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 $378 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 $335. 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		46,688				49,977			$	11,148,872
514		83,456				85,663				10,060,632
1519		96,873				96,887				8,437,824
2024		67,246				68,882				9,540,424
2534		134,496				133,554				26,433,208
3544		167,876				176,446				38,883,108
4554		86,496				91,889				22,742,936
5564		99,224				102,923				28,692,712
6574		157,288				162,559				49,519,144
7584		68,895				73,465				33,433,760
85 years and older		24,499				27,849				24,287,475
		1,033,037				1,070,094			$	263,180,095

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 $360. 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