The

Economic

Dorothy

P. Rice,

Sander

Sc.D.(Hon.)

Kelman,

Leonard

Burden

Ph.D.

S. Miller,

Ph.D.

Mental illness imposes a substantial burden on individuals and society. Using data from national surveys and a newly developed methodology for cakulating costs, the authors estimate that in 1985 the total economic costs of mental illness were $103.7 billion. Of this total, direct treatment and support costs were $42.5 billion, or 11.5 percent oftotalpersonalhealtb care spending for all illnesses. Morbidity costs-the value of reduced or lost productivity-amounted to $47.4 billion. Mortality costs-the lost value ofproductivity due to premature death resulting from mental illnesswere estimated to be $9.3 billion, or 5.1 percent of total productivity losses for all deaths. Other related costs, including the cost of caregiver services, amounted to $4.5 billion. Mental illness is costly to the nation in medical resources used for care, treatment, and rehabilitation; neduced or lost productivity; and pain and suffering of patients and their families and friends. Recent surveys have documented the high prevalence ofmental illness in the general

Dr. Rice is professor in the School of Nursing (N631Y), University of California, San Francisco, San Francisco, California 94143. Dr. Kelman

with Medical Services professor

Welfare fornia,

Hospital

is a research

the

New

economist

Jersey

Division

Assistance

and

in Trenton. in the

at the University Berkeley.

and

Community

population: 1 2.6 percent of the population 18 years of age and older reported mental disorders during a one-month period, 14.8 percent during a six-month period, and 22.1 percent during their lifetime (1). Mental illness imposes a substantial burden on individuals as well as society. It is important to translate this burden into economic terms to better understand its magnitude in relation to the burdens imposed by other major chronic illnesses and to facilitate formulating policies about the use of resources. This paper is based on a larger study, The Economic Costs of Alcohol and Drug Abuse and Mental Illness: 1985 (2), conducted for the Alcohol, Drug Abuse, and Mental Health Administration. The methods and sources of data used to estimate the direct and indirect costs of mental illness are summarized, and the results are presented. Methods and data sources The costs of illness are typically divided into two major categories: cone costs resulting directly from the illness, and related costs resulting from the nonhealth effects of the illness. Within each category are direct costs, those for which payments are made, and indirect costs, those for which resources are lost. Indirect costs consist ofmorbidity costs, or the value oflost productivity by persons unable topenform their usual activities or to perform them at a level offtill eff#{232}ctivenessdue to the illness; and mortality costs, or the value oflost productivity due to premature death resulting from the illness.

Health

Dr. Miller

School

of

of Mental

is

of Social

of Call-

Psychiatry

The estimation models For purposes of this study diagnoses ofmental illness from the International Classification of Diseases, Ninth

December

1992

VoL 43

No.

12

Illness

Revision, Clinical Mod:fication (lCD9-CM) (3), were used for estimation of direct and mortality costs. These included psychoses, neuroses, schizophrenia, organic brain syndrome, personality disorders, depression, and others. People who commit suicide were classified as having a mental disorder. Alcohol and drug abuse and related psychoses were excluded. For morbidity costs, DSM-III-R diagnoses were used. Included were schizophrenic, affective, and anxiety disorders, somatization, antisocial personality disorder, and cognitive impairment. Estimation of the economic costs of mental illness is complex, involving a variety of methods and sources of data described in considerable detail in the full report (2). Models for estimating the costs ofmental illness for 1 98 5 are summarized here by type of cost. Direct costs. In general, direct costs (medical expenditures) were estimated as the product of two components: number ofservices and unit prices or charges. For example, the number of days of cane in short-stay hospitals was obtained from the 1984-1986 National Hospital Discharge Survey (NHDS) public-use tapes. For persons hospitalized with a primary diagnosis ofmental illness, the total days of care in 1 985 were used. Patients with diagnoses of mental illness secondary to or comorbid with diagnoses ofphysical illness had longer stays than physically ill patients with no mental illness. In this case, only the additional days of care were used in the cost estimates. Expenses pen patient day, which were obtained from the American Hospital Association (4), were used in conjunction with the total days ofcare to

1227

or secondary mental disorder at admission by the annual mean charge for all residents as reported in the 1985 National Nursing Home Survey (5). Costs ofoutpatient care by office-based physicians were based on visit data from the 1985 National Ambulatory Care Survey (6); charges by psychiatrists and other physicians were obtained from the American Medical Association (7). The costs of other office-based professional 5crvices were limited to psychologists and social workers and were based on personal communications with the American Psychological Association and the American Council of Social Workers. Expenditures for care in mental specialty institutions were estimated from a variety of sources, including personal communications with the Department of Veterans Affairs, the Department of Defense, and the In-

dian Health Service and from data neported by the National Institute of Mental Health (8). Expenditures for psychotropic prescription drugs included total amounts spent for minor tranquilizers, antidepressants, antipsychotics, and combination drugs and were based on estimates of outpatient prescription sales from the National Prescription Survey conducted by Pharmaceutical Data Services. Support costs related to the treatment of mental disorders included federal expenditures for medical and health services research, training costs for physicians and nurses, program administration costs, and the net cost ofprivate health insurance. Sources for these estimates included the budget ofthe U.S. government (9), financial data from medical and nunsing schools (10,1 1), and the Health Care Financing Administration (12). Other related direct costs of mental illness included those of the public and private criminal justice system: police protection, legal and

judicial services, jails and prisons, and social welfare administration. Costs of mental illness in the justice system were estimated by using the offense-specific methodology developed by Cruze and associates (13) and Harwood and associates (14), in which the proportion of offenses on arrests considered to be due to mental illness are applied to the number of known offenses and then multiplied by the costs per offense. These data were obtained from the U.S. Dcpartment ofJustice (1 5-17) and the U.S. Bureau ofthe Census (18). Administrative costs for mental illness were estimated as a proportion of total administrative costs for public social welfare programs in 1985 (19). The benefits paid under these programs were not counted as costs of illness because the funds are transferred from one payer to anothen. The net cost to society resulting from this transaction in terms of resources used is zero, except for costs incurred in operating the system that effects the transfer. Indirect costs: Morbidity. Estimates ofmorbidity costs for the noninstitutionalized population-that is, the value of reduced or lost productivity due to mental illnesswere based on the size of the noninstitutionalized population, prevalence rates of mental illness, impairment rates or percent income loss per person with a mental disorder, and average income the person would have earned ifnot affected by the disorder. Data for the four measures were disaggregated by age group and gender; mental illness prevalence rates were also disaggregated by type of disorder. Multiplying the four measures for each population subgroup identified by age, gender, and type of disorder and summing the results provided an estimate of the aggregate loss ofincome due to mental illness for the entire noninstitutionalized U.S. population. A timing model using regression analysis was developed to estimate impairment rates. This model measured the lifetime effect on current income of individuals with mental disorders, taking into account the timing and duration ofthe disorders. Timing and duration were based on measures of time of onset and of last

1228

December

Hospital

Table

1

Economic

costs

ofmental

illness

in

1985,

by

type of cost Amount (millions

Type

ofcost

$ 99,188

Corecosts1 Direct costs Alcohol,

drug,

specialty

institutions

physicians

professional

Nursing

services

homes

Indirect costs Morbidity

Noninstitutionalized Institutionalized

population population

costs

Direct costs Crime welfare

Total

30.2

8.5

20.7

2,151

2.1

5.1

3,466

3.3

8.1

costs resulting

obtain total short-stay hospital Nursing home costs for were estimated by multiplying of residents

-

100.0

10.2

with

costs. 1985 the

a primary

directly

24.9

3.4 7.6 100.0

1.4

56,660

3. 1 54.6

47,395

45.7

44,087

42.5

83.6 77.8 5.8

3,308

3.2

9,265

8.9

16.4

4,503

4.3

100.0

1,678 1,301

1.6 1.2

37.3 28.9

.4

8.4

2,825 325

2.7

62.7

2,500

2.4

.3

$103,691

Includes direct and indirect Discounted at 6 percent

number

12.4

8,805

377

Familycaregiving

I

1 2,831

administration

Indirectcosts Incarceration

2

95.7 41.0

1,453 3,239

costs

Mortality2 Other related

42,528

10,583

Drugs Support

bution

psychiatric

federal

hospitals

Office-based

Other

and

and

Short-stay

Social

Distri-

%

ofdollars)

7.2 55.5

100.0

-

from the illness

1992

Vol.

43

No.

12

and

Community

Psychiatry

Table

2

Deaths due to mental gender and age1

illness,

person-years

lost, and productivity

losses

in 1985,

Productivity

by

losses

Person-years

lost

N (thou-

N pen

sands)

death

(millions ofdollars)2

Per death

71.9

$

Amount Gender

and

age

N deaths

Men and women Underagel5 15to24 25to44 45to64 65andover

4,577 9,813 6,794

95 246 408 158

17,205

142

1,319

305 2,275 4,961

$231,007 496,993 505,551

23.3 8.2

1,524 201

224,363 11,655

26.4

$9,265

$233,337

$

$264,227

Total Men Underagel5

39,707 669

45

67.6

15to24 25to44

3,783 7,619

199 308

52.5 40.5

45to64

4,961

109 68

21.9 8.2

729

28.7

$7,543

515,476 541,906 238,464 12,461 $297,253

650 794 2,194 1,833

50 47 100 50

76.3

$

$196,773

59.4

325

408,924

45.5 27.0

832 341

379,284 186,194

8,862 14,332

74 320

8.3 22.3

97 $1,722

$120,174

65andover Total

1,049

53.7 41.6

8,343 25,375

177 1,950 4,129 1,183 104

Women Underagel5 15to24 25to44 45to64

65 and over Total I Numbers 2

Discounted

not add to totals at 6 percent

may

128

10,896

due to rounding.

symptom relative to the time of interview reported in the Epidemiologic Catchment Area surveys. Morbidity costs for the institutionalized population were based on the number of residents in state and

orders in nursing homes. The numben of institutionalized persons was adjusted by labor force participation rates and then multiplied by the estimated mean earnings-adjusted for wage supplements on fringe benefits-for each age group and gender. indirect costs: mortality. Ifan individual does not die prematurely from mental disorders, he or she continues to be productive for a number of years. The estimated mortality costs were the product ofthe number ofdeaths due to mental illness and the expected value of a person’s future earnings. The method of denivation considered life expectancy for diffrent age groups and for men and women, the changing pattern of

earnings by age, varying labor force participation rates, an imputed value for housekeeping services, and the appropriate discount rate to convert a stream of earnings into their pnesent worth. Cross-sectional profiles of mean earnings by age and gender as reported by the U.S. Bureau ofCensus (20) were used based on the assumption that future earnings of an average person will rise with age and expeniencc in accordance with cross-sectional data for that year. Marketplace earnings underestimate productivity losses because many persons are not in the labor force. Many of these persons, as well as those in the labor force, perform household services. The value of household work, therefore, must be added to earnings. For this study, estimates of hours spent on household labor were developed, using negnession analysis to control for socioeconomic and demographic factors (2 1). The hours were then valued on

Hospital

December

county number

mental ofresidents

hospitals with

and Community

and mental

the dis-

Psychiatry

1992

Vol.

43

No.

12

the basis of 1985 wage rates. Other related indirect costs. Two types of other related indirect costs were estimated: productivity losses for persons incarcerated in prisons as a result of a mental-illness-related crime and the value of time spent to care for family members. The first costs were based on the number of persons incarcerated (22-24) multiplied by the 1985 year-round, fulltime mean earnings adjusted for supplements and fringe benefits. The value oftime spent by family members providing care to mentally ill relatives was estimated by Franks in an unpublished study conducted for the National Institute of Mental Health in 1987. Included in the estimate was time spent in caregiving; time lost from work; time with lawyens, clergy, and professionals; recreation time; and time spent in other activities based on a survey of the membership of the Massachusetts Alliance for the Mentally Ill (25). Results Mental illness comprises a wide range of mental disorders, and the prevalence of mental illness is high, resulting in high use of medical care services and considerable costs to society in productivity losses as summarized below. Totaleconomicimpact. As shown in Table 1 mental illness imposed a $103.7 billion burden on the U.S. economy in 1985. Based on a variety ofeconomic and health factors, the total economic cost of mental illness was estimated at $129.3 billion in 1988. Direct treatment and support costs constituted 41 percent of the 1985 total; morbidity costs (the value of reduced or lost productivity), 46 percent; mortality costs, 9 percent, based on a 6 percent discount nate of the value of productivity forgone in future years as a restilt ofprcmaturc mortality in 1985; and other related costs, including the cost ofcancgivers’ services, 4 percent. Direct costs. Direct costs for persons suffering from mental disorders totaled $42.5 billion in 1985, or 1 1 .5 percent of total personal health care spending for all illnesses in that year. About 30 percent of the direct costs, on $12.8 billion, were expenditures for care in specialty institutions ,

1229

Table 3 Core costs1

Gender

ofmental

illness

in 1985,

by gender

and age

Amount (millions ofdollars)

and age

illness morbidity costs, or the value of reduced or lost productivity, amounted to $47.4 billion, more than four-fifths of the total indirect costs of mental illness. Morbidity costs for the noninstitutionalized population were $44. 1 billion; they were based on an estimated prevalence of27.7 million persons with aSfective disorders, 25.3 million with anxiety disorders, 8.8 million with antisocial personality disorder, 2.6 million with schizophrenic disorders, 489,000 with cognitive impairments, and 281 ,000 suffering from somatization. Morbidity costs for the institutionalized population were also estimated; the population included 104,000 persons in mental hospitals and 605,700 in nursing homes. For this population, morbidity costs amounted to $3.3 billion, on 6 pencent oftotal indirect costs. indirect costs: mortality. As illustrated in Table 2, a total of 39,707 deaths due to mental disorders occunred in 1985, ofwhich 74 percent were by suicide. Of the 29,453 suicide deaths, 3,828, or 1 3 percent, were classified as alcohol related. The 39,707 deaths related to mental illness represented more than 1 million person-years lost, on 26.4 years per death, and a loss of$9.3 billion to the economy at a 6 percent discount rate, or $233,337 pen death.

%

Distribution

Men and women

45to64

$ 2,102 49,754 30,053

65andover Total

17,276 $99,188

Underagel52 15 to

44

2.1

2.1

50.2

50.2

30.3 17.4 100.0

30.3 17.4 -

Men $ 1,295

Underagel52 15to44

1.3

32,467

45to64 65andover Total Women Under age 152

17,658 5,651 $57,071 $

15to44 45to64

807

Includes

direct

2

In this age group,

and

indirect costs

costs

for several

resulting

categories,

directly

41.1 29.4 27.6

42.5

100.0

the illness

from

including

using a mean length of stay of 13.3 days. The remaining $ 1 .8 billion was the estimated comorbidity cost for 1 .4 million patients with a secondary diagnosis ofmental illness. These patients stayed a mean of 3.5 days longer than those without a diagnosis of mental illness. Other treatment costs in 1985 included $2.2 billion for office-based physicians and $3.5 billion for other professional services, including those of psychologists and social workers. Nursing home expenditures for the mentally ill amounted to $10.6 billion, 25 percent ofdirect costs. The costs of prescription drugs were estimated at $ 1 5 billion, 3 percent of the direct costs of mental illness.

1.9

17.4 12.5 11.7

specialty

for 15- to 17-year-old persons; thus costs for the under-iS for the 14-to-44 age group are understated.

(state, county, and psychiatric hospitals, residential treatment centers for emotionally disturbed children, freestanding mental health centers, and correctional facilities) and care in federal institutions. More than one-fifth of the 1985 direct costs, or $8.8 billion, were for short-stay hospital care, ofwhich $7 billion was the cost of care for 1.1 million patients discharged with a primary diagnosis of mental illness,

9.9 100.0

.8

11,625 $42,116

I

30.9

5.7 57.5

17,287 12,395

65andover Total

2.3 56.9

32.7 17.8

and

age group

federal

institutions,

are overstated,

are

and

costs

Support costs, including expenditunes for research, training costs of physicians and nurses, expenditures for program administration, and the net cost ofpnivate health insurance, amounted to $3.2 billion, constituting 8 percent ofdirect costs. indirect costs: morbidity. Mental

Table

4

Direct source

costs (millions of payment

Treatment

of mental

setting

Alcohol,

drug,

specialty

and

Federal

of dollars)

and psychiatric federal institutions

providers and county

State hospitals

Office-based

in 1985

,

by treatment

Total

Federal

State,

$12,831 1 ,433

$

$ 7,964

3,097

1 ,433

local

-

setting

and

Private1

$ 1,770 -

psychiatric

Private psychiatric hospitals Other specialty institutions Other treatment costs Short-stay

illness

hospitals physicians

Other professional Nursing homes Prescription drugs Support costs

5,355

777

4,337

1 ,786 4,257

270 617

26,458 8,805 2,15 1

6,940 3,575 151 243

179 3,448 3,902 1 ,43 1 54

services

3,466 1 ,453 3,239 $42,528

Total

86

2,900

10,583

2,254

71 1 ,027 $11,064

77 249 $12,115

241

1,337 192 15,616

3,799 1,946 3,137 5,429

1,305 1,963 $19,349

.

1230

1

Includes

December

private

1992

health

insurance,

VoL 43

direct

No.

payments

12

by patients,

Hospital

and

and

philanthropy

Community

Psychiatry

Table

5

Findings

ofprevious

cost

studies

ofmental

illness Indirect

Total

costs

Direct

Amount

Dis-

Study period

(millions

(millions

(millions

count

ofdollars)

ofdollars)

ofdollars)

rate (%)

Direct

Indirect

Fein(28)

1954

$

Rice (26) Conley and Conwell LevineandLevine(30) CooperandRice(31)

1963 1968 1971

$ 1,723 2,402

$ 1,926 4,875

4 4

20,000

4,000

16,000

na

47.2 33.0 20.0

52.8 67.0 80.0

25,237

5 4

56.2

13,917

14,179 6,932

43.8

1972

11,058 6,985

50.2

1974 1975 1977

36,786 18,201 40,287

16,973 9,411 18,745

19,813 8,790 21,542

5 2.5

46.1 51.7

49.8 53.9

1980

54,236

25,288

28,948

6 6

46.5 46.6

Authors

and reference

(29)

LevineandWillner(32) PaningerandBerk(33)

Cruzeetal.(13) Harwoodetal.(14) Paringer and Berk Riceetal.(27)

(33),

Frank

(34)

and Kamlet

3,649 7,277

costs

costs

53.5 53.4

30,685

19,824

10,861

4

64.6

35.4

1980

na

19,230

na

-

-

-

6 6

48.8 42.6

57.4

1983

72,775

35,501

37,274

Riceetal.

1985

103,691

44,206

59,485

Death attributed to mental illness constituted 1.9 percent ofthe 2.1 million deaths in the United States in 1985, 3.2 percent ofthc total penson-years lost, and 5 percent of the total productivity losses. Deaths among men accounted for 64 percent ofthe total number ofdeaths, 69 percent ofthe person-years lost, and 81 percent of the productivity losses. More than two-fifths of the deaths due to mental illness occurred among persons aged 65 years and over. Due to the short life expectancy and low earnings of this age group, person-years lost amounted to 14 percent of total person-years lost, and mortality costs constituted only 2 percent ofthe total mortality costs. In contrast, 36 percent of the deaths due to mental illness were among persons between the ages of 1 5 and 44, accounting for 62 percent of the person-years lost and 78 percent of the total productivity losses. Costs by gender and age. Only the core costs were calculated by gender and age. The core costs$99.2 billion-included cxpenditunes directly related to the treatment and support of persons with mental disorders and morbidity and mortality indirect costs associated with these disorders. As shown in Table 3 adults between the ages of 15 and 44 accounted for halfthe total core costs. About 30 percent of the

costs were for people between the ages of45 and 64, and 17 percent of the costs were for those 65 and olden. Mental illness costs for men were more than one-third higher than for women-$57. 1 billion compared with $42. 1 billion, respectively. The higher costs for men reflect the larger number ofdeaths due to mental disorders among men, the higher labor force participation rates of men, and their higher earnings. Source ofpayment. Table 4 shows the direct costs of mental illness by source ofpayment and treatment setting. Private sources accounted for 45 percent of the total direct expenditures for treatment ofpersons with mental disorders in 1985. The remaining 5 5 percent were almost equally divided between federal and state and local sources. The source of payment varied considerably by treatment setting. Federal funds covered all expenditures in federal treatment settings, including Veterans Affairs, Army, Navy, Air Force, and Indian Affairs facilities. More than four-fifths of the state and county psychiatric hospitals and other institutions, including residential treatment centers for emotionally disturbed children, freestanding facilities, multiservice mental health organizations, and correctional facilities, were supported by state and local funds.

Hospital

December

,

and Community

48.3

1980

Harwoodetal.(14) (2)

distribution

Psychiatry

1992

Vol. 43

No.

12

51.2

Three-fourths ofcare in private psychiatric hospitals was paid for by pnivate sources. Of expenditures for short-stay hospital care ofpatients with mental disorders, 4 1 percent came from federal sources, 16 percent from state and local funds, and the remaining 43 percent from private sources. Almost half(49 percent) of the expenditures for nursing home care of patients with mental disorders came from public sources, with 28 percent from federal funds and 2 1 percent from state and local funds. For office-based physicians, other professional services, and prescription drugs, private funds covered 90 percent oftotal expenditures.

Discussion and conclusions As shown in Table 5 a variety of studies of the costs of mental illness have been conducted during the past three decades. As expected, total costs have risen over the years. More important, however, is the considerable variation among the studies in the distribution of direct and indirect costs and in the level ofcosts in studies conducted for the same years. These variations are due to the use of different methodologies, estimating procedures, sources of data, and discount rates. In addition, direct and indirect costs of mental illness have been changing over time, with a ,

1231

dramatic increase in direct costs rcative to indirect costs. Rice (26) estimated that the indirect costs of mental illness in 1963 were twice the direct costs. Using the same methodology, direct costs were shown to have increased so rapidly by 1980 that the relationship between the two types ofcosts was reversed, with direct costs almost twice the indirect costs. This change reflected the high rate of inflation in medical care costs and lower rates of increase in wages over the 1 7-year period (27). The cost estimates presented in this study were based on the most current and reliable data available and new methodology developed specifically for this study. Nonetheless, several qualifications are in order. Several known costs, such as pain and suffering, were excluded because data were unavailable. No estimates were made for income loss due to mental illness in the homeless and military populations, resulting in underestimation of costs. Some of the cost estimates are likely to be low due to data limitations. For example, hospital discharge and ambulatory data records may not list mental illness diagnoses because of the stigma associated with this disorder. Estimates of income loss among the civilian noninstitutionalized population were calculated only for persons between the ages of 18 and 64. To the degree that those under age 18 and over 64 suffer earnings losses due to mental illness, the costs

cost of mental illness. As better become available, the approach be refined and improved.

data can

NC,

paper

ducted

for

is based

the

on

research

Alcohol,

Drug

con-

acknowledge Sarah statistical

the research assistance of Dunmeyer and the computer and assistance ofScott Hood.

General

Psychiatry

45:977-986,

17.

101384. Justice Justice

18.

ton, DC, Bureau o(JusticeStatistics, Census of Service Industries.

1985.

4.

Hospital American

Statistics, Hospital

5. National Summary

1987. Association,

Nursing Home for the United

pub (DHS) 89-1758. NationalCenterforHealthStatistics,

6. OffIce

Visits

States,

1985.

to Psychiatrists, DHHS

pub

(PHS)

7.

Socioeconomic cal Practice. Association,

8. Specialty United

Characteristics Chicago, American 1987

Mental States,

are understated. Productivity losses were based on personal income rather than earnings. Personal income, which includes receipt of transfer payments, may be less sensitive to the effects of mental illness than earnings, resulting in possible undcrstatement of costs. A 6 percent discount rate was used to estimate the present value of future earnings lost because a rate of 6 percent is consistent with rates used in earlier studies. Use ofa 4 percent discount rate would yield mortality costs of $12 billion, or $2.7 billion higher than the costs based on a 6 percent discount rate. For these reasons, the cost estimates presented in this study can be interpreted as lower limits of the true

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The economic burden of mental illness.

Mental illness imposes a substantial burden on individuals and society. Using data from national surveys and a newly developed methodology for calcula...
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