Objective To examine the effects of the penetration of dual‐eligible special needs plans (D‐SNPs) on health care spending. Data Sources/Study Setting Secondary state‐level panel data from Medicare‐Medicaid Linked Enrollee Analytic Data Source (MMLEADS) public use file and Special Needs Plan Comprehensive Reports, Area Health Resource Files, and Medicaid Managed Care Enrollment Report between 2007 and 2011. Study Design A difference‐in‐difference strategy that adjusts for dual‐eligibles’ demographic and socioeconomic characteristics, state health resources, beneficiaries’ health risk factors, Medicare/Medicaid enrollment, and state‐ and year‐fixed effects. Data Collection/Extraction Methods Data from MMLEADS were summarized from Centers for Medicare and Medicaid Services (CMS)'s Chronic Conditions Data Warehouse, which contains 100 percent of Medicare enrollment data, claims for beneficiaries who are enrolled in the fee‐for‐service (FFS) program, and Medicaid Analytic Extract files. The MMLEADS public use file also includes payment information for managed care. Data in Special Needs Plan Comprehensive Reports were from CMS's Health Plan Management System. Principal Findings Results indicate that D‐SNPs penetration was associated with reduced Medicare spending per dual‐eligible beneficiary. Specifically, a 1 percent increase in D‐SNPs penetration was associated with 0.2 percent reduction in Medicare spending per beneficiary. We found no association between D‐SNPs penetration and Medicaid or total spending. Conclusion Involving Medicaid services in D‐SNPs may be crucial to improve coordination between Medicare and Medicaid programs and control Medicaid spending among dual‐eligible beneficiaries. Starting from 2013, D‐SNPs were mandated to have contracts with state Medicaid agencies. This change may introduce new effects of D‐SNPs on health care spending. More research is needed to examine the impact of D‐SNPs on dual‐eligible spending.