PURPOSE: Medical cost-effectiveness analyses (CEA) traditionally use utility values that average across the whole population of persons who might receive the treatment. However, most treatments are used only when the patient accepts them, suggesting that the preferences of patients who would choose a treatment if it were offered are the relevant ones for CEA. CEA studies in diabetes often conclude intensive therapy is cost-effective for younger patients but not older ones. This study uses the example of intensive therapy for diabetes to study the effect of accounting for patient self-selection in CEA by age. METHODS: We interviewed 559 adults with type 2 diabetes to determine their utility values for health states relating to common diabetic complications and treatments and their choice of therapy. We then used a simulation model developed previously by the CDC to assess the cost-effectiveness of intensive therapy for the population as a whole and for the set of patients who chose intensive therapy, stratifying our patients into young, middle, and older ages (age<40, 40-70, >70). RESULTS: 7% of patients were young, 61% middle, and 32% older ages. If all patients received intensive therapy, intensive therapy would be harmful at all ages. However, not all patients chose intensive therapy, and the fraction choosing intensive therapy fell with age, from 39% in the young, and 34% in the middle-aged, to 27% in older patients. Among patients choosing intensive therapy, cost-effectiveness was $8,000/qaly in the young. $45,000/qaly in the middle group, and $82,000/qaly among older persons. CONCLUSIONS: Cost-effectiveness results for diabetes care are dramatically altered by accounting for preference heterogeneity and patient selection of treatment choice, with systematic patterns by age. Self-selection improves the cost-effectiveness of the therapy compared to non-selective use at all ages. While older patients are less likely to choose intensive therapy, it is still cost-effective among those patients who choose it. Cost-effectiveness models that do not account for patient selection may be seriously misleading for treatments whose cost-effectiveness is sensitive to variations in patient preferences. Intensive therapy should be offered to patients of all ages, but should be individualized to reflect patient preferences, which may vary by age and other factors.