Talent and expertise under universal health insurance

"The Japanese national health insurance provides universal coverage. Necessarily, this entails a subsidy that dramatically raises the demand for medical services. In the face of the increased demand, the government suppresses costs by suppressing prices. By combining extensive biographical (including income) data on all 449 Tokyo cosmetic surgeons and a random sample of 499 other Tokyo physicians, I explore the effect of this price suppression on the allocation of talent and the development of expertise. Crucially, the national health insurance does not cover services -- like elective cosmetic surgery -- deemed medically superfluous. Facing price caps in the covered sector but competitive prices in these "superfluous" sectors, the most talented doctors should tend to shift into the "superfluous" sectors and there to invest heavily in their expertise. I find evidence consistent with this: cosmetic surgeons earn higher incomes than other doctors; are more likely to have attended a national (generally more selective) medical school; are more likely to have served on the faculty of a medical school; and are more likely to be board-certified. I speculate on the broader implications this phenomenon poses for the allocation of talent in medicine"--John M. Olin Center for Law, Economics, and Business web site.