Although persons with diabetes constitute only 3.1% of the US population, costs for their care account for 11.9% of total US health care expenditures. Approximately half of the expenditures for medical care for diabetes are for treatment of the metabolic condition and half for the treatment of chronic complications. Intensive therapy for persons with diabetes uses more resources and is more expensive than conventional therapy. On the other hand, intensive therapy is associated with a lower incidence of costly chronic complications. Formal economic analyses have demonstrated that intensive therapy is cost-effective for the treatment of diabetes. In IDDM, intensive therapy costs approximately $20,000 per QALY gained; in NIDDM, it costs approximately $16,000 per QALY gained. From an economic perspective, intensive therapy for persons with diabetes compares favorably with pharmacologic therapy for high-risk individuals with hypertension and hypercholesterolemia. Health policy should foster the use of such therapy for persons with diabetes mellitus.