OBJECTIVES: In 2003, China introduced a heavily subsidized voluntary health insurance program, the New Rural Cooperative Medical Scheme (NRCMS). This paper evaluates the effectiveness of the NRCMS by assessing its impact on health care utilization and out-of-pocket health expenditure. METHODS: We employ propensity score matching (PSM) with single difference and double difference based on data from China Health and Nutrition Survey (CHNS) from 1991 to 2009. To check the robustness of our results, we also use a bounding approach to test how strongly an invariant unobserved variable influences the selection process. For the out-of-pocket payments (OOP), a two-part model is used to correct for the large number of zero values and the skewness of the data. RESULTS: We find no evidence of an increase in the utilization of formal medical care and preventive services. There is a large, positive effect on the utilization of village clinics, and large, negative effects in town hospitals, county hospitals and city hospitals. For the two-part model of out-of-pocket (OOP) payments, we find a small, positive impact on the probability of positive OOP payments and a small, negative impact on the actual level of OOP payments. All the effects on the incidence of catastrophic medical payments based on different thresholds are insignificant. CONCLUSIONS: The results indicate that the NRCMS did not increase the overall utilization but directs people from high-level to low-level medical facilities. The substitution effect among different levels of facilities may be due to more generous reimbursement in low-level facilities. In addition, there is no reduction on the out-of-pocket medical payments or the incidence of catastrophic health payments. Therefore, the impact of NRCMS on increasing utilization and reducing financial risk is found to be limited. The lack of effectiveness may be attributed to a relatively low premium and shallow benefit coverage.