INTRODUCTION: Unlocking the consumption potential of rural residents and narrowing the consumption gap is crucial for expanding domestic demand and enhancing social equity. This study examined how integrating Urban-Rural Residents Medical Insurance (URRMI) affected consumption inequality among rural residents and its underlying mechanisms. METHODS: We analyzed 17,092 observations from the China Family Panel Studies (CFPS) 2012-2018. Consumption inequality was measured using the Kakwani relative deprivation index. A staggered difference-in-differences (DID) design with high-dimensional fixed effects was employed to analyze the impact of the urban-rural health insurance integration policy on consumption inequality. Robustness checks such as placebo tests, heterogeneity in treatment effects, and spatial spillover analyses were addressed. RESULTS: The findings reveal that the policy significantly raises consumption levels among middle and high-income groups while concurrently reducing expenditures for the lowest-income bracket, exacerbating consumption inequality. Heterogeneity analysis indicates that the impact of urban-rural health insurance integration on rural consumption inequality is manifested in both consumption structure and life-cycle effects, with the most significant disparities observed in subsistence and enjoyment consumption, particularly among middle-aged and older age groups. Mechanism analysis identifies increased utilization of medical services, the release of precautionary savings among middle and high-income cohorts, and variations in health insurance funding modalities as key drivers of the widening consumption inequality gap. DISCUSSION: The study concludes with recommendations to promote the establishment of parity in urban-rural integrated health insurance and to prioritize policy support for vulnerable groups, especially the older adult and impoverished households.