How Do Economic Shocks Affect Family Mental Health Spending?

A negative economic shocks may impose two opposing influences on mental health spending: pressure to decrease spending due to liquidity constraints, and pressure to increase spending due to worsening mental health status. Using two-year panel data from the Medical Expenditure Panel Survey for the period 2004 to 2012, we examine the effect of an economic shock on mental health spending by families with children. Specifically, we focus on the effect of changes in family income, employment status, and health insurance status over the two-year observation period within each MEPS panel.

Since a substantial proportion of the population does not use mental health care and the distribution of spending is positively skewed we estimate a series of two-part model with probit equation in the first part and generalized linear model (GLM) with a log link and gamma variance function in the second part. To control for unobserved heterogeneity across families in the sample we apply the two-part model using the correlated random effects (CRE) framework.

The results indicate that family mental health spending strongly responds to employment shocks. Employment gains are associated with a decline in both the likelihood of mental health services utilization and in the amount being spent toward mental health services among those who use the services. For instance, gaining employment in two-parent families where a parent was not employed during entire year is associated, on average, with an expected decline of $172 in family mental health spending. Among single-mother families, gaining employment and continuing to be employed throughout the two-year observation period is associated with an expected decline of $307 in family mental health spending. The effect of an employment gain leading to a lower mental health services use is consistent with the hypothesis that gaining employment may improve mental health and thereby lead to a decreased demand for mental health services.

We find that employment losses are associated with an increase in both the likelihood of mental health services utilization and in the amount being spent on such services among those who use services. For instance, losing employment after a recent employment gain increases the likelihood of mental health services utilization by about five percentage points. We also find that losing a job and remaining jobless for the remainder of the two-year observation period leads to an increase of $204 in expected family mental health among two-parent families. The sign of the employment loss effect may reflect pressure to increase mental health spending due to the possibility of worsening mental health status when a family member loses employment.

We also find that income and health insurance loss is associated with a decline in mental health spending. For instance, mothers in two-parent families where a family member lost health insurance coverage spend less on mental health care. Similarly, negative income shocks in single-mother families decrease the amount of ambulatory mental health spending and the amount of mental health care spending incurred by mothers.