Diabetes mellitus is a prevalent disease in Americans aged 65 years and older. It leads to significant morbidity, mortality, and utilization of health care services. Using extant data, we estimated that health care services provided to elderly persons with diabetes cost $5.16 billion annually, nearly 80% of which were attributed to hospital costs. Treatment for cardiovascular disease as a complication of diabetes accounted for the largest proportion of these costs. In addition to admissions for uncomplicated diabetes, substantial portions of inpatient costs were attributed to renal and neurologic diseases. Expenditures per capita for medical care were 50% higher in the elderly diabetic population than in an elderly nondiabetic population. The average yearly expenditure per diabetic patient was estimated to be $4265, $900 of which were out-of-pocket expenses. We conclude that increased vigilance to prevent or delay the incidence of morbidity leading to hospital admissions must take priority in caring for patients with DM. Intensifying outpatient care may offer the opportunity to accomplish this goal.