The reporting requirement isn't triggered by a diagnosis of mental illness, which is indeed a squishy thing.
From the Code of Ethics of the American Psychological Association
(b) Psychologists disclose confidential information without the consent of the individual only as mandated by law, or where permitted by law for a valid purpose such as to (1) provide needed professional services; (2) obtain appropriate professional consultations; (3) protect the client/patient, psychologist, or others from harm;...
I've underlined the relevant portion of this; the part about protecting the client or others from harm is well established, and at the same time, psychologists take confidentiality very seriously. Breaking that trust isn't going to be undertaken lightly.
Note that the standard in the proposed AR law is that the person poses an immediate danger
, and that reporting such a concern triggers a major legal process. A psychologist who repeatedly triggered that process without real cause would be noticed and very possibly sanctioned.
This proposed law is one of the few I've seen lately that I might be willing to accept: there's a reasonable balance between protecting the public and protecting patients' rights, and I don't say that lightly -- I'm a strong proponent of the latter.