Why will increasing medical insurance reimbursement levels not lead to over-medicalization? Evidence from China’s medical insurance payment reform

Against the backdrop of ongoing reforms in medical insurance payment methods, this study utilizes sample data from China employee medical insurance settlements in a provincial capital to examine the impact of adjustments to the pooled hospitalization reimbursement ratio. We use a fuzzy regression-discontinuity design to estimate the local causal effect of changes in the pooled hospitalization reimbursement ratio on total inpatient expenditures and their components.The empirical results reveal three main findings. First, an increased reimbursement ratio optimized the cost structure, leading to a 5% reduction in total per capita medical expenditures. Second, mechanistic analysis indicates that changes in insurance payment standards incentivized patients to prioritize cost-effective services within the insurance catalog and prompted medical institutions to restructure clinical pathways. Third, the higher reimbursement ratio encouraged patients to select higher-quality healthcare resources, thereby reducing the risk of readmission. Heterogeneity analysis further shows that cost reductions were most pronounced in tertiary hospitals and among patients with severe comorbidities, highlighting the allocative efficiency of high-quality medical resources. This study provides evidence of a dose–response relationship in the precise adjustment of medical insurance benefit policies and supports the implementation of differentiated reimbursement strategies, with higher tiers for tertiary hospitals and complex cases to reinforce positive incentives.