This paper aims at evaluating the impact of 1998 Chinese health care reform on out-of-pocket expenditure and on saving. Existing evidence on the results achieved by this reform in terms of reduction of out-of-pocket medical expenditures is still mixed and contradictory, and very little is known about the impact of these measures on the consumption and saving behavior of the Chinese population. To shed more light on this issue we use data collected by the Chinese Household Income Project (CHIP), through a series of questionnaire-based interviews conducted in urban areas in 1995 and 2002. Contrary to previous evidence, our ndings suggest that, once properly accounting for unobserved heterogeneity (health status), out-of-pocket medical expenses and saving rate are affected by the reform in a differentiated way. In particular, we find that out-of-pocket expenses increase more for individuals with poor health status and the saving rate increases only for individual with good health status.