Medical Financial Assistance and Sustainable Livelihood Resilience in China’s Rural Revitalization Process

Rural revitalization has emerged as a core agenda in the global pursuit of sustainable development, with its success fundamentally hinging on enhancing the resilience of rural households to withstand shocks and restore their livelihoods. In contrast to mainstream research that primarily examines whether Medical Financial Assistance (MFA) reduces medical burden, this paper focuses on MFA as ex-post cash compensation and investigates whether and how it affects the sustainable livelihood recovery of low-income rural households following health shocks, thereby providing empirical evidence for understanding the foundational role of health security in rural revitalization. A quasi-natural experiment is constructed by leveraging the institutional feature that MFA eligibility is activated by exogenous health shocks. Using two-wave balanced panel data (2021–2022) from a nationally designated deep poverty-stricken county in Hebei Province, China, the Propensity Score Matching–Difference-in-Differences (PSM-DID) method and mediation models are employed for causal identification and mechanism testing. The findings indicate that (1) MFA significantly promotes household income recovery. It enables recipient households to recover per capita net income by an average of approximately 13.2% (p < 0.01), demonstrating a protective recovery effect, and simultaneously recovers per capita non-farm labor income by an average of approximately 13.8% (p < 0.05), revealing a developmental recovery effect. The latter is partially mediated by the non-farm labor participation rate (mediation ratio 51.7%, Sobel Z = 2.10). This finding validates the “time release effect,” demonstrating that MFA stimulates endogenous dynamics by restoring health capital and releasing labor previously constrained by family care responsibilities. It thereby extends the application of health capital theory from the individual to the household level. (2) Mechanism analysis shows that the protective recovery effect is fully mediated by the amount of MFA received (mediation ratio 326.7%, Sobel Z = 12.85), providing empirical evidence for precautionary saving theory in the context of targeted social assistance and revealing the potential productive attributes of the social safety net. (3) Heterogeneity analysis reveals clear group targeting and shock thresholds. The protective effect is concentrated among elderly households, while the developmental effect is primarily evident in middle-aged households. Both recovery effects manifest significantly only for households experiencing major disease shocks, confirming the theoretical expectation of “conditional effectiveness,” namely that policy effects are systematically moderated by household life-cycle characteristics and the severity of health shocks. This study demonstrates that MFA serves both as a safety net and an empowerment tool, but its effectiveness is highly contingent upon household characteristics and shock severity. By uncovering the foundational mechanisms through which health security contributes to rural household resilience, this study provides empirical evidence from China for building sustainable poverty prevention systems in the global process of rural revitalization.