Abstract: The present invention relates to an insulating mechanism for a gas water heater designed to increase the efficiency thereof. The device comprises a blanket formed of a pair of arcuate, adjacent panel members having top and bottom edges with a pair of opposing side edges therebetween. Adjacent side edges of the panel members are hingedly joined with the opposing side edges being selectively attachable to form a cylindrical blanket that encases a water heater storage reservoir. A piping system is disposed within each panel member for circulating waste gas therethrough. An exhaust duct is disposed on the top surface of a water heater outer shell and is in communication with the interior thereof. A hinged baffle divides the duct into an upper and lower chamber both of which are in communication with the piping system.