Background: Disease has become one of the key causes of falling into poverty in rural China. The poor households are even more likely to suffer. The New Cooperative Medical Scheme (NCMS) has been implemented to provide rural residents financial protection against health risks. This study aims to assess the effect of the NCMS on alleviating health payment-induced poverty in the Shaanxi Province of China. Methods: The data was drawn from the 5th National Health Service Survey of Shaanxi Province, conducted in 2013. In total, 41,037 individuals covered by NCMS were selected. Poverty headcount ratio (HCR), poverty gap and mean positive poverty gap were used for measuring the incidence, depth and intensity of poverty, respectively. The differences on poverty measures pre- and post- insurance reimbursement indicate the effectiveness of alleviating health payment-induced poverty under NCMS. Results: For the general insured, 5.81% of households fell below the national poverty line owing to the health payment; this HCR dropped to 4.84% after insurance reimbursement. The poverty HCRs for the insured that had hospitalization in the past year dropped from 7.50% to 2.09% after reimbursement. With the NCMS compensation, the poverty gap declined from 42.90 Yuan to 34.49 Yuan (19.60% decreased) for the general insured and from 57.48 Yuan to 10.01 Yuan (82.59% decreased) for the hospital admission insured. The mean positive poverty gap declined 3.56% and 37.40% for two samples, respectively. Conclusion: The NCMS could alleviate the health payment-induced poverty. The effectiveness of alleviating health payment-induced poverty is greater for hospital admission insured than for general insured, mainly because NCMS compensates for serious diseases. Our study suggests that a more comprehensive insurance benefit package design could further improve the effectiveness of poverty alleviation.