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 $376 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 $333. 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 46,488 49,777 $ 11,148,672 5–14 83,256 85,463 10,060,432 15–19 96,673 96,687 8,437,624 20–24 67,046 68,682 9,540,224 25–34 134,296 133,354 26,433,008 35–44 167,676 176,246 38,882,908 45–54 86,296 91,689 22,742,736 55–64 99,424 102,723 28,692,512 65–74 157,088 162,359 49,518,944 75–84 68,695 73,265 33,433,560 85 years and older 24,299 27,649 24,287,275 1,031,237 1,067,894 $ 263,177,895 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 $358. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in the current year.
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 $376 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 $333. 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 | 46,488 | 49,777 | $ | 11,148,672 | |||||||
| 5–14 | 83,256 | 85,463 | 10,060,432 | ||||||||
| 15–19 | 96,673 | 96,687 | 8,437,624 | ||||||||
| 20–24 | 67,046 | 68,682 | 9,540,224 | ||||||||
| 25–34 | 134,296 | 133,354 | 26,433,008 | ||||||||
| 35–44 | 167,676 | 176,246 | 38,882,908 | ||||||||
| 45–54 | 86,296 | 91,689 | 22,742,736 | ||||||||
| 55–64 | 99,424 | 102,723 | 28,692,512 | ||||||||
| 65–74 | 157,088 | 162,359 | 49,518,944 | ||||||||
| 75–84 | 68,695 | 73,265 | 33,433,560 | ||||||||
| 85 years and older | 24,299 | 27,649 | 24,287,275 | ||||||||
| 1,031,237 | 1,067,894 | $ | 263,177,895 | ||||||||
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 $358. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in the current year.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
