OBJECTIVE: Despite the increased shifting of health care costs to consumers, little is known about the impact of financial barriers on health care utilization. This study investigated the effect of out-of-pocket expenditures on the utilization of recommended diabetes preventive services. RESEARCH DESIGN AND METHODS: This was a survey-based observational study (2000-2001) in 10 managed care health plans and 68 provider groups across the U.S. serving approximately 180,000 patients with diabetes. From 11,922 diabetic survey respondents, we studied the occurrence of self-reported annual dilated eye exams and diabetes health education and among insulin users, daily self-monitoring of blood glucose (SMBG). Conditional probabilities were estimated for outcomes at each level of self-reported out-of-pocket expenditure by using hierarchical logistic regression models with random intercepts. RESULTS: Conditional probabilities of utilization (95% CI) varied by expenditure for dilated eye exam [no cost 78% (75-82), copay 79% (75-82), and full price 70% (64-75); P < 0.0001]; diabetes health education [no cost 29% (23-36), copay 29% (23-36), and full price 19% (14-25); P < 0.0001]; and daily SMBG [no cost 75% (68-81), copay 68% (60-75), and full price 59% (49-68); P < 0.0001]. Extensive adjustment for patient factors had no discernible effect on the estimates or their significance, and cost-utilization relationships were similar across income levels and other patient characteristics. CONCLUSIONS: Benefit packages structured to derive greater fiscal contribution from the health plan membership result in suboptimal use of diabetes preventive services and may thus lead to poorer clinical outcomes, greater future costs, and lower health plan quality ratings.