I was asked about this recently, so I thought I would put down some basic thoughts. Note that mental illness is a major underlying issue behind both crime and unemployment. Federal, state, and local policies toward the mentally ill are highly complex, but here are a few points:
1. As is often the case in health care policy, my inclination is to fund research and development, in this case through the NIH and NSF, before worrying about improving coverage in extant programs. The long-term dynamic gains have the potential to outweigh the one-time static gains.
2. Medicaid offers a highly imperfect coverage of mental illness. Fine-tuning the coverage may well be a good idea, but perhaps first Medicaid needs to be put on a sounder footing. If you are a liberal this may mean federalizing Medicaid, and if you are a conservative this may mean block grants to the states for Medicaid experimentation. If we are simply asking which policy is better for the mentally ill, federalization is likely the answer, although that does not settle the broader debate as to which alternative would be better overall.
3. We could retool Obamacare mandates, and other health insurance default settings, to have more coverage for mental illness and less coverage for other health conditions. Both practical and “individual responsibility” arguments might point in that direction.
4. The deinstitutionalization of the 1980s has come in for a lot of criticism, but I remain a fan of that policy. I’m well aware of its connection to homelessness, and also how many mentally ill people have ended up in jail. Still, that change ended a kind of slavery for many, and if you oppose slavery you should oppose the previous policies, even if the transition brought some very large practical problems. Of course some of these people were lobotomized or otherwise treated coercively in addition to their involuntary confinement. In 1955 the institutionalized population peaked at about 500,000 and many of those were not voluntary admissions; a 2003 measure put that same population at only 50,000. I recommend this Samuel R. Bagenstos piece on the topic.
5. Further deregulation could boost telemedicine and also telepsychiatry; this would lower cost and is especially important for rural areas.
6. When the family of a mentally ill adult should be notified, given individual privacy rights, is worth further discussion. I don’t have a simple answer, here is some background.
7. The future debate will be all about wearables, including those that monitor the excited or violent states of mentally ill people. I am skeptical about this development, mostly for slippery slope reasons, but this will become a major policy issue, for criminals and high risk individuals too.
8. Crime rates have been falling since the 1980s. That suggests some very large gains are coming through peer effects. There is plenty of evidence that mentally ill people, to some extent, slot into their culture’s conception of what mental illness should consist of (mentally ill Malaysians for instance are more likely to “run amok,” because that is a salient concept there.) It seems that our culture is communicating an increasingly peaceful notion of what mental illness should consist of. This development should be studied further, as perhaps those gains can be extended or accelerated in some way.
Overall this is one of the most important topics which is most understudied by economists.