Copyright © 2016 Wolters Kluwer Health, Inc. All rights reserved. BACKGROUND:: Individuals who receive long-term services and supports (LTSS) are among the most costly participants in the Medicare and Medicaid programs. OBJECTIVES:: To compare health care expenditures among users of Medicaid home and community-based services (HCBS) versus those using extended nursing facility care. RESEARCH DESIGN:: Retrospective cohort analysis of California dually eligible adult Medicaid and Medicare beneficiaries who initiated Medicaid LTSS, identified as HCBS or extended nursing facility care, in 2006 or 2007. SUBJECTS:: Propensity score matching for demographic, health, and functional characteristics resulted in a subsample of 34,660 users who initiated Medicaid HCBS versus extended nursing facility use. Those with developmental disabilities or in managed care plans were excluded. MEASURES:: Average monthly adjusted acute, postacute, long-term, and total Medicare and Medicaid expenditures for the 12 months following initiation of either HCBS or extended nursing facility care. RESULTS:: Those initiating extended nursing facility care had, on average, $2919 higher adjusted total health care expenditures per month compared with those who initiated HCBS. The difference was primarily attributable to spending on LTSS $2855. On average, the monthly LTSS expenditures were higher for Medicare $1501 and for Medicaid $1344 when LTSS was provided in a nursing facility rather than in the community. CONCLUSIONS:: The higher cost of delivering LTSS in a nursing facility rather than in the community was not offset by lower acute and postacute spending. Medicare and Medicaid contribute similar amounts to the LTSS cost difference and both could benefit financially by redirecting care from institutions to the community.