Something strange is happening in psychiatry. We are spending more on mental health care than ever before, have invested decades of research into new drugs and treatment modalities, and are talking about emotional wellbeing more openly than at any point in history. If we were doing our job right, mental health should be better than ever. And yet the numbers show exactly the opposite. Across much of the world, depression and anxiety rates are at all-time-highs, particularly in young people.

Public health officials in the United States claim we are in the midst of a “mental health crisis.” According to the National Institute of Mental Health, more than one in five American adults—roughly 60 million people—met criteria for a mental illness in 2022, an all-time high. Childhood ADHD diagnoses nearly doubled between 1997 and 2022. The CDC now estimates autism prevalence at 1 in 31 children, a 381 percent increase since the turn of the century. Anxiety diagnoses among children rose 54 percent in just six years between 2016 and 2022. Among adults aged 18 to 25, more than a third reported some form of mental illness in a single year. Half of all American adolescents have reportedly experienced at least one diagnosable mental disorder during their lifetime.

Clearly, psychiatric diagnoses are rising at alarming rates. But how indicative is this of changes in our underlying psychology? Is this a mental health crisis, or a crisis of overdiagnosis?

Where Normal Ends and Disorder Begins

Psychiatry is fundamentally different from most of medicine. There is no blood test for depression, no scan that confirms ADHD, no biopsy that distinguishes clinical anxiety from ordinary worry. Instead, clinicians rely on their interpretation of whether someone’s behavior crosses a threshold set by the Diagnostic and Statistical Manual of Mental Disorders (DSM), a document assembled by committee consensus. Over the last several decades, the psychiatric manual has gotten progressively more expansive.

The original DSM, published in 1952, was 132 pages describing around 100 disorders. The most recent edition, the DSM-5-TR, published in 2022, is 1,120 pages describing nearly 300 disorders.

Proponents of diagnostic expansion argue that this represents improvement of psychiatry as a field. We have a more nuanced understanding of the varieties of mental distress, including subtle presentations, paired with more detailed guidelines on diagnosis and treatment, leading to the massively expanded page count.

But has screening and treatment really improved? Across every successive revision, the criteria for diagnosis has expanded.

Autism, for instance, was once a narrow diagnosis reserved for children with severe impairments in language and social functioning. The DSM‑5 replaced it with a broad “autism spectrum disorder” that encompasses everything from profound social impairment to socially awkward children who prefer solitude. Many of the screening instruments used to estimate population prevalence of mental illness, such as the CDC’s reported quadrupling of autism in the last two decades, rely on broad surveys where parents rate items like “Would rather be alone than with others” and “Has difficulty making friends.” Scores on these surveys surged after COVID-19, when millions of children spent years isolated from peers, whether or not the underlying rate of autism had changed.

Other diagnoses have loosened in a similar fashion. The DSM‑5 raised the age-of-onset requirement for ADHD from 7 to 12 and reduced the symptom threshold for adults. Meanwhile, the manual has expanded into territory that many critics see as ordinary human experience dressed in clinical language. Conduct disorder, once requiring a pattern of serious antisocial behavior, now coexists with “disruptive mood dysregulation disorder,” a DSM‑5 addition that essentially pathologizes temper tantrums in children. The DSM-5-TR’s newest addition, prolonged grief disorder, allows clinicians to diagnose someone as mentally ill for grieving a loved one beyond twelve months—a move The Lancet Psychiatry called “a huge mistake” that “pathologises grief” and insults “the dignity of loving relationships.”

Caffeine withdrawal is now a diagnosable condition. Premenstrual dysphoric disorder medicalizes a biological process most women manage without psychiatric intervention. Binge eating once a week meets the threshold for a formal eating disorder. And the DSM is weighing whether internet gaming disorder deserves full inclusion, following the World Health Organization’s controversial decision to recognize it in the latest edition of the International Classification of Diseases.

This is not to suggest that the older editions were better. The first three editions of the DSM listed homosexuality as a mental illness until it was finally removed in 1987—a reminder that diagnostic manuals have always reflected cultural assumptions as much as scientific consensus. But the direction of change matters. When each revision expands the boundaries of mental illness further into the range of normal human experience, rising diagnosis rates may tell us more about incentives for overdiagnosis than about mental health itself.

The Economics of Diagnosis

In the United States, a psychiatric diagnosis is not merely a clinical label—it is the key that unlocks insurance reimbursement, school accommodations, and social services. And when clinicians get paid more for diagnosing more, and patients’ benefits depend on diagnosis, the system will predictably expand the definition of who qualifies. Economists call this supplier-induced demand.

The results speak for themselves. Between 2000 and 2021, U.S. mental health care spending more than tripled, from roughly $40 billion to $140 billion. If that investment were producing proportionally better outcomes, the story would be a triumphant one. Instead, reported mental illness rates grew almost as dramatically as spending.

Much of the increase in spending came after the Mental Health Parity and Addiction Equity Act of 2008, later extended by the Affordable Care Act, required insurance to cover mental health care as an essential service. That addressed a genuine inequity in mental health coverage. But it also created incentives for overdiagnosis, a problem more likely to occur in psychiatry given its inherent subjectivity.

Providers can increase revenue by seeing more patients and delivering more billable hours—particularly when the diagnostic bar for entry is low. And mental health parity laws also constrained the tools insurers could use to manage utilization—prior authorization requirements, visit caps, and spending ceilings could all be challenged on parity grounds. The path of least resistance for plans became approving rather than denying claims.

Research supports the theory that supplier-induced demand drives diagnosis. For example, states offering more autism-specific services tend to report higher autism prevalence, while other developmental disability classifications decline—a pattern consistent with diagnostic substitution, in which children are shifted into whichever category unlocks the most resources.

A Better Path Forward

None of this is to say that mental illness is imaginary or that everyone with a diagnosis has been mislabeled. Serious psychiatric conditions—severe depression, bipolar disorder, schizophrenia, debilitating anxiety—are real, painful, and deserving of treatment and compassion. The problem is that overdiagnosis dilutes resources and attention away from those who need them most. When half of all adolescents are said to have experienced a mental disorder, the category loses its meaning and its urgency.

The solution is not to return to an era when mental illness was ignored or stigmatized. The progress made in encouraging people with serious conditions to seek help is genuine and worth preserving. But we need to be honest about the ways in which good intentions have produced perverse outcomes, and willing to redesign the systems that reward those outcomes.

This means rethinking reimbursement structures that pay clinicians more for diagnosing and prescribing than for careful assessment or de-escalation. Recent federal initiatives to create billing codes for deprescribing are a step in the right direction, but more fundamental reform would require examining whether the coverage mandates established over the past two decades are delivering the outcomes they promised.

This also means reckoning with the broader environment that feeds the same problem. As mental health has become a cultural preoccupation, clinical language has seeped into how people understand ordinary stress, sadness, and worry. Those pressures and the financial incentives described above are not separate problems. They reinforce each other. Psychologist Clay Routledge has written about how this works and is trying to address it through Head Out, a new initiative from the Archbridge Institute’s Human Flourishing Lab.

The story of rising mental illness rates is not primarily a story of declining wellbeing. It is a story of a diagnostic system with no external validator, a reimbursement structure that rewards volume over accuracy, and a culture that has taught people to mistake normal distress for clinical pathology. Expanding access to mental health care is a genuine achievement, and no one with a serious condition should hesitate to seek help. But helping those people means building a system that can tell the difference between illness and the vicissitudes of ordinary life.