Objective. To determine whether difficulty walking and the strategies persons use to compensate for this deficit influenced downstream Medicare expenditures.Data Source. Secondary data analysis of Medicare claims data (1999–2000) for age‐eligible Medicare beneficiaries (N=4,997) responding to the community portion of the 1999 National Long Term Care Survey (NLTCS).Study Design. Longitudinal cohort study. Walking difficulty and compensatory strategy were measured at the 1999 NLTCS, and used to predict health care use as measured in Medicare claims data from the survey date through year‐end 2000.Data Extraction. Respondents to the 1999 community NLTCS with complete information on key explanatory variables (walking difficulty and compensatory strategy) were linked with Medicare claims to define outcome variables (health care use and cost).Principal Findings. Persons who reported it was very difficult to walk had more downstream home health visits (1.1/month, p<.001), but fewer outpatient physician visits (−0.16/month, p<.001) after controlling for overall disease burden. Those using a compensatory strategy for walking also had increased home health visits/month (0.55 for equipment, 1.0 for personal assistance, p<.001 for both) but did not have significantly reduced outpatient visits. Persons reporting difficulty walking had increased downstream Medicare costs ranging from $163 to $222/month (p<.001) depending upon how difficult walking was. Less than half of the persons who used equipment to adapt to walking difficulty had their difficulty fully compensated by the use of equipment. Persons using equipment that fully compensated their difficulty used around $300/month less in Medicare‐financed costs compared with those with residual difficulty.Conclusions. Difficulty walking and use of compensatory strategies are correlated with the use of Medicare‐financed services. The potential impact on the Medicare program is large, given how common such limitations are among the elderly.