A retrospective cohort study was conducted to assess the clinical and economic impact of the introduction of inhaled corticosteroid therapy in the North Carolina Medicaid population of patients with asthma. The case group consisted of 180 patients who were followed for 1 year before and 1 year after the initiation of inhaled corticosteroid therapy. The control group consisted of 233 patients whose asthma was of similar severity to that of the case group and who remained on any therapy other than corticosteroids for a continuous 2-year period. After the initiation of inhaled corticosteroid therapy, the case group had reductions of 50% in hospitalizations, 26% in outpatient visits, and 15% in physician visits. At the end of the second year, the control group had significant increases of 23% in hospitalizations and 36% in outpatient visits. All of the changes were statistically significant. However, after adjusting for potential confounding factors, there was a nearly 24% decrease in total health care costs per asthmatic patient per month as a result of the introduction of inhaled corticosteroid therapy. Overall, we found that there was a cost benefit to Medicaid in the introduction of inhaled corticosteroid therapy and that this therapy brought about dramatic decreases in health care utilization and costs.