A prospective descriptive study was done on the direct and indirect costs to ambulatory patients with rheumatoid arthritis and osteoarthritis, stratified at study entry by level of function. Measures of health status over a 1-year period were taken. On a yearly basis, in 1979 dollars, patients spent an average of $147 for arthritis medications, aids, and devices, and $207 for outpatient visits. A small number were hospitalized and incurred an average charge of $245, and an additional $84 for physician fees. In addition to direct monetary costs, patients averaged 6.8 days of restricted activity costs, patients averaged 6.8 days of restricted activity per month, in some cases so severe as to confine patients to bed for an average of 1.3 days per month. Among students and working patients, 2.5 work-days per month were lost due to arthritis, and 30% reported that they were unemployed or retired because of impaired health. Functional capacity and specific diagnosis on entry to the study were the most important determinants of arthritis-related expenditures. Both direct and indirect costs varied considerably from the observed average. Twenty percent of patients incurred no costs for arthritis-related purchases, 42+ had no costs for outpatient visits, and 93% had no inpatient costs. Yet for some patients, the financial burden was very high.