Mental illness is a highly prevalent class of diseases with potentially debilitating affects. About 30% of Americans have a mental illness and almost half (46%) will have a mental illness at some time in their lives. Examples of mental illness include schizophrenia, bipolar disorder, depression, anxiety disorders. A paper by Glied and Frank (2016) summarizes the transformation of the U.S. mental health system between 1960 and today. Today, I review some of their interesting points.

In 1963 President John F.Kennedy…called on the nation to change the functions of psychiatric institutions toward a focus on active high-quality treatment, to shift the orientation of care from institutions to the community,and to integrate people with mental disorders into the mainstream of American life…In 1955 77 percent of treatment episodes took place in inpatient settings…In 2012 fewer than 6 percent of people receiving mental health treatment used inpatient care…In 1955 the outpatient mental health system provided just 379,000 episodes of treatment. Only thirteen years later, that figure had increased to almost 2 million.

How did most patients with mental illness pay for this care. Increasingly over time, the answer has been Medicaid.

This opportunity to defray state costs with federal dollars led states to encourage the shift of many people with mental illness to other nonexempt institutions, such as nursing homes. It also encouraged them to treat people with these illnesses in the community.

For many state Medicaid agencies, care for mental health is managed by mental health carve out contracts. Specializing in mental health patients does offer the possibility for some comparative advantage including contracting with mental health specialists and more integrated care. However, carving out mental health from physical health may serve to further isolate these patients and adversely affect the medical care they receive. Further, adverse selection may mean that the carve-out contracts outsource their most severe cases to other institutions (e.g., jails)

Whereas Medicaid provided health insurance for many patients with mental illness, the Supplemental Security Income (SSI) provided these patients with financial sustenance, although at a very low.

In 1974 about 32 percent of people with a severe and persistent mental illness received support from either Social Security Disability Insurance (SSDI) or the SSI program.By2000 the number was greater than 70 percent.

Despite these government programs to implemented–in part–to support patients with mental illness, spending has been relatively flat. Whereas total healthcare spending increased from 5% of GDP to 17% between 1960 and 2012, spending on patients with mental illness remained flat at around 1% of GDP.

Mental illness is often blamed for violence. There have been calls to restricted access to guns for patients with mental illness. However, previous research has shown that mental illness is a weak predictor of violent crime.

Nonetheless, the rate of violent behavior among people who meet criteria for mental illness is about twice as high as the rate among those who do not…Rates of mental illness are very high among people who engage in disruptive (but often not violent) behavior that leads to incarceration in local jails…about 17 percent of male jail inmates and about 34 percent of female jail inmates meet criteria for a serious mental illness; the rate in the general population is about 4–5 percent.

The study also examines how mental illness exacerbates 3 market failures: moral hazard, adverse selection, and agency issue.

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