This document was commissioned by the Center for Substance Abuse Treatment to provide State alcohol and other drug agencies with background information and advice in using actuarial studies to predict the costs of contracting with managed-care organizations to provide publicly funded chemical dependency treatment services. Actuarial studies similar to the one described in this report should also be useful to States that are planning changes in funding chemical dependency treatment, including health care reform, expansion of medicaid benefits, and changing mandated insurance coverage for chemical dependency treatment. With a few adjustments, the approaches described herein could be useful for estimating the costs of mental health services as well.