OBJECTIVE: To perform a cost-utility (Cost per QALY) analysis of cochlear implants from a societal perspective. METHODS: Model parameters were based upon literature review of Medline citations. Costs included direct and lifetime maintenance costs, costs of special education and caregiver support costs. Medical costs were inflated to year 2003 using the medical component of the CPI. All cost and outcomes were converted to year 2003 values using a base case annual discount rate of 3%. Cost of treating bacterial meningitis and its complications was included in the model following a recent FDA warning. The Health Utility Index Mark III was used to measure utility changes. The first two years post implantation are not included in the utility calculations, reflecting patient efforts in adapting to the device. RESULTS: Including savings on special education, support and caregivers time for a child at age 5 who receives cochlear implants there is a net societal savings of $73,000 over a child's lifetime. Lifetime utility gains for a child age five or less were 0.39 and for all other ages 0.22. For a child age 5 the lifetime QALYs gained using a 3% discount is 11.47. One way sensitivity analyses were performed on model parameters. Ranges were selected based on the high and low values from the studies included in the analysis. Based on sensitivity analysis the results remain very favorable with the range of savings to society for the base case of $44,000-$102,000. CONCLUSION: Cochlear implant is a dominant strategy from the societal perspective. The benefit is maximized when the procedure is done before age 5. Unfortunately, not everyone with hearing loss can benefit from the procedure and it is difficult to adapt to and maintain the device.