Objective To predict the medical expenses and distribution of different payment for urban residents who entering the medical insurance scheme. Methods The article created a static micro simulation model for predicting and evaluating the medical insurance scheme in urban areas for the period of 2008-2010. The main datasets used in constructing the model include: a 0.1 per cent population sample dataset from the 2000 Census for all individuals; and a dataset of employees and retirees under the social medical insurance scheme. The other information used in the model involves the aggregated results of the 1 per cent population survey of Kunming conducted in 2005. Results Based on the population model 2005-2010, the updated Census dataset was statistically matched with the individual dataset of insured employees and retirees. The model provided information on incomes, hospital services usage and medical expenses. Medical expenses of general hospital services as well as serious illness clinic services were provided and the different kinds of payments could be forecasted. Conclusion The results from this research are essential in making the challenging policy decisions when considering the long-term financial sustainability of the medical insurance scheme.