On-the-spot settlements of medical bills for internal migrants enrolled with a social health insurance program outside of their residential location have been encouraged by the Chinese government, with the intention to improve equality in healthcare services. This study compared the use of health services between the internal migrants who had local health insurance coverage and those who did not. Data (n = 144,956) were obtained from the 2017 China Migrants Dynamic Survey. Use of health services was assessed by two indicators: visits to physicians when needed and registration (shown as health records) for essential public health services. Multi-level logistic regression models were established to estimate the effect size of fund location on the use of health services after controlling for variations in other variables. The respondents who enrolled with a social health insurance scheme locally were more likely to visit physicians when needed (adjusted odds ratio (AOR) = 1.18, 95% CI = 1.06–1.30) and to have a health record (AOR = 1.47, 95% CI = 1.30–1.65) compared with those who enrolled outside of their residential location: a gap of 3.5 percentage points (95% CI: 1.3%–5.8%) and 6.1 percentage point (95% CI: 4.3%–7.8%), respectively. The gaps were larger in the rural-to-urban migrants than those in the urban-to-urban migrants (AOR = 1.17, 95% CI = 0.93–1.48 for visiting physicians when needed; AOR = 0.71, 95% CI = 0.54–0.93 for having a health record). The on-the-spot medical bill settlement system has yet to fully achieve its proposed potential as inequalities in both medical and public health services remain between the internal migrants with and without local health insurance coverage. Further studies are needed to investigate how on-the-spot settlements of medical bills are implemented through coordination across multiple insurance funds.