Talent and Expertise under Universal Health Insurance: The Case of Cosmetic Surgery in Japan
J. MARK RAMSEYER
Harvard Law School October, 2007
Harvard Law and Economics Discussion Paper No. 600
Abstract:
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...
... Much the way landlords let apartments deteriorate in rent-controlled cities, doctors depreciate quality in worlds with suppressed prices.
But the distortions are more basic, for they affect the very career choices physicians make. More specifically, they create an incentive for the most talented doctors to opt for sectors beyond the price controls, to invest in human capital specific to those sectors, and to certify that sector-specific expertise. Ironically, most of the sectors excluded from the Japanese insurance scheme are those deemed medically least "necessary," and cosmetic surgery is one. Ironically, the price distortions drive the brightest Japanese doctors into cosmetic surgery -- there, to invest heavily in cosmetic expertise, and to certify that expertise to a level never seen in the medically "necessary" sectors. * * *
The point is not that Japanese cosmetic surgeons earn a premium not available here. The point is that by operating beyond the scope of the universal health insurance, they can profitably do what few other Japanese physicians can cost-effectively do: invest in field-specific training. In most medical fields, the price controls preclude a physician from earning a large enough return to his training to make any serious specialization worthwhile. In cosmetic surgery, however, those controls do not apply. Like their peers here, Japanese physicians respond to the price signals by specializing, training, and certifying their expertise.
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