Abstract: Currently, a high percentage of China’s households still face financial catastrophe as a direct result of having to pay for health care through out-of-pocket. To design a financing system for reducing catastrophic health expenditure, the present paper constructs four interactive models for critical illness insurance based on the reinsurance and coinsurance approaches in the context of China's New Urbanization Plan. Besides, the mechanisms are empirically simulated with data of China Family Panel Studies (2012). Our findings show that four interactive mechanisms could alleviate the incidence and severity of catastrophic health expenditure, especially the incidence of models Ⅲ could be reduced to 0.55%, which fully meet the mechanism goal.