The aim of this study was to determine the effect cognitive impairment has on direct and indirect costs to elderly people, their carers and the community over one year, by following prospectively a cohort of elderly people referred to an aged care assessment team. The 78 subjects were drawn from a random sample of people referred to the NorthWest Hospital team, and validated tools were used to assess their cognitive state. Outcome measures included total costs of community services, residential care, hospital bed use, carer burden and psychological morbidity. A comparison of outcome measures was made between those with cognitive impairment and those without. Use of community services and hospital beds was high overall. Those with cognitive impairment were substantially greater users of residential care, accounting for the higher expenditure in this group. Psychological morbidity and burden remain high in carers of those with cognitive impairment despite a high rate of institutionalisation in this group. The total costs for those referred to aged care assessment teams with cognitive impairment are double those seen for those with normal cognition.