Health care expenditures account for over 14% of the gross domestic product in the United States. Managed care has evolved to control these costs. Because diabetes accounts for nearly 15% of health care expenditures, the strategies used by managed care organizations are expected to have a particular effect on diabetes. Managed care organizations have two primary goals: to control costs and to provide care of sufficient quality to attract and satisfy enrollees. Managed care organizations have designed strategies to meet these goals. Four primary managed care strategies and their effects on diabetes care are discussed: 1) payment incentives rewarding desired provider practice patterns; 2) designation of providers who possess desirable practice behaviors; 3) coverage policies that control the services paid for; and 4) traditional insurance strategies that determine who is eligible for insurance and what premiums are to be paid. The few direct studies of the effects of each strategy on the care of diabetic persons are discussed. The conclusion is that although managed care organizations have the potential to provide excellent care for diabetic persons, little evidence exists that they have improved either the quality or the cost-effectiveness of diabetes care. Recommendations to guide the development of cost-effective care for diabetic persons are presented.