OBJECTIVES: To estimate the incremental direct medical expenditures of elderly individuals with dementia as compared to a general population of elderly individuals without dementia from a U.S. payer perspective. METHODS: This retrospective cross-sectional study compared the annual direct medical expenditures between elderly individuals with dementia (4.6%, N=667) and without dementia (95.4%, N= 13, 978) using data from the Medical Expenditure Panel Survey (MEPS) for the years 2007, 2009, 2011 and 2013. Four years of data were pooled to have sufficient sample size and alternate years were used to avoid overlapping panels. Total annual healthcare expenditures as well as healthcare expenditures by different types such as inpatient, outpatient, emergency room, home healthcare and prescription drugs were estimated. All expenditures were inflation adjusted to 2013 U.S. dollars. Healthcare expenditures for the dementia and non-dementia groups were estimated after adjustments for predisposing factors enabling characteristics, need factors, and personal health care practices using generalized linear model with log link and gamma distribution. The incremental average annual expenditures for dementia was calculated using the method of recycled prediction. RESULTS: Adjusted average total healthcare expenditures in the dementia group ($12,787.34) were significantly higher than in the non-dementia group ($8775.61), an excess of $4,011.73.  The average incremental home healthcare and prescription drug expenditures for dementia group were $6,673.08 and $908.92 respectively as compared to the non-dementia group.  Home health expenditures constituted 34.3% of the total healthcare expenditures for the dementia group and 4% for the non-dementia group.  However, the dementia group had lower inpatient and outpatient expenditures by $3776.70 and $319.60, respectively as compared to the non-dementia group. CONCLUSIONS: Dementia is associated with significant added burden in U.S. healthcare expenditures, the major driver of which is home healthcare use.