Question

VIP-MD is a health maintenance organization (HM0) 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 $365 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 $322. 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: Projected Enrollment Next Year Average Monthly Cost in Current Enrollment in Current Year 45,388 82,156 95, 573 65,946 133,196 166, 576 .196 9 3 155, 988 67,595 23,199 1,019,737 Year Age 1-4 48,677 84,363 95,587 67,582 132, 254 175,146 $ 11,147,572 10,059, 332 e, 436, 524 9,539,124 26, 431,908 32,881, 808 22,741,636 29, 691.412 49, 517,844 33, 432, 460 24,286,175 S-14 15-19 20-24 25-34 35-44 45-54 55-64 101, 623 161.259 コ2.165 26,549 924 65-74 75-84 85 years and plder 263, 165,795 1,055, 794 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 $347. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in the urront unar

1.Calculate the targest cost required for VIP-MD to maintain its current market share and profit per enrollee in the current year.
2. Calculate the new target cost assuming again that the VIP-MD wants to maintain the same profit per enrollee as in the current year.

Answer 1

PART 1

Avg monthly insurance cost, NC =	$ 365.00
New competitor's monthly premium offering, NC =	$ 322.00
Expected premium increase	$    43.00
Current Cost / unit =	$ 258.07
263165795/1019737
Current profit =	$ 106.93
365 - 258.07
Thus new cost to keep	$ 215.07
the current profit
and market share would be
$ 322 - $ 106.93

PART 2

Avg monthly insurance cost, NC =	$ 365.00
New competitor's monthly premium offering, NC =	$ 347.00
Expected premium increase	$    18.00
Current Cost / unit =	$ 258.07
263165795/1019737
Current profit =	$ 106.93
365 - 258.07
Thus new cost to keep	$ 240.07
the current profit
and market share would be
$ 347 - $ 258.07