A retrospective cross-sectional analysis of Veterans Health Administration (VHA) administrative and Medicare fee-for-service (FFS) claims data was used to evaluate the association between body mass index (BMI) categories and expenditures among elderly VHA users with diabetes. The study sample included respondents to the 1999 Large Health Survey of Veteran Enrollees who were diagnosed with diabetes in fiscal year 1999, age 65 or older, and enrolled in Medicare FFS (N = 79,934). Types of expenditures included inpatient, outpatient, and a summation of the 2 in the fiscal year 1999. VHA expenditures were from the Health Economics Resource Center Average Cost Database and Medicare expenditures were the paid amounts recorded in the claims. BMI was grouped into 4 exclusive categories: normal (18.5-24.9), overweight (25-29.9), obese (30-34.9), and morbidly obese (> or =35). Generalized linear models with the log-link function were used to examine the association between BMI categories and expenditures, controlling for sociodemographic factors, diabetes duration, health status, and health behavior. Almost half of the study sample was overweight (47.6%), followed by obese (22.6%), normal (20.7%), and morbidly obese (9.1%). Patients with normal BMI had the highest average total expenditures ($10,470) followed by overweight ($7526). Total expenditure was not significantly different between obese and morbidly obese BMI groups ($6597 vs. $6772). After controlling for all other variables, normal weight patients with diabetes had greater total, inpatient, and outpatient expenditures. The study showed that elderly diabetes patients with normal weight incur much higher costs than obese or morbidly obese patients. Further research is needed to examine the causes of high cost among normal weight patients with diabetes to better understand resource needs and to improve resource allocations.