Objective: The paper attempts to systematically analyze the internal logic, economic effects, and operational patterns of the evolution of China's universal medical insurance system from 1998 to 2025 from the perspective of health economics, providing economic evidence for high-quality development of medical insurance. Methods: Based on 15 macro indicators from 1998 to 2025, elasticity analysis, long-run equilibrium analysis, and identification of the transmission mechanisms were applied to construct an analysis framework of "coverage-financing-funds-resources-output", revealing the economic mechanisms underlying the evolution of the medical insurance system. Results: Over 28 years, medical insurance enrollment climbed from 1.5% to 94.7%, achieving universal coverage. Total health expenditure rose from 4.28% to 6.74% of GDP, while out-of-pocket spending dropped from 60.1% to about 26.8%, representing a fundamental shift in financing structure. The elasticity of health consumption fluctuated markedly, significantly affected by policy adjustments and external shocks. The transmission mechanisms between coverage expansion and fund growth differed across phases. After 2012, reform priorities shifted from coverage expansion to financing level improvement. The active-contributor-to-retiree ratio fell from 4.09 to 2.60, heightening intergenerational balance pressure. Tertiary hospital beds approached half of the total, and the inverted-pyramid allocation of resources caused efficiency losses. Average life expectancy rose by 8.42 years, reflecting substantial returns on health human capital investment. Conclusion: China's universal medical insurance system has completed a structural shift from individual to social financing, with notable achievements. However, it faces profound economic challenges, including intergenerational balance, cost containment, and resource allocation efficiency. Going forward, reforms should focus on optimizing financing mechanisms, deepening payment reform, correcting resource imbalances, and strengthening health investment, thereby shifting the system from scale expansion toward quality-and-efficiency improvement.