Studies of chronic disease often focus on estimating prevalence and incidence in which the presence of active disease is based on dichotomizing a continuous marker variable measured with error. Examples include hypertension, asthma, and depression, where active disease is defined by setting a threshold on a continuous measure of blood pressure, respiratory function, and mood, respectively. This paper proposes a model for inference about prevalence and incidence when active disease is determined by dichotomizing a continuous marker variable in a population-based study. In this formulation, it is postulated that there are three groups of people, those that are not susceptible to the disease, those who are always in the disease state, and those who have the potential to transition between the disease and the disease-free states over time. The model is used to estimate the prevalence and incidence of the disease in the population while accounting for measurement error in the marker. An EM algorithm is used for parameter estimation and the methodology is illustrated on Framingham heart study hypertension data. A simulation study is conducted in order to demonstrate the importance of accounting for measurement error in estimating prevalence and incidence for this example.