Implicitly Estimating the Cost of Mental Illness in Australia: A Standard-of-Living Approach

Background: Estimating the costs of mental illness provides useful policy and managerial information to improve the quality of life of people living with a mental illness and their families. Objective: This paper estimates the costs of mental health in Australia using the standard-of-living approach. Methods: The cost of mental illness was estimated implicitly using a standard-of-living approach. We analysed data from 16 waves of the Household, Income and Labour Dynamics in Australia Survey (HILDA) using 209,871 observations. Unobserved heterogeneity was mitigated using an extended random-effects estimator. Results: The equivalised disposable income of people with mental illness, measured by a self-reported mental health condition, needs to be 50% higher to achieve a similar living standard to those without a mental illness. The cost estimates vary considerably with measures of mental illness and standard of living. An alternative measure of mental illness using the first quintile of the SF-36 mental health score distribution resulted in an increase of estimated costs to 80% equivalised disposable income. Conclusion: People with mental illness need to increase equivalised disposable income, which includes existing financial supports, by 50–80% to achieve a similar level of financial satisfaction to those without a mental illness. The cost estimate can be substantially higher if the overall life satisfaction is used to proxy for standard of living.