Two studies (longitudinal, N = 510; cross‐sectional; N = 249) explain how feeling valued in one's ethnic/sexual minority group has benefits for mental health but also certain costs through the way it shapes minorities' identity. Drawing from the intragroup status and health (ISAH) model, we posit that when individuals feel valued in their minority group it bolsters group identification; with greater identity‐centrality, individuals tend to view daily social interactions through the “lens” of their minority group and ultimately perceive more discrimination. Discrimination, in turn, negatively shapes health. Thus, feeling valued in one's minority group has benefits for health but also indirect costs, perhaps counterintuitively by strengthening minority group identity. Results of both studies supported these predictions. Study 2 also supported an adapted ISAH model for use in the context of concealable stigmatized identities (sexual minorities). Overall, the ISAH model explains why feeling valued and having strong social identities are not always beneficial, yielding certain costs for stigmatized individuals' health.