Objective Therapy for autoimmune hepatitis has been prednisone based for decades; however, budesonide may be equally effective with fewer side effects. Our aim was to evaluate quality-adjusted life years and health care costs of three different treatment regimens. Materials and methods Treatment using prednisone, budesonide or a combination of both over a three-year period in newly diagnosed children with type I autoimmune hepatitis were simulated with a Markov model. Transition probabilities were calculated over consecutive three-month period. Costs were determined from a hospital database and health utilities were estimated from the literature. A Monte Carlo probabilistic sensitivity analysis was used to simulate the outcomes of 5000 patients in each treatment arm. Results Compared to standard therapy, budesonide leads to a gain of 0.09 quality-adjusted life years, costing $17,722 per QALY over a three-year period. Standard therapy led to significantly lower QALY's compared to other strategies (p < 0.001). Health utilities of patients in remission in each treatment group had the greatest impact on the model. Budesonide remained the treatment of choice if the probability of inducing remission was 55% or greater. Conclusions Budesonide therapy in non-cirrhotic, treatment naive patients with type I autoimmune hepatitis yielded greater QALY's compared to the current standard therapy with an acceptable increase in costs.