OBJECTIVES: To evaluate the effects of Medical Savings Accounts (MSAs), a health care financing method, on the health care utilization and health expenditure of the insured employees in China. METHODS: The study used a before and after design. A multivariate econometric model was used to analyse the effects of MSAs reform on the changes in health care utilization and health expenditure, while controlling the effects of all other confounding factors. The use of health care and health expenditure were modelled in a two-step process: whether or not to seek health care; and how much to use health care and the resulting expenditure, giving that health care was to be used. The data are from a series of annual surveys at the individual level conducted in a Chinese city during 1993 to 1999. RESULTS: The use of MSAs in the Chinese city is associated with the shift of health care utilization from inpatient and emergency settings to outpatient settings. It is also associated with reduced use of high-tech diagnostic services. But overall health care utilization level and health expenditure continued to increase after the MSAs reform. CONCLUSION: The use of MSAs in the Chinese city resulted in the reduction of inpatient care and emergency care but failed to reduce the overall health care utilization and health expenditure per insured patient. The results suggest that MSAs may have more income effects than substitution effects on health care utilization and expenditure.