OBJECTIVES: To examine the 5-year economic consequences of reimbursing laparoscopic adjustable gastric banding (LAGB) in addition to laparoscopic gastric bypass (LGBY) for a large US managed care organization. METHODS:  We used a Markov model to estimate surgical costs and outcomes, weight loss, and obesity-related costs and outcomes for LAGB, LGBY and no treatment over a 5-year period for a hypothetical 1-million-member managed care plan.  Weight loss was estimated from a randomized clinical trial (LAGB causes somewhat less weight loss than LGBY).  Complication rates, treatment and adverse event costs, and medical costs were estimated from published and publicly-available sources (LAGB has less severe complications than LGBY).  The treatment-eligible population was estimated from US obesity rates, treatment guidelines, and clinical experience.  Market expansion and substitution between LAGB and LGBY were projected from historical trends and physician/patient surveys.  Budgetary impact, measured in 2007 dollars, was calculated as net cost with LAGB versus without LAGB; deterministic sensitivity analyses identified model drivers. RESULTS:  Mean 5-year cost for LAGB was less than LGBY at $41,800 versus $52,800 per surgically-treated patient, primarily due to lower surgical and complication costs. The net budgetary impact was 14.5M over 5 years ($1.8M in year 1, rising to $3.6M in year 5).  Net 5-year costs associated with market expansion totaled $47.9M, while patients receiving LAGB instead of LGBY saw net cost-savings totaling $33.4M.  Results are sensitive to estimates of the proportion of patients that would choose LGBY in the absence of the LAGB option (net budgetary impact: +$32.8M to -$5.2M) and estimates of market expansion (net budgetary impact: $12.3M to $16.6M). CONCLUSIONS:  For a hypothetical 1-million-member managed-care organization, the estimated 5-year budgetary impact of reimbursing LAGB is approximately $14.5M.  Although plan expenditures increase as additional patients seek surgical treatment, substantial savings are realized for patients receiving LAGB instead of LGBY.