Objective: Each year, influenza and its complications account for 10,000-40,000 excess deaths in the United States. Over 80% of these deaths occur among the elderly. The Advisory Committee on Immunization Practices for the US Public Health Service and others recommend that all persons 65 years of age and older as well as other persons with high-risk conditions receive annual influenza vaccination. Despite these recommendations, 40% or more of high-risk persons fail to receive influenza vaccine. Among the barriers to successful immunization efforts are persistent uncertainties regarding the effectiveness of the vaccine in preventing morbidity and mortality associated with influenza. The purpose of this study was to assess influenza vaccine effectiveness in reducing hospitalization rates for a broad range of influenza-associated complications, in reducing deaths from all causes, and in reducing hospitalization costs among all elderly enrollees of a large health maintenance organization. Methods: A serial cohort study with internal controls was designed. All enrollees, 65 years of age and older, were identified for each of three consecutive vaccination and subsequent influenza seasons for 1990-1991 through 1992-1993. Baseline characteristics and outcome data were collected from computerized, linked, administrative data bases. Outcomes were adjusted for the presence of baseline characteristics including age, gender, high-risk diagnoses, medication refills in high-risk therapeutic classes, and previous health care resource utilization. Results: There were more than 25,000 seniors in each of the three study cohorts. Influenza vaccination rates ranged from 45 to 58%, and vaccinated subjects at baseline appeared to be ‘sicker’ than nonvaccinated subjects. Influenza vaccination was associated with significant reductions in all outcomes evaluated including outpatient visits (17% reduction in pneumonia and influenza visits, 6.4% reduction in all respiratory condition visits), hospitalizations (51.2% reduction in pneumonia and influenza hospitalizations, 32.5% reduction in all respiratory condition hospitalizations, 28.6% reduction in congestive heart failure hospitalizations), hospitalization costs (30.7% reduction in hospitalization costs for all respiratory conditions and congestive heart failure combined), and deaths from all causes (45% reduction in death from all causes). Conclusions: Influenza vaccination of elderly persons living in the community is associated with reduced hospitalizations from complications from influenza, with fewer deaths during the influenza season, and with direct health care cost savings. Few, if any, other preventive or therapeutic interventions for adults match or exceed these benefits.