This manual is a guide to estimating the gross and net costs of waivers to Medicare or Medicaid regulations. Such estimation is required by the Health Care Financing Administration (HCFA) of anyone who requests a Demonstration Waiver to pursue research that involves reimbursement for health services under Medicare or Medicaid. In particular, applicants for HCFA funding of projects that need waivers are required to produce such estimates as part of their research proposals. In addition, for HCFA-initiated demonstrations, HCFA staff produce waiver cost estimates for the proposed demonstration. Although intended primarily as a guide to producing a specific cost estimate that is required by HCFA, this manual also illustrates the general principles that apply to any estimation of the costs of a policy experiment or demonstration.