BACKGROUND: In recent years, growing numbers of children with Medicaid have been enrolled in managed care plans nationwide. Yet, large, commercial managed care plans are increasingly discontinuing their participation in Medicaid because of low Medicaid payment rates. OBJECTIVE: To compare the healthcare utilization and costs of children with Medicaid and children with commercial insurance within the same health maintenance organization (HMO). STUDY DESIGN: Retrospective study using electronically captured cost and utilization data. PATIENTS AND METHODS: We compared the healthcare utilization and costs of children with Medicaid (n = 42,636) and children with commercial insurance (n = 159,651) who were members of the same large, nonprofit HMO at any time between January 1, 1995, and December 31, 1997. Medicaid children were grouped as income eligible, medically needy, and blind or disabled. RESULTS: The unadjusted costs of income-eligible, Medicaid-insured children were not significantly different from those of commercially insured children. The medically needy were $25 per month more expensive than commercially insured children (P = 0.02), and the blind or disabled were $213 per month more expensive (P < .01). After adjusting for age and sex, income-eligible children were $5 per month more expensive than children with commercial insurance (P = .07), the medically needy were $20 per month more expensive (P = .02), and the blind or disabled were $216 per month more expensive (P < .01). CONCLUSIONS: The costs of income-eligible, Medicaid-insured children in this HMO were similar to those of commercially insured children, but the costs for the medically needy and the blind and disabled were substantially higher.