Aims/hypothesis. A computer model was developed to determine the health outcomes and economic consequences of different combinations of diabetes interventions in newly diagnosed patients with Type I (insulin-dependent) diabetes in Switzerland.¶Methods. We modelled seven complications of diabetes: hypoglycaemia, ketoacidosis, acute myocardial infarction, stroke, lower extremity amputation, nephropathy, and retinopathy. Transition probabilities and costs were taken from published literature. The Swiss health insurance payer perspective was taken. Various combinations of diabetes management strategies, including intensive or conventional insulin therapy and screening and treatment strategies for renal and eye disease were defined. Life expectancy, cumulative incidences of complications, and mean expected total lifetime costs per patient were calculated under six different management strategies. Incremental cost-effectiveness ratios were calculated in terms of costs per life-year gained compared with conventional insulin therapy alone.¶Results. The addition of screening for microalbuminuria and retinopathy followed by appropriate treatment, if detected, were cost saving, with reduction in cumulative incidence of end stage renal disease and blindness respectively, and, in the case of microalbuminuria screening and treatment, an improvement in life expectancy. Intensive therapy improved life expectancy but increased total lifetime costs.¶Conclusion/interpretation. Optimal management of Type I diabetic patients, including secondary and tertiary prevention, leads to reduced complications and improved life expectancy, with the increased costs of prevention offset to varying degrees by cost savings due to complications avoided. [Diabetologia (2000) 43: 13–26]