Flexible employment is increasingly becoming an important component of China’s labor market, while at the same time, the mental health challenges faced by this group are becoming more severe. The paper, based on China Family Panel Studies (CFPS) data from 2016 to 2020, employs a multi-period Difference-in-Differences (DID) model, Propensity Score Matching (PSM), heterogeneity analysis, and mediation effect testing to study the impact of the integration of urban and rural resident medical insurance policies on the mental health of flexible employees. The results reveal that the insurance integration policy significantly improved the mental health of flexible employees, particularly among the young, rural household registrants, and those in western regions, with health expenditure stress playing a mediating role in the policy’s impact. The conclusions of the study hold practical significance for deepening the reform process of integrating urban and rural resident medical insurance, continuously expanding the coverage of such insurance to flexible employees, and increasing attention to the mental health disparities among flexible employees with different characteristics.