Electronic health records from 16,081 adults with dementia or mild cognitive impairment revealed a striking paradox: while overall mental health service engagement dropped from 91% to 69% following diagnosis, costs among continuing users jumped 45% from £1,497 to £2,177 annually. This £680 increase was primarily driven by intensive inpatient care needs. The findings illuminate a critical transition period in dementia care where fewer patients engage with services, but those who do require substantially more expensive interventions. This pattern suggests the current mental health system may be inadequately equipped for early-stage dementia support, potentially forcing patients into crisis situations requiring costly inpatient care. The research identifies key risk factors for higher costs including younger age, male gender, living alone, and greater cognitive decline—insights that could guide targeted prevention strategies. However, this preprint study awaits peer review and was limited to one London NHS provider, potentially limiting generalizability. The work represents valuable health economics research that could inform dementia service planning, though broader validation across diverse healthcare systems would strengthen the evidence base for policy decisions.