Objectives: The aim of this study is to present a method to provide accurate estimates of influenza-associated pneumonia and influenza (P&I) hospitalizations and costs for use in tracking the continuing burden of influenza. Methods: We estimated influenza-associated P&I hospitalizations among the U.S. elderly population for six influenza seasons, 1990-91 through 1995-96, by applying a Poisson regression model to national influenza virus surveillance information and Medicare administrative data. This model is similar to that recently published by the U.S. National Centers for Disease Control and Prevention (CDC) to estimate influenza-related mortality. Results: During the six years of the study, 318,666 (9.8%) of P&I hospitalizations were estimated to be associated with influenza: range=25,819 to 70,068 per year; average annual cost=$372.3 million. Influenza A(H3N2) was associated with 73.9% of influenza-related P&I hospitalizations; influenza B with 21.3% and influenza A(H1N1) with 4.8%. Conclusions: Our estimates were consistent with the estimates of influenza-associated P&I mortality reported by CDC. Thus, we suggest that estimates of influenza-associated morbidity and costs based on virus surveillance and administrative data may be used for monitoring the impact of influenza and of intervention strategies.