We consider an extension of the SEIR model for the transmission dynamics of influenza.  We describe two stages of the infection, an early and a later stage, in the later stage the infected may or may not take medicine, in addition a fraction from both these groups may be hospitalized. We perform rigorous analysis of the system. It is shown that for the basic reproductive number  the disease free equilibrium is stable and the system has an endemic equilibrium for . We also discuss the sensitivity of  on the critical parameters in the model. Optimal control theory is used to do a cost benefit analysis of medication and hospitalization.