BACKGROUND: Health care systems need better strategies to identify older adults at risk for costly care to select target populations for interventions to reduce health care burden. OBJECTIVE: To determine whether self-reported functional impairments and phenotypic frailty are associated with incremental health care costs after accounting for claims-based predictors. DESIGN: Prospective cohort study. SETTING: Index examinations (2002 to 2011) of 4 prospective cohort studies linked with Medicare claims. PARTICIPANTS: 8165 community-dwelling fee-for-service beneficiaries (4318 women, 3847 men). MEASUREMENTS: Weighted (Centers for Medicare & Medicaid Services Hierarchical Condition Category index) and unweighted (count of conditions) multimorbidity and frailty indicators derived from claims. Self-reported functional impairments (difficulty performing 4 activities of daily living) and frailty phenotype (operationalized using 5 components) derived from cohort data. Health care costs ascertained for 36 months after index examinations. RESULTS: Average annualized costs (2020 U.S. dollars) were $13 906 among women and $14 598 among men. After accounting for claims-based indicators, average incremental costs of functional impairments versus no impairment in women (men) were $3328 ($2354) for 1 impairment increasing to $7330 ($11 760) for 4 impairments; average incremental costs of phenotypic frailty versus robust in women (men) were $8532 ($6172). Mean predicted costs adjusted for claims-based indicators in women (men) varied by both functional impairments and the frailty phenotype ranging from $8124 ($11 831) among robust persons without impairments to $18 792 ($24 713) among frail persons with 4 impairments. Compared with the model with claims-derived indicators alone, this model resulted in more accurate cost prediction for persons with multiple impairments or phenotypic frailty. LIMITATION: Cost data limited to participants enrolled in the Medicare fee-for-service program. CONCLUSION: Self-reported functional impairments and phenotypic frailty are associated with higher subsequent health care expenditures in community-dwelling beneficiaries after accounting for several claims-based indicators of costs. PRIMARY FUNDING SOURCE: National Institutes of Health.