This paper investigates whether less generous insurance coverage for mental health care lowers economic productivity. We evaluate a health insurance reform in the Netherlands which led to exogenous variation in patient cost sharing for mental health care. Novel, linked administrative data on the mental health care claims records of all residents of the Netherlands was linked to administrative data on labor market outcomes . Our results indicate that the potential reduction in moral hazard under less generous insurance came at the expense of reductions in employment for certain identifiable subpopulations. Therefore, a well-targeted Pigouvian subsidy in the form of a lower out-of-pocket price for mental health care can be welfare-improving.