["Review of Development Economics, Volume 30, Issue 3, Page 1515-1532, August 2026. ", "\nABSTRACT\nThe rise in a nation's income level does not necessarily lead to a decline in the incidence of catastrophic health expenditure (CHE), making its mitigation a persistent global challenge. CHE significantly exacerbates the risk of poverty recurrence among vulnerable populations, particularly in rural China. Utilizing data from the China Household Finance Survey, this study employs a fixed‐effects model to empirically analyze the adverse impact of CHE on household development resilience in rural areas, with results robust to a series of tests. Mechanism analysis reveals that this effect works primarily through three channels: depletion of household assets, reduction in human capital investment, and crowding out of essential food expenditures. Furthermore, our research evaluates the effectiveness and targeting accuracy of China's three‐tiered health security system—comprising basic medical insurance, critical illness insurance, and medical assistance—in mitigating the adverse impact of CHE. The findings indicate that while all three systems contribute positively to enhancing overall development resilience, only critical illness insurance and medical assistance demonstrate statistically significant improvements in resilience for households experiencing CHE. Basic medical insurance exhibits relatively high targeting accuracy, whereas critical illness insurance and medical assistance show lower targeting accuracy in beneficiary identification. The research not only advances theoretical understanding of the relationship between CHE and development resilience but also provides empirical support for the design of multi‐tiered health insurance systems. Results underscore the global imperative to establish more precisely targeting and efficient social health protection systems to foster long‐term sustainable development among vulnerable populations.\n"]