This study explores the impact of air quality pollution on health status and household medical expenditure using the individual level panel data for the period 2003~2016. Specifically, we provide an assessment on the effect of particulate matter (PM2.5) on medical expenditure through health status deterioration. By combining the satellite-based air pollution (PM2.5) data with the panel data of Korean Labor and Income Panel Study (KLIPS), we first investigate the relationship between air pollution (PM2.5) and individually perceived health status using the panel ordered logit model. We include individual life-style variables as well as other individual and job characteristics based on the Grossman health demand model. We then estimate the effect of air pollution and health status on medical expenditure using the panel data model with fixed effects. Furthermore, we provide empirical results using the two stage least squares estimator to account for simultaneity of health status and medical expenditure. Our results indicate that the impacts of air quality pollution on health status and medical expenditures are substantial and the evidence strengthens as we allow for simultaneity of health status and medical expenditure.