OBJECTIVES This study evaluates using Tobit regressions the costs specific to each type of complication following its onset in annual increments for three years by setting (inpatient and outpatient). METHODS We use a U.S. managed care database to identify newly diagnosed type 2 diabetics and then identify the initial onset of manifestations of diabetic related complications. Detailed ICD-9 codes associated with each type of complication were used to define dichotomous variables as well as a time to event variable, one for each selected type of complication. Outpatient and inpatients costs were accrued for one, two and three year periods. Because of the number of zero costs (i.e., not everyone consumes resources such as hospitalization annually), Tobit regressions were used, a combination of a probit probability model and a linear regression to resolve the disproportionality in resource utilization. Parameter estimates from a Tobit are not directly interpretable as those from a linear regression and require transformation to obtain the predicted cost values. RESULTS A total of 351,900 type 2 diabetics were used in the analyses; 663 patients consumed inpatient services compared to 226,972 patients consuming outpatient services in year one related to a manifestation of a diabetic related complication. For those who encountered inpatient services, ischemic heart disease ($43,269), congestive heart failure ($43,870), ketoacidosis ($29,588) and renal manifestations ($24,995) were the most costly. Outpatient costs for these complications were significantly less, $682, $781, $1,031, and $1,267, respectively. Following the onset of these complications additional costs continued to accrue in year 2, $50,158, $51,669, $35,080 and $28,823, albeit at a declining rate. The total first year cost across all types of complications was $2,827 per person (a 0.00993 first year event rate). CONCLUSIONS The cost of diabetic-related complications is considerable even in the first year of newly diagnosed type 2 patients.