high school dropouts actually cost society more in the long run in terms of incarceration rates.

I'm sure this is true, but it seems like it would be hard to attribute it definitively to dropping out per se because you don't have a true comparison; i.e. the kids who made the decision to drop out are likely different from kids who didn't drop out on a number of levels.  Not that I don't think it makes sense, in terms of the long term outcomes of having poor job prospects.

CA has a lot of continuation schools which are meant to provide a more flexible educational environment for students who may be at risk of dropping out.  They aren't terribly successful either in terms of having high graduation rates but at least they are one method of trying to work around the specific needs of at-risk students.