Background Life expectancy among the elderly has been improving for many decades, and there is evidence that health among the elderly is also improving. We estimated the relation of health status at 70 years of age to life expectancy and to cumulative health care expenditures from the age of 70 until death. Methods Using the 1992–1998 Medicare Current Beneficiary Survey, we classified persons' health according to functional status and whether or not they were institutionalized and according to self-reported health. We used multistate life-table methods and microsimulation to estimate life expectancy for persons in various states of health. We linked annual health care expenditures with transitions between health states. Results Elderly persons in better health had a longer life expectancy than those in poorer health but had similar cumulative health care expenditures until death. A person with no functional limitation at 70 years of age had a life expectancy of 14.3 years and expected cumulative health care expenditures of about 136,000(in1998dollars);apersonwithalimitationinatleastoneactivityofdailylivinghadalifeexpectancyof11.6yearsandexpectedcumulativeexpendituresofabout 145,000. Expenditures varied little according to self-reported health at the age of 70. Persons who were institutionalized at the age of 70 had cumulative expenditures that were much higher than those for persons who were not institutionalized. Conclusions The expected cumulative health expenditures for healthier elderly persons, despite their greater longevity, were similar to those for less healthy persons. Health-promotion efforts aimed at persons under 65 years of age may improve the health and longevity of the elderly without increasing health expenditures.