By most clinical and economic measures, our health care system is not providing effective or affordable care to Medicare beneficiaries with severe chronic illness. Two million elders, constituting most of the 5% who account for nearly half of Medicare costs, have multiple chronic conditions, functional disability, and average per capita costs of over $50,000 per year. Prior reforms aimed at this population did not change the flawed delivery system, which remains centered in the doctor's office, hospitals, and nursing homes. This article describes a model of coordinated home-based medical care, called Independence at Home (IAH), which operates on a limited basis in many US communities and in the Veterans Affairs system. IAH-type teams deliver a full range of medical and social services at home to seriously ill elders and thereby reduce overall health care costs. We review the evidence that this approach can lower total costs by 25 percent or more while improving patient satisfaction and outcomes. We discuss funding for the new model, which also produces net savings for Medicare. A Medicare reform bill, called the Independence at Home Act, was introduced in the US House and Senate in 2008 to promote replication of this mobile elder care model.