Recommended care (Expert Panel Report 3, NAEPP 2007)) for severe asthma patients may entail expenditure on controller medications that could lead to nonadherence to prescription asthma medications. Consequently, nonadherence may increase the likelihood of asthma exacerbations that could increase long term health care cost. OBJECTIVES This paper examines if nonadherence to controller medications increases total health care expenditure for severe asthma patients over time due to increased frequency of severe exacerbations. METHODS Insurance claims from the Marketscan© database were used to select continuously-enrolled individuals who had inpatient admissions or emergency room visits in 2005 with asthma as the principal diagnosis. These individuals, considered to suffer from severe asthma, were followed through the end of 2006 to assess the impact of medication use on the recurrence of severe asthma exacerbations (i.e., repeat hospitalization or emergency department visit) and subsequent increased medical expenditure. For every individual, the American Lung Association classification of asthma medication was used to classify prescription medications into controller and reliever categories. RESULTS 1) Ten percent of the sample in 2005 had an exacerbation in 2006. Results from a Probit model with selection indicated that individuals using less controller medication were more likely to experience a recurrence of asthma exacerbation, and 2) Results from the two-part and Heckman selection models indicated that increase in use of controller medications was associated with increased expenditure on prescription medications but lower hospitalization and emergency visit expenditure due to exacerbations. CONCLUSIONS The cross-sectional nature of the data precludes inferences about causality between medication use and asthma-related expenditures. However, the financial tradeoffs (between prescription drugs payments and possible exacerbation-related expenditure) facing asthma patients have implications for adherence to prescribed medications and effectiveness of long-term asthma control. More research is required to examine how modifications in insurance payments can improve adherence to asthma medications.