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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 $374 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 $331. 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 to 4	46,288	49,577	$ 11,148,472
5 to 14	83,056	85,263	10,060,232
15 to 19	96,473	96,487	8,437,424
20 to 24	66,846	68,482	9,540,024
25 to 34	134,096	133,154	26,432,808
35 to 44	167,476	176,046	38,882,708
45 to 54	86,096	91,489	22,742,536
55 to 64	99,624	102,523	28,692,312
65 to 74	156,888	162,159	49,518,744
75 to 84	68,495	73,065	33,433,360
85 years and older	24,099	27,449	24,287,075
	1,029,437	1,065,694	$ 263,175,695

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 $356. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in the current year.

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