We updated a 1978 cost-effectiveness analysis of vaccination against pneumococcal pneumonia in light of the introduction in 1983 of a 23-valent vaccine, recent medical literature, and different relative prices of medical services. Although other base-case assumptions have remained reasonable, the low estimates of 10% of pneumonia as pneumococcal and a 3-year duration of immunity now appear more likely. Vaccination of a person age 65 or older could gain a year of healthy life for about $6000 in 1983 dollars. Medicare has covered pneumococcal vaccination since 1981. With the revised assumptions, net Medicare expenditures ranged from about $5.50 to $10.50 per vaccination, or from $4400 to $8300 per year of healthy life gained. Vaccination of an elderly person would almost break even, if duration of immunity were 8 years and would be cost saving if the vaccine were administered under a public program. Current levels of vaccination appear too low considering the potential health benefits and cost-effectiveness.