BACKGROUND AND OBJECTIVE: In the BABY HUG trial, young children with sickle cell anemia randomized to receive hydroxyurea had fewer episodes of pain, hospitalization, and transfusions. With anticipated broader use of hydroxyurea in this population, we sought to estimate medical costs of care in treated versus untreated children. METHODS: The BABY HUG database was used to compare inpatient events in subjects receiving hydroxyurea with those receiving placebo. Unit costs were estimated from the 2009 MarketScan Multi-state Medicaid Database for children with sickle cell disease, aged 1 to 3 years. Inpatient costs were based on length of hospital stay, modified by the occurrence of acute chest syndrome, splenic sequestration, or transfusion. Outpatient expenses were based on the schedule required for BABY HUG and a “standard” schedule for 1- to 3-year-olds with sickle cell anemia. RESULTS: There were 232 hospitalizations in the subjects receiving hydroxyurea and 324 in those on placebo; length of hospital stay was similar in the 2 groups. Estimated outpatient expenses were greater in those receiving hydroxyurea, but these were overshadowed by inpatient costs. The total estimated annual cost for those on hydroxyurea ($11 072) was 21% less than the cost of those on placebo ($13 962; P = .038). CONCLUSIONS: Savings on inpatient care resulted in a significantly lower overall estimated medical care cost for young children with sickle cell anemia who were receiving hydroxyurea compared with those receiving placebo. Because cost savings are likely to increase with age, these data provide additional support for broad use of hydroxyurea treatment in this population.