Introduction: Providing health insurance to the poor has become a standard policy response to health disparities between the poor and the non-poor. It is often assumed that if the poor people are given health insurance, they will use preventative care, which will prevent more expensive emergency visits and inpatient hospitalization, and in turn, it will save healthcare cost in the long run. This paper presents the findings from our study in California about what happens to the poor when they are given health insurance. The purpose of the study was to understand how the healthcare system in California treats the poor patients differently than the non-poor. Method: Using multivariate logistic regressions, this study analyzed a large patient discharge data (PDD) from the California Office of Statewide Planning and Development (OSHPD) for eight counties in the Central Valley California (N = 423,640). First, utilizing International Classification of Diseases (ICD 10) as diagnostic criteria, mental-health vs. non-mental health hospitalization rates were estimated. Second, health insurance status was used as a proxy measure of poverty of the patients. Using chi-Square, the probability of hospitalization for mental health services was estimated based on their insurance types. Finally, using step-wise logistic regression, the odds of mental health hospitalization was estimated conditional on individual characteristics, health insurance types, and geographic characteristics. Findings: When the poor people were given health insurance, they were three times more likely to be hospitalized for mental health services than the non-poor. The more than three-fold variation in mental health hospitalization was not driven by demographic or geographic characteristics. The findings are new and have important implications for the healthcare policies for the poor. Further studies are needed to understand the extent to which the disproportionately high rate of mental health hospitalizations of the poor are driven by the provider-induced needs.