OBJECTIVES: To demonstrate how to use a life annuity to calculate medical costs for a cost-effectiveness analysis, and why researchers should use this method. METHOD: A cost-effectiveness analysis typically requires a single value to represent annual medical costs over time. While a straight average of claims over several years of claims data seems to be a common method to obtain this estimate, the value needed for the analysis is more accurately calculated using the actuarial concept of a life annuity. A life annuity is a series of payments (or costs) made at equal intervals while a given life survives. The researcher creating a model that includes future annual medical claims needs to take into account both the future value of the claim dollars with discounting, and the likelihood that a person will live to need medical claims each year with the probability of survival. Once this “annuitized” claim cost is created, it is ready to be used in a model where the relevant factors - discounting and survival - are present. This presentation will demonstrate the how to calculate an annuitized claim cost using medical claims data from MedStat's MarketScan database. RESULTS: This demonstration will show proper use of discounting, survivorship, and exposure in the calculation of this value. CONCLUSIONS: This will be followed by several simplified models to show how the resulting annuitized claim cost behaves in a cost-effectiveness model compared to an actual stream of claim costs, and compared to a claim cost based on a straight average of claims.