Abstract: In order to analyze the effect of competition on the healthcare quality and social welfare, this paper constructed the patients’ and hospitals’ behavior model and social welfare model. By means of analysis and comparision between the equilibrium models under different condition, the precondition that nonprice competition improves quality is that the proportion of highrisk patient’s segment is lower than a certain point. Also it got the conclusion that the effect of competition on the social welfare lies in the reimbursement rate and the ratio of highrisk patient. When the reimbursement rate is high and the ratio of highrisk patients is high, the competition can improve social welfare; also when the reimbursement rate is low and the ratio of highrisk patients is low, the competition can improve social welfare. To the problem in health care system in China, the advice was given on how to got the equilibrium.