Although health is an important factor in economic development, millions of China's rural residents have no medical coverage. Nearly 10 percent of those that were sick in rural China consciously did not seek medical care, mostly because of financial constraints. More than 25% of rural residents are dissatisfied with their village's health system. In response to this deteriorating situation, a new cooperative medical system (NCMS) was initialized in rural China in 2003 by the government. However, after two years of trials, there has been no household-based, economic analysis of the program. This paper provides one of the first. Although where introduced, most rural residents voluntarily participate, there are many problems with the program. First, at least in its initial years, targeting has been poor; the program has been adopted in richer villages, even though there is a case that there are higher medical needs in poorer villages. Also, while the government subsidy pays part of the premium, more than 40% criticize the design of the program, including complaints about coverage, reimbursement rates and procedures. Based on our survey, the major concern is the extremely low reimbursement rates. Instead of up to 30% as promised, only 3% of total medical expenses of program participants were paid (6% for inpatient expenses). The expected payout of a participating farmer is actually negative; the farmer receives back less than what he/she puts in. There also is a gap in understanding of farmers and clinicians between the actual implementation of reimbursements and policy.