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 $369 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 $326. 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:

Age Enrollment in Current Year Projected Enrollment Next Year Average Monthly Cost in Current Year 1-4 45,788 49,077 $ 11,147,972 5-14 82,556 84,763 10,059,732 15-19 95,973 95,987 8,436,924 20-24 66,346 67,982 9,539,524 25-34 133,596 132,654 26,432,308 35-44 166,976 175,546 38,882,208 45-54 85,596 90,989 22,742,036 55-64 99,724 102,023 28,691,812 65-74 156,388 161,659 49,518,244 75-84 67,995 72,565 33,432,860 85 years and older 23,599 26,949 24,286,575 1,024,537 1,060,194 $ 263,170,195 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 6% 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 $351. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in the current year.