In this study we aimed to estimate direct medical costs of Chronic Obstructive Pulmonary Disease (COPD) by disease type; chronic bronchitis and emphysema. This study estimates direct costs in 1996 dollars using a prevalence approach and both aggregate and microcosting. A societal perspective is taken using prevalence, and multiple national, state and local data sources are used to estimate health-care utilization and costs. Chronic bronchitis and emphysema together account for $14.5 billion in annual direct costs. Inpatient costs are greater than outpatient and emergency costs ($8.3 vs. $7.8 billion) and hospital and medication costs account for most resources spent. The high prevalence of chronic bronchitis accounts for its larger total costs ($11.7 billion) compared with emphysema ($2.8 billion). Emphysema, which is more severe, has higher costs per prevalent case ($1341 vs. $816). Hospital stays account for the highest costs, $6.0 billion for chronic bronchitis and $1.9 billion for emphysema. The hospitalization rate, length of stay and average cost per prevalent case are higher for emphysema than for chronic bronchitis. Medication costs are the second highest cost category ($4.4 billion for chronic bronchitis, $0.693 billion for emphysema). The high hospitalization and low home care costs (0.2% of total) suggest underuse of home care and room to shift from acute to preventive care. More attention to healthcare management of chronic bronchitis and emphysema is suggested, and improving inhaler and anti-smoking compliance might be important targets.