Hospitals in China are classified into tiers (1, 2 or 3), with the largest (tier 3) having more equipment and specialist staff. Differential health insurance cost-sharing by hospital tier (lower deductibles and higher reimbursement rates in lower tiers) was introduced to reduce overcrowding in higher tier hospitals, promote use of lower tier hospitals, and limit escalating healthcare costs. However, little is known about the effects of differential cost-sharing in health insurance schemes on choice of hospital tiers.