Required information Problem 13-40 Target Costing; Health Care [LO 13-1] [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 $368 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 $325. 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: Enrollment in Projected Enrollment Next Average Monthly Cost Age Current Year Year in Current Year 1-4 45,688 48,977 $ 11,147,872 5-14 82,456 84,663 10,059,632 15-19 95,873 95,887 8,436,824 20-24 66,246 67,882 9,539,424 25-34 133,496 132,554 26,432,208 35-44 166,876 175,446 38,882,108 45-54 85,496 90,889 22,741,936 55-64 99,624 101,923 28,691,712 65-74 156,288 161,559 49,518,144 75-84 67,895 72,465 85 years and older 23,499 1,023,437 26,849 1,059,094 33,432,760 24,286,475 $ 263,169,095 Part 1 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 7% 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 $350. 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.) 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 7% 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 $350. 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.) Required target cost 2. New target cost