OBJECTIVES: To calculate direct medical costs of diabetes and its complications for insulin users from the perspective of the health insurance fund.  METHODS: A 6-month, prospective, observational bottom-up cost study of diabetes type 1 and type 2 for patients on insulin or combined insulin plus oral anti-diabetic therapy was performed. Data were gathered for anti-diabetic drugs, concomitant medicines, medical devices and hospitalizations, due to diabetes and its complications. Official drug prices were taken from the positive drug list. All other costs were gathered from the national framework contract. The annual cost per patient was calculated for the year 2011 (1.95 BGN = 1 EUR). RESULTS: A total of 430 (254 type 2) patients were included into the study. The total cost per patient per year is BGN 4.500. Out of them, 57% are hospitalization costs due to polyneuropathy, glaucoma, retinopathy, nephropathy, amputations, and diabetic angiopathy. Anti-diabetic medicines account for 23% of all costs, medical devices for 4%, and outpatient treatment of complications and concomitant diseases for 16%. Statistically significant differences are observed in the cost structure between country regions with the highest cost per patient in the capital. The percentage of anti-diabetic medicines in the total cost varies depending on the age group: 31% for 20-44 year olds, 29% for 45-59 year olds and 19% for diabetics above 60 years. On the opposite, the hospitalization cost due to diabetes and its complications is 61% in the oldest age group while in the youngest is 44%.  CONCLUSIONS: Our study confirms that diabetes is a costly disease and the majority of the total health care costs relate to treatment of diabetes complications.