Unless they maintain Medicare status through disability or age, kidney transplant recipients lose their Medicare coverage of immunosuppression 3 years after transplantation. A significant transplant survival advantage has previously been demonstrated by the extension of Medicare immunosuppressive medication coverage from 1 year to 3 years, which occurred between 1993 and 1995. The United States Renal Data System (USRDS) was analyzed for recipients of kidney transplants from 1995 to 1999. Using a Markov model, we estimated survival and costs of the current system of 3-year coverage compared with lifetime immunosuppression coverage. Results were calculated from the perspectives of society and Medicare. Extension of immunosuppression coverage produced an expected improvement from 38.6% to 47.6% in graft survival and from 55.4% to 61.8% in patient survival. The annualized expected savings to society from lifetime coverage was $136 million assuming current rates of transplantation. Medicare would break-even compared with current coverage if the fraction of patients using extended coverage was <32%. The extension would be cost-effective to Medicare if this fraction was <91%. Extended Medicare immunosuppression coverage to the life of a kidney transplant should result in better transplant and economic outcomes, and should be considered by policy makers.