even worse imperfect information • More obvious externalities associated with illness • Greater role of public sector, especially states • Greater moral hazard • Greater adverse selection • Greater quality concerns

  6. II. Imperfect information • Provider: Variation in diagnosis and treatment practices varies between locations even more than other types of care (Phelps, 2000), reflecting a lack of full information. • Patient: Mental illness often makes patients incapable of making appropriate treatment decisions

  7. III. Externalities • There are negative externalities associated with the direct costs and also many of the indirect costs associated with mental illness • Crime, accidents, child abuse and neglect, divorce • How much of the externality issue is real and how much is unjustified fear/stigma? • Provides justification for public care and involuntary institutionalization

  8. IV. Public provision of care • Similarly to many other developed countries, in the U.S. public mental health care is 1) prominent and 2) decentralized (run by the states). • Externalities • Inertia (state public mental health systems predate modern insurance arrangements)

  9. IV. Public provision of care

  10. IV. Public provision of care

  11. V. Moral Hazard • Moral hazard in health care: having health insurance causes you to overconsume care since you no longer face the full cost • Evidence suggests people more price sensitive with mental health care than other types of health care => moral hazard is worse • Why do you think this is?

  12. V. Moral Hazard • Responses • Deductibles and copayments • Mental health “carve outs”: purchasers (employers) contract out mental health benefits separately from other insurance benefits • This allows more stringent restriction of mental health services, typically through managed care • Treating mental and other health care differently is controversial.

  13. V. Moral Hazard

  14. VI. Adverse Selection • Adverse selection in health care: people more likely to get sick are the ones who will want health insurance • Adverse selection seems to be more severe with mental health care than other types of care. • Why do you think this is?

  15. VI. Adverse Selection • Responses • State mandates specifying coverage minimums (coinsurance, outpatient visits, hospital days, deductibles) • Coverage structured to attract healthier payments and deter sicker => too little care in some areas and too much in others

  16. VII. Quality • Concerns about quality of care are more pronounced with mental health care than other types of care. • Why? • Imperfect information • Social stigma • Financial incentives (i.e. different treatment by insurance) • Large role of public providers • Performance-based pay would be ideal but is difficult to implement

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