OBJECTIVES: To determine whether prescription drug benefits are associated with the use of guideline recommended medications by older persons with type 2 diabetes mellitus (DM). DESIGN: Cross-sectional study. PARTICIPANTS: A national sample of Medicare beneficiaries with DM aged 65 and older and an indication for angiotensin-converting enzyme inhibitor (ACEI) or angiotensin II-receptor blocker (ARB) use or high risk of coronary heart disease (hypertension or current smoking) who participated in the 2003 Medicare Current Beneficiary Survey. MEASUREMENTS: Prescription drug coverage was measured according to self-report and verified according to insurance claims. Outcome variables were use of an ACEI or an ARB (ACEI/ARB) or a statin or use of an ACEI/ARB and a statin. Survey-weighted multinomial logistic regression was used to identify the independent effect of drug coverage on one of two categories of recommended medication use (ACEI/ARB or statin or ACEI/ARB and statin) compared with the reference category of none after controlling for sociodemographic characteristics and health status. RESULTS: The final study sample was 1,181 (weighted N = 4.0 million). Overall, 23% had no drug coverage, 16% Medicaid coverage, 43% employer coverage, 9% Medigap coverage, and 9% Department of Veterans Affairs (VA) or state-sponsored low-income coverage. Overall, 33% received a statin and an ACEI/ARB, 44% only an ACEI/ARB or a statin, and 23% neither. After adjustment, VA and state-sponsored drug benefits were most strong]), associated with combined ACEI/ARB and statin use (relative risk ratio (RRR) = 4.83, 95% confidence interval (CI) = 2.24-10.4)), followed by employer-sponsored coverage (RRR = 2.60, 95% Cl = 1.67-4.03)). CONCLUSIONS: Prescription drug benefits from VA and state-sponsored drug programs are strongly associated with Use of recommended medications by older adults with DM.