The integration of medical insurance is a critical institutional reform aimed at promoting urban-rural integration and advancing common prosperity.The paper develops a theoretical model incorporating urban and rural sectors, primary health care and specialist hospital care, to explore the influence of medical service choices on rural-urban health disparity,given medical resource constraints.It aims to determine whether the integration of medical insurance generates a “crowding-out effect” or “promoting effect” on urban-rural residents. Then employing a time-varying difference-in-differences approach and a panel-ordered Logit model, the study utilizes data from the China Family Panel Studies.The results indicate that, the urban-rural medical insurance integration significantly improves the rural medical choice, thereby reducing the rural-urban health gap. Rural low-income groups and the elderly emerge as the primary beneficiaries, while the urban labor force is most affected by the "crowding-out effect." The paper concludes with recommendations for government policy, suggesting the optimization of medical insurance system design to ensure equitable benefits across all groups, the acceleration of multi-level healthcare system development, and the strengthening of primary healthcare institutions.