Over the last few years, there have been an increasing number of impact evaluations of health insurance and other demand-side financing programs in developing countries. Yet the literature on insurance impact among small children is limited. This paper evaluates the effects of a Vietnamese government's policy in 2005, which granted free access to health services in public facilities to all children younger than 6 years. In particular, we focus on children among households who are not eligible for a program for the poor, which has been administered concurrently in the country. Using two waves of the Vietnam Household Living Standard Surveys conducted right before and after the policy started and a difference-in-differences method, we found a major increase in both inpatient and outpatient care in the secondary public hospitals. At the same time, there is evidence indicating a reduction in the use of tertiary hospitals. Compared with the policy's non-beneficiaries, beneficiaries in the age group 4–5 years also experienced fewer sick days, incurred less out-of-pocket spending on healthcare, and were less likely to encounter catastrophic expenditure. Evidence thus suggests that insurance provided by the policy has served the function as a safety net and helped improving efficiency of the health system by reducing the use of costly tertiary care. Copyright © 2012 John Wiley & Sons, Ltd.