Background: Atopic dermatitis/eczema (AD/E) is a common disease. Few studies have attempted to quantify the cost to third-party payers. Objective: Our purpose was to identify the annual cost of medical services and prescription drugs for the treatment of AD/E to private insurance and Medicaid payers in the United States. Methods: We used a retrospective study design employing claims data from 1997 and 1998 from a private insurer and a state Medicaid program to analyze costs incurred. Beneficiaries were considered to have AD/E if they had at least one claim in 1997 with a primary or secondary listing of 1 of 3 diagnosis codes: 691.8, other atopic dermatitis and related conditions; 692.9, contact dermatitis and other eczema when no cause is specified; or 373.3, noninfectious dermatoses of eyelid. Patients who did not meet the diagnosis criteria served as a control group in each payer for comparisons of expenditures with the AD/E group. Results: Disease prevalence was 2.4% (private insurer) to 2.6% (Medicaid) of all eligible beneficiaries, and 3.5% to 4.1% of patients submitted at least one health care claim during the study period. Medicaid-insured patients used outpatient hospital visits and hospitalizations at a greater rate than did privately insured patients; neither used emergency departments extensively. The third-party payer cost of illness for AD/E ranged from $0.9 billion to $3.8 billion when projected across the total number of persons younger than 65 years insured by private insurers and Medicaid in the United States. More than one fourth of all health care costs for patients with AD/E may be attributed to AD/E and co-morbid conditions. Conclusions: Annual costs of AD/E are similar to those of other diseases such as emphysema, psoriasis, and epilepsy. Patients incur significant costs associated with AD/E and co-morbid conditions. (J Am Acad Dermatol 2002;46:361-70.)