Question

Check my work Required information The following information applies to the questions displayed below.) 0.31 points 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 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 $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: eBook References Age 1-4 5-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85 years and older Enrollment in Current Year 46,288 83,056 96, 473 66,846 134,096 167,476 86,096 99,624 156,888 68,495 24,099 1,029,437 Projected Enrollment Next Year 49,577 85, 263 96,487 68,482 133, 154 176,046 91,489 102,523 162,159 73,065 27,449 1,065,694 Average Monthly Cost in Current Year $ 11,148, 472 10,060, 232 8,437, 424 9,540,024 26, 432,808 38,882, 708 22,742,536 28,692,312 49,518,744 33,433, 360 24, 287,075 $ 263,175,695

Answer 1

Ans. 1:-

Current year scenario

Average per enrollee per month cost = Total average monthly cost in current year

                                                                        Enrollment in current year

                                                                   

                                                                   = $ 263,175,695

                                                                            1,029,437

                                                                 

                                                                   = $ 255.65

Average per enrollee heath care coverage collection for VIP-MD = $ 374

Therefore Profit per enrollee for VIP-MD = $ 374 - $ 255.65

= $ 118.35 (a)

Now in order to maintain the same market share VIP-MD will have to charge per month per enrollee premium of $ 331 (b).

So Target cost to maintain same level of profit per enrollee = (b) – (a)

                                                                                              = $331 – $118.35

                                                                                              = $ 212.65

Thus VIP-MD will have to bring down cost per enrolee per month to $ 212.65 to maintain its profitability per enrollee and market share.

Ans 2:-

New premium per month per enrollee = $ 356 (a)

Target Profit per enrolle = $ 118.35 (b)

Therefore new target cost per month per enrollee = (a) – (b)

                                                                               =   $356 – $118.35

   =   $ 237.65