What Can We Obtain from Mental Health Care? The Dynamics of Physical and Mental Health

This study analyzes the dynamic interaction of an individual’s physical and mental health using the German Socio-Economic Panel and the Cross-National Equivalent File of Germany. Its main objective is to find a way to reduce people’s health expenditure by examining the magnitude of the interdependence between physical and mental health. For the analysis, this study develops a dynamic correlated random effects model. We create two aggregate health measures (aggregate physical health and aggregate mental health) with four submeasures each, which provides a better understanding of changes in an individual’s health status by capturing additional information that cannot be analyzed at the aggregate level. There is clear evidence that the persistence of a mental health condition is less than that of a physical health condition. Moreover, the impact of previous mental health on current physical health is greater than that of previous physical health on current mental health. This suggests that individuals can reduce their expenditures on physical health problems by focusing on the treatment of mental problems when they first arise. Finally, the Government’s attention and support toward mental health care would lead to a reduction in health expenditures and eventually improve the sustainability of the nation’s health system.