OBJECTIVE: The objective of this study is to determine if critical illness insurance (CII) promotes the universal health coverage to reduce out-of-pocket (OOP) medical expenditures and improve the effective reimbursement rate (ERR) in rural China. STUDY DESIGN: The 5-year monthly hospitalisation data, starting 2 years before the CII (ie, the 'intervention') began, were collected. Interrupted time series analysis models were used to evaluate the immediate and gradual effects of CII on OOP payment and ERR. SETTING: The study was conducted in Xiantao County, Hubei Province, China. PARTICIPANTS: A total of 511 221 inpatients within 5 years were included in the analysis. RESULTS: In 2016, 100 288 patients received in-patient services, among which 4137 benefited from CII. After the implementation of CII, OOP expenses increased 32.2% (95% CI 24.8% to 39.5%, p<0.001). Compared with the preintervention periods, the trend changes decline at a rate of 0.7% per month after the implementation of CII. Similarly, a significant decrease was observed in log ERR after the intervention started. The rate of level change is 16% change (95% CI -20.0% to -12.1%, p<0.001). CONCLUSION: CII did not decrease the OOP payments of rural inpatients in 2011-2016 periods. The limited extents of population coverage and financing resources can be attributed to these results. Therefore, the Chinese government must urgently raise the funds of CII and improve the CII policy reimbursement rate.