Few studies have looked at the health-care expenditures of diabetes patients based on the type of co-occurring conditions of mental illness (MI) or substance use disorders (SUD). Our study analyzes the health-care expenditures associated with various diagnostic clusters of co-occurring drug, alcohol, tobacco use, and mental illness in veterans with diabetes. We merged Veteran Health Administration and Medicare fee-for-service claims database (fiscal years 1999 and 2000) for analysis (N = 390,253) using generalized linear models; SUD/MI were identified using International Classification of Diseases, 9th edition codes. The total average expenditures (fiscal year 2000) were lowest ($6,185) in the "No MI and No SUD" and highest ($19,801) for individuals with schizophrenia/other psychoses and alcohol/drug use. High expenditures were associated with both SUD and MI conditions in diabetes patients, and veterans with alcohol/drug use had the highest expenditures across all groups of MI. These findings reinforce the need to target groups with multiple comorbidities specifically those with serious mental illnesses and alcohol/drug use for interventions to reduce health-care expenditures.