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 $367 per month, which is the same amount irrespective of the subscribers 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 $324. 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
14		45,588				48,877			$	11,147,772
514		82,356				84,563				10,059,532
1519		95,773				95,787				8,436,724
2024		66,146				67,782				9,539,324
2534		133,396				132,454				26,432,108
3544		166,776				175,346				38,882,008
4554		85,396				90,789				22,741,836
5564		99,124				101,823				28,691,612
6574		156,188				161,459				49,518,044
7584		67,795				72,365				33,432,660
85 years and older		23,399				26,749				24,286,375
		1,021,937				1,057,994			$	263,167,995

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 $349. 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.)

1. Required target cost 2. New target cost