There has been a gradual shift of India’s health policies in favour of government-funded health insurance schemes rather than investment in public health facilities. The impact of this shift on quality of health care, especially for the poor and vulnerable population, is yet to be fully understood. The current study has been undertaken to study the effectiveness of one such state government-funded health insurance scheme, known as Bhamashah Swasthya Bima Yojana (BSBY), on out-of-pocket (OOP) expenditure and quality of health care services for the child delivery cases in a low-income community in the capital city of Jaipur in Rajasthan, India. While this study contributes to knowledge on the impact of access to health insurance on OOP expenditure, it covers a critical gap in the literature regarding its effect on quality of health care. The empirical analysis, conducted using log-linear and logit models, indicates that BSBY has a positive impact on reduction of OOP and improvement in quality of treatment in the study area.