OBJECTIVES: Estimate the incremental costs associated with Alzheimer’s Disease (AD). The incremental impact of AD on Medicaid costs has not been updated since 1995 and the impact of AD on other payers is unclear. METHODS: Patients age 50+ were identified from de-identified Medicaid paid claims from California [MediCal]. All patients were MediCal eligible for the period 2004-2006 [survivors].  Data included information on payments by MediCal, Medicare and other payers.  AD patients had at least one AD diagnosis.  A 20% random sample of non-AD patients was selected and a matched control group was identified using propensity score methods.  Health care cost and resource utilization were measured annually during the 2004-2006 period broken down by type of service and payer.   Multivariate statistical models were estimated to document the incremental impact of AD controlling for baseline characteristics of the matched AD and non-AD patients. RESULTS: The incremental cost of AD relative to non-AD patients increased from +$7,217 in 2004 to +$15,563 in 2006, totaling +$34,745 over 3 years.  The majority of the cost burden is bourn by MediCal [+$30,090] primarily for nursing home care [+$15,498], home health care [$9,146] and prescription drugs [+$3,938].  The incremental cost of AD on Medicare and other payers [including out-of-pocket costs] were +$2,814 and +$1,842, respectively [p<0.0001 for all estimates]. CONCLUSIONS: The incremental impact of AD on the health care system is significant.  The increased costs attributed to AD in this analysis are due primarily to higher costs for nursing home care and home health services.  New AD medications currently under development, if effective, will benefit Medicaid programs but be paid for largely by Medicare under Part D.  This study provides useful information on the potential benefits that could accrue due to an effective AD treatment and documents how these benefits will be distributed by payer.