Little is currently known about the effect of substance abuse treatment on Medicaid expenses and other health care costs for welfare clients. This study examined the association between substance abuse treatment and reductions in medical care expenditures (primarily Medicaid expenses) for General Assistance (GA) welfare clients in Washington State. The treatment group included 3,235 GA clients who received treatment during 2000 or 2001. The comparison group included 4,863 GA clients who needed substance abuse treatment but did not receive it. Substance abuse treatment was associated with a reduction (p < .01) in medical expenses of approximately 2,500 US dollars annually. This estimated savings equaled the cost of treatment and represented approximately 35 percent of the annual Medicaid expenses incurred by GA clients with substance abuse problems.