The Macroeconomics of Mental Health

Mental health costs the US economy more than $280 billion annually, stymying investment, productivity, and wealth accumulation. With an impact comparable to that of a recession, its aggregate cost is equal to 1.7 percent of the country’s annual consumption—or the budget of a major federal department.

Fortunately, research from Columbia Business School Professor Boaz Abramson may have found the solution. Along with the University of Wisconsin’s Professor Job Boerma and Yale University’s Professor Aleh Tsyvinski, Abramson has quantified the true macroeconomic cost of mental illness, which the researchers say affects more than 20 percent of American adults. Using their findings, Abramson and his team have crafted policy solutions aimed at dramatically reducing costs.

While previous studies have quantified the loss of income and healthcare costs associated with mental illness, Abramson and his team’s methodology takes a broader approach, analyzing how individuals with mental health conditions behave differently in the labor market and invest and spend differently than those not affected. They found that the cost of mental illness in the United States is a whopping $282 billion annually—an estimate 30 percent higher than that found in previous epidemiological research.

“Our model takes into account a wide host of adverse socioeconomic outcomes that these previous models did not, as well as the psychological and psychiatric costs of living with mental illness,” Abramson says.

To grasp the sum of these socioeconomic outcomes, the researchers focused on three characteristics of mental illness that modern psychiatric theories emphasize: negative thinking, rumination, and reinforcement through behavior.

The Sinister Cost of Symptoms

Negative thinking, a main factor in both moderate and severe mental illness, was a critical point of study in the researchers’ model. They found that a negative outlook leads those experiencing mental illness to invest less in high-risk, high-return assets such as stocks and real estate. This in turn has a snowball effect, with those affected building significantly less wealth throughout their lifetime compared to those who do not experience mental illness.

This snowball effect also applies to mental illness itself, according to the researchers’ findings. “Mental illness often reinforces itself through behaviors,” Abramson says. “If I have a mental illness, I invest less and I work less. Therefore, I will have fewer means in the future.”

He adds, “This reinforces my mental illness and creates a poverty trap that was not accounted for in previous models and is extremely important according to psychiatric literature.”

Searching for Solutions

Contrary to popular belief, cost is typically not the barrier to mental health treatment, thanks in part to the 2010 Affordable Care Act. Instead, increasing the capacity of the US mental health system is the key to effectively reducing the socioeconomic cost of mental illness, Abramson says, noting that 35 percent of Americans do not have access to a psychiatrist or psychologist in their county.

According to Abramson, one solution is to fund community health centers, a policy goal that a few state governments have implemented. While these centers may not be as well equipped as a dedicated mental health care clinic, they can employ primary care doctors who can provide essential mental health services, help treat initial mental illness, and prevent it from occurring in the first place.

A second option is virtual mental health care, where policymakers partner with private organizations or use taxpayer funds to provide mental health treatment through a computer or mobile device. Both solutions are effective and would generate economic gains equivalent to 1.1 percent of annual US consumption.

How Business Leaders Can Step Up

The solution to mental illness costs and business leaders’ desired outcomes can be linked, according to Abramson and his team’s findings. While federal policies can help reduce socioeconomic costs, so can the policies of private organizations.

It starts with awareness, Abramson says: With more than 20 percent of the US population having a mental illness and more than 5 percent having a severe mental illness, it’s likely a business’s employees are affected in some way. If leaders pro- vide accessible mental health services as part of their employee benefits package, it will substantially improve the well-being of employees.

“[Mental health services] encourage employees to take on more challenging jobs within the organization,” Abramson says. “They’re more willing to take risks, take a chance, and maybe be more creative. And so it could well be that providing mental health services within the organization could be cost effective—everybody wants happier and more productive workers.”

Adapted from the paper “Macroeconomics of Mental Health.”