Poor literacy is associated with poor health status, but whether illiteracy is also linked to higher medical care costs is unclear. We characterized the literacy skills of 402 randomly selected adult Medicaid enrollees to determine if there was an association between literacy skills and health care costs. Each subject's literacy skills were measured with a bilingual (English/Spanish) reading-assessment instrument. We also reviewed each subject's health care costs over the same one-year period. The mean reading level of this Medicaid population was at grade 5.6. Mean annual health care costs were $4,574 per person. There was no significant relationship between literacy and health care costs. While there are compelling reasons to improve poor reading skills among Medicaid enrollees, illiteracy in this population does not appear to contribute to the high cost of providing government-sponsored care.