IntroductionMental disorders are highly prevalent in Germany, and associated with decreased quality of life for those affected as well as high economic burden for the society. The purpose of this study was to determine the excess costs of mental disorders and to examine how these differ with respect to disease severity.MethodsWe analyzed mean 6-month costs using the baseline data from the RECOVER trial in Hamburg, Germany, which evaluates an innovative stepped-care model for mental disorders. Four severity levels were classified based on the current level of mental illness, loss of functioning, and psychiatric diagnosis. In this work, direct costs (outpatient, inpatient, and social/informal care) and indirect costs (sick leave, unemployment, and early retirement) were estimated using interview-based data on health care utilization and productivity losses. Excess costs were determined by matching a comparison group of the German general population without mental disorders. Group differences in sociodemographic covariates and somatic comorbidities were balanced using entropy balancing. Excess costs by severity levels were estimated using generalized linear models (GLM) with gamma distribution and log-link function.ResultsOverall, the RECOVER group includedn= 816 and the comparison group includedn= 3226 individuals. Mean total 6-month excess costs amounted to 19,075€, with higher indirect excess costs (13,331€) than direct excess costs (5744€) in total excess costs. The excess costs increased with increasing disease severity, ranging from 6,123€ with mild disease severity (level 1) to 31,883€ with severe mental illness (level 4). Indirect excess costs ranged from 5612€ in level 1 to 21,399€ in level 4, and were statistically significant for all disease severity levels. In contrast, direct excess costs were only statistically significant for the levels 2 to 4, and ranged from 511€ in level 1 to 10,485€ in level 4. The main cost drivers were hospital stays (level 2–4), sick leave and unemployment (all levels), and early retirement (level 3–4).DiscussionMental disorders are associated with high costs that increase with the level of disease severity, which was also shown for individual ICD-10 diagnosis groups. Due to their influence on costs, indirect costs and disease severity levels should be considered in future cost-of-illness studies of mental disorders.Clinical trial registrationclinicaltrials.gov, trial registration number NCT03459664.Supplementary InformationThe online version contains supplementary material available at 10.1007/s00127-022-02298-8.