We have evaluated the economic costs to society for the two major types of inflammatory bowel disease, Crohn's disease and ulcerative colitis, using a medical decision algorithm costing methodology augmented by examination of 1988-89 claims data from a major U.S. commercial insurer. The average annual medical cost per patient with Crohn's disease was estimated at $6,561 (1990 U.S. dollars). The total annual medical costs for U.S. Crohn's disease patients in 1990 was estimated at $1.0-1.2 billion. The average annual medical cost per patient with ulcerative colitis was estimated at $1,488. The total annual medical costs for U.S. patients with ulcerative colitis in 1990 was estimated at $0.4-0.6 billion. Adjusting for productivity losses, we estimated the annual economic cost for both diseases at $1.8 billion to $2.6 billion. Analysis of insurance claims data for inflammatory bowel disease patients showed that the distribution of annual medical expenses charged and paid is highly uneven by patient. The top 2% of Crohn's disease patients accounted for 28.9% of total charges and 34.3% of the total amount paid. The top 2% of ulcerative colitis patients accounted for 36.2% of total charges and 39.0% of the total amount paid. We used a multivariate regression model to examine potential cost-effectiveness tradeoffs between different types of medical services in treatment of inflammatory bowel disease.