That seems to be working as intended? The unhappiness of both "dying of exposure on the sidewalk due to untreated mental illness" and the constant gnawing fear that this is a realistic outcome due to medical bankruptcy or whatever should pull down a country's happiness index.
I've always figured that this is in fact a big reason why the Nordic countries do so well on the survey: the average is lifted not by shiny happy people holding hands, but by the strong safety net ensuring that you can't fall into a pit of despair.
You're misreading the comment. hamdingers is suggesting that the fear of "dying of exposure on the sidewalk" is inflating a country's happiness index, because people are using "dying of exposure on the sidewalk" as a realistic worst-case baseline.