Required information Skip to question [The following information applies to the questions displayed below.] VIP-MD is a

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Required information
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[The following information applies to the questions
displayed below.]
VIP-MD is a health maintenance organization (HMO) located in
North Carolina. Unlike the traditional fee-for-service model that
determines the payment according to the actual services used or
costs incurred, VIP-MD receives a fixed, prepaid amount from
subscribers. The per member, per month rate (PMPM) is
determined by estimating the health care cost per enrollee within a
geographic location. The average health care coverage in North
Carolina costs $364 per month, which is the same amount
irrespective of the subscriber’s age. Because individuals are
demanding quality care at reasonable rates, VIP-MD must contain its
costs to remain competitive. A major competitor, National
Physicians, entered the North Carolina market early in the current
year with a monthly premium of $321. VIP-MD wants to maintain its
current market penetration and hopes to increase its enrollees in
the current year. The latest data on the number of enrollees and
the associated costs follow:
Required:
1. Calculate the target cost required for VIP-MD to maintain its
current market share and profit per enrollee in the current
year.
2. Costs in the health care industry applicable to VIP-MD and
National Physicians are expected to increase by 8% in the coming
year. VIP-MD is planning for the year ahead and is expecting all
providers, including VIP-MD and National Physicians, to increase
their rates by $25 to $346. Calculate the new target cost assuming
again that VIP-MD wants to maintain the same profit per enrollee as
in the current year.
(For all requirements, do not round intermediate calculations and
round your answers to 2 decimal places.)