Objectives Individuals with chronic conditions, such as asthma, on average incur high health care costs, though good control can reduce costs and improve health outcomes. However, there may be substantial variation between patients in their use of services and therefore costs. Our objective was to investigate the sources of such variation in health system and out-of-pocket costs for people with asthma. Methods A longitudinal observational study of 252 people with asthma in New South Wales, Australia, followed for three years, using six-monthly postal surveys and individual administrative data. Factors associated with costs were investigated using generalized linear mixed models. Results There was substantial variability in costs between individuals but relatively little within-person change over time for the majority. Costs to the health system and out-of-pocket costs were higher with increasing asthma-related health problems and increasing age. Health system costs were less for patients living outside the state capital (Sydney) and for those in the middle income group relative to high and low income groups. Conclusions Those with poorly-controlled asthma and the elderly require more carefully targeted strategies to improve their health and ensure appropriate use of resources. Access to appropriate services for those living outside of major cities should be improved. Co-payments for the middle-income groups and those living outside major cities should be reduced to improve equity in the use of services.