OBJECTIVES To determine the relationship between body mass index (BMI) and Medicare expenditure for adults 65-years and older and determine whether this relationship changes after accounting for possible misclassification associated with age-related height loss. METHODS Using a cross-sectional study design, the relationship between BMI and Medicare expenditure was examined among beneficiaries who completed the Medicare Current Beneficiary Survey (MCBS) in 2002, were not enrolled in Medicare HMO, had a self-reported height and weight, and were 65 and older (n=7707). Subjects were classified as underweight, normal weight, overweight, obese (obese I), and severely obese (obese II/III). To adjust for the artifactual increase in BMI, the reported height was transformed by adding the sex-specific age-associated height loss to the reported height in MCBS. The main outcome variable was total Medicare expenditure. RESULTS There is a U-shaped association between BMI and Medicare expenditure: underweight $8238 (p<0.0005), normal weight $6, 801 (p<0.0000), overweight $5653 (reference), obese I $6716 (p<0.0031) and obese II/III $7, 912 (p<0.0001), p values are compared to overweight. A U-shaped association was also seen after accounting for height loss: underweight $7878 (p<0.0003), normal weight $6308 (p<0.2465), overweight $5988 (reference), obese I $7350 (p<0.0031) and obese II/III $8171 (p<0.0029) compared to overweight. CONCLUSIONS Previous research have looked at the relationship of BMI to health care costs and found that the full burden of medical expenditures is found in the overweight and obese categories. This study demonstrates that minimal cost is not normal BMI, but rather overweight, regardless of whether age-associated loss of height is accounted for. However, accounting for age-associated loss of height does decrease the magnitude of the spending difference between normal weight and overweight.