SECURITIES AND EXCHANGE COMMISSION
                                                 WASHINGTON, D.C. 20549 FORM 10-KFOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One)(X) ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2004OR
(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _____ to____
 Commission File Number 1-8538USHEALTH GROUP, INC.(Formerly, Ascent Assurance, Inc.)(Exact Name of Registrant as Specified in its Charter)

| | DELAWARE                                                         |  | 73-1165000                             
| | ---------------------------------------------------------------- |  | ---------------------------------------
| | (State or Other Jurisdiction of Incorporation or Organization)   |  | (I.R.S. Employer Identification Number)
| | 3100 Burnett Plaza, Unit 33,801 Cherry Street, Fort Worth, Texas |  | 76102                                  
| | (Address of Principal Executive Offices)                         |  | (Zip Code)                             

Registrant's Telephone Number, Including Area Code:
                                                     (817) 878-3300Securities Registered Pursuant to Section 12(b) of the Act:
                                      NoneSecurities Registered Pursuant to Section 12(g) of the Act:Common Stock (par value $.01)


Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes         X             No

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in the definitive Proxy
Statement or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.

Yes                      No        X

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes                      No        X

The aggregate market value of voting
stock held by non-affiliates of the Registrant amounted to $1,698,250 as of March 4, 2005. As of March 4, 2005, 50,606,876 shares of Common Stock were outstanding.



# USHEALTH GROUP, INC

# 2004 FORM 10-K ANNUAL
REPORT

# TABLE OF CONTENTS

|         | PART I                                                                                         | Page   Number | 
|-------- | ---------------------------------------------------------------------------------------------- | ------------- | 
|ITEM 1.  | Business                                                                                       | 3            
|        
|ITEM 2.  | Properties                                                                                     | 10           
|        
|ITEM 3.  | Legal Proceedings                                                                              | 10           
|        
|ITEM 4.  | Submission of Matters
                to a Vote of Security Holders                            | 10           
|         |                                                                                                |              
|         | PART II                                                                                        |              
|         |                                                                                                |              
|ITEM 5.  | Market for the Registrant's Common Stock
      and Related Stockholder Matters                 | 11           
|        
|ITEM 6.  | Selected Consolidated Financial Data                                                           | 12           
|        
|ITEM 7.  | Management's Discussion and Analysis of
   Financial Condition and Results of Operations       | 13           
|        
|ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk                                     | 25           
|        
|ITEM 8.  | Financial Statements and Supplementary Data                                                    | 27           
|        
|ITEM 9.  | Changes in and Disagreements with Accountants
   on Accounting and Financial Disclosure        | 64           
|        
|ITEM 9A. | Controls and Procedures                                                                        | 64           
|         |                                                                                                |              
|         | PART III                                                                                       |              
|         |                                                                                                |              
|ITEM 10. | Directors and Executive Officers of the Registrant                                             | 65           
|        
|ITEM 11. | Executive Compensation                                                                         | 67           
|        
|ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 74           
|        
|ITEM 13. | Certain Relationships and Related Transactions                                                 | 75           
|        
|ITEM 14. | Principal Accountant Fees and Services                                                         | 76           
|         |                                                                                                |              
|         | PART IV                                                                                        |              
|         |                                                                                                |              
|ITEM 15. | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                           | 77           



---

# PART I

# ITEM 1  BUSINESS

# GENERAL

USHEALTH Group, Inc.
(USHEALTH or the Company), formerly Ascent Assurance, Inc., is the
successor to a Delaware company originally incorporated in 1982 as an insurance holding
company. USHEALTH, through its applicable subsidiaries, is engaged in the development,
marketing, underwriting and administration of medical expense and supplemental health
insurance products, primarily to self-employed individuals and small business owners.

The Companys revenues result
primarily from premiums and fees from the insurance products sold or reinsured by its
wholly-owned life and health insurance subsidiaries, National Foundation Life Insurance
Company (NFL), Freedom Life Insurance Company of America (FLICA),
National Financial Insurance Company (NFIC) and American Insurance Company of
Texas (AICT) and together with NFL, NFIC and FLICA, collectively, the
Insurance Subsidiaries. The Insurance Subsidiaries are licensed to conduct
business in 40 states and the District of Columbia. Each of the following states accounted for more than 5% of premium
revenue for the year ended December 31, 2004: Florida  17%, Texas  13 %,
Colorado  9%, Oklahoma  6% and South Carolina  6%.

The Company, through applicable
subsidiaries, also derives fee and service revenue from (i) telemarketing services, (ii)
renewal commissions for prior year sales of both affiliated and unaffiliated insurance
products, and (iii) commissions on the sale of the benefits of unaffiliated membership
benefit programs.

# MARKETING DISTRIBUTION
SYSTEM

NationalCare®
Marketing, Inc. (NCM) and AmeriCare Benefits, Inc. (ACB),
wholly-owned subsidiaries, are the principal distribution channels for the products of NFL
and FLICA. NCM and ACB maintain agency forces that are organized by geographic region. All
members of the NCM and ACB agency forces are independent contractors and all compensation
received is based upon sales production and the persistency of such production. NCM and
ACB agents market the insurance products of NFL and FLICA on a one-to-one basis to
individuals who are either, not covered under group insurance protection normally
available to employees of business organizations or, who wish to change or supplement
existing coverage.

Sales leads for NCM and ACB agents
are generated principally by the Companys tele-marketing subsidiary, Precision
Dialing Services (PDS). By utilizing a predictive automated dialing system,
PDS is able to generate quality sales leads that maintain the efficiency of the NCM and
ACB agency forces. By providing these sales leads, NCM and ACB believe that their ability
to attract experienced agents as well as new agents is enhanced.

# DESCRIPTION OF PRODUCTS

The Companys operations are
comprised of one segment, Accident and Health insurance. The principal products currently
underwritten by NFL and FLICA are medical expense reimbursement and supplemental policies.
These products are designed with flexibility as to benefits, deductibles, coinsurance and
premiums. The principal product groups currently underwritten by NFL and FLICA are
summarized below:

| | Comprehensive
major medical products  These products are generally designed to reimburse
insureds for eligible expenses incurred for hospital confinement, surgical expenses,
physician services, outpatient services and the cost of inpatient medicines. The policies
provide a number of options with respect to annual deductibles, coinsurance percentages
and maximum benefits. After the annual deductible is met, the insured is generally
responsible for a percentage of eligible expenses up to a specified annual stop-loss
limit. Thereafter, the remainder of eligible expenses incurred during the calendar year by
such insured is covered up to certain maximum aggregate policy limits. All such products
are guaranteed renewable pursuant to the provisions of the Health Insurance Portability
and Accountability Act, 42 U.S.C. § 300 et seq. (HIPAA).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Hospital/surgical
medical expense products  These products are similar to comprehensive major
medical products except that benefits are generally limited to medical and surgical
services received in a hospital either as an inpatient or outpatient (services such as
outpatient physician office visits and outpatient prescription drugs are excluded) and
deductibles and coinsurance provisions are generally higher. All such products are also
guaranteed renewable pursuant to HIPAA.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Supplemental
specified disease products  These products include blanket group accident
coverages, blanket group hospital daily indemnity coverages, as well as individual
indemnity policies for hospital confinement and convalescent care for treatment of
specified diseases and event specific individual policies, which provide fixed
benefits or lump sum payments directly to the insured upon diagnosis of certain types of
internal cancer or heart disease. Blanket group accident and hospital daily indemnity
insurance coverages are generally not guaranteed renewable by contract, and are exempt
from the guaranteed renewability provisions of HIPAA. Individual hospital indemnity and
specified disease products are generally guaranteed renewable by contract, but are exempt
from the guaranteed renewability provisions of HIPAA.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Major medical and hospital surgical
medical expense products comprise approximately 99% of new business sales. These products
are individually underwritten based upon medical information provided by the applicant
prior to issue. Information provided in the application is verified with the applicant
through a tape-recorded telephone conversation or through written correspondence. In
addition, the underwriting procedures for major medical products currently sold by NFL and
FLICA include a para-med examination or other medical tests, depending on the age of the
applicant.

Prior to 1998, some of the Insurance
Subsidiaries also underwrote Medicare Supplement products designed to provide
reimbursement for certain expenses not covered by the Medicare program. Such Insurance
Subsidiaries continue to receive renewal premiums on Medicare Supplement policies sold
prior to that date.

See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of premium revenue by product.

# COMPETITION

The accident and health insurance
industry is highly competitive and includes a large number of insurance companies, many of
which have substantially greater financial resources, broader and more diversified product
lines, favorable ratings from A.M. Best Company, Inc. (A.M. Best) and larger
staffs than the Company. Competitive factors applicable to the Insurance
Subsidiaries business include product mix, policy benefits, service to policyholders
and premium rates. The Insurance Subsidiaries believe that their current benefits and
premium rates are generally competitive with those offered by other companies. Management
believes that service to policyholders and prompt and fair payment of claims continue to
be important factors in the Insurance Subsidiaries ability to remain competitive.
The Insurance Subsidiaries are not currently rated with A.M. Best. The Company believes
that the Insurance Subsidiaries lack of an A.M. Best rating is not a significant factor
affecting the ability to sell products in the markets served.

Private insurers and voluntary and
cooperative plans, such as Blue Cross and Blue Shield and HMOs, provide various
alternatives for defraying hospitalization and medical expenses. Much of this health
coverage is sold on a group basis to employer-sponsored groups. The federal and state
governments also provide programs for the payment of the costs associated with medical
care through Medicare and Medicaid. These major medical programs generally cover a
substantial amount of the medical expenses incurred as a result of accidents or illnesses.
The Insurance Subsidiaries major medical products are designed to provide coverage,
which is similar to these major medical insurance programs, but are sold primarily to
persons not covered by an employer-sponsored group.

The Insurance Subsidiaries
supplemental specified disease products are designed to provide coverage which is
supplemental to major medical insurance and may be used to defray non-medical as well as
medical expenses. Since these policies are sold to complement major medical insurance, the
Insurance Subsidiaries compete only indirectly with those insurers providing major medical
insurance, however, other insurers may expand coverage in the future, which could reduce
future sales levels and profit margins. Medicare supplement products are designed to
supplement the Medicare program by reimbursing for expenses not covered by such program.
Future government programs may impact the rate of participation by private entities in
such government programs.

In addition to product and service
competition, there is also very strong competition within the accident and health
insurance market for qualified, effective agents. The recruitment and retention of such
agents is important to the success and growth of the Companys business. Management
believes that NCM and ACB are competitive with respect to the recruitment, training and
retention of such agents. However, there can be no assurance that NCM and ACB will be able
to continue to recruit or retain qualified, effective agents.

# STATE REGULATION

General.    
          The Company and its Insurance Subsidiaries are subject to regulation and
          supervision in all jurisdictions in which they conduct business. In general,
          state insurance laws establish supervisory agencies with broad administrative
          powers relating to, among other things, the granting and revoking of licenses to
          transact business, regulation of trade practices, premium rate levels, premium
          rate increases, licensing of agents, approval of content and form of policies,
          maintenance of specified minimum statutory reserves and statutory capital and
          surplus, deposits of securities, form and content of required financial
          statements, nature of investments and limitations on dividends to stockholders.
          The purpose of such regulation and supervision is primarily to provide
          safeguards for policyholders rather than to protect the interests of
          stockholders.

The National Association of Insurance
Commissioners (NAIC) is a voluntary association of all of the state insurance
commissioners in the United States. The primary function of the NAIC is to develop model
laws on key insurance regulatory issues that can be used as guidelines for individual
states in adopting or enacting insurance legislation. While the NAIC model laws are
accorded substantial deference within the insurance industry, these laws are not binding
on insurance companies unless enacted into state law and variations from the model laws
from state to state are common.

The Insurance Subsidiaries are all
domiciled in Texas and are therefore subject to regulation under Texas laws. The State of
Texas has enacted insurance holding company laws that require registration and periodic
reporting by insurance companies. Such legislation typically places restrictions on, or
requires prior notice or approval of, certain transactions between insurers and other
companies within the holding company system, including, without limitation, dividend
payments from insurance subsidiaries and the terms of loans and transfers of assets within
the holding company structure.

Product Approvals.    
Generally, before an insurance company is permitted to market an individual
insurance product in a particular state, it must obtain regulatory approval from that
state and adhere to that states insurance laws and regulations which include, among
other things, specific requirements regarding the form, language, premium rates and policy
benefits of that product. Consequently, although the Insurance Subsidiaries policies
generally provide for the same basic types and levels of coverage in each of the states in
which they are marketed, the policies are not precisely identical in each state or other
jurisdiction in which they are sold. Such regulation may delay the introduction of new
products and may impede, or impose burdensome conditions on, rate increases or other
actions that the Insurance Subsidiaries may wish to take in order to enhance their
operating results. In addition, federal or state legislation or regulatory pronouncements
may be enacted that may prohibit or impose restrictions on the ability to sell certain
types of insurance products or impose other restrictions on the Companys operations.
For example, certain states in which the Insurance Subsidiaries do business have adopted
NAIC model statutes and regulations relating to market conduct practices of insurance
companies. Any limitations or other restrictions imposed on the Insurance
Subsidiaries market conduct practices by the regulators of a state that has adopted
the model statutes and regulations may also be imposed by the regulators in other states
that have adopted such statutes and regulations. No assurances can be given that future
legislative or regulatory changes will not adversely affect the Companys business,
financial condition or results of operations.

In addition, state insurance
departments generally require the maintenance of certain minimum loss ratios on certain
product lines. The states in which the Insurance Subsidiaries are licensed have the
authority to change the minimum mandated statutory loss ratios to which the Insurance
Subsidiaries are subject, the manner in which these ratios are computed and the manner in
which compliance with these ratios is measured and enforced. Most states in which the
Insurance Subsidiaries write health insurance products have adopted the loss ratios
recommended by the NAIC. The Company is unable to predict the impact of (i) any changes in
the mandatory statutory loss ratios relating to products offered by the Insurance
Subsidiaries or (ii) any change in the manner in which these minimums are computed or
enforced in the future. Similarly, the Insurance Subsidiaries ability to increase
its premium rates in response to adverse loss ratios is subject to regulatory approval.
Failure to obtain such approval could have a material adverse effect on the Companys
business, financial condition and results of operations.

NAIC Accounting Principles.    
In 1998, the NAIC adopted the Codification of Statutory
Accounting Principles which became the NAICs primary guidance on statutory
accounting. The Texas Department of Insurance adopted the Codification effective January
1, 2001. Statutory accounting practices (SAP) differ in some respects from
accounting principles generally accepted in the United States (GAAP). The
significant differences are:

|o |  | Policy acquisition costs, which consist of commissions and other costs incurred in
connection with acquiring new business, are charged to current operations as incurred for
SAP, whereas, under GAAP these costs are deferred and amortized over the policy term in
order to provide an appropriate matching of revenue and expense.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | Future policy benefit reserves are based on statutory mortality, morbidity and interest
requirements for SAP, while GAAP reserves are based on Company or industry experience.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | Similar to GAAP, deferred income taxes are provided on temporary differences between the
statutory and tax bases of assets and liabilities for SAP; however, statutory deferred tax
assets are limited based upon admission tests. Under SAP, the change in deferred taxes is
recorded directly to surplus as opposed to GAAP where the change is recorded to current
operations.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | Investments in debt securities are carried at amortized cost for SAP. Under GAAP,
investments in debt securities are classified, as held-to-maturity, available-for-sale, or
trading securities, and the accounting treatment is different for each category. Life and
health insurance companies are required to record an Interest Maintenance Reserve
(IMR) to defer gains and losses resulting from the sale of debt securities
prior to maturity. For SAP the IMR is amortized into income over the original maturity of
the investment. Under GAAP, realized gains and losses are recorded in the income statement
during the period in which the investment is sold.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Risk-Based Capital.    
The NAICs Risk-Based Capital for Life and/or Health Insurers
Model Act (the Model Act) provides a tool for insurance regulators to
determine the levels of statutory capital and surplus an insurer must maintain in relation
to its insurance and investment risks and whether there is a need for possible regulatory
attention. The Model Act (or similar legislation or regulation) has been adopted in states
where the Insurance Subsidiaries are domiciled. The Model Act provides four levels of
regulatory attention, varying with the ratio of the insurance companys total
adjusted capital (defined as the total of its statutory capital and surplus, asset
valuation reserve and certain other adjustments) to its authorized control level
risk-based capital (RBC):

|o |  | If a companys total adjusted capital is less than or equal to 200 percent but
greater than 150 percent of its RBC, (the Company Action Level), the company
must submit a comprehensive plan aimed at improving its capital position to the regulatory
authority proposing corrective actions.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | If a companys total adjusted capital is less than or equal to 150 percent but
greater than 100 percent of its RBC (the Regulatory Action Level), the
regulatory authority will perform a special examination of the company and issue an order
specifying the corrective actions that must be followed.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | If a companys total adjusted capital is less than or equal to 100 percent but
greater than 70 percent of its RBC (the Authorized Control Level), the
regulatory authority may take any action it deems necessary, including placing the company
under regulatory control.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | If a companys total adjusted capital is less than or equal to 70 percent of its RBC
(the Mandatory Control Level), the regulatory authority must place the company
under its control.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NFLs and FLICAs statutory
annual statements for the year ended December 31, 2004 filed with the Texas Department of
Insurance reflected total adjusted capital in excess of Company Action Level RBC.

In 1998, NFIC and AICT entered into a
voluntary consent order, pursuant to Article 1.32 of the Texas Insurance Code, providing
for the continued monitoring of the operations of NFIC and AICT by the Texas Department of
Insurance in response to losses sustained in 1997 and 1998 as well as the projected
inability to meet RBC requirements. Both NFIC and AICT ceased the sale and underwriting of
new business in 1998. At December 31, 2004, AICTs RBC exceeded Company Action Level
RBC; however, NFICs RBC only exceeded Regulatory Action Level RBC. Both NFIC and
AICT are in compliance with the terms of the voluntary consent order.

Premium-Writing Ratios.    
Under Florida Statutes Section 624.4095, Florida licensed insurance
companies ratio of actual or projected annual written premiums to current or
projected surplus with regards to policyholders (the premium-writing ratio)
may not exceed specified levels for gross and net written premiums as defined by the
statute. If a company exceeds the premium-writing ratio, the Florida Department of
Insurance shall suspend the companys certificate of authority in Florida or,
establish by order, maximum gross or net annual premiums to be written by the company
consistent with maintaining the ratios specified. Only FLICA writes comprehensive major
medical and hospital/surgical medical expense new business in Florida. At December 31,
2004, the premium-writing ratio for FLICA complied with the limit mandated by Florida law.

Dividends.    
          Dividends paid by the Insurance Subsidiaries are determined by and subject to
          the regulations of the insurance laws and practices of the Texas Department of
          Insurance. Generally, the Texas Insurance Code allows life and health insurance
          companies to make dividend payments from surplus profits or earned surplus
          arising from its business. Earned surplus is defined as unassigned surplus
          excluding any unrealized gains. Texas life and health insurance companies may
          generally pay ordinary dividends or make distributions of cash or other property
          in the current twelve month period with a fair market value equal to or less
          than the greater of 10% of surplus as regards policyholders as of the preceding
          December 31 or the net gain from operations for the twelve month period ending
          on the preceding December 31. Dividends exceeding the applicable threshold are
          considered extraordinary and require the prior approval of the Texas Insurance
          Commissioner.

The Insurance Subsidiaries are
precluded from paying dividends during 2005 without prior approval of the Texas Insurance
Commissioner, as the companies earned surplus is negative. Due to statutory losses
incurred by the Insurance Subsidiaries in prior years, the Company does not expect to
receive any dividends from the Insurance Subsidiaries for the foreseeable future.

Guaranty Associations.    
The Insurance Subsidiaries may be required, under the
solvency or guaranty laws of most states in which they do business, to pay assessments (up
to prescribed limits) to fund policyholder losses or liabilities of insurance companies
that become insolvent. Non-affiliated insurance company insolvencies increase the
possibility that such assessments may be required. These assessments may be deferred or
forgiven under most guaranty laws if they would threaten an insurers financial
strength and, in certain instances, may be offset against future premium taxes. The
incurrence and amount of such assessments may increase in the future without notice. The
Insurance Subsidiaries pay the amount of such assessments as they are incurred.
Assessments that cannot be offset against future premium taxes are charged to expense.
Assessments that qualify for offset against future premium taxes are capitalized and are
offset against such future premium taxes. As a result of such assessments, the Insurance
Subsidiaries paid approximately $26,000 during the year ended December 31, 2004.

# FEDERAL REGULATION

HIPAA.    
          This federal regulation, among other things, mandates the
          adoption of standards for the exchange of electronic health information in an
          effort to encourage overall administrative simplification and enhance the
          effectiveness and the efficiency of the healthcare industry. This legislation
          also promotes so-called accountability by requiring compliance with
          certain privacy and security standards in connection with individually
          identifiable protected health information of certain individuals. Another key
          component is portability, or an individuals right, under
          certain circumstances, to satisfy waiting periods or pre-existing coverage
          limitations contained in an individual policy form providing new coverage for
          such individual, as a result of the length of time such individual was covered
          under a prior group health plan.

In December 2000, final regulations
were issued regarding the privacy of individually identifiable health information. This
final rule on privacy applies to both electronic and paper records and imposes extensive
requirements on the way in which health care providers, health plan sponsors, health
insurance companies, and their business associates use and disclose protected information.
Under the new HIPAA privacy rules the Company is now required to (a) comply with a variety
of requirements concerning its use and disclosure of individuals protected health
information, (b) establish rigorous internal procedures to protect health information, and
(c) enter into business associate contracts with other companies that use similar privacy
protection procedures. The final rules do not provide for complete federal preemption of
state laws, but, rather, preempt all contrary state laws unless the state law is more
stringent. The effective date of the rules was April 14, 2003.

In February 2003, rules were
published related to the security of electronic health data, including individual health
information and medical records, for health plans, health care providers, and health care
clearinghouses that maintain or transmit health information electronically. The rules
would require these businesses to establish and maintain confidentiality of this
information. The standards embraced by these rules include the implementation of technical
and organization policies, practices and procedures for security and confidentiality of
health information and protecting its integrity, education and training programs,
authentication of individuals who access this information, systems controls, physical
security and disaster recovery systems, protection of external communications and use of
electronic signatures. The rules were effective April 23, 2003. Most covered entities have
until April 25, 2005 to comply.

Sanctions for failing to comply with
HIPAA standards include criminal penalties of up to $250,000 per violation and civil
sanctions of up to $25,000 per violation. Due to the complex nature of the privacy
regulations, they may be subject to court challenge, as well as further legislative and
regulatory actions that could alter their effect. The Company believes that it is in
compliance with the effective HIPAA regulations.

GLBA.    
          The Financial Services Modernization Act of 1999 (the
          Gramm-Leach-Bliley Act, or GLBA) contains privacy
          provisions and introduced new controls over the transfer and use of
          individuals nonpublic personal data by financial institutions, including
          insurance companies, insurance agents and brokers licensed by state insurance
          regulatory authorities. Numerous pieces of federal and state legislation aimed
          at protecting the privacy of nonpublic personal financial and health information
          are pending. The privacy provisions of GLBA that became effective in July 2001
          require companies to provide written notice of its privacy practices to all of
          the Companys insureds. In addition, the Company provides insureds with an
          opportunity to state their preferences regarding the Companys use of their
          non-public personal information.

GLBA provides that there is no
federal preemption of a states insurance related privacy laws if the state law is
more stringent than the privacy rules imposed under GLBA. Pursuant to the authority
granted under GLBA to state insurance regulatory authorities to regulate, the National
Association of Insurance Commissioners promulgated a new model regulation called Privacy
of Consumer Financial and Health Information Regulation, which was adopted by numerous
state insurance authorities. The Company believes that it is in compliance with the
privacy regulations that became effective in 2001.

# PENDING HEALTH CARE
REFORM

The health care industry, as one of
the largest industries in the United States, continues to attract much legislative
interest and public attention. In recent years, an increasing number of legislative
proposals have been introduced or proposed in Congress and in some state legislatures that
would effect major changes in the health care system, either nationally or at the state
level. Proposals that have been considered include income tax credits for certain
individuals, cost controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, patients bills of rights
and requirements that all businesses offer health insurance coverage to their employees.
There can be no assurance that future health care legislation or other changes in the
administration or interpretation of governmental health care programs will not have a
material adverse affect on the business, financial condition or results of the operations
of the Company and its subsidiaries.



# EMPLOYEES

At December 31, 2004, the Company
employed 213 persons. The Company has not experienced any work stoppages, strikes or
business interruptions as a result of labor disputes involving its employees, and the
Company considers its relations with its employees to be good.

# ITEM 2  PROPERTIES

The Companys principal offices
are located at 801 Cherry Street, Unit 33, 3100 Burnett Plaza, Fort Worth, Texas. The
lease for this facility expires February 28, 2011. The Companys warehouse and
storage facilities are located at 7333 Jack Newell Boulevard North, Fort Worth, Texas,
under a lease agreement which expires in October, 2005. Precision Dialing Services
(PDS), the Companys wholly-owned telemarketing subsidiary, maintains its
facility at 1100 East Campbell Road, Richardson, Texas, under a lease agreement which
expires in March, 2009. The Company believes that its leased facilities will meet its
existing needs and that the leases can be renewed or replaced on reasonable terms if
necessary.

# ITEM 3  LEGAL
PROCEEDINGS

In the normal course of its business
operations, the Company is involved in various claims and other business related disputes.
In the opinion of Management, the Company is not a party to any pending litigation which
is reasonably likely to have an adverse result or disposition that would have a material
adverse effect on the Companys business consolidated financial position or its
consolidated results of operations.

# ITEM 4  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted by
the Company to a vote of stockholders, through the solicitation of proxies or otherwise,
during the fourth quarter of the fiscal year for which this report is filed.



# PART II

# ITEM 5  MARKET FOR
REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Price Range of Publicly Traded
Securities.    
The Companys Common Stock is quoted on the
over-the-counter bulletin board (OTC Bulletin Board). There were 50,606,876
shares of Common Stock outstanding as of March 2, 2005. Warrants that were exercisable at
an initial exercise price of $9.04 per share of common stock expired on March 24, 2004.
The high and low prices listed for the Common Stock and Warrants reflect the OTC Bulletin
Board closing bid prices of the Companys securities. The closing bid price on
December 31, 2004 was $0.40. There were approximately 311 shareholders of record on
December 31, 2004, representing approximately 1,430 beneficial owners.

|                   |                |              |         |     
|------------------ | -------------- | ------------ | ------- | ----
|OTC Bulletin Board |                |             
|                   |                | Common Stock | Warrant |     
|                   |                | High         | Low     | High
|                   | 2004           |              |         |     
|                   | Fourth Quarter |              |         | $   
|                   | Third Quarter  |              |         |     
|                   | Second Quarter |              |         |     
|                   | First Quarter  |              |         |     
|                  
|                   | 2003           |              |         |     
|                   | Fourth Quarter |              |         | $   
|                   | Third Quarter  |              |         |     
|                   | Second Quarter |              |         |     
|                   | First Quarter  |              |         |     

Dividend Policy

The Company does not anticipate
declaring or paying cash dividends on its Common Stock in the foreseeable future. For
information concerning statutory limitations on the payment of dividends to the Company by
the Insurance Subsidiaries and further discussion of the Companys results of
operations and liquidity, see ITEM 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations, ITEM 1 
Business  State Regulation, and NOTE 11  Statutory Capital
And Surplus to the Companys Consolidated Financial Statements at Item 8.

Reservation of Common
Stock

Up to 1,139,835 shares of the fully
diluted number of shares of common stock have been reserved for issuance to employees,
directors and former directors, and up to 387,119 shares of the fully diluted number of
shares of common stock have been reserved for issuance to the Companys marketing
agents under the Companys 1999 Stock Option Plan, which was approved by the
Companys shareholders. For information concerning the Companys equity
compensation plans, see Note 13  Employee Benefit Plans to the
Companys Consolidated Financial Statements at Item 8 and Item 12 
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

# ITEM 6  SELECTED
CONSOLIDATED FINANCIAL DATA

The information set forth below was
derived from the Consolidated Financial Statements of the Company. The information set
forth below should be read in conjunction with ITEM 7  Managements
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements of the Company and related notes.



|                                                             |                                       |  |   |         |  
|------------------------------------------------------------ | ------------------------------------- |  | - | ------- | -
|                                                             | Year Ended December 31,              
|                                                             |                                       |  |   |         |  
|                                                             |                                       |  |   | 2004    |  
|                                                             |                                       |  |   |         |  
|                                                             | (in thousands, except per share data)
|Statement of Operations Data:                                |                                       | 
|Premiums                                                     |                                       |  | $ | 92,239  |  
|Total revenues                                               |                                       |  |   | 103,253 |  
|(Loss) income from continuing operations before income taxes |                                       |  |   | (125    | )
|(Loss) income from continuing operations (1)                 |                                       |  |   | (156    | )
|(Loss) income from discontinued operations(2)                |                                       |  |   | (2,127  | )
|Preferred stock dividends                                    |                                       |  |   | 430     |  
|Loss applicable to common shareholders                       |                                       |  |   | (2,713  | )
|                                                            
|Loss Per Share(1):                                           |                                       | 
|Basic and diluted loss from Continuing operations per share  |                                       |  | $ | (0.02   | )
|Basic and diluted loss per share                             |                                       |  | $ | (0.07   | )
|                                                             |                                       | 
|Weighted Average Shares Outstanding:                         |                                       | 
|Basic and diluted                                            |                                       |  |   | 41,662  |  
|                                                            
|                                                             | December 31,                         
|                                                             |                                       |  |   |         |  
|                                                             |                                       |  |   | 2004    |  
|                                                             |                                       |  |   |         |  
|                                                             | (in thousands)                       
|Balance Sheet Data:                                          |                                       | 
|Cash and invested assets                                     |                                       |  | $ | 105,861 |  
|Total Assets                                                 |                                       |  |   | 140,108 |  
|Policy liabilities                                           |                                       |  |   | 78,112  |  
|Notes payable (3)                                            |                                       |  |   | 16,478  |  
|Total liabilities                                            |                                       |  |   | 105,368 |  
|Redeemable convertible Preferred stock (4)                   |                                       |  |   | -       |  
|Stockholders' equity(4)                                      |                                       |  |   | 34,740  |  

|(1) |  | Net loss for the year ended December 31, 2000 includes a non-cash charge of
               $10.4 million related to an increase in the deferred tax asset valuation
               allowance. See Critical Accounting Policies  Deferred Tax
               Asset at Item 7.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | In October 2004, the Company sold its printing subsidiary, Westbridge Printing
               Services, Inc. (WPS). The operating results of WPS are presented as
               (loss) income from discontinued operations.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | In April 2001, the Company borrowed an additional $11 million. See
               Liquidity, Capital Resources, and Statutory Capital and Surplus at
               Item 7.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | On December 31, 2003, 36,567 shares plus accrued dividends equal to 937 shares
               of 10.25% Series A Convertible Preferred Stock were exchanged for 37,504 shares
               of 5.5% Series B Convertible Preferred Stock. Stockholders equity at
               December 31, 2003 includes $37.5 million of 5.5% Series B Convertible Preferred
               Stock.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 7 
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

# GENERAL

Business Overview.    
USHEALTH Group, Inc. (USHEALTH or the
Company), formerly Ascent Assurance, Inc., is the successor to a Delaware
company incorporated in 1982 as an insurance holding company. USHEALTH, through its
applicable subsidiaries, is principally engaged in the development, marketing,
underwriting, and administration of medical expense and supplemental health insurance
products. The Companys revenues result primarily from premiums and fees from the
insurance products sold by its wholly-owned subsidiaries National Foundation Life
Insurance Company (NFL), Freedom Life Insurance Company of America
(FLICA), National Financial Insurance Company (NFIC) and American
Insurance Company of Texas (AICT), and together with NFL, NFIC and FLICA,
collectively, the Insurance Subsidiaries, and marketed by
NationalCare®Marketing, Inc. (NCM) and AmeriCare Benefits,
Inc. (ACB), also wholly-owned subsidiaries. The Company, through applicable
subsidiaries, also derives fee and service revenue from (i) tele-marketing services, (ii)
renewal commissions for prior year sales of both affiliated and unaffiliated insurance
products, and (iii) commissions on the sale of the benefits of unaffiliated membership
benefit programs. See Item 1  Business for a discussion of the
Companys marketing distribution system, health insurance products, and market
competition.

The following discussion provides
managements assessment of operating results and material changes in financial
position and liquidity for the Company. This discussion is based upon the Companys
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. Certain reclassifications of prior years
amounts have been made to conform with the 2004 presentation.

Forward-Looking Statements.    
Statements contained in this analysis and elsewhere in this
document that are not based on historical information are forward-looking statements and
are based on managements projections, estimates and assumptions. In particular,
forward-looking statements can be identified by the use of words such as may,
will, should, expect, anticipate,
estimate, continue, or similar words. Management cautions readers
regarding its forward-looking statements. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. Various statements
contained in Item 1  Business and Item 7  Managements
Discussion and Analysis of Results of Operation and Financial Condition, are
forward-looking statements. These forward-looking statements are based on the intent,
belief or current expectations of the Company and members of its senior management team.
While USHEALTHs management believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations, prospective
investors are cautioned that any such forward-looking statements are not guarantees of
future performance, and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.

Important factors known to management
that could cause actual results to differ materially from those contemplated by the
forward-looking statements in this Report include, but are not limited to:

|o |  | any limitation imposed on the Insurance Subsidiaries ability to control the impact
of rising health care costs and rising medical service utilization rates through product
and benefit design, underwriting criteria, premium rate increases, utilization management
and negotiation of favorable provider contracts;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | the impact of changing health care trends on the Insurance Subsidiaries ability to
accurately estimate claim and settlement expense reserves;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|o |  | the ability of the Company to fund competitive commission advances to its agents from
internally generated cash flow or external financing;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|o |  | developments in health care reform and other regulatory issues, including the Health
Insurance Portability and Accountability Act of 1996 and increased privacy regulation, and
changes in laws and regulations in key states where the Company operates;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | USHEALTHs ability to make additional investment in its Insurance Subsidiaries in the
form of capital contributions, if needed, in order for such subsidiary to comply with
regulatory capital or debt covenant requirements;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | default by issuers of fixed maturity investments owned by the Insurance Subsidiaries; and
|- |  | -----------------------------------------------------------------------------------------

|o |  | the loss of key management personnel.
|- |  | -------------------------------------

Subsequent written or oral statements
attributable to USHEALTH or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this Report and those in the Companys
reports previously filed with the Securities and Exchange Commission (SEC). Copies of these filings may be obtained by each stockholder, without charge, by
contacting USHEALTH. Requests should be directed to Patrick H. ONeill, Executive Vice President and
General Counsel, USHEALTH Group, Inc., 3100 Burnett Plaza, 801 Cherry Street, Unit 33, Fort Worth, Texas 76102. Such
report will be furnished without Exhibits. Copies of the Exhibits will be furnished to requesting stockholders upon
payment of the Companys reasonable expenses in furnishing the same.

# CRITICAL ACCOUNTING
POLICIES

The Companys accounting
policies are more fully described in Note 2 of the Consolidated Financial Statements at
Item 8. The Company believes that the following discussion addresses the Companys
most significant accounting policies, which are those that are most important to the
portrayal of the Companys financial condition and results of operations and require
managements most difficult, subjective and complex judgments. The Companys
significant accounting policies relate to revenue recognition, investments, agent
receivables, deferred policy acquisition costs, deferred tax assets, claim reserves,
future policy benefit reserves, reinsurance and statutory accounting practices. The
application of these accounting policies requires management to make significant estimates
and judgments that affect the reported amounts of assets, liabilities and expenses in the
Companys consolidated financial statements. Such estimates and judgments are based
on historical experience, changes in laws and regulations, observance of industry trends,
and various information received from third parties. While the estimates and judgments
associated with the application of these accounting policies may be affected by different
assumptions or conditions, the Company believes the estimates and judgments associated
with the reported consolidated financial statement amounts are appropriate in the
circumstances. Actual results could differ materially from these estimates under different
assumptions or conditions.

Revenue Recognition.    
Premium revenues from insurance contracts are recognized when
due from policyholders. Policies for which premium has not been received within the
applicable grace period from the due date are canceled. Fee and service income is
recognized when earned, the services have been provided and collectibility is reasonably
assured.

Investments.    
          Investment income is an important source of revenue, and the Companys
          return on invested assets has a material effect on net income. The
          Companys investment policy is subject to the requirements of insurance
          regulatory authorities. In addition, certain assets are held on deposit in
          specified states and invested in specified securities in order to comply with
          state law. Although the Company closely monitors its investment portfolio,
          available yields on newly invested funds and gains or losses on existing
          investments depend primarily on general market conditions. The Companys
          investment portfolio is managed by Frost National Bank.

Investment policy is determined by
the applicable Board of Directors of the Company and each of the Insurance Subsidiaries.
The Companys current investment policy is to balance its portfolio between long-term
and short-term investments so as to achieve long-term returns consistent with the
preservation of capital and maintenance of adequate liquidity to meet the payment of the
Companys policy benefits and claims. The current schedule of the Companys
invested asset maturities corresponds with the Companys expectations regarding
anticipated cash flow payments based on the Companys policy benefit and claim cycle,
which the Company believes is medium term in nature. The Company invests primarily in
fixed-income securities of the U.S. Government and its related agencies, investment grade
fixed-income corporate securities and mortgage-backed securities. The Companys
entire fixed maturity portfolio is classified as available for sale and
carried at market value.

The following table provides
information on the Companys fixed maturity investments, in thousands, as of December
31:

|                                     |             |  |      |       
|------------------------------------ | ----------- |  | ---- | ------
|                                     | 2004        |  | 2003
|                                     |             |  |     
|                                     | MarketValue |  | %    |       
|                                     |             |  |      |       
|Fixed Maturities (at market value):  |             |  |      |       
|U.S. Government and related agencies |             |  | $    | 10,912
|State, county and municipal          |             |  |      | 2,309 
|Finance companies                    |             |  |      | 23,083
|Public utilities                     |             |  |      | 10,123
|Mortgage-backed securities           |             |  |      | 20,420
|All other corporate bonds            |             |  |      | 32,882
|                                     |             |  |      |       
|Total Fixed Maturities               |             |  | $    | 99,729
|                                     |             |  |      |       

Mortgage-backed securities comprised
20.5% of the Companys fixed maturity portfolio at December 31, 2004 as compared to
24.3% at December 31, 2003. Mortgage-backed securities are subject to risks associated
with variable pre-payments. This may result in these securities having a different actual
cash flow and maturity than expected at the time of purchase. Securities that have an
amortized cost greater than par and are backed by mortgages that prepay faster than
expected will incur a reduction in yield or a loss. Those securities with an amortized
cost lower than par that prepay faster than expected will generate an increase in yield or
a gain. In addition, the Company may incur reinvestment risks if market yields are lower
than the book yields earned on the securities. Prepayments occurring slower than expected
have the opposite impact. The Company may incur disinvestment risks if market yields are
higher than the book yields earned on the securities and the Company is forced to sell the
securities. The degree to which a security is susceptible to either gains or losses is
influenced by 1) the difference between its amortized cost and par, 2) the relative
sensitivity of the underlying mortgages backing the assets to prepayment in a changing
interest rate environment and 3) the repayment priority of the securities in the overall
securitization structure. There are negligible default risks in the mortgage-backed
securities portfolio as a whole as the vast majority of the assets are either guaranteed
by U.S. government-sponsored entities or are supported in the securitization structure by
junior securities enabling the assets to achieve high investment grade status.

The following table summarizes
consolidated investment results (excluding unrealized gains or losses) for the indicated
year (in thousands, except percentages):

|                                               |  |  |  
|---------------------------------------------- |  |  | -
|                                               |  |  |  
|                                               |  |  |  
|Net investment income(1)                       |  |  | $
|Net realized gain (loss) on investments        |  |  |  
|Average gross annual yield on fixed maturities |  |  |  

---

|(1) |  | Excludes interest on receivables from agents of $0.4 million, $1.0 million, and
          $1.5 million for the years ended December 31, 2004, 2003 and 2002, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys portfolio has an
average effective duration of five years, which reflects the medium-term nature of its
liabilities. As a result, a significant portion of the portfolio matures and is reinvested
each year.

The following table indicates by
rating the composition of the Companys fixed maturity securities portfolio,
excluding short-term investments at December 31:

|                                |                |  |      |               
|------------------------------- | -------------- |  | ---- | --------------
|                                | 2004           |  | 2003
|                                |                |  |     
|                                | MarketValue    |  | %    |               
|                                |                |  |      |               
|                                | (in thousands) |  |      | (in thousands)
|Ratings(1)                      |                |  |      |               
|Investment grade:               |                | 
|U.S. Government and agencies    |                |  | $    | 19,892        
|AAA                             |                |  |      | 12,384        
|AA                              |                |  |      | 4,069         
|A                               |                |  |      | 32,545        
|BBB                             |                |  |      | 28,505        
|Non-Investment grade:           |                | 
|BB                              |                |  |      | 1,785         
|B and below                     |                |  |      | 549           
|                                |                |  |      |               
|Total fixed maturity securities |                |  | $    | 99,729        
|                                |                |  |      |               
|                                |                |  |      |               

---

|(1) |  | Ratings are the lower of those assigned primarily by Standard & Poors
               and Moodys, when available, and are shown in the table using the Standard
               & Poors rating scale. Unrated securities are assigned ratings based on
               the applicable NAIC designation or the rating assigned to comparable debt
               outstanding of the same issuer. NAIC 1 fixed maturity securities have been
               classified as A and NAIC 2 fixed maturity securities have been
               classified as BBB.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The NAIC assigns securities quality
ratings and uniform prices called NAIC Designations based upon the rating
agencies ratings, which are used by insurers when preparing their annual statutory
reports. The NAIC assigns designations to publicly-traded as well as privately-placed
securities. The ratings assigned by the NAIC range from Class 1 (highest quality rating)
to Class 6 (lowest quality rating). At December 31, 2004, 66.6%, 31.1% and 2.3% of the
market value of the Companys fixed maturity securities were rated NAIC 1, NAIC 2,
and NAIC 3 and below, respectively.

The Company monitors the financial
condition and operations of the securities rated below investment grade and of certain
investment grade securities on which there are concerns regarding credit quality. In
evaluating fixed maturities to determine whether any of the unrealized losses are other
than temporary, managements assessments as to the nature of declines in fair values
are based upon historical operating trends, business prospects, status of the industry in
which the Company operates, analyst ratings on the issuer and sector, the quality of the
investments, the severity and duration of the unrealized losses and the Companys
ability or intent to hold the investments. If fair value is less than the carrying amount
and the decline in value is determined to be other than temporary, an appropriate
write-down is recorded.

The scheduled contractual maturities
of the Companys fixed maturity securities, excluding short-term investments at
December 31 are shown in the table below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or
without penalties.



|                                       |                |  |      |               
|-------------------------------------- | -------------- |  | ---- | --------------
|                                       | 2004           |  | 2003
|                                       |                |  |     
|                                       | MarketValue    |  | %    |               
|                                       |                |  |      |               
|                                       | (in thousands) |  |      | (in thousands)
|Scheduled Maturity                     |                |  |      |               
|Due in one year or less                |                |  | $    | 2,003         
|Due after one year through five years  |                |  |      | 29,122        
|Due after five years through ten years |                |  |      | 33,540        
|Due after ten years                    |                |  |      | 14,644        
|Mortgage-backed securities             |                |  |      | 20,420        
|                                       |                |  |      |               
|Total fixed maturity securities        |                |  | $    | 99,729        
|                                       |                |  |      |               

Agent Receivables.    
In the ordinary course of business, a subsidiary of USHEALTH advances
commissions on policies written by its general agencies and their agents. Net agent
receivables were $3.5 million and $4.5 million at December 31, 2004 and 2003,
respectively. Such subsidiary is reimbursed for these advances from the commissions earned
over the respective policys life. In the event that policies lapse prior to the time
the subsidiary has been fully reimbursed, the general agency or the individual agents, as
the case may be, are responsible for reimbursing the outstanding balance of the commission
advance. A reserve for uncollectible agents balances is routinely established based
upon historical experience and projected commission earnings. As of December 31, 2004 and
2003, the allowance for uncollectible commission advances was $3.6 million and $3.4
million, respectively.

Deferred Policy Acquisition Costs.    
Policy acquisition costs consisting of commissions and other policy
issue costs, which vary with and are primarily related to the production of new business,
are deferred and amortized over periods not to exceed the estimated premium-paying periods
of the related policies. Projected future levels of premium revenue are estimated using
assumptions as to interest, mortality, morbidity and withdrawals consistent with those
used in calculating liabilities for future policy benefits. Deferred policy acquisition
costs totaled $20.7 million and $21.8 million at December 31, 2004 and 2003, respectively.

A premium deficiency exists if the
present value of future net cash flows plus future policy benefit and claims reserves at
the calculation date is negative or less than net deferred policy acquisition costs. The
calculation of future net cash flows includes assumptions as to future rate increases and
persistency. The Company routinely evaluates the recoverability of deferred acquisition
costs in accordance with GAAP. At December 31, 2004, 2003 and 2002, there were no premium
deficiencies requiring recognition.

Deferred Tax Asset.    
The Companys net deferred tax asset before valuation allowance at
December 31, 2004 and 2003 was $17.8 million and $18.4 million, respectively. As the
Company reported substantial pre-tax losses for the year ended December 31, 2000,
principally due to losses from major medical products issued prior to July 2000,
applicable GAAP literature required that the Companys net deferred tax asset be
fully reserved as of December 31, 2000. The Company reported pre-tax losses for the years
ended December 31, 2004, 2003 and 2002. Accordingly, the Company has reported no income
tax benefit for 2004, 2003, and 2002 and the net deferred tax asset remains fully reserved
at December 31, 2004. Applicable GAAP literature provides that the deferred tax asset
valuation allowance may be eliminated once the Company achieves sustained profitability,
as defined, and management concludes that it is more likely than not, that all or some
portion of the deferred tax asset will be realized.

At December 31, 2004, the Company had
available tax net operating loss carryforwards (NOLs) of $62.1 million that
expire between 2012 and 2019. The establishment of a valuation allowance for GAAP does not
impair the availability of NOLs for utilization in the Companys federal income tax
return.

Claim Reserves.    
Claim reserves are established by the Insurance Subsidiaries for benefit
payments which have already been incurred by the policyholder but which have not been paid
by the applicable Insurance Subsidiary. Claim reserves totaled $24.6 million at December
31, 2004 as compared to $26.2 million at December 31, 2003. The process of estimating
claim reserves involves the active participation of experienced actuaries with input from
the underwriting, claims, and finance departments. The inherent uncertainty in estimating
claim reserves is increased when significant changes occur. Changes impacting the
Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state
or federal laws and regulations, particularly insurance reform measures; (3) writings of
significant blocks of new business and (4) significant changes in claims payment patterns.
Because claim reserves are estimates, management monitors reserve adequacy over time,
evaluating new information as it becomes available and adjusting claim reserves as
necessary. Such adjustments are reflected in current operations.

Management considers many factors
when setting reserves including: (1) historical trends; (2) current legal interpretations
of coverage and liability; (3) loss payments and pending levels of unpaid claims; and (4)
product mix. Based on these considerations, management believes that adequate provision
has been made for the Companys claim reserves. Actual claims paid may deviate,
perhaps substantially, from such reserves. For a reconciliation of claim reserves, see
Note 8 to the Consolidated Financial Statements at Item 8.

Future Policy Benefit Reserves.    
Policy benefit reserves are established by each of the Insurance
Subsidiaries for benefit payments that have not been incurred, but are estimated to be
incurred, in the future. Policy benefit reserves totaled $53.5 million at December 31,
2004 as compared to $54.9 million at December 31, 2003. Policy benefit reserves are
calculated according to the net level premium reserve method and are equal to the
discounted present value of the applicable Insurance Subsidiarys expected future
policyholder benefits minus the discounted present value of its expected future net
premiums.

These present value determinations
are based upon assumed fixed investment yields, the age of the insured(s) at the time of
policy issuance, expected morbidity and persistency rates, and expected future
policyholder benefits. In determining the morbidity, persistency rate, claim cost and
other assumptions used in determining the Insurance Subsidiaries policy benefit
reserves, each Insurance Subsidiary relies primarily upon its own benefit payment history
and upon information developed in conjunction with actuarial consultants and industry
data. Persistency rates have a direct impact upon policy benefit reserves because the
determinations for this reserve are, in part, a function of the number of policies in
force and expected to remain in force to maturity. If persistency is higher or lower than
expected, future policyholder benefits will also be higher or lower because of the
different than expected number of policies in force, and the policy benefit reserves will
be increased or decreased accordingly.

Policy benefit reserve requirements
are also interrelated with product pricing and profitability. Each of the applicable
Insurance Subsidiaries must price their respective products at a level sufficient to fund
their policyholder benefits and still remain profitable. Because such claim and
policyholder benefits represent the single largest category of its operating expenses,
inaccuracies in the assumptions used to estimate the amount of such benefits can result in
the Insurance Subsidiaries failing to price their respective products appropriately and to
generate sufficient premiums to fund the payment thereof.

Because the discount factor used in
calculating policy benefit reserves is based upon the rate of return of the investments
designed to fund this reserve, the amount of the reserve is dependent upon the yield on
these investments. Provided that there is no material adverse experience with respect to
these benefits, changes in future market interest rates will not have an impact on the
profitability of policies already sold. Because fluctuations in future market interest
rates affect the yield on new investments, they also affect the discount factor used to
establish, and thus the amount of, its policy benefit reserves for new sales. In addition,
because an increase in the policy benefit reserves in any period is treated as an expense
for income statement purposes, market interest rate fluctuations can directly affect the
profitability for policies sold in such period. It is not possible to predict future
market interest rate fluctuations.

In accordance with GAAP, the
Insurance Subsidiaries actuarial assumptions are generally fixed, and absent
materially adverse benefit experience, they are not generally adjusted. Each of the
Insurance Subsidiaries monitors the adequacy of its policy benefit reserves on an ongoing
basis by periodically analyzing the accuracy of its actuarial assumptions. The adequacy of
policy benefit reserves may also be impacted by the development of new medicines and
treatment procedures which may alter the incidence rates of illness and the treatment
methods for illness and accident (such as out-patient versus in-patient care) or prolong
life expectancy. Changes in coverage provided by major medical insurers or government
plans may also affect the adequacy of reserves if, for example, such developments had the
effect of increasing or decreasing the incidence rate and per claim costs of occurrences
against which the applicable Insurance Subsidiary insures. An increase in either the
incidence rate or the per claim costs of such occurrences could result in the need to post
additional reserves, which could have a material adverse effect upon an Insurance
Subsidiaries business, financial condition or results of operations (see
Liquidity, Capital Resources and Statutory Capital and Surplus).

Reinsurance.    
          As is customary in the insurance industry, the Insurance Subsidiaries reinsure,
          or cede, portions of the coverage provided to policyholders to other insurance
          companies on both an excess of loss and a coinsurance basis. Cession of
          reinsurance is utilized by an insurer to limit its maximum loss; thereby,
          providing a greater diversification of risk and minimizing exposures on larger
          risks. Reinsurance does not discharge the primary liability of the original
          insurer with respect to such insurance, but the Company, in accordance with
          prevailing insurance industry practice, reports reserves and claims after
          adjustment for reserves and claims ceded to other companies through reinsurance.

The Insurance Subsidiaries reinsure
risks under each of their respective major medical policies on an excess of loss basis so
that its net payments on any one life insured under the policy are limited for any one
calendar year to $150,000. Risks under its Medicare Supplement policies are not reinsured.
Certain risks under the Insurance Subsidiaries Accidental Death policies are one
hundred percent (100%) reinsured. Under its life insurance reinsurance agreement, FLICA
and NFL retain fifty percent (50%) of the coverage amount of each of its life insurance
policies written prior to June 30, 2004 and in force up to a maximum of $65,000. NFL
reinsures, through an excess of loss reinsurance treaty, a closed block of annually
renewable term life insurance policies. NFLs retention limit is $25,000 per year. In
accordance with industry practice, the reinsurance arrangements in force with respect to
these policies are terminable by either party with respect to claims incurred after the
termination and expiration dates.

At December 31, 2004, approximately
$1.0 million of the $2.4 million recoverable from reinsurers is related to paid losses. Of
this balance, all was recoverable from reinsurers rated A or higher by the
A.M. Best Company.

Statutory Accounting Practices.    
The Insurance Subsidiaries are required to report their results
of operations and financial position to state regulatory agencies based upon statutory
accounting practices (SAP). See Item 1  Business 
Regulation for a description of the principle differences between GAAP and SAP
accounting. The immediate charge off of sales and acquisition expenses and the sometimes
conservative claim cost and other reserve valuation assumptions under SAP generally cause
a lag between the sale of a policy and the emergence of reported earnings. Because this
lag can reduce gain from operations on a SAP basis, it can have the effect of reducing the
amount of funds available for dividend distributions from the Insurance Subsidiaries (see
Liquidity, Capital Resources and Statutory Capital and Surplus).

# OPERATING RESULTS

Results of operations for USHEALTH
are reported below for the years ended December 31, 2004, 2003 and 2002.

|                                                              |      |  |     
|------------------------------------------------------------- | ---- |  | ----
|                                                              | 2004 |  | 2003
|                                                              |      |  |     
|Premiums                                                      |      |  | $   
|Other                                                         |      |  |     
|Net investment income                                         |      |  |     
|Net realized gain (loss) on investments                       |      |  |     
|                                                              |      |  |     
|Total insurance revenues                                      |      |  |     
|Benefits and claims                                           |      |  |     
|Commissions                                                   |      |  |     
|Change in deferred acquisition costs                          |      |  |     
|General and administrative expense                            |      |  |     
|Special executive compensation and severance                  |      |  |     
|Taxes, licenses and fees                                      |      |  |     
|Interest expense on bank facilities                           |      |  |     
|Interest expense on note payable to related party             |      |  |     
|Interest expense on redeemable preferred stock                |      |  |     
|                                                              |      |  |     
|Total insurance operating expenses                            |      |  |     
|                                                              |      |  |     
|Insurance operating results                                   |      |  |     
|                                                              |      |  |     
|Fee and service income (1)                                    |      |  |     
|Fee and service expenses (1)                                  |      |  |     
|                                                              |      |  |     
|Fee and service results                                       |      |  |     
|                                                              |      |  |     
|(Loss) income from continuing operations before income taxes  |      |  |     
|Federal income tax expense                                    |      |  |     
|                                                              |      |  |     
|Loss from continuing operations                               |      |  |     
|                                                              |      |  |     
|Loss from discontinued operations, including loss on disposal |      | 
|in 2004 of ($1,369) (1)                                       |      |  |     
|Federal income tax expense                                    |      |  |     
|                                                              |      |  |     
|Loss from discontinued operations                             |      |  |     
|                                                              |      |  |     
|Net loss                                                      |      |  |     
|Preferred stock dividends                                     |      |  |     
|                                                              |      |  |     
|Loss applicable to common stockholders                        |      |  | $   
|                                                              |      |  |     
|Insurance operating ratios*                                   |      | 
|Benefits and claims                                           |      |  |     
|Commissions                                                   |      |  |     
|Change in deferred acquisition costs                          |      |  |     
|General and administrative expense                            |      |  |     
|Taxes, licenses and fees                                      |      |  |     

|(1) | In October 2004, the Company sold its printing subsidiary, Westbridge Printing Services, Inc. (WPS).
The operating results of WPS are presented as loss from discontinued operations. Reclassifications of prior years' amounts have been made to conform to the 2004 presentation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|*   | Ratios are calculated as a percent of premiums with the exception of the general and
administrative expense ratio, which is calculated as a percent of premiums plus other
insurance revenues.                                                                                       

Overview.    
          The Company reported net losses of ($2.3) million, ($1.3)
          million, and ($0.9) million for 2004, 2003 and 2002, respectively. The ($1.0)
          million increase in the net loss from 2003 to 2004 was principally due to
          non-recurring charges of ($3.0) million for executive compensation and severance
          and a ($1.1) million increase in loss from discontinued operations offset by a
          $3.3 million decrease in interest expense on notes payable to and redeemable
          preferred stock held by related parties.

Effective September 1, 2004, Benjamin
M. Cutler was appointed Chairman and Chief Executive Officer of the Company. In connection
with Mr. Cutlers employment agreement, the Company recorded a $2.0 million liability
for deferred compensation and $308,000 in employment expenses. In addition, the Company
paid severance expense of approximately $727,000 to its former Chairman.

On October 29, 2004, the Company sold
its printing subsidiary and exited the printing business. The loss from discontinued
operations of ($2.1) million for 2004 is comprised of a ($1.4) million loss on sale of the
printing subsidiary and a ($0.7) million operating loss compared to a ($1.1) million
operating loss for 2003.

Interest expense on the note payable
to related party decreased due to the restructuring of the note payable on December 31,
2003 that reduced the interest rate from 12% to 6% per annum. The Companys preferred
stock was converted to common stock on March 15, 2004.

On March 15, 2004, USHEALTHs
shareholders approved an amendment to the Companys Certificate of Incorporation to
increase the authorized number of shares of common stock to 75 million shares from 30
million shares. The approval of this amendment resulted in the automatic conversion of all
37,504 outstanding shares of the Companys convertible participating Series B
preferred stock into 43,995,026 shares of common stock and eliminated the requirement to
pay preferred stock dividends. As a result, preferred stock dividends of $430,000 accrued
through March 15, 2004 were credited to capital in excess of par value and had no impact
on total stockholders equity.

The results of operations for 2003
are not comparable to 2002 due to the third quarter 2003 implementation of Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity (SFAS 150). Pursuant to
SFAS 150, dividends of $1.9 million accrued subsequent to June 30, 2003 on the
Companys Series A Preferred stock outstanding were classified as interest expense, a
component of pre-tax income, instead of a direct deduction to common stockholders
equity. Excluding the impact of SFAS 150, the $1.4 million improvement in net income for
2003 as compared to 2002 was comprised principally of a $0.9 million increase in insurance
operating results attributable to a 3.0 percentage point decline in the benefits and claim
ratio.

The following narratives discuss the
principal components of insurance operating results.

Premiums.    
          The Insurance Subsidiaries premium revenue is derived principally from
          the following medical expense reimbursement products: comprehensive major
          medical, hospital/surgical medical expense, supplemental products including
          specified disease coverage and Medicare supplement. Comprehensive major medical
          products are generally designed to reimburse insureds for eligible expenses
          incurred for hospital confinement, surgical expenses, physician services,
          outpatient services, and the cost of laboratory and diagnostic services, as well
          as inpatient medicines. Hospital surgical medical expense products are similar
          to comprehensive major medical products with respect to benefits for inpatient
          services, except that deductibles and coinsurance provisions are generally
          higher. However, benefits for outpatient services are generally more limited
          under hospital/surgical medical expense coverage than comprehensive major
          medical coverage. Supplemental products include blanket group accident
          coverages, blanket group hospital daily indemnity coverages, as well as
          individual indemnity policies for hospital confinement and convalescent care for
          treatment of specified diseases and event specific individual
          policies, which provide fixed benefits or lump sum payments directly to the
          insured upon diagnosis of certain types of internal cancer or heart disease.
          Prior to 1998, the Insurance Subsidiaries also underwrote Medicare supplement
          products and continue to receive renewal premiums from such policies.

Premium revenue, in thousands, for
each major product line is set forth below:



|                                |      |  |     
|------------------------------- | ---- |  | ----
|                                | 2004 |  | 2003
|                                |      |  |     
|Major medical:                  |      |  |     
|First-year                      |      |  | $   
|Renewal                         |      |  |     
|                                |      |  |     
|                                |      |  | $   
|                                |      |  |     
|Supplemental specified disease: |      | 
|First-year                      |      |  |     
|Renewal                         |      |  |     
|                                |      |  |     
|                                |      |  | $   
|                                |      |  |     
|Medicare supplement:            |      | 
|Renewal                         |      |  | $   
|                               
|Other                           |      |  |     
|                                |      |  |     
|Consolidated Premium Revenue    |      |  | $   
|                                |      |  |     

Total premiums decreased by (9.2%) in
2004 and (8.5%) in 2003 as compared to the corresponding prior year period. Major medical
premiums declined due to lower new business sales resulting from delays in new product
deliveries to NCM and a disciplined pricing philosophy focused upon profitability. In
addition, supplemental specified disease and Medicare supplement premiums declined due to
normal lapsing of policies.

Benefits and Claims.    
Benefits and claims are comprised of (1) claims paid, (2) changes
in claim reserves for claims incurred (whether or not reported), and (3) changes in future
policy benefit reserves (see Financial Condition  Claims Reserves and
Future Policy Benefit Reserves). The 2.1 percentage point improvement in the
ratio of consolidated benefits and claims to consolidated premiums in 2004 as compared to
2003 and the 3.0 percentage point improvement in 2003 as compared to 2002 is principally
attributable to the Companys adherence to a disciplined pricing philosophy for both
new major medical product sales and in force insurance policies and the accelerated
lapsing of unprofitable major medical products marketed prior to July 2000.

For the past several years, the costs
of medical services covered by the Companys major medical insurance policies has
increased significantly, with medical inflation averaging 15% to 20% annually in
comparison to an average increase in the consumer price index of 3%. To maintain the 2004
ratio of claims and benefits to premium into future periods, the Company must accurately
estimate future medical inflation and implement timely premium rate increases for both new
major medical product sales and the majority of its in force insurance policies, including
supplemental specified disease and Medicare supplement policies.

Commissions.    
          The commissions to premiums ratio decreased by 0.7 and 0.8 percentage points in
          2004 and 2003, respectively, as compared to the corresponding prior year as a
          result of the decrease in first year major medical premiums. Commission rates on
          first year premiums are significantly higher than those for renewal premiums.

# LIQUIDITY, CAPITAL
RESOURCES, AND STATUTORY CAPITAL AND SURPLUS

General.    
          The primary sources of cash for the Companys consolidated
          operations are premiums and fees from insurance policies, sales and maturity of
          invested assets and investment income while the primary uses of cash are
          payments of insurance policy benefits, claims and commissions, and general
          operating expenses. Net cash provided by (used in) operations totaled $1.8
          million, ($1.1) million and ($5.0) million for the years ended December 31,
          2004, 2003 and 2002, respectively. The increase in cash provided / decrease in
          cash used by operations from year to year is principally due to a decline in the
          cash basis ratio of benefits and claims to premiums.

USHEALTH is a holding company, the
principal assets of which consist of the capital stock of its subsidiaries and invested
assets. USHEALTHs principal sources of funds are comprised of dividends from its
non-insurance subsidiaries. The Insurance Subsidiaries are precluded from paying dividends
without prior approval of the Texas Insurance Commissioner, as the Insurance
Subsidiaries earned surplus is negative due to statutory losses incurred prior to
2003 (see Business  State Regulation at Item 1). USHEALTHs
principal uses of cash are for general and administrative expenses and to make
discretionary additional investments in its Insurance Subsidiaries in the form of capital
contributions to maintain desired statutory capital and surplus levels. USHEALTH funded
capital contributions to the Insurance Subsidiaries totaling approximately $812,000 and
$2.3 million during 2003 and 2002, respectively, and made no capital contributions during
2004. The Insurance Subsidiaries reported statutory net income (losses) for 2004, 2003,
and 2002 of $2.6 million, $1.1 million, and ($2.7) million, respectively. As of December
31, 2004, USHEALTH had approximately $3.5 million in unrestricted cash and invested assets
as compared to $2.4 million at December 31, 2003.

Conversion of Related Party Preferred Stock.    
On March 15, 2004, USHEALTHs shareholders approved
an amendment to the Companys Certificate of Incorporation to increase the authorized
number of shares of common stock to 75 million shares from 30 million shares. The approval
of this amendment resulted in the automatic conversion of all 37,504 outstanding shares of
the Companys Series B convertible participating preferred stock (Series B
Preferred Stock) into 43,995,026 shares of common stock. All outstanding shares of
the Series B Preferred Stock were held by Special Situations Holdings, Inc. 
Westbridge (SSHW), the Companys largest shareholder. The conversion of
the Series B Preferred Stock increased the ownership percentage of SSHW in the
Companys common stock to approximately 93% from 49%.

Related Party Financing.    
USHEALTH received debt financing to fund an $11 million capital
contribution to FLICA in April 2001 from Credit Suisse First Boston Management LLC,
(CSFBM), which is an affiliate of SSHW (USHEALTHs largest common
stockholder), and a subsidiary of Credit Suisse First Boston LLC (CSFB). The
Credit Agreement relating to that loan (CSFBM Credit Agreement) provided
USHEALTH with total loan commitments of $11 million, all of which were drawn in April
2001. Under restructured terms effective December 31, 2003, the loan bears interest at a
rate of 6% per annum and matures in March 2010. Absent any acceleration following an event
of default, USHEALTH may elect to pay interest in kind by issuance of additional notes.
During 2004, USHEALTH issued approximately $958,000 in additional notes for payment of
interest in kind which increased the notes payable balance to CSFBM at December 31, 2004
to approximately $16.2 million. USHEALTHs obligations to CSFBM are secured, pursuant
to a guaranty and security agreement and pledge agreements, by substantially all of the
assets of USHEALTH and its subsidiaries (excluding the capital stock and the assets of
AICT, FLICA, NFL, NFIC, NCM, Ascent Funding, Inc. and Ascent Management,Inc., some or all
of which is pledged as collateral for bank financing described below). USHEALTHs
subsidiaries (other than those listed above) have also guaranteed USHEALTHs
obligations under the CSFBM Credit Agreement. At December 31, 2004, there were no events
of default.

Bank Financing.    
The majority of commission advances to NCMs and ACBs agents are
financed through Ascent Funding, Inc. (AFI), an indirect wholly owned
subsidiary of USHEALTH. On December 31, 2003, AFI entered into a Credit Agreement (the
Credit Agreement) with Frost National Bank (Frost) that provides
AFI with a $3.0 million revolving loan facility, the proceeds of which are used to
purchase agent advance receivables from NCM and other affiliates. As of December 31, 2004
and 2003, $250,000 and $500,000, respectively, were outstanding under the Credit
Agreement. The Credit Agreement as amended matures on January 15, 2007, at which time the
outstanding principal and interest will be due and payable. The Company maintains an agent
receivable financing arrangement to facilitate growth in new business sales.

AFIs obligations under the
Credit Agreement are secured by liens upon substantially all of AFIs assets.
AFIs principal assets at December 31, 2004 are net agent receivables of $3.5
million. In addition, NCM, ACB and USHEALTH have guaranteed AFIs obligation under
the Credit Agreement, and have pledged all of the issued and outstanding shares of the
capital stock of AFI, NFL, and FLICA as collateral for those guaranties (the
Guaranty Agreements). As of December 31, 2004, there were no events of default
under the Credit or Guaranty Agreements.

Inflation.    
          Inflation impacts claim costs and overall operating costs and,
          although inflation has been lower in the last few years, hospital and medical
          costs have still increased at a higher rate than general inflation, especially
          prescription drug costs. New, more expensive and wider use of pharmaceuticals is
          inflating health care costs. The Company will continue to establish premium
          rates in accordance with trends in hospital and medical costs along with
          concentrated efforts in various cost containment programs. However, there can be
          no assurance that these efforts will fully offset the impact of inflation or
          that increases in premium rates will equal or exceed increasing healthcare
          costs.

# CONTRACTUAL OBLIGATIONS

The following table provides
information on the Companys known contractual obligations, in thousands, as of
December 31, 2004:

|                                 |                        |  |                 |        |         
|-------------------------------- | ---------------------- |  | --------------- | ------ | --------
|                                 | Payments due by period
|                                 |                       
|Contractual obligations          | Total                  |  | Less Than1 Year |        | 1-3Years
|                                 |                        |  |                 |        |         
|Note payable to related party(1) |                        |  | $               | 16,228 |         
|Note payable to bank(2)          |                        |  |                 | 250    |         
|Capital lease obligations        |                        |  |                 | 228    |         
|Operating lease obligations(3)   |                        |  |                 | 5,681  |         
|                                 |                        |  |                 |        |         
|                                 |                        |  | $               | 22,387 |         
|                                 |                        |  |                 |        |         

|(1) |  | Excludes interest at a rate equal to 6% that may be paid in cash or in kind by
               issuance of additional notes.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(2) |  | Excludes interest at a rate equal to the Prime Rate, plus one-half percent per
               annum.
|--- |  | ----------------------------------------------------------------------------------------------------

|(3) |  | Includes payments under a lease for a printer whereby USHEALTH is contractually
               a co-lessee. Under terms of the sale and purchase agreement of its printing
               subsidiary, the former printing subsidiary and the new owner of such former
               printing subsidiary are primarily liable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 7A 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary objectives
in managing its cash flow and investments are to maximize investment income and yield
while preserving capital and minimizing credit risks. To attain these objectives,
investment policies and strategies are developed using expected underwriting results,
forecasted federal tax positions, regulatory requirements, forecasted economic conditions
including expected fluctuations in interest rates and general market risks.

Market risk represents the potential
for loss due to adverse changes in the fair market value of financial instruments. The
market risks associated with the financial instruments of the Company primarily relate to
the Companys investment portfolio that consists largely (95%) of fixed income
securities. The Companys investment portfolio is exposed to market risk through
fluctuations in interest rates, changes in credit quality and principal prepayments.

Interest Rate Risk.    
Interest rate risk is the price sensitivity of a fixed income
security to changes in interest rates. The Company evaluates the potential changes in
interest rates and market prices within the context of asset and liability management.
Asset and liability management involves forecasting the payout pattern of the
Companys liabilities, consisting primarily of accident and health claim reserves, to
determine duration and then matching the duration of the liabilities to fixed income
investments with a similar duration. Through active portfolio asset and liability
management, the Company believes that interest rate risk is mitigated.

Credit Risk.    
The Company invests primarily in fixed-income securities of the U.S. Government and its
related agencies, investment grade fixed-income corporate securities and mortgage-backed
securities. (See Item 7  Managements Discussion and Analysis of
Financial Condition and Results of Operations and Note 6 
Investments to the Companys Consolidated Financial Statements.)
Approximately 2.4% of the Companys fixed-income portfolio market value is comprised
of less than investment grade securities. The Companys investment policy allows up
to 5% of the Companys fixed maturity securities to be invested in higher yielding,
non-investment grade securities. Due to the overall high quality of the Companys
investment portfolio (over 97% investment grade), management believes the Company has
marginal risk with regard to credit quality.

Prepayment Risk.    
Mortgage-backed securities investors are compensated primarily for prepayment risk rather
than credit quality risk. During periods of significant interest rate volatility, the
underlying mortgages may repay more quickly or more slowly than anticipated. If the
repayment of principal occurs earlier than anticipated during periods of declining
interest rates, investment income may decline due to the reinvestment of these funds at
the lower current market rates. To manage prepayment risk, the Company limits the type of
mortgage-backed structures invested in and restricts the portfolios total exposure
in mortgage-backed securities. If the repayment occurs later than expected during periods
of increasing interest rates, the cost of funds to pay liabilities may increase due to the
mismatching of assets and liabilities.

Sensitivity Analysis.    
The Company regularly conducts various analyses to gauge the
financial impact of changes in interest rate on its financial condition. The ranges
selected in these analyses reflect managements assessment as being reasonably
possible over the succeeding twelve-month period. The magnitude of changes modeled in the
accompanying analyses should, in no manner, be construed as a prediction of future
economic events, but rather, be treated as a simple illustration of the potential impact
of such events on the Companys financial results.

The sensitivity analysis of interest
rate risk assumes an instantaneous shift in a parallel fashion across the yield curve,
with scenarios of interest rates increasing and decreasing 100 and 200 basis points from
their levels at December 31, 2004, and with all other variables held constant. A 100 and
200 basis point increase in market interest rates would result in a pre-tax decrease in
the market value of the Companys fixed income investments of $4.9 million and $9.5
million, respectively. Similarly, a 100 and 200 basis point decrease in market interest
rates would result in a pre-tax increase in the market value of the Companys fixed
income investments of $5.1 million and $10.6 million, respectively.



ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and
Financial Statement Schedules Covered by the Following Report of Independent Registered
Public Accounting Firm.

|                                                                                                                             |  | Page  Number | 
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------ | 
|                                                                                                                            
|Report of Independent Registered Public Accounting Firm                                                                      |  | 28          
|                                                                                                                            
|USHEALTH Group, Inc. Financial Statements:                                                                                  
|                                                                                                                            
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                                    |  | 29          
|                                                                                                                            
|Consolidated
Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002                                   |  | 30          
|                                                                                                                            
|Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2004,
                 2003 and 2002 |  | 31          
|                                                                                                                            
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2004,
         2003 and 2002     |  | 32          
|                                                                                                                            
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                                   |  | 33          
|                                                                                                                            
|Notes to the Consolidated Financial Statements                                                                               |  | 34          
|                                                                                                                            
|Financial Statement Schedules:                                                                                              
|                                                                                                                            
|II.    
          Condensed Financial Information of Registrant                                                              |  | 56          
|                                                                                                                            
|III.    
          Supplementary Insurance Information                                                                       |  | 61          
|                                                                                                                            
|IV.    
          Reinsurance                                                                                                |  | 62          
|                                                                                                                            
|V.    
          Valuation and Qualifying Accounts                                                                           |  | 63          

| | All other Financial Statement Schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or notes thereto. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 



# Report of Independent
Registered Public Accounting Firm

The Board of Directors and StockholdersUSHEALTH Group, Inc.
(formerly Ascent Assurance, Inc.)

We have audited the accompanying
consolidated balance sheets of USHEALTH Group, Inc., formerly Ascent Assurance, Inc.,
(the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, comprehensive (loss) income, changes in stockholders equity, and cash
flows for each of the three years in the period ended December 31, 2004. Our audits also
included the financial statement schedules listed in the Index at Item 15(a)(2). These
financial statements and schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the consolidated
financial position of USHEALTH Group, Inc., at December 31, 2004 and 2003, and the
consolidated results of its operations and its cash flows for each of the three years in
the period ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.

As discussed in Note 2 to the
consolidated financial statements, effective July 1, 2003, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity.

Ernst & Young LLP

Dallas, TexasFebruary 24,
2005



# USHEALTH GROUP, INC. (Formerly, Ascent
Assurance, Inc.) CONSOLIDATED BALANCE SHEETS

|                                                                             |                                   | 
|---------------------------------------------------------------------------- | --------------------------------- | 
|                                                                             | December 31,                      | 
|                                                                             |                                   | 
|                                                                             | 2004                              | 
|                                                                             |                                   | 
|Assets                                                                       | (in thousands, except share data)
|Investments:                                                                 |                                   | 
|Fixed Maturities:                                                            |                                   | 
|Available-for-sale, at market value (amortized cost $96,940 and $93,922)     |                                   | 
|Short-term investments                                                       |                                   | 
|Other investments, at market value (cost $353 and $383)                      |                                   | 
|                                                                             |                                   | 
|Total Investments                                                            |                                   | 
|Cash                                                                         |                                   | 
|Accrued investment income                                                    |                                   | 
|Receivables from agents, net of allowance for doubtful accounts of           |                                   | 
|$3,601 and $3,439                                                            |                                   | 
|Deferred policy acquisition costs, net                                       |                                   | 
|Property and equipment, net of accumulated depreciation of $4,891 and $5,000 |                                   | 
|Other assets                                                                 |                                   | 
|                                                                             |                                   | 
|Total Assets                                                                 |                                   | 
|                                                                             |                                   | 
|Liabilities, Redeemable Convertible Preferred Stock and                      |                                   | 
|Stockholders' Equity                                                         |                                   | 
|Liabilities:                                                                 |                                   | 
|Policy liabilities and accruals:                                             |                                   | 
|Future policy benefits                                                       |                                   | 
|Claim reserves                                                               |                                   | 
|                                                                             |                                   | 
|Total Policy Liabilities and Accruals                                        |                                   | 
|Accounts payable and other liabilities                                       |                                   | 
|Notes payable to bank                                                        |                                   | 
|Notes payable to related party                                               |                                   | 
|                                                                             |                                   | 
|Total Liabilities                                                            |                                   | 
|                                                                             |                                   | 
|Stockholders' Equity:                                                        |                                   | 
|Redeemable convertible Series B preferred stock ($1,000 stated value,        |                                   | 
|40,000 shares authorized, 37,504 shares issued and outstanding)              |                                   | 
|Common stock ($0.01 par value, 75,000,000 and 30,000,000 shares authorized;  |                                   | 
|50,606,876 and 6,532,100 shares issued and outstanding)                      |                                   | 
|Capital in excess of par value                                               |                                   | 
|Accumulated other comprehensive income                                       |                                   | 
|Retained Deficit                                                             |                                   | 
|                                                                             |                                   | 
|Total Stockholders' Equity                                                   |                                   | 
|                                                                             |                                   | 
|Total Liabilities, Redeemable Convertible Preferred Stock                    |                                   | 
|and Stockholders' Equity                                                     |                                   | 
|                                                                             |                                   | 

See
the Notes to the Consolidated Financial Statements.



# USHEALTH GROUP, INC. (Formerly, Ascent
Assurance, Inc.) CONSOLIDATED
STATEMENTS OF OPERATIONS

|                                                             |                                       |  |     
|------------------------------------------------------------ | ------------------------------------- |  | ----
|                                                             | Year Ended December 31,              
|                                                             |                                      
|                                                             | 2004                                  |  | 2003
|                                                             |                                       |  |     
|Revenues:                                                    | (in thousands, except per share data)
|Premiums:                                                    |                                       |  |     
|First-year                                                   |                                       |  | $   
|Renewal                                                      |                                       |  |     
|                                                             |                                       |  |     
|Total Premiums                                               |                                       |  |     
|Net investment income                                        |                                       |  |     
|Fee and service income                                       |                                       |  |     
|Other insurance revenues                                     |                                       |  |     
|Net realized gain (loss) on investments                      |                                       |  |     
|                                                             |                                       |  |     
|Total Revenues                                               |                                       |  |     
|                                                             |                                       |  |     
|Benefits, claims and expenses:                               |                                       | 
|Benefits and claims                                          |                                       |  |     
|Change in deferred acquisition costs                         |                                       |  |     
|Commissions                                                  |                                       |  |     
|General and administrative expense                           |                                       |  |     
|Fee and service operating expense                            |                                       |  |     
|Special executive compensation and                           |                                       | 
|severance                                                    |                                       |  |     
|Taxes, license and fees                                      |                                       |  |     
|Interest expense on notes payable                            |                                       |  |     
|Interest expense on redeemable                               |                                       | 
|convertible preferred stock                                  |                                       |  |     
|                                                             |                                       |  |     
|Total Expenses                                               |                                       |  |     
|                                                             |                                       |  |     
|(Loss) income from continuing operations before income taxes |                                       |  |     
|Federal income tax expense                                   |                                       |  |     
|                                                             |                                       |  |     
|(Loss) income from continuing operations                     |                                       |  |     
|                                                             |                                       |  |     
|Loss from discontinued operations, including loss on         |                                       | 
|disposal in 2004 of ($1,369)                                 |                                       |  |     
|Federal income tax expense                                   |                                       |  |     
|                                                             |                                       |  |     
|Loss from discontinued operations                            |                                       |  |     
|                                                             |                                       |  |     
|Net loss                                                     |                                       |  |     
|Preferred stock dividends                                    |                                       |  |     
|                                                             |                                       |  |     
|Loss applicable to common stockholders                       |                                       |  | $   
|                                                             |                                       |  |     
|Basic and diluted loss from continuing                       |                                       | 
|operations per common share                                  |                                       |  | $   
|                                                             |                                       |  |     
|Basic and diluted loss per common share                      |                                       |  | $   
|                                                             |                                       |  |     
|Weighted average shares outstanding:                         |                                       | 
|Basic                                                        |                                       |  |     
|                                                             |                                       |  |     
|Diluted                                                      |                                       |  |     
|                                                             |                                       |  |     

See
the Notes to the Consolidated Financial Statements.



# USHEALTH GROUP, INC. (Formerly, Ascent
Assurance, Inc.) CONSOLIDATED
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

|                                                     |                         |  |     
|---------------------------------------------------- | ----------------------- |  | ----
|                                                     | Year Ended December 31,
|                                                     |                        
|                                                     | 2004                    |  | 2003
|                                                     |                         |  |     
|                                                     | (in thousands)         
|Net loss                                             |                         |  | $   
|Other comprehensive (loss) income:                   |                         | 
|Unrealized holding (loss) gain arising during period |                         |  |     
|Reclassification adjustment of (gain) loss on sales  |                         | 
|of investments in net loss                           |                         |  |     
|                                                     |                         |  |     
|Comprehensive (loss) income                          |                         |  | $   
|                                                     |                         |  |     

See
the Notes to the Consolidated Financial Statements.



USHEALTH GROUP, INC. (Formerly, Ascent
Assurance, Inc.) CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(in thousands, except share data)

|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|------------------------------------------------------------------------------------- | -------------------------------------------- | ------------ | ------------------------ | ---------------------------- | -------- | ------------------ | ------- | ------
|                                                                                      | RedeemableConvertibleSeries BPreferred Stock | Common Stock | Capital in Excess of Par | AccumulatedOther Comp.Income | Retained | TotalStockholders'
|                                                                                      |                                              |              |                          | Shares                       |          |                    | Amount  |       
|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|Balance at January 1, 2002                                                            |                                              |              |                          | -                            |          | $                  | -       |       
|Net loss                                                                              |                                              |              |                          |                              | (931     | )                  |         | (931  
|Series A preferred stock dividends                                                    |                                              |              |                          |                              |          |                    |         |       
|Other comprehensive income                                                            |                                              |              |                          |                              | 3,578    |                    |         |       
|Amortization of unearned     compensation                                             |                                              |              |                          |                              | 55       |                    |         |       
|Common stock issued                                                                   |                                              |              |                          |                              | 17,100   |                    |         | -     
|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|Balance at December 31, 2002                                                          |                                              |              |                          | -                            |          |                    | -       |       
|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|Net loss                                                                              |                                              |              |                          |                              | (1,348   | )                  |         | (1,348
|Series A preferred stock dividends                                                    |                                              |              |                          |                              |          |                    |         |       
|Other comprehensive loss                                                              |                                              |              |                          |                              | (398     | )                  |         |       
|Amortization of unearned     compensation                                             |                                              |              |                          |                              | 6        |                    |         |       
|Waiver of facility fee on notes     payable to related party                          |                                              |              |                          |                              | 1,353    |                    |         |       
|Redeemable convertible Series     B preferred stock issued                            |                                              |              |                          | 37,504                       |          |                    | 37,504  |       
|Common stock issued                                                                   |                                              |              |                          |                              | 15,000   |                    |         | -     
|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|Balance at December 31, 2003                                                          |                                              |              |                          | 37,504                       |          |                    | 37,504  |       
|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|Net loss                                                                              |                                              |              |                          |                              | (2,283   | )                  |         | (2,283
|Series B preferred stock dividends                                                    |                                              |              |                          |                              | 430      |                    |         |       
|Other comprehensive loss                                                              |                                              |              |                          |                              | (235     | )                  |         |       
|Amortization of unearned     compensation and other                                   |                                              |              |                          |                              | 1        |                    |         | (17   
|Common stock issued                                                                   |                                              |              |                          |                              | 79,750   |                    |         | 1     
|Conversion of Series B redeemable     convertible preferred stock     to common stock |                                              |              |                          | (37,504                      | )        |                    | (37,504 | )     
|                                                                                      |                                              |              |                          |                              |          |                    |         |       
|Balance at December 31, 2004                                                          |                                              |              |                          | -                            |          | $                  | -       |       
|                                                                                      |                                              |              |                          |                              |          |                    |         |       



See the Notes to the
Condensed Consolidated Financial Statements.





# USHEALTH GROUP, INC. (Formerly, Ascent
Assurance, Inc.) CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                      |                         |  |               
|----------------------------------------------------- | ----------------------- |  | --------------
|                                                      | Year Ended December 31,
|                                                      |                        
|                                                      | 2004                    |  | 2003          
|                                                      |                         |  |               
|Cash Flow From Operating Activities:                  |                         |  | (in thousands)
|Net loss                                              |                         |  | $             
|Adjustments to reconcile net loss to cash provided by |                         | 
|(used for) operating activities:                      |                         | 
|(Increase) decrease in accrued investment income      |                         |  |               
|Decrease in deferred acquisition costs                |                         |  |               
|Decrease in receivables from agents                   |                         |  |               
|Provision for uncollectible agent receivables         |                         |  |               
|Decrease (increase) in other assets                   |                         |  |               
|Decrease in policy liabilities and accruals           |                         |  |               
|Increase (decrease) in accounts payable and accruals  |                         |  |               
|Amortization and depreciation                         |                         |  |               
|Amortization of deferred costs                        |                         |  |               
|Interest expense on notes payable to related party    |                         |  |               
|Interest expense on redeemable convertible            |                         | 
|Series A preferred stock                              |                         |  |               
|Other, net                                            |                         |  |               
|                                                      |                         |  |               
|Net Cash Provided by (Used for) Operating Activities  |                         |  |               
|                                                      |                         |  |               
|Cash Flow From Investing Activities:                  |                         | 
|Purchase of fixed maturity investments                |                         |  |               
|Sales of fixed maturity investments                   |                         |  |               
|Maturities and calls of fixed maturity investments    |                         |  |               
|Net decrease in short term and other investments      |                         |  |               
|Purchase of equity securities                         |                         |  |               
|Sales of equity securities                            |                         |  |               
|Property and equipment purchased                      |                         |  |               
|                                                      |                         |  |               
|Net Cash (Used for) Provided by Investing Activities  |                         |  |               
|                                                      |                         |  |               
|Cash Flow From Financing Activities:                  |                         | 
|Issuance of notes payable                             |                         |  |               
|Repayment of notes payable                            |                         |  |               
|                                                      |                         |  |               
|Net Cash Used for Financing Activities                |                         |  |               
|                                                      |                         |  |               
|(Decrease) Increase in Cash During Year               |                         |  |               
|Cash at Beginning of Year                             |                         |  |               
|                                                      |                         |  |               
|Cash at End of Year                                   |                         |  | $             
|                                                      |                         |  |               

See
the Notes to the Consolidated Financial Statements.



# USHEALTH GROUP, INC.(Formerly, Ascent
Assurance, Inc.) NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2004

# NOTE 1 
DESCRIPTION OF BUSINESS

USHEALTH Group, Inc.
(USHEALTH), formerly Ascent Assurance, Inc., is the successor to a Delaware
company originally incorporated in 1982 as an insurance holding company. USHEALTH, through
its applicable subsidiaries, is engaged in the development, marketing, underwriting and
administration of medical expense and supplemental health insurance products, primarily to
self-employed individuals and small business owners.

The Companys revenues result
primarily from premiums and fees from the insurance products sold by its wholly-owned
subsidiaries National Foundation Life Insurance Company (NFL), Freedom Life
Insurance Company of America (FLICA), National Financial Insurance Company
(NFIC) and American Insurance Company of Texas (AICT), and
together with NFL, NFIC and FLICA, collectively, the Insurance Subsidiaries,
and marketed by NationalCare® Marketing, Inc. (NCM) and
AmeriCare Benefits, Inc. (ACB), also wholly-owned subsidiaries. The insurance
subsidiaries are licensed to conduct business in 40 states and the District of Columbia.
Each of the following states accounted for more than 5% of premium revenue for the year
ended December 31, 2004: Florida  17%, Texas  13%, Colorado  9%,
Oklahoma  6% and South Carolina  6%. The Company has no significant
concentrations of credit risks.

The Companys operations are
comprised of one segment, Accident and Health insurance. The principal products currently
underwritten are medical expense reimbursement and supplemental policies. The Company,
through applicable subsidiaries, also derives fee and service revenue from (i)
telemarketing services, (ii) renewal commissions for prior year sales of both affiliated
and unaffiliated insurance products, and (iii) commissions on the sale of the benefits of
unaffiliated membership benefit programs.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.    
The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
(GAAP) and include the accounts of USHEALTH Group, Inc. and its subsidiaries.
All significant inter-company accounts and transactions have been eliminated. Certain
reclassifications of prior years amounts have been made to conform to the 2004
financial statement presentation.

Cash Equivalents.    
Cash equivalents consist of highly liquid instruments with
maturities at the time of acquisition of three months or less. Cash equivalents are stated
at cost, which approximates market.

Short-Term Investments.    
Short-term investments are stated at cost, which approximates
market.

Investments.    
          The Companys fixed maturity portfolio is classified as
          available-for-sale and is carried at estimated market value. Equity securities
          (common stocks), which are included in other investments, are also carried at
          estimated market value. Changes in aggregate unrealized appreciation or
          depreciation on fixed maturity and equity securities are reported directly in
          stockholders equity and, accordingly, will have no effect on current
          operations.

Deferred Policy Acquisition Costs (DPAC).    
Policy acquisition costs consisting of
commissions and other policy issue costs, which vary with and are primarily related to the
production of new business, are deferred and amortized over periods not to exceed the
estimated premium-paying periods of the related policies. Also included in Other Assets is
the value of business acquired. The amortization of these costs is based on actuarially
estimated future premium revenues, and the amortization rate is adjusted periodically to
reflect actual experience. Projected future levels of premium revenue are estimated using
assumptions as to interest, mortality, morbidity and withdrawals consistent with those
used in calculating liabilities for future policy benefits.

Agent Receivables.    
In the ordinary course of business, a subsidiary of USHEALTH advances
commissions on policies written by its general agencies and their agents. Net agent
receivables were $3.5 million and $4.5 million at December 31, 2004 and 2003,
respectively. Such subsidiary is reimbursed for these advances from the commissions earned
over the respective policys life. In the event that policies lapse prior to the time
the subsidiary has been fully reimbursed, the general agency or the individual agents, as
the case may be, are responsible for reimbursing the outstanding balance of the commission
advances. A reserve for uncollectible agents balances is routinely established based
upon historical experience and projected commission earnings. As of December 31, 2004 and
2003, the allowance for uncollectible commission advances was $3.6 million and $3.4
million, respectively.

Property and Equipment.    
Property and equipment is stated on the basis of cost and consists
primarily of furniture, fixtures, leasehold improvements and software. Depreciation is
computed principally by the straight-line method for financial reporting purposes using
estimated useful lives of 3 to 10 years.

Future Policy Benefits.    
Liabilities for future policy benefits not yet incurred are computed
primarily using the net level premium method including actuarial assumptions as to
investment yield, mortality, morbidity, withdrawals, persistency and other assumptions
which were appropriate at the time, the policies were issued. Assumptions used are based
on the experience of each of the Insurance Subsidiaries, as adjusted to provide for
possible adverse deviation. Generally, these actuarial assumptions are fixed and, absent
material adverse benefit experience, are not adjusted.

Claim Reserves.    
Claim reserves represent the estimated liabilities on claims reported plus claims incurred
but not yet reported. The process of estimating claim reserves involves the active
participation of experienced actuaries with input from the underwriting, claims, and
finance departments. The inherent uncertainty in estimating claim reserves is increased
when significant changes occur. Changes impacting the Insurance Subsidiaries include: (1)
changes in economic conditions; (2) changes in state or federal laws and regulations,
particularly insurance reform measures; (3) writings of significant blocks of new business
and (4) significant changes in claims payment patterns. Because claim reserves are
estimates, management monitors reserve adequacy over time, evaluating new information as
it becomes available and adjusting claim reserves as necessary. Such adjustments are
reflected in current operations.

Notes Payable.    
Notes payable are stated at cost, which approximates market.

Federal Income Taxes.    
The Company records income taxes based on the asset and liability approach,
which requires the recognition of deferred tax liabilities and assets for the expected
future tax consequence of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. The tax effect of future taxable temporary differences
(liabilities) and future deductible temporary differences (assets) are separately
calculated and recorded when such differences arise. A valuation allowance, reducing any
recognized deferred tax asset, must be recorded if it is determined that it is more likely
than not that such deferred tax asset will not be realized. The net deferred tax asset at
December 31, 2004 and 2003 is fully reserved as discussed at Note 10.

Recognition of Revenue.    
Premium revenues from insurance contracts are recognized when due from
policyholders. Fee and service income is recognized when earned, the services have been
provided and collectiblity is reasonably assured.

Earnings Per Share.    
Under GAAP, there are two measures of earnings per share: basic
earnings per share and diluted earnings per share. Basic earnings per
share are computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share
reflect the potential dilution that could occur if securities or other contracts to issue
common stock were converted or exercised. For the year 2004, 43,995,026 of common shares
attributable to the conversion of USHEALTHs Series B convertible participating
preferred stock (see the Notes to the Condensed Consolidated Financial Statements 
Note 4  Conversion of Redeemable Convertible Preferred Stock) were included in the
computation of basic and diluted earnings per share as of March 15, 2004. To include the
common shares attributable to the conversion of USHEALTHs preferred stock in the
computation of diluted earnings per share from the beginning of 2004 would have been
anti-dilutive. For the year 2004, stock options of 5,678,419 were anti-dilutive and were
not included in the computation of diluted earnings per share because to do so would have
been anti-dilutive. For the years 2003 and 2002, stock options of 918,050 and 1,014,650,
respectively, and the conversion of the preferred stock were not included in the
computation of diluted earnings per share because to do so would have been anti-dilutive.

The following tables reflect the
calculation of basic and diluted earnings per share:

|                                                             |                                       |  |     
|------------------------------------------------------------ | ------------------------------------- |  | ----
|                                                             | Year Ended December 31,              
|                                                             |                                      
|                                                             | 2004                                  |  | 2003
|                                                             |                                       |  |     
|                                                             | (in thousands, except per share data)
|(Loss) income from continuing operations                     |                                       |  | $   
|Loss from discontinued operations                            |                                       |  |     
|                                                             |                                       |  |     
|Net loss                                                     |                                       |  |     
|Preferred stock dividends                                    |                                       |  |     
|                                                             |                                       |  |     
|Loss applicable to common stockholders                       |                                       |  |     
|Weighted average shares outstanding:                         |                                       | 
|Basic                                                        |                                       |  |     
|Diluted                                                      |                                       |  |     
|                                                            
|Basic and diluted loss per share from continuing operations  |                                       |  | $   
|                                                             |                                       |  |     
|Basic and diluted loss per share from discontinuedoperations |                                       |  | $   
|                                                             |                                       |  |     
|Basic and diluted loss per common share                      |                                       |  | $   
|                                                             |                                       |  |     

Use of Estimates.    
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. The Companys significant accounting estimates relate to
investments, agent receivables, deferred policy acquisition costs, deferred tax assets,
claim reserves, future policy benefit reserves, reinsurance and statutory accounting
practices. Important factors known to management that could cause actual results to differ
materially from those estimated or contemplated include, but are not limited to:

|o |  | any limitation imposed on the Insurance Subsidiaries ability to control the impact
of rising health care costs, especially prescription drugs, and rising medical service
utilization rates through product and benefit design, underwriting criteria, premium rate
increases, utilization management and negotiation of favorable provider contracts;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | the impact of changing health care trends on the Insurance Subsidiaries ability to
accurately estimate claim and settlement expense reserves;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|o |  | the ability of the Company to fund competitive commission advances to its agents from
internally generated cash flow or external financing;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|o |  | developments in health care reform and other regulatory issues, including the Health
Insurance Portability and Accountability Act of 1996 and increased privacy regulation, and
changes in laws and regulations in key states where the Company operates;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | USHEALTHs ability to make additional investment in its Insurance Subsidiaries in the
form of capital contributions, if needed, in order for such subsidiary to comply with
minimum regulatory capital requirements;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | default by issuers of fixed maturity investments owned by the Insurance Subsidiaries; and
|- |  | -----------------------------------------------------------------------------------------

|o |  | the loss of key management personnel.
|- |  | -------------------------------------

Change in Accounting Estimates.    
During the third quarter of 2003, the Company redetermined the
estimated useful life of certain software programs used by the Company to manage
policyholder data. Effective July 1, 2003, the original estimated life was extended by
twenty-four months, reducing software amortization expense by approximately $276,000 for
the year ended December 31, 2003. The reduction in loss per basic and diluted share
outstanding was approximately $0.04 for the year ended December 31, 2003.

Recently Issued Accounting Pronouncements.    
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 123 (revised
2004) (FAS 123R), Share-Based Payment. FAS123R eliminates the
alternative to use APB No. 25s , Accounting for Stock Issued to
Employees, intrinsic value method of accounting that was provided in Statement 123
as originally issued. This statement establishes standards for accounting for transactions
in which an entity exchanges its equity instruments for goods or services. It requires a
public entity to measure the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an employee is
required to provide service, usually the vesting period, in exchange for the award.
FAS123R is effective as of the beginning of the first interim period or annual reporting
period that begins after June 15, 2005. Disclosed at Note 13  Employee Benefit Plans is the effect on net loss and loss per
share for the years presented if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation which the Company does not believe will significantly differ from the effects of adopting FAS123R.

In May 2003, the FASB issued SFAS No.
150, Accounting For Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. This Statement established standards for how an issuer
classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability measured at fair value. The Statement was effective for
financial instruments entered into or modified after May 31, 2003, and otherwise was
effective at the beginning of the first interim period beginning after June 15, 2003.
Ascent implemented SFAS 150 effective with the beginning of the third quarter 2003. As a
result, Ascents Series A Redeemable Convertible Preferred Stock of approximately
$36.6 million was classified as a liability in the Companys interim September 30,
2003 balance sheet. At December 31, 2003, the outstanding shares of Ascents Series A
Redeemable Convertible Preferred Stock were exchanged for shares of Ascents Series B
Redeemable Convertible Preferred Stock.

Also, under SFAS 150, amounts paid in
excess of the initial measurement amount to holders of the mandatorily redeemable
preferred stock classified as liabilities are to be reflected in interest cost. All
amounts paid to or accrued prior to the reclassification of the stock as a liability shall
not be reclassified as interest cost upon implementation. As a result, the Company
reflected in interest costs the dividends paid or accrued to the holders of the Series A
Redeemable Convertible Preferred Stock for the six-month period ended December 31, 2003.
All dividend amounts paid or accrued prior to the implementation of SFAS 150 were
reflected as preferred stock dividends.

# NOTE 3 
DISCONTINUED OPERATIONS

On October 29, 2004, USHEALTH sold
its printing subsidiary, Westbridge Printing Services, Inc. (WPS), to an
unrelated party and exited the printing business. In accordance with Statement of
Financial Accounting Standard No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, the Companys printing subsidiary is reported as
discontinued operations in the accompanying consolidated financial statements. The
Companys loss from discontinued operations of approximately ($2.1) million for 2004
was comprised of a ($1.4) million loss on the sale and a ($700,000) operating loss from
WPS for the ten months ended October 29, 2004. Included in the loss on sale is a
($912,000) loss for contingencies related to a long-term lease on which USHEALTH remains a
co-lessee and collection of certain receivables from WPS. The operating losses of WPS for
2003 and 2002 have been reflected in discontinued operations for comparative purposes. The
balance sheet for December 31, 2003 includes assets and liabilities of WPS of
approximately $1.1 million and $456,000, respectively. The assets and liabilities of WPS
consisted primarily of trade receivables, inventory, equipment and trade payables.
Revenues from the discontinued operations of WPS for 2004, 2003 and 2002 were approximately $3.3 million, $3.8 million and $3.4 million, respectively.

# NOTE 4  CONVERSION
OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

On March 15, 2004, USHEALTHs
common shareholders approved an amendment to the Companys Certificate of
Incorporation to increase the authorized number of shares of common stock to 75 million
shares from 30 million shares. The approval of this amendment resulted in the automatic
conversion of all 37,504 outstanding shares of the Companys Series B convertible
participating preferred stock (Series B Preferred Stock) into 43,995,026
shares of common stock. Preferred stock dividends of $430,000 accrued through March 15,
2004, were forgiven by preferred stockholders and, as a result, were credited to capital
in excess of par value, and had no impact on total stockholders equity. All
outstanding shares of the Series B Preferred Stock were held by Special Situations
Holdings, Inc.  Westbridge (SSHW), the Companys largest
shareholder. The conversion of the Series B Preferred Stock increased the ownership
percentage of SSHW in the Companys common stock to approximately 93% from 49%.

# NOTE 5  FINANCING
ACTIVITIES

CSFB Financing.    
USHEALTH received debt financing to fund an $11 million capital
contribution to FLICA in April 2001 from Credit Suisse First Boston Management LLC
(CSFBM), which is an affiliate of SSHW (USHEALTHs largest stockholder.)
The credit agreement relating to that loan (CSFBM Credit Agreement) provided
USHEALTH with total loan commitments of $11 million, all of which were drawn in April
2001. Under reconstructed terms effective December 31, 2003, the loan bears interest at a
rate of 6% per annum and matures in March 2010.

Absent any acceleration following an
event of default, the Company may elect to pay interest in kind by issuance of additional
notes. During 2004, 2003 and 2002, USHEALTH issued $958,000, $1.7 million and $1.5
million, respectively, in additional notes for payment of interest in kind, which
increased the note payable balance at December 31, 2004 to approximately $16.2 million.

USHEALTHs obligations to CSFBM
are secured, pursuant to a guarantee and security agreement and pledge agreements, by
substantially all of the assets of USHEALTH and its subsidiaries (excluding the capital
stock and the assets of AICT, FLICA, NFL, NFIC, NCM, Ascent Funding, Inc. and Ascent
Management,Inc., some or all of which is pledged as collateral for bank financing
described below). USHEALTHs subsidiaries (other than those listed above) have also
guaranteed USHEALTHs obligations under the CSFBM Credit Agreement. Under this
agreement, the Company is required to meet certain restrictive requirements including
minimum statutory capital and surplus, and RBC ratios for its Insurance Subsidiaries,
minimum net worth and other customary covenants. At December 31, 2004, there were no
events of default.

Bank Financing.    
The majority of commission advances to NCMs and ACBs agents are
financed through Ascent Funding, Inc. (AFI), an indirect wholly owned
subsidiary of USHEALTH. On December 31, 2003, AFI entered into a Credit Agreement (the
Credit Agreement) with Frost National Bank (Frost) that provides
AFI with a $3.0 million revolving loan facility, the proceeds of which are used to
purchase agent advance receivables from NCM and other affiliates. As of December 31, 2004
and 2003, $250,000 and $500,000, respectively, were outstanding under the Credit
Agreement. The Credit Agreement as amended matures on January 15, 2007, at which time the
outstanding principal and interest will be due and payable.

AFIs obligations under the
Credit Agreement are secured by liens upon substantially all of AFIs assets.
AFIs principal assets at December 31, 2004 are net agent receivables of $3.5
million. In addition, NCM, ACB and USHEALTH have guaranteed AFIs obligation under
the Credit Agreement, and have pledged all of the issued and outstanding shares of the
capital stock of AFI, NFL, and FLICA as collateral for those guaranties (the
Guaranty Agreements). USHEALTH, certain of its subsidiaries, CSFBM and Frost
have entered into an Intercreditor and Subordination Agreement dated as of December 31,
2003 to give effect to a subordination of the notes payable to CSFBM to up to $10 million
in borrowings under the Credit Agreement. As of December 31, 2004, there were no events of
default under the Credit or Guaranty Agreements.

# NOTE 6  INVESTMENTS

Major categories of investment income
are summarized as follows:

|                                    |                         |  |     
|----------------------------------- | ----------------------- |  | ----
|                                    | Year Ended December 31,
|                                    |                        
|                                    | 2004                    |  | 2003
|                                    |                         |  |     
|                                    | (in thousands)         
|Fixed maturities                    |                         |  | $   
|Short-term investments              |                         |  |     
|Interest on receivables from agents |                         |  |     
|Other                               |                         |  |     
|                                    |                         |  |     
|                                    |                         |  |     
|Less: Investment expenses           |                         |  |     
|                                    |                         |  |     
|Net investment income               |                         |  | $   
|                                    |                         |  |     

Realized gains (losses) on
investments are summarized as follows (in thousands):

|                                    |                         |  |     
|----------------------------------- | ----------------------- |  | ----
|                                    | Year Ended December 31,
|                                    |                        
|                                    | 2004                    |  | 2003
|                                    |                         |  |     
|Fixed maturities                    |                         |  | $   
|Equity securities                   |                         |  |     
|                                    |                         |  |     
|Realized gain (loss) on investments |                         |  | $   
|                                    |                         |  |     

Unrealized (depreciation)
appreciation on investments is reflected directly in stockholders equity as a
component of accumulated other comprehensive (loss) income and is summarized as follows:

|                                                 |                         |  |     
|------------------------------------------------ | ----------------------- |  | ----
|                                                 | Year Ended December 31,
|                                                 |                        
|                                                 | 2004                    |  | 2003
|                                                 |                         |  |     
|Balance at beginning of period                   |                         |  | $   
|Unrealized (depreciation) appreciation on fixed  |                         | 
|maturities available-for-sale                    |                         |  |     
|Unrealized appreciation (depreciation) on equity |                         | 
|securities and other investments                 |                         |  |     
|                                                 |                         |  |     
|Balance at end of period                         |                         |  | $   
|                                                 |                         |  |     

Estimated market values represent the
quoted closing sales prices of marketable securities. The amortized cost and estimated
market values of investments in fixed maturities are summarized by category as follows:



|                                                   |                |               |   |                     
|-------------------------------------------------- | -------------- | ------------- | - | --------------------
|December 31, 2004 Available-for-Sale               |                | AmortizedCost |   | GrossUnrealizedGains
|                                                   |                |               |   |                     
|                                                   | (in thousands)
|U.S. Government and governmental agencies          |                |               |   |                     
|and authorities                                    |                |               | $ | 10,674              
|States, municipalities, and political Subdivisions |                |               |   | 2,266               
|Finance companies                                  |                |               |   | 22,255              
|Public utilities                                   |                |               |   | 9,952               
|Mortgage-backed securities                         |                |               |   | 20,593              
|All other corporate bonds                          |                |               |   | 31,200              
|                                                   |                |               |   |                     
|Balance at December 31, 2004                       |                |               | $ | 96,940              
|                                                   |                |               |   |                     
|                                                   |                |               |   |                     
|December 31, 2003 Available-for-Sale               |                |               |   | AmortizedCost       
|                                                   |                |               |   |                     
|                                                   | (in thousands)
|U.S. Government and governmental agencies          |                |              
|and authorities                                    |                |               | $ | 10,356              
|States, municipalities, and political Subdivisions |                |               |   | 2,282               
|Finance companies                                  |                |               |   | 18,289              
|Public utilities                                   |                |               |   | 8,432               
|Mortgage-backed securities                         |                |               |   | 23,810              
|All other corporate bonds                          |                |               |   | 30,753              
|                                                   |                |               |   |                     
|Balance at December 31, 2003                       |                |               | $ | 93,922              
|                                                   |                |               |   |                     

The amortized cost and estimated
market value of investments in available-for-sale fixed maturities as of December 31,
2004, are shown below summarized by year to contractual maturity. Mortgage-backed
securities are listed separately. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or
without penalties.

|                                       |                | 
|-------------------------------------- | -------------- | 
|                                       |                | 
|                                       |                | 
|                                       | (in thousands)
|Due in one year or less                |                | 
|Due after one year through five years  |                | 
|Due after five years through ten years |                | 
|Due after ten years                    |                | 
|Mortgage-backed securities             |                | 
|                                       |                | 
|                                       |                | 
|                                       |                | 

A summary of unrealized appreciation
on investments in fixed maturities and equity securities available-for-sale, which is
reflected directly in stockholders equity as a component of accumulated other
comprehensive loss, is as follows:



|                                         |                | 
|---------------------------------------- | -------------- | 
|                                         | December 31,  
|                                         |               
|                                         |                | 
|                                         |                | 
|                                         | (in thousands)
|Amortized cost                           |                | 
|Estimated market value                   |                | 
|                                         |                | 
|Excess of market value to amortized cost |                | 
|Estimated tax                            |                | 
|                                         |                | 
|Unrealized appreciation                  |                | 
|                                         |                | 

Net unrealized appreciation on
investments at December 31, 2004 consists of gross unrealized gains of $3.6 million. Gross
unrealized losses consist of sixty-six issues of investment-grade fixed maturities with
$37.0 million fair value with unrealized losses of $766,000 and two issues of less than
investment-grade fixed maturities with $637,000 fair value with unrealized losses of
$13,000. Forty-eight issues of fixed maturities with $23.7 million fair value with
unrealized losses of $261,000 have been in loss positions for less than one year. Twenty
issues with $13.9 million fair value with unrealized losses of $518,000 have been in loss
positions for one year or more. Only one fixed maturity issue with a fair value of
approximately $172,000 with an unrealized loss of approximately $2,000 has been is a loss
position for more than one year and is less than investment grade.

Net unrealized appreciation on investments at December 31, 2003 consists of gross
unrealized gains of $4 million and gross unrealized losses of $1 million. Gross unrealized losses consist of thirty-eight issues of
investment-grade fixed maturities with $26.2 million fair value with unrealized losses of $0.9 million that have been in an unrealized loss
position for less than on year and four issues of fixed maturities with $1.5 million fair value with unrealized losses of $0.1 million
that have been in an unrealized loss position for one year or more.

Unrealized losses on investment grade
securities principally relate to changes in market interest rates or changes in credit
spreads since the securities were acquired. The Company monitors the financial condition
and operations of the securities rated below investment grade and of certain investment
grade securities on which there are concerns regarding credit quality.

In evaluating fixed maturities to
determine whether any of the unrealized losses are other than temporary, managements
assessments as to the nature of declines in fair values are based upon historical
operating trends, business prospects, status of the industry in which the company
operates, analyst ratings on the issuer and sector, the quality of the investments, the
severity and duration of the unrealized losses and the Companys ability and intent
to hold the investments. If fair value is less than the carrying value and the decline in
value is determined to be other than temporary, an appropriate write-down is recorded
through realized losses.

Proceeds from sales and maturities of
investments in fixed maturity securities were approximately $16.4 million, $69.2 million
and $57.2 million for 2004, 2003 and 2002 respectively. Gross gains of $0.2 million and
gross losses of ($0.1) million were realized on fixed maturity investment sales during
2004. Gross gains of $0.7 million and gross losses of ($0.5) million were realized on
fixed maturity investment sales during 2003. Gross gains of $1.6 million and gross losses
of ($1.8) million were realized on fixed maturity investment sales during 2002. The basis
used in determining the cost of securities sold was the specific identification method.

Included in fixed maturities are
high-yield, unrated or less than investment grade corporate debt securities comprising
approximately 2.4% and 2.2% of fixed maturities at December 31, 2004 and 2003,
respectively.

Investment securities on deposit with
insurance regulators in accordance with statutory requirements at December 31, 2004 and
2003 had a par value totaling $20.4 million and $21.1 million, respectively, and market
value totaling $22.1 million and $23.1 million, respectively.

# NOTE 7  FUTURE
POLICY BENEFITS

Future policy benefits for Accident
and Health insurance products have been calculated using assumptions (which generally
contemplate the risk of adverse deviation) for lapses, interest, mortality and morbidity
appropriate at the time the policies were issued.

The more material assumptions are as
follows:

|Lapses |  | Issues through 1980 are based on industry experience; 1981 through 2003 issues are based
on industry experience and applicable Insurance Subsidiary experience, where available.
Policies acquired in acquisitions are based on recent experience of the blocks acquired.
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Interest |  | Issues through 1980 are 6.5% graded to 4.5% in 25 years; most 1981 through 1992 issues are
10% graded to 7% in 10 years. Issues for 1993 through 2002 are 7% level. Issues for 2003
and forward are 5% level.
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mortality |  | Issues through 1980 use the 1955-1960 Ultimate Table; issues subsequent to 1980 through
1992 use the 1965-1970 Ultimate Table. Issues for 1993 and later years use the 1975-1980
Ultimate Table.
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Morbidity |  | Based on industry tables published in 1974 by Tillinghast, Nelson and Warren, Inc. and the
1985 NAIC cancer tables, as well as other population statistics and morbidity studies.
Issues for 2003 and forward are based on the July 2002 Milliman Health Cost Guidelines
adjusted for the Insurance Subsidiaries anticipated claims levels.
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 8  CLAIM
RESERVES

The following table provides a
reconciliation of the beginning and ending claim reserve balances, on a
gross-of-reinsurance basis, for 2004, 2003 and 2002, to the amounts reported in the
Companys consolidated balance sheets:

|                                                 |                         |  |     
|------------------------------------------------ | ----------------------- |  | ----
|                                                 | Year Ended December 31,
|                                                 |                         | 
|                                                 | 2004                    |  | 2003
|                                                 |                         |  |     
|                                                 | (in thousands)         
|                                                
|Balance, beginning of the year (gross)           |                         |  | $   
|Less:  Reinsurance recoverable on claim reserves |                         |  |     
|                                                 |                         |  |     
|Net balance at beginning of period               |                         |  |     
|Incurred related to:                             |                         | 
|Current year                                     |                         |  |     
|Prior years                                      |                         |  |     
|                                                 |                         |  |     
|Total incurred                                   |                         |  |     
|                                                 |                         |  |     
|Paid related to:                                 |                         | 
|Current year                                     |                         |  |     
|Prior years                                      |                         |  |     
|                                                 |                         |  |     
|Total paid                                       |                         |  |     
|                                                 |                         |  |     
|Balance at end of period                         |                         |  |     
|                                                
|Plus: Reinsurance recoverable on claim reserves  |                         |  |     
|                                                 |                         |  |     
|Balance at end of period (gross)                 |                         |  | $   
|                                                 |                         |  |     

The process of estimating claim
reserves involves the active participation of experienced actuaries with input from the
underwriting, claims, and finance departments. The inherent uncertainty in estimating
claim reserves is increased when significant changes occur. Changes impacting the
Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state
or federal laws and regulations, particularly insurance reform measures; (3) writings of
significant blocks of new business and (4) significant changes in claims payment patterns.
Because claim reserves are estimates, management monitors reserve adequacy over time,
evaluating new information as it becomes available and adjusting claim reserves as
necessary. Such adjustments are reflected in current operations.

Claims incurred related to prior
years for 2004 provided a benefit of $1.8 million, which was primarily attributable to
actual medical trends for the latter part of 2003 developing more favorably than
managements estimate. Claims incurred related to prior years were a $0.2 million
benefit and a $0.4 million expense for 2003 and 2002, respectively and approximated 1% of
the prior year claim liability for both years.

Included in reinsurance recoverables
on claim reserves is approximately $1.0 million, $1.4 million, and $0.5 million relating
to paid claims as of December 31, 2004, 2003 and 2002, respectively.



# NOTE 9  DEFERRED
POLICY ACQUISITION COSTS (DPAC)

A summary of DPAC follows (in
thousands):

|                               |                         |  |     
|------------------------------ | ----------------------- |  | ----
|                               | Year Ended December 31,
|                               |                         | 
|                               | 2004                    |  | 2003
|                               |                         |  |     
|Balance at beginning of period |                         |  | $   
|Deferrals                      |                         |  |     
|Amortization expense           |                         |  |     
|                               |                         |  |     
|Balance at end of period       |                         |  | $   
|                               |                         |  |     

The Company routinely evaluates the
recoverability of deferred acquisition costs in accordance with GAAP. In general, a
premium deficiency exists if the present value of future net cash flow plus future policy
benefit and claim reserves at the calculation date is negative or less than net deferred
policy acquisition costs. The calculation of future net cash flow includes assumptions as
to future rate increases, investment income and persistency. Premium deficiencies did not
exist for the years reported.

# NOTE 10  INCOME
TAXES

The provision for income taxes is
calculated as the amount of income taxes expected to be payable for the current year plus
(or minus) the deferred income tax expense (or benefit) represented by the change in the
deferred income tax assets and liabilities at the beginning and end of the year. The
effect of changes in tax rates and federal income tax laws are reflected in income from
continuing operations in the period such changes are enacted. USHEALTH incurred and
recorded a total federal alternative minimum tax liability of approximately $31,000 in
2004. No federal income taxes were paid or incurred in 2003 or 2002.

The tax effect of future taxable
temporary differences (liabilities) and future deductible temporary differences (assets)
are separately calculated and recorded when such differences arise. A valuation allowance,
reducing any recognized deferred tax asset, must be recorded if it is determined that it
is more likely than not that such deferred tax asset will not be realized.

Prior to March 2004, the Company and
its wholly-owned subsidiaries filed a consolidated federal income tax return. On March 15,
2004, upon the conversion of USHEALTHs convertible preferred stock into common stock
(see Note 4  Conversion of Convertible Redeemable Preferred Stock) SSHW,
USHEALTHs largest stockholder, increased its ownership interest from approximately
49% to approximately 93%. Pursuant to applicable federal tax regulations, USHEALTH and its
non-life subsidiaries are required to join in the consolidated return of SSHW for the
period beginning March 16, 2004. However, the provisions of Subchapter L of the Internal
Revenue Code prohibit the Insurance Subsidiaries from participating in the consolidated
tax returns of a new affiliated group for five years, beginning with the tax year ended
December 31, 2004. Accordingly, for periods subsequent to March 15, 2004, NFL and FLICA
will file separate federal tax returns and NFIC will file a consolidated federal tax
return with its subsidiary, AICT.

The differences between the effective
tax rate and the amount derived by multiplying the loss before income taxes by the federal
income tax rate for the Companys last three years is shown below. The change in
valuation allowance results from current year losses and the true-up of prior year
deferred tax items.

|                              |                         |  |     
|----------------------------- | ----------------------- |  | ----
|                              | Year Ended December 31,
|                              |                         | 
|                              | 2004                    |  | 2003
|                              |                         |  |     
|Statutory tax rate            |                         |  | $   
|Loss from sale of subsidiary  |                         |  |     
|Alternative minimum tax       |                         |  |     
|Change in valuation allowance |                         |  |     
|Other items, net              |                         |  |     
|                              |                         |  |     
|Effective tax rates           |                         |  | $   
|                              |                         |  |     

Deferred taxes are recorded for
temporary differences between the financial reporting basis and the federal income tax
basis of the Companys assets and liabilities. The sources of these differences and
the estimated tax effect of each are as follows:

|                                        |                | 
|--------------------------------------- | -------------- | 
|                                        | December 31,   | 
|                                        |                | 
|                                        | 2004           | 
|                                        |                | 
|                                        | (in thousands) | 
|                                        |                | 
|Deferred Tax Assets:                    |                | 
|Policy reserves                         |                | 
|Net operating loss carryforwards        |                | 
|Other deferred tax assets               |                | 
|                                        |                | 
|Total deferred tax asset                |                | 
|                                        |                | 
|Deferred Tax Liabilities:               |                | 
|Unrealized gain on investments          |                | 
|Deferred policy acquisition costs       |                | 
|Other deferred tax liabilities          |                | 
|                                        |                | 
|Total deferred tax liability            |                | 
|                                        |                | 
|Net Deferred Tax Asset Before Valuation |                | 
|Allowance                               |                | 
|Less Valuation Allowance                |                | 
|                                        |                | 
|Net Deferred Tax Asset                  |                | 
|                                        |                | 

Realization of the Companys
deferred tax asset is dependent upon the return of the Companys operations to
sustained profitability. However, projections of future profitability are significantly
discounted when evaluating the recoverability of deferred tax assets and do not overcome
the negative evidence of cumulative losses. Accordingly, the Company has recorded a 100%
deferred tax asset valuation allowance at December 31, 2004 and 2003.

Under the provisions of pre-1984 life
insurance tax regulations, NFL was taxed on the lesser of taxable investment income or
income from operations, plus one-half of any excess of income from operations over taxable
investment income. One-half of the excess (if any) of the income from operations over
taxable investment income, an amount which was not currently subject to taxation, plus
special deductions allowed in computing the income from operations, were placed in a
special memorandum tax account known as the policyholders surplus account. The
aggregate accumulation in the account at December 31, 2004 approximated $2.5 million.
Federal income taxes will become payable on this account at the then current tax rate
when, and to the extent that, the account exceeds a specific maximum, or when and if
distributions to stockholders, other than stock dividends and other limited exceptions,
are made in excess of the accumulated previously taxed income. The Company does not
anticipate any transactions that would cause any part of the amount to become taxable and,
accordingly, deferred taxes that would approximate $0.9 million have not been provided on
such amount.

At both December 31, 2004 and 2003
NFL had approximately $7.8 million in its shareholders surplus account from which it could
make distributions to the Company without incurring any federal tax liability. The amount
of dividends that may be paid by NFL to the Company is limited by statutory regulations.

At December 31, 2004 the Company and
its wholly-owned subsidiaries have aggregate net operating loss carryforwards of
approximately $62.1 million for regular tax and $62.2 million for alternative minimum tax
purposes, which will expire in 2012 through 2019.

# NOTE 11  STATUTORY
CAPITAL AND SURPLUS

Under the applicable laws of the
states in which insurance companies are licensed, the companies are required to maintain
minimum amounts of capital and surplus. The Insurance Subsidiaries are all domiciled in
Texas and are therefore subject to regulation under Texas laws.Under the Texas
Insurance Code, the insurance subsidiaries are required to maintain aggregate capital and
surplus of $1.4 million.

The following states where the
companies are licensed require greater amounts of capital and surplus: California $2.5
million of capital and $2.5 million of surplus, Michigan $7.5 million of aggregate capital
and surplus and Nebraska and Tennessee $1 million of capital and $1 million of surplus.
Accordingly, the minimum aggregate statutory capital and surplus NFL, FLICA, NFIC and AICT
must each maintain equals $5 million, $7.5 million, $5 million and $2 million,
respectively. At December 31, 2004, aggregate statutory capital and surplus for NFL,
FLICA, NFIC, and AICT was approximately $9.0 million, $9.4 million, $1.7 million and $1.9
million, respectively. Although NFICs capital and surplus was less than $5 million
and AICTs capital and surplus was less than $2 million at December 31, 2004, NFIC
and AICT voluntarily ceased writing new business effective December 15, 1997. Moreover,
the capital and surplus of NFIC and AICT exceeds the minimum requirements of their state
of domicile, Texas. AICT is wholly-owned by NFIC. Accordingly, statutory capital and
surplus of NFIC includes the statutory capital and surplus of AICT.

As a result of losses from major
medical products marketed prior to July 2000, FLICA required significant capital
contributions during 2002 and 2001 to comply with minimum statutory capital and surplus
requirements. In April 2001, USHEALTH obtained debt financing of $11 million from a
subsidiary of CSFB. The proceeds of this loan were used to fund an $11 million capital
contribution to FLICA. Major medical claims experience adverse to managements
current estimates or adverse claims experience for other insurance products may cause
USHEALTH to make capital contributions to the Insurance Subsidiaries in excess of those
currently projected for 2005. As a result, adverse claims experience could have a material
adverse effect on USHEALTHs liquidity and capital resources and results of
operations.

Dividends paid by the Insurance
Subsidiaries are subject to the regulations of the insurance laws and practices of the
Texas Department of Insurance. The Texas Insurance Code allows life and health insurance
companies to make dividend payments from surplus profits or earned surplus arising from
its business. Earned surplus is defined as unassigned surplus excluding any unrealized
gains. Texas life and health insurance companies may generally pay ordinary dividends or
make distributions of cash or other property within any twelve month period with a fair
market value equal to or less than the greater of 10% of surplus as regards policyholders
as of the preceding December 31 or the net gain from operations for the twelve month
period ending on the preceding December 31. Dividends exceeding the applicable threshold
are considered extraordinary and require the prior approval of the Texas Insurance
Commissioner.

The Insurance Subsidiaries are
precluded from paying dividends during 2005 without prior approval of the Texas Insurance
Commissioner as the companies earned surplus is negative. Generally, all states
require insurance companies to maintain statutory capital and surplus that is reasonable
in relation to their existing liabilities and adequate to their financial needs. The Texas
Department of Insurance also maintains discretionary powers relative to the declaration
and payment of dividends based upon an insurance companys financial position. Due to
recent statutory losses incurred by the Insurance Subsidiaries, the Company does not
expect to receive any dividends from the Insurance Subsidiaries for the foreseeable
future.

In December 1992, the NAIC adopted
the Risk-Based Capital for Life and/or Health Insurers Model Act (the Model
Act). The Model Act provides a tool for insurance regulators to determine the levels
of statutory capital and surplus an insurer must maintain in relation to its insurance and
investment risks and whether there is a need for possible regulatory attention. The Model
Act (or similar legislation or regulation) has been adopted in states where the Insurance
Subsidiaries are domiciled. The Model Act provides four levels of regulatory attention,
varying with the ratio of the insurance companys total adjusted capital (defined as
the total of its statutory capital and surplus, asset valuation reserve and certain other
adjustments) to its authorized control level risk-based capital (RBC):

|o |  | If a companys total adjusted capital is less than or equal to 200 percent but
greater than 150 percent of its RBC, (the Company Action Level), the company
must submit a comprehensive plan aimed at improving its capital position to the regulatory
authority proposing corrective actions.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | If a companys total adjusted capital is less than or equal to 150 percent but
greater than 100 percent of its RBC (the Regulatory Action Level), the
regulatory authority will perform a special examination of the company and issue an order
specifying the corrective actions that must be followed.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | If a companys total adjusted capital is less than or equal to 100 percent but
greater than 70 percent of its RBC (the Authorized Control Level), the
regulatory authority may take any action it deems necessary, including placing the company
under regulatory control.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | If a companys total adjusted capital is less than or equal to 70 percent of its RBC
(the Mandatory Control Level), the regulatory authority must place the company
under its control.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Texas Department of Insurance
adopted the NAICs Model Act during 2000. NFLs and FLICAs statutory
annual statements for the year ended December 31, 2004 filed with the Texas Department of
Insurance reflect total adjusted capital in excess of Company Action Level RBC.

In 1998, NFIC and AICT entered into a
voluntary consent order, pursuant to Article 1.32 of the Texas Insurance Code, providing
for the continued monitoring of the operations of NFIC and AICT by the Texas Department of
Insurance in response to losses sustained in 1997 and 1998 as well as the projected
inability to meet RBC requirements. Both NFIC and AICT ceased the sale and underwriting of
new business in 1998. At December 31, 2004, AICTs RBC exceeded Company Action Level
RBC; however, NFICs RBC only exceeded Regulatory Action Level RBC. Both NFIC and
AICT are in compliance with the terms of the voluntary consent order.

Under Florida Statutes Section
624.4095, Florida licensed insurance companies ratio of actual or projected annual
written premiums to current or projected surplus as regards to policyholders (the
premium-writing ratio) may not exceed specified levels for gross and net written
premiums as defined by the statute. If a company exceeds the premium-writing ratio, the
Florida Department of Insurance shall suspend the companys certificate of authority
in Florida or establish by order maximum gross or net annual premiums to be written by the
company consistent with maintaining the ratios specified. At December 31, 2004, the
premium-writing ratio for FLICA, which currently underwrites insurance policies in
Florida, met the limit mandated by Florida law.

The statutory financial statements of
the Insurance Subsidiaries are prepared using accounting methods that are prescribed or
permitted by the insurance department of the respective companies state of domicile.
Prescribed statutory accounting practices include the NAIC Codification of Statutory
Accounting practices as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not so
prescribed.

A reconciliation of combined capital
and surplus, and combined net income (loss) as reported on a statutory basis by the
Companys Insurance Subsidiaries to the Companys consolidated GAAP
stockholders equity and net loss is as follows:

|                                                           |                         |  |     
|---------------------------------------------------------- | ----------------------- |  | ----
|                                                           | December 31,           
|                                                           |                        
|                                                           | 2004                    |  | 2003
|                                                           |                         |  |     
|                                                           | (in thousands)         
|                                                           |                         |  |     
|Combined statutory capital and surplus                     |                         |  | $   
|Deferred acquisition costs                                 |                         |  |     
|Future policy benefits and claims                          |                         |  |     
|Unrealized gain on investments                             |                         |  |     
|Income taxes                                               |                         |  |     
|Non-admitted assets                                        |                         |  |     
|Asset valuation reserve                                    |                         |  |     
|Interest maintenance reserve                               |                         |  |     
|Other                                                      |                         |  |     
|Cumulative capital contributions to insurance subsidiaries |                         |  |     
|Redeemable convertible Series B preferred stock            |                         |  |     
|Preferred stock converted to common stock                  |                         |  |     
|Non-insurance subsidiaries and eliminations                |                         |  |     
|                                                           |                         |  |     
|Consolidated GAAP stockholders' equity                     |                         |  | $   
|                                                           |                         |  |     
|                                                          
|                                                           | Year Ended December 31,
|                                                           |                        
|                                                           |                         |  |     
|                                                           |                         |  |     
|                                                           | (in thousands)         
|                                                           |                         |  |     
|Combined statutory income (loss)                           |                         |  | $   
|Deferred acquisition costs, net of amortization            |                         |  |     
|Future policy benefits and claims                          |                         |  |     
|Other                                                      |                         |  |     
|Non-insurance subsidiaries and elimination                 |                         |  |     
|                                                           |                         |  |     
|Consolidated GAAP net loss                                 |                         |  | $   
|                                                           |                         |  |     

# NOTE 12  SPECIAL
EXECUTIVE COMPENSATION AND SEVERANCE

Effective September 1, 2004, Benjamin
M. Cutler, former Chairman of Assurance Health (previously Fortis Health), was appointed
Chairman and Chief Executive Officer of USHEALTH. In connection with Mr. Cutlers
employment agreement, USHEALTH recorded a $2 million liability for deferred compensation
and $308,000 in employment expenses for 2004. Under the employment agreement, Mr. Cutler
also is to receive options to purchase 5,025,619 shares of USHEALTHs common stock
and receive a liquidity performance bonus. The exercise price of the options equals the
fair market value of USHEALTHs common shares as determined by USHEALTHs Board
of Directors in good faith based on generally accepted industry valuation methodologies on
the Early Exercise Date as defined in Mr. Cutlers employment agreement.

In addition, the Company paid
severance expense of approximately $727,000 to its former Chairman.

# NOTE 13  EMPLOYEE
BENEFIT PLANS

In September 1986, a subsidiary of
the Company established a retirement savings plan (401(k) plan) for its
employees. As amended in August 1999, such employees are eligible to participate in the
401(k) plan upon completion of six months of service. The 401(k) plan is qualified under
Section 401(a) of the Internal Revenue Code (IRC) and the trust established to
hold the assets of the 401(k) plan is tax-exempt under Section 501 (a) of the IRC. The
subsidiary is the plan administrator, and may amend, terminate or suspend contributions to
the plan at any time it may deem advisable. Employees of this subsidiary who participate
may contribute up to 100% of pre-tax compensation, including commissions, bonuses and
overtime, but not to exceed $13,000. This subsidiary may make discretionary contributions,
determined by its Board of Directors, up to 50% of the employees first 6% of
deferred compensation, but not to exceed a matching contribution of $6,150 per plan
participant. Certain IRC required limitations, may be imposed for participants who are
treated as highly compensated employees for purposes of the IRC. Participants
vest 25% after one year of service, 50% after two years of service, 75% after three years
of service and 100% after 4 years of service. Employee contributions are invested in any
of ten investment funds at the discretion of the employee. Contributions to the 401(k)
plan in 2004, 2003 and 2002 by the Companys subsidiaries approximated $120,000,
$119,000 and $72,000, respectively.

Stock Option Plan.    
On March 24, 1999, USHEALTHs Board of Directors adopted the 1999
Stock Option Plan (the 1999 Plan) in order to further and promote the interest
of USHEALTH, its subsidiaries and its shareholders by enabling USHEALTH and its
subsidiaries to attract, retain and motivate employees of one of its subsidiaries,
non-employee directors and consultants (including marketing agents) or those who will
become such employees, non-employee directors and consultants (including marketing
agents). Pursuant to the 1999 Plan, 1,139,835 shares of common stock are reserved for
issuance to such employees and directors and 387,119 shares are reserved for issuance to
marketing agents. The maximum term of an award under the 1999 Plan is 10 years.

The 1999 Plan became effective on the
date of its adoption by the Company and will remain in effect until December 31, 2008,
except with respect to awards (as that term is defined in the 1999 Plan) then outstanding,
unless terminated or suspended by USHEALTHs Board of Directors at that time. After
such date no further awards shall be granted under the 1999 Plan.

A summary of stock option activity
under the 1999 stock option plan is as follows:

|                               |                         |  |     
|------------------------------ | ----------------------- |  | ----
|                               | Year Ended December 31,
|                               |                        
|                               | 2004                    |  | 2003
|                               |                         |  |     
|Outstanding at January 1       |                         |  |     
|Granted                        |                         |  |     
|Exercised                      |                         |  |     
|Forfeited / Cancelled/ Expired |                         |  |     
|                               |                         |  |     
|Outstanding at December 31     |                         |  |     
|                               |                         |  |     

The weighted average option exercise
price was $2.17, $2.32 and $2.30 for options outstanding at December 31, 2004, 2003 and
2002, respectively. For options granted in 2002, weighted average exercise price was
$0.65. For options forfeited/cancelled/expired in 2004, 2003 and 2002, the weighted
average exercise price was $3.82, $2.59 and $3.23, respectively. For options exercised in
2004, 2003 and 2002, the weighted average exercise price was $0.01.

The following table summarizes
information about the stock options outstanding under the 1999 stock option plan at
December 31, 2004:

|                    |      |                     |  |                                         
|------------------- | ---- | ------------------- |  | ----------------------------------------
|Options Outstanding |      | Options Exercisable
|                   
|Exercise Prices     |      | NumberOutstanding   |  | WeightedAverageRemainingContractual Life
|$                   | 0.01 |                     |  | 156,950                                 
|$                   | 0.65 |                     |  | 135,000                                 
|$                   | 1.49 |                     |  | 83,250                                  
|$                   | 1.63 |                     |  | 6,300                                   
|$                   | 4.39 |                     |  | 271,300                                 
|                    |      |                     |  |                                         
|                    |      | 652,800             |  |                                         
|                    |      |                     |  |                                         

In addition to options granted under
the 1999 stock option plan, the Companys Chairman and Chief Executive Officer is to
receive options to purchase 5,025,619 shares of USHEALTHs common stock under his
employment agreement effective September 1, 2004. The options may be exercised at an
exercise price to be determined by the Board of Directors in good faith based on generally
accepted industry valuation methodologies were deemed outstanding at December 31, 2004
with an average remaining contractual life of approximately five years. In addition, under Mr. Cutler's
employment agreement, an additional equity pool of 20.1% (subject to adjustment to 20% in the event of certain
transactions) of the fully-diluted shares of the Company as of September 1, 2004 is to be reserved for options and/or
other equity awards to be granted to other employees as recommended by management and approved by the Board (or a
designated committee thereof). In the event that such additional pool is not entirely allocated to grants made to other
employees, Mr. Cutler shall be eligible to receive additional options and/or other equity awards with respect to such
unallocated shares available in such pool, up to a maximum level of 15% (including the shares subject to the initial options
granted to Mr. Cutler) of the fully-diluted shares of common stock of the Company as of September 1, 2004. If such additional
pool is allocated to grants made to other employees, then Mr. Cutler will not receive any options or other equity awards in
addition to the initial options granted to him.

The weighted average fair values of Mr. Cutler's
options deemed granted during 2004 and options granted under the 1999 stock option plan in 2002 were $0.30 and $0.47, respectively. The
fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following significant weighted-average assumptions used for
grants in 2004 and 2002, respectively: dividend yield of 0% for both years; expected
volatility of 1.012 and 1.214; risk-free interest rate of 3.36% for 2004 and 4.32% for
2002; expected life of 5 years for 2004 and 3 years for 2002. The Company did not grant
any stock options in 2003.

Because the Companys employee
stock options have characteristics significantly different from those of traded options,
and because change in the subjective input assumptions can materially affect the fair
value estimate, in managements opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock options.

The Company currently applies the
intrinsic value method, in accordance with APB 25, in accounting for its stock options
issued to employees and non-employee directors. Accordingly, no compensation expense has
been recognized for options granted with an exercise price equal to market value at the
date of grant. The Company applies the fair value method in accounting for stock options
issued to consultants (including marketing agents).

Compensation cost recognized in the
income statement for stock-based employee and consultants (including marketing agents)
compensation awards was approximately $1,000 in 2004, $6,000 in 2003, and $55,000 in 2002.

The following table illustrates the
effect on net loss and loss per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

|                                                  |                        |  |  
|------------------------------------------------- | ---------------------- |  | -
|                                                  | Year Ended December 31
|                                                  |                       
|                                                  |                        |  |  
|                                                  |                        |  |  
|(Loss) income from continuing operations          |                        |  | $
|Total stock-based employee compensation expense   |                        | 
|determined under fair value based method for      |                        | 
|all awards, net of related tax effects            |                        |  |  
|                                                  |                        |  |  
|Proforma (loss) income from continuing operations |                        |  |  
|Loss from discontinued operations                 |                        |  |  
|                                                  |                        |  |  
|Net loss                                          |                        |  |  
|Preferred stock dividends                         |                        |  |  
|                                                  |                        |  |  
|Pro forma loss applicable to common stockholders  |                        |  | $
|                                                  |                        |  |  
|Loss per share from continuing operations:        |                        | 
|Basic and diluted- as reported                    |                        |  | $
|Basic and diluted - pro forma                     |                        |  | $
|                                                 
|Loss per share from discontinued operations:      |                        | 
|Basic and diluted - as reported                   |                        |  | $
|Basic and diluted - pro forma                     |                        |  | $
|                                                 
|Loss per share:                                   |                        | 
|Diluted - as reported                             |                        |  | $
|Diluted - pro forma                               |                        |  | $

For purposes of pro forma disclosure,
the estimated fair value of the stock compensation is amortized to expense over the
stocks vesting period. The effect on net loss of the stock compensation amortization
for the year presented above is not likely to be representative of the effects on reported
income or loss for future years.

# NOTE 14 
REINSURANCE

The Insurance Subsidiaries cede
insurance to other insurers and reinsurers on both life and accident and health business.
Reinsurance agreements are used to limit maximum losses and provide greater diversity of
risk. Each Insurance Subsidiary remains liable to policyholders to the extent the
reinsuring companies are unable to meet their treaty obligations. Total premiums ceded to
other companies were $3.2 million, $3.7 million and $4.0 million for 2004, 2003 and 2002,
respectively. Face amounts of life insurance in force ceded approximated $10.1 million,
$13.5 million and $17.2 million at December 31, 2004, 2003 and 2002, respectively.
Benefits and claims ceded to other companies were $3.2 million, $3.9 million and $3.7
million, respectively.

The Insurance Subsidiaries reinsure
their respective risks under their Medical Expense policies on an excess of loss basis so
that its net payments on any one life insured under the policy are limited for any one
calendar year to $150,000. Risks under its Medicare Supplement policies are not reinsured.
Risks under certain Accidental Death policies are one hundred percent (100%) reinsured.
Under its life insurance reinsurance agreement, FLICA and NFL retain fifty percent (50%)
of the coverage amount of each of its life insurance policies written prior to June 30,
2004 and in force up to a maximum of $65,000. NFL reinsures, through an excess of loss
reinsurance treaty, a closed block of annually renewable term life insurance policies.
NFLs retention limit is $25,000 per year. In accordance with industry practice, the
reinsurance arrangements in force with respect to these policies are terminable by either
party with respect to claims incurred after the termination and expiration dates. All
reinsurers of the Companys Insurance Subsidiaries are rated A or higher
by the A.M. Best Company.

# NOTE 15 
COMMITMENTS AND CONTINGENCIES

The Companys future minimum
lease payments for non-cancelable operating leases, relating primarily to office
facilities and data processing equipment having a remaining term in excess of one year, at
December 31, 2004 aggregated $3.6 million. The amounts due by year are as follows: 2005
 $734,000; 2006  $678,000; 2007  $573,000; 2008  $560,000; 2009
 $507,000; and thereafter  $546,000. Aggregate rental expense included in the
consolidated financial statements for all operating leases approximated $1.6 million, $2.2
million and $1.8 million in 2004, 2003 and 2002, respectively.

In the normal course of its business
operations, the Company is involved in various claims, other business related suits
(alleging actual as well as substantial exemplary damages) and regulatory matters. In the
opinion of management, the Company is not a party to any pending litigation which is
reasonably likely to have an adverse result or disposition that would have a material
adverse effect on the Companys business, consolidated financial position or
consolidated results of operations.

The Companys Insurance
Subsidiaries are subject to extensive governmental regulation and supervision at both
federal and state levels. Such regulation includes premium rate levels, premium rate
increases, policy forms, minimum loss ratios, dividend payments, claims settlement,
licensing of insurers and their agents, capital adequacy, transfer of control, and amount
and type of investments. Additionally, there are numerous health care reform proposals and
regulatory initiatives under consideration which if enacted could have significant impact
on the Companys results of operations.

# NOTE 16  QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial
information for each of the Companys last two years of operations is as follows:



|                                                              |                |  |   |          
|------------------------------------------------------------- | -------------- |  | - | ---------
|                                                              | Quarter Ended 
|                                                              |               
|                                                              |                |  |   | March2004
|                                                              |                |  |   |          
|                                                              | (in thousands)
|Premium income                                                |                |  | $ | 23,793   
|Net investment income                                         |                |  |   | 1,402    
|Net realized (loss) gain on investments                       |                |  |   | (2       
|Fee, service and other income (1)                             |                |  |   | 1,475    
|                                                              |                |  |   |          
|Total revenues                                                |                |  | $ | 26,668   
|                                                              |                |  |   |          
|Income (loss) from continuing operations                      |                |  |   | 271      
|Loss from discontinued operations (1)                         |                |  |   | (200     
|Net income (loss)                                             |                |  |   | 71       
|Preferred stock dividend                                      |                |  |   | 430      
|(Loss) income applicable to common stockholders               |                |  |   | (359     
|Basic and diluted (loss) income per share from continuing     |                | 
|operations                                                    |                |  | $ | (0.01    
|Basic and diluted loss per share from discontinued operations |                |  | $ | (0.01    
|Basic and diluted loss per common share                       |                |  | $ | (0.02    
|                                                              |                |  |   |          
|                                                              |                |  |   |          
|                                                             
|                                                              | Quarter Ended 
|                                                              |               
|                                                              |                |  |   | March2004
|                                                              |                |  |   |          
|                                                              | (in thousands)
|Premium income                                                |                |  | $ | 26,309   
|Net investment income                                         |                |  |   | 1,680    
|Net realized gain (loss) on investments                       |                |  |   | 109      
|Fee, service and other income (1)                             |                |  |   | 2,436    
|                                                              |                |  |   |          
|Total revenues                                                |                |  | $ | 30,534   
|                                                              |                |  |   |          
|Income (loss) from continuing operations (2)                  |                |  |   | 455      
|Loss from discontinued operations (1)                         |                |  |   | (266     
|Net income (loss) (2)                                         |                |  |   | 189      
|Preferred stock dividend                                      |                |  |   | 869      
|Loss applicable to common stockholders                        |                |  |   | (680     
|Basic and diluted loss per share from continuing operations   |                |  | $ | (0.06    
|Basic and diluted loss per share from discontinued operations |                |  | $ | (0.04    
|Basic and diluted loss per common share                       |                |  | $ | (0.10    

|(1) |  | In October 2004, the Company sold its printing subsidiary, Westbridge Pringint Services, Inc. (WPS).
          The operating results of WPS are presented as loss from discontinued operations. Fee, service and other income has
          been restated to exclude the service income attributable to WPS. | 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|   
|(2) |  | For the quarters ended September 2003 and December 2003, Series A redeemable
          convertible preferred stock dividends of $914 and $937, respectively, were
          recorded as interest expense as required under FAS150.                                                                             | 

# NOTE 17  FAIR
VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions
were used by the Company in estimating fair value disclosures for financial instruments:

Cash and short-term investments.    
The carrying amount reported in the balance sheets for cash
and short-term investments approximates its fair value.

Accounts receivable and accounts payable.    
The carrying amounts reported in the balance sheets for
accounts receivable and accounts payable approximates their fair value.

Available-for-sale securities.    
The fair values for available-for-sale securities are based on quoted
market prices (See Note 6).

Notes payable.    
The carrying amounts of the Companys notes payable approximate their
fair value.



# SCHEDULE II

# USHEALTH GROUP, INC.
(PARENT COMPANY)CONDENSED BALANCE SHEETS

(in thousands)

|                                                |              | 
|----------------------------------------------- | ------------ | 
|                                                | December 31,
|                                                |             
|                                                |              | 
|                                                |              | 
|Assets:                                         |              | 
|Cash                                            |              | 
|Short-term investments                          |              | 
|Fixed maturities:                               |              | 
|Available-for-sale at market value (amortized   |              | 
|cost $1,418 and $1,494)                         |              | 
|Equity securities, at market value              |              | 
|Investment in consolidated subsidiaries         |              | 
|Receivables from affiliates                     |              | 
|Other assets                                    |              | 
|                                                |              | 
|Total Assets                                    |              | 
|                                                |              | 
|Liabilities:                                    |              | 
|Notes payable to related party                  |              | 
|Payable to subsidiaries                         |              | 
|Other liabilities                               |              | 
|                                                |              | 
|Total Liabilities                               |              | 
|                                                |              | 
|Stockholders' Equity:                           |              | 
|Redeemable Convertible Series B Preferred Stock |              | 
|Common stock                                    |              | 
|Capital in excess of par value                  |              | 
|Accumulated other comprehensive income          |              | 
|Retained Deficit                                |              | 
|                                                |              | 
|Total Stockholders' Equity                      |              | 
|                                                |              | 
|Total Liabilities, Redeemable Convertible       |              | 
|Preferred Stock and Stockholders' Equity        |              | 
|                                                |              | 

| | The
financial statement should be read in conjunction with the Consolidated Financial
Statements and the accompanying notes thereto. | 
| | ------------------------------------------------------------------------------------------------------------------------------------ | 



# SCHEDULE II

# USHEALTH GROUP, INC.
(PARENT COMPANY)CONDENSED STATEMENTS OF OPERATIONS

|                                                        |                         |  |  
|------------------------------------------------------- | ----------------------- |  | -
|                                                        | Year Ended December 31,
|                                                        |                        
|                                                        |                         |  |  
|                                                        |                         |  |  
|                                                        | (in thousands)         
|Net investment income                                   |                         |  | $
|Realized gain on investments                            |                         |  |  
|                                                        |                         |  |  
|                                                        |                         |  |  
|                                                        |                         |  |  
|General and administrative expenses                     |                         |  |  
|Interest expense on notes payable                       |                         |  |  
|Taxes, licenses and fees                                |                         |  |  
|Interest expense on redeemable convertible Series A     |                         | 
|preferred stock                                         |                         |  |  
|                                                        |                         |  |  
|                                                        |                         |  |  
|                                                        |                         |  |  
|Loss from continuing operations before income taxes and |                         | 
|equity in undistributed net earning of subsidiaries     |                         |  |  
|Federal income taxes                                    |                         |  |  
|                                                        |                         |  |  
|                                                        |                         |  |  
|Equity in undistributed net income of subsidiaries      |                         |  |  
|                                                        |                         |  |  
|(Loss) income from continuing operations                |                         |  |  
|Loss from discontinued operations, including loss on    |                         | 
|disposal in 2004 of ($1,369)                            |                         |  |  
|Federal income tax expense                              |                         |  |  
|                                                        |                         |  |  
|Loss from discontinued operations                       |                         |  |  
|                                                        |                         |  |  
|Net loss                                                |                         |  |  
|Preferred stock dividends                               |                         |  |  
|                                                        |                         |  |  
|Loss applicable to common shareholders                  |                         |  | $
|                                                        |                         |  |  

| | The
financial statement should be read in conjunction with the Consolidated Financial
Statements and the accompanying notes thereto. | 
| | ------------------------------------------------------------------------------------------------------------------------------------ | 



# SCHEDULE II

# USHEALTH GROUP, INC.
(PARENT COMPANY)CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

|                                                       |                         |  |  
|------------------------------------------------------ | ----------------------- |  | -
|                                                       | Year Ended December 31,
|                                                       |                        
|                                                       |                         |  |  
|                                                       |                         |  |  
|                                                       | (in thousands)         
|Net loss                                               |                         |  | $
|Other comprehensive (loss) income:                     |                         | 
|Unrealized holding gain (loss) arising during period   |                         |  |  
|Reclassification adjustment of (loss) gain on sales of |                         | 
|investments included in net income                     |                         |  |  
|Other comprehensive (loss) income on                   |                         | 
|investment in subsidiaries:                            |                         | 
|Unrealized holding (loss) gain during period           |                         |  |  
|Reclassification adjustment of (gain) loss on sales of |                         | 
|investments included in net loss                       |                         |  |  
|                                                       |                         |  |  
|Comprehensive (loss) income                            |                         |  | $
|                                                       |                         |  |  

| | The
financial statement should be read in conjunction with the Consolidated Financial
Statements and the accompanying notes thereto. | 
| | ------------------------------------------------------------------------------------------------------------------------------------ | 



# SCHEDULE II

USHEALTH GROUP, INC.
(PARENT COMPANY)CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY(in thousands, except
share data)

|                                                                                      |                                              |              |                          |                        |          |                    |         |       
|------------------------------------------------------------------------------------- | -------------------------------------------- | ------------ | ------------------------ | ---------------------- | -------- | ------------------ | ------- | ------
|                                                                                      | RedeemableConvertibleSeries BPreferred Stock | Common Stock | Capital in Excess of Par | AccumulatedOther Comp. | Retained | TotalStockholders'
|                                                                                      |                                              |              |                          | Shares                 |          |                    | Amount  |       
|                                                                                      |                                              |              |                          |                        |          |                    |         |       
|Balance at January 1, 2002                                                            |                                              |              |                          | -                      |          | $                  | -       |       
|Net loss                                                                              |                                              |              |                          |                        | (931     | )                  |         | (931  
|Series A preferred stock dividends                                                    |                                              |              |                          |                        |          |                    |         |       
|Other comprehensive income                                                            |                                              |              |                          |                        | 3,578    |                    |         |       
|Amortization of unearned     compensation                                             |                                              |              |                          |                        | 55       |                    |         |       
|Common stock options exercised                                                        |                                              |              |                          |                        | 17,100   |                    |         | -     
|                                                                                      |                                              |              |                          |                        |          |                    |         |       
|Balance at December 31, 2002                                                          |                                              |              |                          | -                      |          |                    | -       |       
|Net loss                                                                              |                                              |              |                          |                        | (1,348   | )                  |         | (1,348
|Series A preferred stock dividends                                                    |                                              |              |                          |                        |          |                    |         |       
|Other comprehensive loss                                                              |                                              |              |                          |                        | (398     | )                  |         |       
|Amortization of unearned     compensation                                             |                                              |              |                          |                        | 6        |                    |         |       
|Waiver of facility fee on notes     payable to related party                          |                                              |              |                          |                        | 1,353    |                    |         |       
|Common stock options exercised                                                        |                                              |              |                          |                        | 15,000   |                    |         | -     
|Redeemable convertible Series     B preferred stock issued                            |                                              |              |                          | 37,504                 |          |                    | 37,504  |       
|                                                                                      |                                              |              |                          |                        |          |                    |         |       
|Balance at December 31, 2003                                                          |                                              |              |                          | 37,504                 |          |                    | 37,504  |       
|Net loss                                                                              |                                              |              |                          |                        | (2,283   | )                  |         | (2,283
|Series B preferred stock dividends                                                    |                                              |              |                          |                        | 430      |                    |         |       
|Other comprehensive loss                                                              |                                              |              |                          |                        | (235     | )                  |         |       
|Amortization of unearned     compensation and other                                   |                                              |              |                          |                        | 1        |                    |         | (17   
|Common stock options exercised                                                        |                                              |              |                          |                        | 79,750   |                    |         | 1     
|Conversion of Series B redeemable     convertible preferred stock     to common stock |                                              |              |                          | (37,504                | )        |                    | (37,504 | )     
|                                                                                      |                                              |              |                          |                        |          |                    |         |       
|Balance at December 31, 2004                                                          |                                              |              |                          | -                      |          | $                  | -       |       
|                                                                                      |                                              |              |                          |                        |          |                    |         |       

| |  | The financial statements should be read in conjunction with the Consolidated Financial
Statements and the accompanying notes thereto. | 
| |  | ------------------------------------------------------------------------------------------------------------------------------------- | 



# SCHEDULE II

USHEALTH GROUP, INC.
(PARENT COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS(in
thousands)

|                                                                         |                         |  |  
|------------------------------------------------------------------------ | ----------------------- |  | -
|                                                                         | Year Ended December 31,
|                                                                         |                        
|                                                                         |                         |  |  
|                                                                         |                         |  |  
|Cash Flow from Operating Activities:                                     |                         | 
|Net loss                                                                 |                         |  | $
|Adjustments to reconcile net loss to cash used for operating activities: |                         | 
|Equity in undistributed net income of subsidiaries                       |                         |  |  
|Decrease (increase) in receivables from subsidiaries                     |                         |  |  
|(Increase) decrease in other assets                                      |                         |  |  
|Increase (decrease) in other liabilities                                 |                         |  |  
|Increase (decrease) in payables to subsidiaries                          |                         |  |  
|Interest expense on notes payable to related party                       |                         |  |  
|Interest expense on redeemable convertible Series A preferred stock      |                         |  |  
|Other, net                                                               |                         |  |  
|                                                                         |                         |  |  
|Net Cash Used For Operating Activities                                   |                         |  |  
|                                                                        
|Cash Flow from Investing Activities:                                     |                         | 
|Proceeds from sale of fixed maturity investments                         |                         |  |  
|Cost of fixed maturity investments acquired                              |                         |  |  
|Proceeds from equity securities sold                                     |                         |  |  
|Net change in short-term and other investments                           |                         |  |  
|Dividends received from subsidiaries                                     |                         |  |  
|Capital contributions to subsidiaries                                    |                         |  |  
|                                                                         |                         |  |  
|Net Cash Provided by Investing Activities                                |                         |  |  
|                                                                         |                         |  |  
|                                                                        
|Increase (Decrease) in Cash During the Period                            |                         |  |  
|Cash at Beginning of Period                                              |                         |  |  
|                                                                         |                         |  |  
|Cash at End of Period                                                    |                         |  | $
|                                                                         |                         |  |  

| | The financial statement should be read in conjunction with the Consolidated Financial
Statements and the accompanying notes thereto. | 
| | ------------------------------------------------------------------------------------------------------------------------------------ | 



# SCHEDULE III

# SUPPLEMENTARY
INSURANCE INFORMATION

(in thousands)

|                              |  |  |   |                                |  |   |                                                    |  |  
|----------------------------- |  |  | - | ------------------------------ |  | - | -------------------------------------------------- |  | -
|Segment                       |  |  |   | DeferredPolicyAcquisitionCosts |  |   | FuturePolicyBenefits,Losses,Claimsand LossExpenses |  |  
|                              |  |  |   |                                |  |   |                                                    |  |  
|Year Ended December 31, 2004: |  | 
|Total                         |  |  | $ | 20,700                         |  | $ | 53,493                                             |  | $
|                              |  |  |   |                                |  |   |                                                    |  |  
|Year Ended December 31, 2003: |  | 
|Total                         |  |  | $ | 21,819                         |  | $ | 54,872                                             |  | $
|                              |  |  |   |                                |  |   |                                                    |  |  
|Year Ended December 31, 2002: |  | 
|Total                         |  |  | $ | 22,546                         |  | $ | 60,660                                             |  | $
|                              |  |  |   |                                |  |   |                                                    |  |  

*Premium Written - Amounts do not apply to life insurance/other.



# SCHEDULE IV

# REINSURANCE

(in thousands, except percentages)

|                             |             |  |                        |         |                           
|---------------------------- | ----------- |  | ---------------------- | ------- | --------------------------
|                             | GrossAmount |  | Ceded toOtherCompanies |         | AssumedFrom OtherCompanies
|                             |            
|Year Ended December 31, 2004 |             |  |                        |         |                           
|Life insurance in force      |             |  | $                      | 35,056  |                           
|                             |             |  |                        |         |                           
|Premiums:                    |             | 
|Life                         |             |  | $                      | 482     |                           
|Accident and health          |             |  |                        | 93,432  |                           
|Other                        |             |  |                        | 297     |                           
|                             |             |  |                        |         |                           
|Total premiums               |             |  | $                      | 94,211  |                           
|                             |             |  |                        |         |                           
|Year Ended December 31, 2003 |             | 
|Life insurance in force      |             |  | $                      | 43,675  |                           
|                             |             |  |                        |         |                           
|Premiums:                    |             | 
|Life                         |             |  | $                      | 557     |                           
|Accident and health          |             |  |                        | 102,974 |                           
|Other                        |             |  |                        | 280     |                           
|                             |             |  |                        |         |                           
|Total premiums               |             |  | $                      | 103,811 |                           
|                             |             |  |                        |         |                           
|Year Ended December 31, 2002 |             | 
|Life insurance in force      |             |  | $                      | 53,054  |                           
|                             |             |  |                        |         |                           
|Premiums:                    |             | 
|Life                         |             |  | $                      | 587     |                           
|Accident and health          |             |  |                        | 113,077 |                           
|Other                        |             |  |                        | 325     |                           
|                             |             |  |                        |         |                           
|Total premiums               |             |  | $                      | 113,989 |                           
|                             |             |  |                        |         |                           



# SCHEDULE V

VALUATION AND QUALIFYING ACCOUNTS(in thousands)

|                                           |                              |  |                                                  |       
|------------------------------------------ | ---------------------------- |  | ------------------------------------------------ | ------
|                                           | Balance atBeginningof Period |  | Additions(Reductions)Charged toCosts andExpenses |       
|                                           |                              |  |                                                  |       
|Year Ended December 31, 2004:              |                              |  |                                                  |       
|Allowance for doubtful agents' receivables |                              |  | $                                                | 3,439 
|                                           |                              |  |                                                  |       
|Deferred tax valuation allowance           |                              |  | $                                                | 18,385
|                                           |                              |  |                                                  |       
|Year Ended December 31, 2003:              |                              | 
|Allowance for doubtful agents' receivables |                              |  | $                                                | 4,630 
|                                           |                              |  |                                                  |       
|Deferred tax valuation allowance           |                              |  | $                                                | 15,998
|                                           |                              |  |                                                  |       
|Year Ended December 31, 2002:              |                              | 
|Allowance for doubtful agents' receivables |                              |  | $                                                | 4,013 
|                                           |                              |  |                                                  |       
|Deferred tax valuation allowance           |                              |  | $                                                | 17,841
|                                           |                              |  |                                                  |       



# ITEM 9  CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

# ITEM 9A  CONTROLS
AND PROCEDURES

Evaluation of disclosure controls and procedures.    
Under the supervision and with the participation of
USHEALTHs management, including the Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of its disclosure controls and
procedures as of December 31, 2004, the end of the period covered by this report. Based on
such evaluation, USHEALTHs Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2004, the end of the period covered by this report, the
Companys disclosure controls and procedures were effective to ensure that
information required to be disclosed by USHEALTH in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission.

Changes in internal controls.    
There were no changes in the Companys internal controls over
financial reporting that have materially affected, or, are reasonably likely to material
affect, these controls during the period covered by this annual report.



# PART III

# ITEM 10  DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors.
          The Companys Certificate of Incorporation and Bylaws provide that the
          members of the Board shall be divided into three classes with approximately
          one-third of the directors to stand for election each year for three-year terms.
          The total number of directors comprising the Companys Board is currently
          set by the Board pursuant to the Companys Bylaws at seven (7). The
          following is certain information concerning each member of the Board as of
          January 31, 2005:

Benjamin M. Cutler, age 60, has been
a director of Ascent since September 2004 and, likewise, has served as Chairman of the
Board and Chief Executive Officer of the Company since September 2004. From October 2002
to August 2004, Mr. Cutler was Chairman of Assurant Health and Executive Vice President of
Assurant, Inc. and from 1996 through 2002, Mr. Cutler served as President and Chief
Executive Officer of Fortis Health (now known as Assurant Health). Mr. Cutler also serves
on the Board of Directors of Marshall Funds, Inc.

Alan H. Freudenstein, age 40, has
been a director of Ascent since the 2003 Annual Meeting of Stockholders. Mr. Freudenstein
is a Managing Director in the Private Equity Division of CSFB. He is also President of
Credit Suisse First Boston Management LLC and Special Situations Holdings, Inc. 
Westbridge (see Item 13 Stock Ownership  Principal Stockholders and
Certain Relationships and Related Transactions). From 1992 through July 2000,
Mr. Freudenstein was a Managing Director at Bankers Trust Company, where he was
responsible for incubation and venture investments within the New World Ventures Group.

George R. Hornig, age 50, has been a
director of Ascent since the 2003 Annual Meeting of Stockholders. Mr. Hornig is a Managing
Director of CSFB and Chief Operating Officer of its Private Equity Division (see Item 13
Stock Ownership  Principal Stockholders and Certain Relationships
and Related Transactions). He is also the Chief Financial and Administrative Officer
of Credit Suisse First Boston Advisory Partners, LLC. From 1993 through October 1999, Mr.
Hornig was an Executive Vice President of Deutsche Bank Americas where he was responsible
for the holding companys administration and operations for the Americas. He also
currently serves as a Director for Forrester Research, Inc. and Pacific Fiber Company,
L.P.

Gregory M. Grimaldi, age31,
has been a director of Ascent since January 1, 2004. Mr. Grimaldi is a Vice
President of CSFB (see Item 13 Stock Ownership  Principal Stockholders
and Certain Relationships and Related Transactions). From 1998 to 2000 he was
an Associate at Insight Capital Partners and from 1996 to 1998, he was an analyst at
Merrill Lynch. Mr. Grimaldi also serves as a director of Longitude, Inc.

David G. Kaytes, age50, has
been a director of Ascent since January 22, 2004. Mr. Kaytes is a managing
director of Novantas, LLC, a management consulting firm. From 1995 to 1999, he was a
managing vice president of First Manhattan Consulting Group, a business consulting firm.

Michael A. Kramer, age 36, has been a
director of Ascent since 1999. Mr. Kramer is a Partner in Greenhill & Co., an
investment banking firm. From 1989 through January 2001, Mr. Kramer was a managing
director in Houlihan, Lokey, Howard & Zukins New York office where he led many
of the firms largest restructuring and M&A engagements.

Paul E. Suckow, age 57, has been a
director of Ascent since 1999. Mr. Suckow has been an adjunct professor for Villanova
University since August 1999. From 1993 to 1999, Mr. Suckow was Executive Vice President
and Chief Investment Officer, Fixed Income at Delaware Investment Advisers, Inc. where he
managed a $10.5 billion portfolio of fixed income assets. He also currently serves as a
director for Doane Pet Care Company.

The three-year terms of Messrs.
Cutler, Grimaldi and Kaytes will expire in 2007. The three-year terms of Messrs.
Freudenstein and Hornig will expire in 2006. The three-year terms of Messrs. Kramer and
Suckow will expire in 2005.

Under the Exchange Agreement dated as
of December 31, 2003 between the Company and affiliates of CSFB (the Exchange
Agreement), two members of the Board (who will be entitled to appoint their
successors) will be required to be independent of both CSFB and the Company until such
time as the Company no longer has any stockholders who are not affiliated with CSFB or, if
sooner, upon a sale of the Company to an unaffiliated third party (the Independent
Directors). To qualify as an Independent Director, a director must not be an officer
of the Company or any of its subsidiaries, must not otherwise be an affiliate of CSFB and
must qualify as independent under the rules or listing standards of any
securities exchange or market on which any of the Companys securities are listed or
approved for trading or, if not so listed or approved, the rules or listing standards of
the Nasdaq Stock Market. The current Independent Directors are Michael A. Kramer and Paul
E. Suckow. Under the terms of the Exchange Agreement, the consent of the Independent
Directors is required for certain transactions between CSFB and its affiliates and the
Company, and CSFB and its affiliates are required to vote their shares of Common Stock in
favor of the election of the Independent Directors.

Executive
Officers. The following is certain information concerning each executive
officer of the Company who is not also a director as of January 31, 2005. Except as
indicated below under Employment Agreements, there are no arrangements or
understandings between any executive officer and any other person pursuant to which such
executive officer was appointed.

Patrick H. ONeill, age 54,
joined the Company in September 1997 as Senior Vice President, General Counsel and
Secretary. In November 1997, he was promoted to Executive Vice President. Prior to joining
the Company and since 1990, he served as founder and President of the Law Offices of
Patrick H. ONeill, P.C.

Konrad H. Kober, age 46, was promoted
to Senior Vice President and Chief Administration Officer in March 1999. In July 1990, he
joined the Company as Assistant Vice President of Claims Review/Communications and was
promoted in June 1994 to Vice President of Claims Administration.

Cynthia B. Koenig, age 47, joined the
Company in March 1999 as Senior Vice President, Chief Financial Officer and Treasurer.
From 1993 to 1998, she held various finance positions at TIG Holdings, Inc. and its
subsidiary, TIG Insurance Company, most recently Vice President-Controller and Chief
Accounting Officer.

Audit Committee.
The Audit Committee of the Board is composed of three directors, Alan H. Freudenstein,
Gregory M. Grimaldi and Paul E. Suckow, two of whom (Messrs. Freudenstein and Grimaldi)
would not be considered independent under the listing standards of Nasdaq (if
they were applicable to the Company) by virtue of their relationships with CSFB, the
Companys largest stockholder (see Item 13 Certain Relationships and Related
Transactions). The Board has determined that Mr. Suckow is an audit committee
financial expert as defined in Item 401(h) of Regulation S-K promulgated
by the SEC.

Section 16(a) Beneficial
Ownership Reporting Compliance.Section 16(a) of the Securities Exchange
Act of 1934, as amended (the Exchange Act), requires the Companys
directors and executive officers, and persons who beneficially own more than 10% of the
Common Stock, to file with the SEC reports of ownership and changes in ownership of the
Common Stock. Directors, executive officers and greater-than-10% stockholders are required
by regulations of the SEC to furnish the Company with copies of all Section 16(a) reports
they file. Based solely on review of the copies of such reports furnished to the Company
or written representations that no other reports were required, the Company believes that,
during 2004, the Companys directors, executive officers and greater-than-10%
stockholders complied with the foregoing requirements, except that Michael A. Kramer did
not file his Form 5 until March 5, 2004.

Code of Ethics.
The Board has adopted a Code of Ethics that applies to the Companys officers and
employees, including its principal executive, financial and accounting officers and
persons performing similar functions. The Code of Ethics will be made available, without
charge, upon written request made to the Secretary of the Company at its principal
executive offices.

# ITEM 11  EXECUTIVE
COMPENSATION

Summary of
Compensation. The following table sets forth the compensation paid or
accrued by the Company and its subsidiaries for services in all capacities during each of
the last three years by (1) the Companys Chief Executive Officer, (2) the
Companys former Chief Executive Officer and (3) all other executive officers of the
Company (collectively, the Named Executive Officers), for the year ended
December 31, 2004.

|                                     |                     |  |                                            |  |           |       
|------------------------------------ | ------------------- |  | ------------------------------------------ |  | --------- | ------
|Name and                             | Annual Compensation |  | Long-TermCompensation/SecuritiesUnderlying |  | All Other
|Principal Position                   |                     |  | Year                                       |  |           | Salary
|                                    
|Benjamin M. Cutler                   |                     |  | 2004                                       |  |           | $     
|Chairman of the Board and            |                     |  | 2003                                       |  |           | $     
|Chief Executive Officer              |                     |  | 2002                                       |  |           | $     
|                                    
|Patrick J. Mitchell(2)               |                     |  | 2004                                       |  |           | $     
|Former Chairman of the Board and     |                     |  | 2003                                       |  |           | $     
|Chief Executive Officer              |                     |  | 2002                                       |  |           | $     
|                                    
|Patrick H. O'Neill(3)                |                     |  | 2004                                       |  |           | $     
|Executive Vice President,            |                     |  | 2003                                       |  |           | $     
|General Counsel and Secretary        |                     |  | 2002                                       |  |           | $     
|                                    
|Konrad H. Kober                      |                     |  | 2004                                       |  |           | $     
|Senior Vice President and            |                     |  | 2003                                       |  |           | $     
|Chief Administration Officer         |                     |  | 2002                                       |  |           | $     
|                                    
|Cynthia B. Koenig                    |                     |  | 2004                                       |  |           | $     
|Senior Vice President,               |                     |  | 2003                                       |  |           | $     
|Chief Financial Officer and Treasure |                     |  | 2002                                       |  |           | $     

---

|1. |  | Represents matching contributions of the Company credited to the named executive
                    officers under the Companys 401(k) benefit plan except as indicated in
                    notes (2) and (3) below.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | For 2004, all other compensation includes $631,800 for amounts paid upon
                    resignation pursuant to Mr. Mitchells extension of employment agreement
                    dated March 16, 2004. For 2002, all other compensation includes $64,869, for
                    interest paid on deferred payments pursuant to Mr. Mitchells employment
                    agreement dated September 16, 2001.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | For 2002, all other compensation includes $15,940 for interest paid on deferred
                    payments pursuant to Mr. ONeills employment agreement dated
                    September 16, 2001.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment
Agreements. The Registrant has entered into an employment agreement with
Benjamin M. Cutler pursuant to which Mr. Cutler is employed as the Chairman of the Board,
President and Chief Executive Officer for a period of five years commencing on September
1, 2004, the Cutler Employment Agreement. Mr. Cutler has a base salary of
$250,000 that will be reviewed annually for increase at the sole discretion of the Board.
In addition to base salary, Mr. Cutler is entitled to receive an annual performance bonus
(Annual Bonus) for each fiscal year based upon the attainment of performance
criteria approved by the Board. The minimum Annual Bonus in the event that target
performance is attained is 200% of the base salary in effect on the last day of the
applicable fiscal year. However, for the partial calendar year 2004 and full calendar year
2005, the minimum Annual Bonus is $166,666 and $500,000, respectively, regardless of
whether performance targets are achieved. Mr. Cutler is also entitled to participate in
and receive all benefits under any other short-term or long-term incentive program,
savings and retirement plans, and welfare benefit plans, practices, policies and programs
maintained or provided by the Registrant for the benefit of senior executives. Mr. Cutler
will receive a monthly allowance for reasonable personal living expenses as agreed to by
the Board.

Mr.
          Cutler will receive options to purchase 9.9% of the common stock of the
          Registrant at an exercise price equal to the fair market value of such shares as
          determined by the Board on the Early Exercise Date (as defined in the Cutler
          Employment Agreement). Such options will vest in five equal installments on each
          of the first five anniversaries from September 1, 2004, provided Mr. Cutler is
          an employee on each applicable vesting date. In addition, the vesting of options
          may be accelerated by a Change in Control (as defined in the Cutler Employment
          Agreement). The obligation to grant the common stock options may be partially
          satisfied by an option granted with respect to up to 10% of the fully-diluted
          shares of common stock of the Registrant beneficially owned by CSFB. As of
          September 1, 2004, CSFB owned approximately 93% of the Registrants
          outstanding common stock. Common stock options granted to Mr. Cutler will have a
          duration of ten years, except that (i) if his employment with the Registrant
          terminates for any reason other than for Cause (as defined in the Cutler
          Employment Agreement), Disability (as defined in the Cutler Employment
          Agreement) or death, any then vested but unexercised options shall be
          exercisable for three months following such termination, (ii) if his employment
          with the Registrant terminates due to Disability or death, any then vested but
          unexercised options shall be exercisable for six months following such
          termination, and (iii) if his employment with the Registrant terminates for
          Cause (as defined in the Cutler Employment Agreement), all unexercised options
          (including any vested options) shall terminate immediately upon such
          termination.

An additional equity pool of 20.1%
(subject to adjustment to 20% in the event of certain transactions) of the fully-diluted
shares of the Registrant as of September 1, 2004 is to be reserved for options and/or
other equity awards to be granted to other employees as recommended by management and
approved by the Board (or a designated committee thereof). In the event that such
additional pool is not entirely allocated to grants made to other employees, Mr. Cutler
shall be eligible to receive additional options and/or other equity awards with respect to
such unallocated shares available in such pool, up to a maximum level of 15% (including
the shares subject to the initial options granted to Mr. Cutler) of the fully-diluted
shares of common stock of the Registrant as of September 1, 2004. If such additional pool
is allocated to grants made to other employees, then Mr. Cutler will not receive any
options or other equity awards in addition to the initial options granted to him.

In the event of the consummation of
(i) a Qualifying Liquidity Event (as defined in the Cutler Employment Agreement) or (ii)
any pay down of Registrant debt held by CSFB (CSFB Debt), Mr. Cutler shall be
eligible to receive a one-time liquidation sharing amount of either $2,000,000 or a
pro-rata share of any such pay down of CSFB Debt, respectively, in either case ranking
pari passu to the amounts which are able to be retained by CSFB, including after giving
effect to the subordination of such debt. Any amounts due and payable to Mr. Cutler will
also include an additional amount equal to the proportionate amount of interest which
would be paid relative to a notional principal amount of $2,000,000, if the CSFB Debt were
increased by $2,000,000 as of September 1, 2004, such additional amount to be paid to Mr.
Cutler at the same time as interest is paid on the CSFB Debt.

In the event of the consummation of a
Qualifying Liquidity Event (as defined in the Cutler Employment Agreement) while Mr.
Cutler is an employee, Mr. Cutler will be eligible to receive a one-time liquidity
performance bonus calculated pursuant to the applicable provisions of the Employment
Agreement. In general, such bonus shall consist of 10% of the dollar amount of
consideration allocable to CSFB in respect of debt obligations and/or securities of the
Registrant and its subsidiaries in the Qualifying Liquidity Event (as defined in the
Cutler Employment Agreement) in excess of the amount required for CSFB to achieve a rate
of return of 25% (additional amounts may be payable to Mr. Cutler depending on CSFBs
rate of return in the Qualifying Liquidity Event (as defined in the Cutler Employment
Agreement).

Either the Registrant or Mr. Cutler
may terminate the Cutler Employment Agreement and Mr. Cutlers employment at any time
for any reason upon 7 days prior written notice to the other party. Upon any termination
of the Cutler Employment Agreement, the Registrant shall have no liability or obligations
whatsoever to Mr. Cutler except for (i) the liquidation sharing amount described above,
(ii) obligations for common stock options as described above, (iii) the one-time liquidity
performance bonus described above, if a definitive agreement for a Qualifying Liquidity
Event (as defined in the Cutler Employment Agreement) has been entered into before July 1,
2010 and if there in no termination for Cause (as defined in the Cutler Employment
Agreement), (iv) accrued but unused vacation, (v) accrued but unpaid base salary, (vi)
earned but unpaid Annual Bonus and (vii) unreimbursed business expenses.

The Registrant also entered into a
separate employment agreement dated December 18, 2002 and extended on March 16, 2004 with
Patrick H. ONeill under which Mr. ONeill is employed as Executive Vice
President, General Counsel and Secretary of the Company for a period ending on March 15,
2005, the ONeill Employment Agreement. Mr. ONeill has a base
salary of $300,000 and such base salary will be reviewed annually for increase at the sole
discretion of the Board or the Compensation Committee thereof. In addition to base salary,
Mr. ONeill is entitled to receive an annual cash bonus, determined by the Board or
an executive committee thereof, payable at such time as similar bonuses are payable to
senior management of the Registrant and its subsidiaries. Mr. ONeill is also
entitled to participate in and receive all benefits under any other short-term or
long-term incentive program (LTIP), savings and retirement plans, and welfare
benefit plans, practices, policies and programs maintained or provided by the Registrant
and/or its subsidiaries for the benefit of senior executives.

If Mr. ONeills employment
is terminated by reason of death or disability (as defined in the ONeill
Employment Agreement), Mr. ONeill, his estate or legal representative will receive
(a) a lump sum payment equal to any accrued but unpaid base salary; (b) a lump sum payment
of any incentive bonus, annual bonus, LTIP award awarded but not yet paid as of the
termination date; (c) in the case of death, any other compensation and benefits including
life insurance, as may be provided in accordance with the terms and provisions of any
applicable plans and programs of the Registrant, except any other severance benefit of the
Registrant; and (d) in the case of disability, (i) continuation of Mr. ONeills
health and welfare benefits at the level in effect on the termination date through the end
of the one-year period following the termination of Mr. ONeills employment due
to disability (or the Registrant shall provide the economic equivalent thereof), and (ii)
any other compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs of the Registrant, except any other
severance benefit of the Registrant.

If Mr. ONeills employment
is terminated by the Registrant for cause (as defined in the ONeill
Employment Agreement), Mr. ONeill will be entitled to, among other things, (a) a
lump sum payment equal to any accrued but unpaid base salary; (b) a lump sum payment of
any incentive bonus, annual bonus, LTIP award awarded but not yet paid as of the
termination date; and (c) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and programs of the
Registrant, except any other severance benefit of the Registrant.

If Mr. ONeills employment
is terminated by the Registrant without cause or for good reason
(as defined in the ONeill Employment Agreement), Mr. ONeill will be entitled
to, among other things, (a) a lump sum payment equal in amount to 117% of the sum of (i)
Mr. ONeills base salary and (ii) the highest of either the incentive bonus or
annual bonus awarded to Mr. ONeill within five (5) years prior to the termination
date; provided, however, if Mr. ONeill has received a Change in Control
Payment (as defined below) prior to the date of termination, then the lump sum
payment described immediately above shall not be due; (b) a lump sum payment of any base
salary accrued and incentive bonus or LTIP award awarded but not yet paid as of the
termination date; and (c) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and programs of the
Registrant.

If Mr. ONeills employment
is terminated voluntarily (as defined in the ONeill Employment
Agreement) by Mr. ONeill, he will be entitled to, among other things, (a) a lump sum
payment equal to any accrued but unpaid base salary; (b) a lump sum payment of any annual
bonus, incentive bonus and LTIP award awarded but not yet paid as of the termination date;
and (c) any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the Registrant, except any
other severance benefit of the Registrant.

If the ONeill Employment
Agreement is allowed to expire (as defined in the ONeill Employment
Agreement), Mr. ONeill will be entitled to, among other things, (a) a lump sum
payment equal to any accrued but unpaid base salary; (b) a lump sum payment of any annual
bonus, incentive bonus and LTIP award awarded but not yet paid as of the termination date;
and (c) any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the Registrant, except any
other severance benefit of the Registrant.

In addition to any other payments to
which Mr. ONeill may be entitled under the terms of the ONeill Employment
Agreement, the Registrant shall make a lump sum payment equal in amount to the sum of (a)
117% of the sum of (i) Mr. ONeills base salary (as provided for by Section 5.1
of the ONeill Employment Agreement), and (ii) the highest of either the 2001 Annual
Bonus, 2002 Annual Bonus, or any other annual or incentive bonus awarded to him within
five (5) years prior to the date of a Change in Control (as defined in the
ONeill Employment Agreement), and (b) One Hundred Fifty Thousand Dollars ($150,000),
within five (5) days following a Change of Control (as defined in the ONeill
Employment Agreement) occurring during the term of employment (the Change of Control
Payment). Notwithstanding the foregoing, Mr. ONeill shall be entitled to
receive the Change of Control Payment as provided in the previous sentence if Mr.
ONeills employment with the Registrant is terminated for any reason during the
term of employment, but prior to the date on which a Change of Control (as defined in the
ONeill Employment Agreement) occurs, if he can reasonably demonstrate that such
termination (i) was at the request or suggestion of a third party who has taken steps
reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection
with or in anticipation of a Change of Control.

If any payment or distribution to Mr.
ONeill by the Registrant or any subsidiary or affiliate would be subject to any
golden parachute payment excise tax or similar tax, and if, and only if, such
payments less the excise tax or similar tax is less than the maximum amount of payments
which could be payable to him without the imposition of the excise tax or similar tax and
after taking into account any reduction in the total payments provided by reason of
Section 280G of the Internal Revenue Code, (a) any cash payments under the ONeill
Employment Agreement shall first be reduced (if necessary, to zero), and (b) all other
non-cash payments shall next be reduced.

If Mr. ONeills employment
is terminated by the Registrant for cause or voluntarily by Mr. ONeill, for a period
of twelve months from the termination date, Mr. ONeill shall not (i) directly or
indirectly divert, solicit or take away the patronage of (a) any customers or agents of
the Registrant or any affiliate as of the relevant termination date, or (b) any
prospective customers or agents of the Registrant or any affiliate whose business the
Registrant was actively soliciting on the relevant termination date, and with which he had
business contact while employed by the Registrant, or (ii) directly or indirectly induce
or solicit any employees or agents of the Registrant or any affiliate to leave or
terminate their employment or agency relationship with the Registrant.

Option Grants.
Options of 5,025,619 shares were effectively granted under the Cutler Employment Agreement
to Benjamin M. Cutler, Chief Executive Officer, during the fiscal year ended December 31,
2004. The exercise price of the options will equal the fair market value of
USHEALTHs common stock as determined by USHEALTHs Board in good faith based on
generally accepted industry valuation methodologies on the Early Exercise Date (as defined
in the Cutler Employment Agreement). Such options will vest in five equal installments on
each of the first five anniversaries from September 1, 2004, provided Mr. Cutler is an
employee on each applicable vesting date. In addition, the vesting of options may be
accelerated by a Change in Control (as defined in the Cutler Employment Agreement). The
obligation to grant the common stock options may be partially satisfied by an option
granted with respect to up to 10% of the fully-diluted shares of common stock of the
Registrant beneficially owned by CSFB. As of September 1, 2004, CSFB owned approximately
93% of the Registrants outstanding common stock. Common stock options granted to Mr.
Cutler will have a duration of ten years, except that (i) if his employment with the
Registrant terminates for any reason other than for Cause (as defined in the Cutler
Employment Agreement), Disability (as defined in the Cutler Employment Agreement) or
death, any then vested but unexercised options shall be exercisable for three months
following such termination, (ii) if his employment with the Registrant terminates due to
Disability or death, any then vested but unexercised options shall be exercisable for six
months following such termination, and (iii) if his employment with the Registrant
terminates for Cause (as defined in the Cutler Employment Agreement), all unexercised
options (including any vested options) shall terminate immediately upon such termination.

Option Values at December 31,
2004. The following table summarizes information with respect to the number
of unexercised options held by the Companys executive officers as of December 31,
2004.

|                   |                                                                        |  |                                                                  |        
|------------------ | ---------------------------------------------------------------------- |  | ---------------------------------------------------------------- | -------
|                   | Number of SecuritiesUnderlying UnexercisedOptions at December 31, 2004 |  | Value of UnexercisedIn-The-Money Options atDecember 31, 2004 (1) |        
|                  
|                   | Exercisable                                                            |  | Unexercisable                                                    |        
|Benjamin M. Cutler |                                                                        |  |                                                                  | -      
|Patrick H. O'Neill |                                                                        |  |                                                                  | 160,000
|Konrad H. Kober    |                                                                        |  |                                                                  | 75,000 
|Cynthia B. Koenig  |                                                                        |  |                                                                  | 75,000 

---

(1)    
          Valued at $0.40 per share, the closing price per share of Common Stock on
          December 31, 2004.


(2)    
          Not determinable as the Early Exercise date has not been determined (see Cutler
          Employment Agreement).

Long-Term Incentive Plan
Awards.Under the Cutler Employment Agreement, in the event of the
consummation of (i) a Qualifying Liquidity Event (as defined in the Cutler Employment
Agreement) or (ii) any pay down of Registrant debt held by CSFB (CSFB Debt),
Benjamin M. Cutler, the Companys Chairman of the Board and Chief Executive Officer,
is eligible to receive a one-time liquidation sharing amount of either $2,000,000 or a
pro-rata share of any such pay down of CSFB Debt, respectively, in either case ranking
pari passu to the amounts which are able to be retained by CSFB, including after giving
effect to the subordination of such debt. Any amounts due and payable to Mr. Cutler will
also include an additional amount equal to the proportionate amount of interest which
would be paid relative to a notional principal amount of $2,000,000, if the CSFB Debt were
increased by $2,000,000 as of September 1, 2004, such additional amount to be paid to Mr.
Cutler at the same time as interest is paid on the CSFB Debt.

In the event of the consummation of a
Qualifying Liquidity Event (as defined in the Cutler Employment Agreement) while Mr.
Cutler is an employee, Mr. Cutler will be eligible to receive a one-time liquidity
performance bonus calculated pursuant to the applicable provisions of the Cutler
Employment Agreement. In general, such bonus shall consist of 10% of the dollar amount of
consideration allocable to CSFB in respect of debt obligations and/or securities of the
Registrant and its subsidiaries in the Qualifying Liquidity Event (as defined in the
Cutler Employment Agreement) in excess of the amount required for CSFB to achieve a rate
of return of 25% (additional amounts may be payable to Mr. Cutler depending on CSFBs
rate of return in the Qualifying Liquidity Event (as defined in the Cutler Employment
Agreement).

Compensation of
Directors. For 2004, each non-employee member of the Board (other than CSFB
employees) received a $15,000 annual retainer fee. All non-employee members of the Board
received meeting fees of $2,000 per meeting and reimbursement of all reasonable
out-of-pocket expenses. In addition, committee meeting fees of $1,000 per committee member
and chairman of committee fees of $1,500 were paid as applicable. Meeting fees
attributable to CSFB employees were paid to CSFB.

Compensation Committee
Interlocks and Insider Participation. The Companys Compensation
Committee is composed entirely of non-employee directors. The following directors, (none
of whom was, or has been, an officer or employee of the Company or, any of its
subsidiaries), serve on the Companys Compensation Committee: Alan H. Freudenstein,
Gregory M. Grimaldi, Paul E. Suckow. There were no interlocks with other companies within
the meaning of the proxy rules of the SEC during 2004.

Board Compensation Committee
Report on Executive Compensation. The Compensation Committee (the
Committee) is responsible for supervising the Companys compensation
policies, approving executive officers salaries and bonuses and reviewing the
salaries and bonuses of other senior management. The following report on compensation
policies applicable to the Companys executive officers, with respect to compensation
reported for the year ended December 31, 2004, was prepared by the Committee.

# Executive Compensation
Philosophy and Policies

The overriding objective of the
Committees executive compensation policies is to attract and retain superior
executives. The policies are also designed to: (1) align the interests of executive
officers and stockholders by encouraging stock ownership by executive officers and by
making a significant portion of executive compensation dependent upon the Companys
financial performance; (2) reward individual results by recognizing performance through
salary, annual cash incentives and long-term incentives; and (3) manage compensation based
on the level of skill, knowledge, effort and responsibility needed to perform the job
successfully. For 2004, executive compensation consisted of the following components:

Base Salary The minimum
salary to which the Named Executive Officers were entitled for 2004 was specified in their
respective employment agreements and is subject to annual review and increase when deemed
appropriate by the Committee. Salary increases, if any, are made, with Committee
involvement, on an individual basis to reflect promotions or to maintain the
competitiveness of an executives salary or to recognize an increase in the
executives responsibilities.

Incentive Bonus  The
employment agreements of the Named Executive Officers provided for an annual cash bonus to
be awarded at the determination of the Committee. For 2004, cash bonuses for all officers
of the Company and its subsidiaries, including the Named Executive Officers, were
determined based upon individual performance and achievement of Company financial goals as
evaluated by the Committee.

Stock Options  Stock
option awards are intended to retain and motivate executive officers to achieve superior
market performance of the Companys common stock. On March 24, 1999, the Board
adopted the Ascent Assurance, Inc. 1999 Stock Option Plan (1999 Plan). No
stock option awards were granted under the 1999 Plan during 2004. Options of 5,025,619
shares were effectively granted under the Cutler Employment Agreement to Benjamin M.
Cutler, Chief Executive Officer, during the fiscal year ended December 31, 2004. The
exercise price of the options equals the fair market value of USHEALTHs common
shares as determined by USHEALTHs Board in good faith based on generally accepted
industry valuation methodologies on the Early Exercise Date (as defined in the Cutler
Employment Agreement).

# Compensation of Chief
Executive Officer

Mr.
          Cutlers employment with the Company is currently governed by the Cutler
          Employment Agreement (see Employment Agreements under Item
          11). The minimum salary to which Mr. Cutler is entitled is specified in the
          Cutler Employment Agreement and is subject to annual review and increase when
          deemed appropriate by the Committee. In addition, the annual cash bonus and
          benefits, from long-term incentive plans, provided for under the Cutler
          Employment Agreement are determined by the Committee.

Submitted by the
Compensation Committee:

|Alan H. Freudenstein | Gregory M. Grimaldi | Michael A. Kramer | 
|-------------------- | ------------------- | ----------------- | 

Performance
Graph. The following line graph demonstrates the performance of the
cumulative total return to the holders of the Companys Common Stock in comparison to
the cumulative total return on the Russell 2000 Index and the SNL <$250M Insurance
Asset-Size Index for the period commencing June 30, 1999 (the Companys new
Common Stock began trading on the OTC Bulletin Board after its emergence from Chapter 11
reorganization proceedings on May 28, 1999) through December 31, 2004.

|                                      | Period Ending
|------------------------------------- | -------------
|                                      |              
|Index                                 | 12/31/99     
|                                     
|Ascent Assurance, Inc.                | 100          
|Russell 2000                          | 100          
|SNL <$250M Insurance Asset-Size Index | 100          

# ITEM 12  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of
January 31, 2005, the number and percentage of shares of Common Stock beneficially owned
by the directors of the Company, each of the Named Executive Officers and all executive
officers and directors as a group. To the Companys knowledge, each of the persons
listed below has sole voting and investment power as to all shares indicated as owned by
him or her.

|                     |                       |  |                                        
|-------------------- | --------------------- |  | ---------------------------------------
|Title of       Class |                       |  | Name of Beneficial Owner               
|Common stock         |                       |  | Benjamin M. Cutler1                    
|Common stock         |                       |  | Patrick H. O'Neill2                    
|Common stock         |                       |  | Konrad H. Kober3                       
|Common stock         |                       |  | Cynthia B. Koenig4                     
|                     |                       |  | Alan H. Freudenstein5                  
|                     |                       |  | Gregory M. Grimaldi5                   
|                     |                       |  | George R. Hornig5                      
|                     |                       |  | David G. Kaytes                        
|Common stock         |                       |  | Michael A. Kramer6                     
|Common stock         |                       |  | Paul E. Suckow6                        
|Common stock         |                       |  | All executive officers and directors as
|                     | a group (10 persons)7

---

|1 | Includes 5,025,619 shares that may be acquired at some point in the future with stock
options that are not currently exercisable. Such options will vest, in the absence of an
Early Exercise Date, in five equal installments on each of the first five
anniversary dates of the option award date. | 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

|2 | Includes 160,000 shares that may be acquired with currently exercisable stock options and 9,600 shares held in
the Companys 401(k) plan. | 
|- | ----------------------------------------------------------------------------------------------------------------------------------------- | 

|3 | Includes  75,000 shares that may be acquired with currently  exercisable  stock options,  and 7,631 shares
     held in the Companys 401(k) plan. | 
|- | -------------------------------------------------------------------------------------------------------------------------------------------------- | 

|4 | Includes  75,000 shares that may be acquired with currently  exercisable  stock options,  and 7,425 shares
     held in the Companys 401(k) plan. | 
|- | -------------------------------------------------------------------------------------------------------------------------------------------------- | 

|5 | Messrs.  Freudenstein,  Grimaldi and Hornig are employees of CSFB.  Does not include  shares owned by CSFB
     or its affiliates.  (see Item 13 Certain Relationships and Related Transactions). | 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

|6 | Includes 22,500 shares that may be acquired with currently exercisable stock options. | 
|- | ------------------------------------------------------------------------------------- | 

|7 | Includes 355,000 shares that may be acquired with currently  exercisable  stock options,  and 24,656 shares held in
     the Companys 401(k) plan. | 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------- | 

|*  Less than 1%.
|----------------

The following table provides
information for the Companys stock option plans as of December 31, 2004:

|                                                           |                                                                                              |  |                                                                           
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|Plan Category                                              | Number of Securitiesto be Issued UponExercise of Outstanding
Options, Warrants and Rights(a) |  | Weighted AverageExercise Price ofOutstandingOptions, Warrantsand Rights(b)
|                                                           |                                                                                              |  |                                                                           
|Equity compensation plans approved by security holders     |                                                                                              |  |                                                                           
|Equity compensation plans not approved by security holders |                                                                                              |  |                                                                           
|                                                           |                                                                                              |  |                                                                           
|Total                                                      |                                                                                              |  |                                                                           
|                                                           |                                                                                              |  |                                                                           

Stock options are to be granted under
the employment contract of the Companys Chairman and Chief Executive Officer to
purchase 5,025,619 shares of USHEALTHs common stock at an exercise price to be
determined by the Board of Directors in good faith based on generally accepted industry
valuation methodologies.

# ITEM 13  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Principal Stockholders.The following table sets forth, as of January 31, 2005, the name and
address of each person known by the Company to own beneficially, directly or indirectly,
more than five percent of the outstanding shares of common stock (its only class of voting
securities):

|                                                |  | 
|----------------------------------------------- |  | 
|Name and Address                                |  | 
|                                               
|Special Situations Holdings, Inc. - Westbridge1 |  | 
|11 Madison Avenue                               |  | 
|New York, New York 10010-3629                   |  | 

1. 
          A wholly-owned subsidiary of Credit Suisse First Boston LLC

Certain Transactions and
Relationships. On March 15, 2004, USHEALTHs common shareholders
approved an amendment to the Companys Certificate of Incorporation to increase the
authorized number of shares of common stock to 75 million shares from 30 million shares.
The approval of this amendment resulted in the automatic conversion of all 37,504
outstanding shares of the Companys Series B convertible participating preferred
stock (Series B Preferred Stock) into 43,995,026 shares of common stock.
Preferred stock dividends of $430,000 accrued through March 15, 2004, were forgiven by
preferred stockholders and, as a result, were credited to capital in excess of par value,
and had no impact on total stockholders equity. All outstanding shares of the Series
B Preferred Stock were held by Special Situations Holdings, Inc.  Westbridge
(SSHW), the Companys largest shareholder. The conversion of the Series B
Preferred Stock increased the ownership percentage of SSHW in the Companys common
stock to approximately 93% from 49%.

On January 13, 2005, CSFB filed an
amended Schedule 13D disclosing that, based on its continuing evaluation of its investment
in the Company, CSFB intends to consider whether to effect a short-form merger pursuant to
Section 253 of the General Corporation Law of the State of Delaware (the DGCL)
in which SSHW holds greater than 90% of the common stock (Merger Co) would
merge with and into USHEALTH, with USHEALTH continuing as the surviving corporation (the
Merger). Pursuant to the Merger, each share of common stock (other than common
stock held in the treasury or held by Merger Co) would be automatically converted into the
right to receive an amount in cash as determined, without interest thereon. Depending upon
market conditions and other factors and circumstances deemed relevant, and subject to the
restrictions set forth in the Exchange Agreement dated December 31, 2003, CSFB will
consider whether to effect the Merger in 2005. In the event the Merger is effected during
2005, it is intended that the consideration to the public holders will be in cash at a
price per share, which constitutes fair value as reasonably determined after subtracting
debt and other liabilities of the Company and its subsidiaries, within the meaning of
Section 262 of the DGCL. Upon consummation of the Merger, if it occurs, CSFB will
beneficially own 100% of the equity interest in USHEALTH, subject to dilution for any
entity incentive or similar plans, and would have complete control over USHEALTHs
business.

CSFB also indicated in its filing
that it intends to evaluate continuously its investment in USHEALTH and, based on such
evaluation or other facts and circumstances, may determine at a future date to adopt plans
or intentions different from those set forth in the 13D filing. CSFB specifically reserved
the right to increase or decrease its investment in USHEALTH, through privately negotiated
purchases or sales of securities, open market purchases or otherwise, and reserved all
rights and remedies under the Credit Agreement (See Item 8, Note 5, CSFB
Financing), including the right to demand payment in full as and when due for
repayment or redemption (subject to the terms of the Intercreditor and Subordination
Agreement).

# ITEM 14  PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Ernst & Young, LLP
(E&Y) has served as the independent public accounting firm for
the Company for each of the three years in the period ended December 31, 2004. Fees
for professional services provided by E&Y for each of the fiscal years, in
each of the following categories were:

| |                    | 
| | ------------------ | 
| |                    | 
| | 2004               | 
| |                    | 
| | Audit fees         | 
| | Audit-related fees | 
| | Tax fees           | 
| | All other fees     | 
| |                    | 
| |                    | 
| |                    | 

Audit fees include fees associated
with: (1) the annual audit, (2) the reviews of the Companys quarterly
reports on Form 10-Q, (3) required domestic statutory audits, and (4) debt
compliance reports.

Audit-related fees principally
included (1) audits not required by statute or regulation, (2) the employee benefit
plan audit, and (3) education and assistance in assessing the impact of proposed
standards, rules or interpretations by the SEC, FASB, or other regulatory or
standard-setting bodies.

All of E&Ys fees for 2004
and 2003 were pre-approved by the Audit Committee through a formal engagement letter with
E&Y. The Audit Committees policy is to pre-approve all services by the
Companys independent accountants, except those for which fees would be less than 3.5%
of total annual fees.



# PART IV

# ITEM 15  EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)        
          The documents set forth below are filed as part of this report.

(1)  Financial Statements:

Reference is made to Item 8,
Index to Financial Statements and Financial Statement Schedules.

Financial Statements and Report of
Ernst & Young LLP, Independent Registered Public Accounting Firm Report of Ernst
& Young LLP, Independent Registered Public Accounting Firm Consolidated Balance
Sheets at December 31, 2004 and 2003 Consolidated Statements of Operations
for the Years Ended December 31, 2004, 2003 and 2002 Consolidated Statements of
Comprehensive (Loss) Income for the Years Ended December 31, 2004, 2003 and 2002
Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31,
2004, 2003 and 2002 Consolidated Statements of Cash Flows for the Years Ended December 31,
2004, 2003 and 2002 Notes to the Consolidated Financial Statements

(2)  Financial Statement
Schedules:

Reference is made to Item 8,
Index to Financial Statements and Financial Statement Schedules.

The following financial statement
schedules are filed as part of this report on 10-K and should be read in conjunction with
the financial statements:

Schedule II 
Condensed Financial Information of RegistrantSchedule III  Supplementary
Insurance InformationSchedule IV  ReinsuranceSchedule V  Valuation
and Qualifying Accounts

All other schedules are omitted
because they are not applicable, or not required, or because the required information is
included in the financial statements or notes thereto.

(3)  Exhibits:

The following exhibits are filed
herewith. Exhibits incorporated by reference are indicated in the parentheses following
the description.

|3.1 |  | Second Amended and Restated Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on March 24, 1999 (incorporated by reference to Exhibit 3.1
to the Ascents Form 8-A filed on March 25, 1999).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Amended and Restated By-Laws of Ascent, effective as of March 24, 1999 (incorporated by
reference to Exhibit 3.2 to Ascents Form 8-A filed on March 25, 1999).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Amendment to the By-Laws of Ascent, effective as of April 5, 2000 (incorporated by
reference to Exhibit 3.3 to Ascents Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000)
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.4 |  | Certificate of Elimination of Series A Preferred Stock of Ascent Assurance,  Inc. dated December 31, 2003  (incorporated by
         reference to Exhibit 3.1 to Ascent's 8-K filed on January 6, 2004).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.5 |  | Certificate  of  Designation  for Series B  Convertible  Participating  Preferred  Stock of Ascent  Assurance,  Inc.  dated
         December 31, 2003 (incorporated by reference to Exhibit 3.2 to Ascent's 8-K filed on January 6, 2004).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.6* |  | Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation dated March 3, 2005.
|---- |  | -------------------------------------------------------------------------------------------------------------

|4.1 |  | Form of Common Stock Certificate
(incorporated by reference to Exhibit 4.1 to Ascents Form 8-A filed on March 25,
1999).
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Form of Warrant Certificate, included in the Form of Warrant Agreement (incorporated by
reference to Exhibit 4.2 to Ascents Form 8-A filed on March 25, 1999).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 |  | Form of Warrant Agreement dated as of March 24, 1999, between Ascent and LaSalle National
Bank, as warrant agent (incorporated by reference to Exhibit 4.3 to Ascents Form 8-A
filed on March 25, 1999).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Form of Preferred Stock Certificate (incorporated by reference to Exhibit 4.4 to
Ascents Annual Report on Form 10-K for the year ended December 31, 1998).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Second Amended and Restated Receivables Purchase and Sale Agreement, dated as of June 6,
1997 between National Foundation Life Insurance Company, National Financial Insurance
Company, American Insurance Company of Texas, Freedom Life Insurance Company of America,
and Westbridge Funding Corporation (incorporated by reference to Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Amended and Restated  Non-Insurance  Company  Sellers  Receivables  Purchase and Sale  Agreement,  dated as of June 6, 1997
         between  American Senior Security Plans,  L.L.C.,  Freedom  Marketing,  Inc.,  Health  Care-One  Insurance  Agency,  Health
         Care-One  Marketing  Group,  Inc.,  LSMG,  Inc.,  Senior  Benefits of Texas,  Inc.,  and Westbridge  Marketing  Corporation
         (incorporated  by reference to Exhibit 10.6 to the Company's  Quarterly  Report on Form 10-Q for the quarter ended June 30,
         1997).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Lock-Up Agreement, dated as of September 16, 1998, by and among the Company and Credit
Suisse First Boston Corporation (incorporated by reference to Exhibit 10.1 to the
Companys Form 8-K filed on September 21, 1998).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Stock Purchase Agreement, dated as of September 16, 1998, between the Company and Credit
Suisse First Boston Corporation (incorporated by reference to Exhibit 10.2 to the
Companys Form 8-K filed on September 21, 1998).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | Registration Rights Agreement dated as of March 24, 1999 between Ascent and Special
Situations Holdings, Inc.  Westbridge (incorporated by reference to Exhibit 10.13 to
the Companys Annual Report on Form 10-K for the year ended December 31, 1998).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | 1999 Stock Option Plan dated as of March 24, 1999 (incorporated by reference to
Ascents Schedule 14A filed with the Commission on April 30, 1999).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | Credit Agreement dated April 17, 2001 between Ascent Assurance, Inc. and Credit Suisse
First Boston Management Corporation (incorporated by reference to Exhibit 10.1 to
Ascents Form 8-K filed April 25, 2001).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Guaranty and Security Agreement dated April 17, 2001 among Foundation Financial Services,  Inc.,  NationalCare(R)Marketing,
         Inc.,  LifeStyles Marketing Group, Inc.,  Precision Dialing Services,  Inc., Senior Benefits L.L.C. and Westbridge Printing
         Services,  Inc.,  and Credit  Suisse  First Boston  Management  Corporation  (incorporated  by reference to Exhibit 10.2 to
         Ascent's Form 8-K filed April 25, 2001).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Pledge  Agreement  dated  April 17,  2001  between  Ascent  Assurance,  Inc.  and Credit  Suisse  First  Boston  Management
         Corporation (incorporated by reference to Exhibit 10.3 to Ascent's Form 8-K filed April 25, 2001).
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Employment Agreement dated as of December 18, 2002, by and between Ascent, Ascent
Management, Inc. and Mr. Patrick J. Mitchell (incorporated by reference to Exhibit 10.36
to Ascents Annual Report on Form 10-K for the year ended December 31, 2002).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Employment Agreement dated as of December 18, 2002, by and between Ascent, Ascent
Management, Inc. and Mr. Patrick H. ONeill (incorporated by reference to Exhibit
10.37 to Ascents Annual Report on Form 10-K for the year ended December 31, 2002).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | Employment Agreement dated as of January 10, 2003, by and between Ascent, Ascent
Management, Inc. and Mr. Konrad H. Kober (incorporated by reference to Exhibit 10.38 to
Ascents Annual Report on Form 10-K for the year ended December 31, 2002).
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Employment Agreement dated as of January 10, 2003, by and between Ascent, Ascent
Management, Inc. and Ms. Cynthia B. Koenig (incorporated by reference to Exhibit 10.39 to
Ascents Annual Report on Form 10-K for the year ended December 31, 2002).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | First Amendment to Credit Agreement dated February 26, 2003 between Ascent and Credit
Suisse First Boston Management Corporation (incorporated by reference to Exhibit 10.45 to
Ascents Annual Report on Form 10-K for the year ended December 31, 2002).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | Exchange Agreement Among Ascent Assurance, Inc., Credit Suisse First Boston Management,
LLC, and Special Situations Holdings, Inc.  Westbridge dated December 31, 2003
(incorporated by reference to Exhibit 10.1 to Ascents 8-K filed on January 6, 2004).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | First Amendment to Registration Rights Agreement between Ascent Assurance, Inc. and
Special Situations Holdings, Inc.  Westbridge dated December 31, 2003 (incorporated
by reference to Exhibit 10.2 to Ascents 8-K filed on January 6, 2004).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Second Amendment to Credit Agreement dated December 31, 2003 between Ascent Assurance,
Inc. and Credit Suisse First Boston Management, LLC (incorporated by reference to Exhibit
10.3 to Ascents 8-K filed on January 6, 2004).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | First  Amendment  and Waiver to Guaranty and Security  Agreement  dated  December  31, 2003  between  Foundation  Financial
         Services, Inc.,  NationalCare(R)Marketing,  Inc., Lifestyles Marketing Group, Inc., Precision Dialing Services, Inc., Senior
         Benefits,  LLC, and Westbridge  Printing  Services,  Inc. and Credit Suisse First Boston  Management,  LLC (incorporated by
         reference to Exhibit 10.4 to Ascent's 8-K filed on January 6, 2004).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Intercreditor and Subordination Agreement among the Frost National Bank, Credit Suisse
First Boston Management, LLC, and Ascent Assurance, Inc. and named subsidiaries dated
December 31, 2003 (incorporated by reference to Exhibit 10.5 to Ascents 8-K filed on
January 6, 2004).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Credit Agreement dated as of December 31, 2003 among Ascent Funding, Inc., Ascent
Assurance, Inc., NationalCare® Marketing, Inc. and the Frost National Bank
including exhibits to such agreement, Pledge and Security Agreement dated December 31,
2003 between NationalCare® Marketing, Inc. and Frost National Bank, Pledge
and Security Agreement dated December 31, 2003 between Ascent Assurance, Inc. and Frost
National Bank, Revolving Promissory Note dated December 31, 2003 between Ascent Funding,
Inc. and Frost National Bank, Security Agreement dated December 31, 2003 between Ascent
Funding, Inc. and Frost National Bank, Waiver of Jury Trial and Notice of Final Agreement
dated December 31, 2003 between Ascent Funding, Inc. and Frost National Bank and
Intercreditor and Subordination Agreement among Frost National Bank, Credit Suisse First
Boston Management, LLC and Ascent Assurance, Inc. and named subsidiaries dated December
31, 2003. (Incorporated by reference to Exhibit 10.49 to Ascents 10-K for the year
ended December 31, 2003.)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | Extension of Employment Agreement dated as of March 16, 2004 by and between Ascent, Ascent
Management, Inc. and Mr. Patrick J. Mitchell. (Incorporated by reference to Exhibit 10.39
to Ascents 10Q for the quarter ended March 31, 2004.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | Extension of Employment Agreement dated as of March 16, 2004 by and between Ascent, Ascent
Management, Inc. and Mr. Patrick H. ONeill. (Incorporated by reference to Exhibit
10.40 to Ascents 10Q for the quarter ended March 31, 2004.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | First Amendment To Credit Agreement And Security Agreement dated as of July 6, 2004
between Ascent Funding, Inc., Ascent Assurance, Inc., NationalCare® Marketing, Inc.,
AmeriCare Benefits, Inc. and Frost National Bank including exhibits to such agreement,
Guaranty Agreement between AmeriCare Benefits, Inc. and Frost National Bank; First
Restated Guaranty Agreement between NationalCare® Marketing, Inc. and Frost National
Bank dated July 6, 2004; First Amendment to Intercreditor and Subordination Agreement
among Frost National Bank, Credit Suisse First Boston Management, LLC and Ascent
Assurance, Inc. and named subsidiaries dated as of July 6, 2004 (Incorporated by reference
to Exhibit 10.41 to Ascents 10Q for the quarter ended September 30, 2004.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 |  | Employment Agreement dated as of September 1, 2004 by and between Ascent Assurance, Inc.
and Mr. Benjamin M. Cutler. (Incorporated by reference to Exhibit 10.42 to Ascents
10Q for the quarter ended September 30, 2004.)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.25 |  | Third Amendment to Credit Agreement dated September 1, 2004 between Ascent Assurance, Inc.
and Credit Suisse First Boston Management, LLC. (Incorporated by reference to Exhibit
10.43 to Ascents 10Q for the quarter ended September 30, 2004.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.26 |  | First Amendment to Pledge Agreement dated October 28, 2004 between Ascent Assurance, Inc.
and Credit Suisse First Boston Management, LLC. (Incorporated by reference to Exhibit
10.44 to Ascents 10Q for the quarter ended September 30, 2004.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | Second  Amendment  and Consent to Guaranty and Security  Agreement  dated  October 28, 2004  between  Foundation  Financial
         Services, Inc.,  NationalCare(R)Marketing,  Inc., Lifestyles Marketing Group, Inc., Precision Dialing Services, Inc., Senior
         Benefits LLC, and Westbridge  Printing  Services,  Inc. and Credit Suisse First Boston  Management  LLC.  (Incorporated  by
         reference to Exhibit 10.45 to Ascent's 10Q for the quarter ended September 30, 2004.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 |  | Sale and  Purchase  Agreement  dated  October  29,  2004  between  Ascent  Assurance,  Inc.  and  Printers  Alliance,  Inc.
         (Incorporated by reference to Exhibit 10.46 to Ascent's 10Q for the quarter ended September 30, 2004.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29* |  | Second Amendment to Credit Agreement,  dated as of December 29, 2004, among Ascent Funding,  Inc., Ascent Assurance,  Inc.,
         NationalCare(C)Marketing,  Inc.,  AmeriCare Benefits,  Inc. and the Frost National Bank; Waiver of Jury Trial and Notice of
         Final Agreement between Ascent Funding Inc. and The Frost National Bank dated December 29, 2004.
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.30* |  | Consent Related to  Intercreditor  and  Subordination  Agreement among the Frost National Bank,  Credit Suisse First Boston
         Management, LLC, and Ascent Assurance, Inc. and named subsidiaries dated December 29, 2004.
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21.1* |  | List of Subsidiaries of USHEALTH Group, Inc.
|----- |  | --------------------------------------------

|23.1* |  | Consent of Ernst
& Young, LLP.
|----- |  | ------------------------------

|31.1* |  | Certification  of Benjamin M. Cutler,  Chairman and Chief Executive  Officer of the Company  pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2* |  | Certification  of Cynthia B. Koenig,  Chief Financial  Officer and Treasurer of the Company  pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1* |  | Certification of Benjamin M. Cutler, Chairman and Chief Executive Officer and Cynthia B.
Koenig, Senior Vice President, Chief Financial Officer and Treasurer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# (b) Reports on Form 8-K

The registrant filed a Report on Form
8-K dated November 4, 2004 under Item 9. Regulation FD Disclosure and also
under Item 12. Results of Operations and Financial Condition attaching a copy
of the registrants press release reporting the registrants financial results for the third
quarter of 2004 and under Section 1.01 reporting entry into a material definitive
agreement whereby the Company sold its printing subsidiary, Westbridge Printing Services,
Inc.

---

*Filed Herewith.




SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
the 9th day of March 2005.

| | USHEALTH GROUP, INC.                                                                                                                | 
| | ----------------------------------------------------------------------------------------------------------------------------------- | 
|
|
| | /s/ Cynthia B. KoenigCynthia B. KoenigSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated.

|SIGNATURE                                      | TITLE                                                                                   | DATE          | 
|---------------------------------------------- | --------------------------------------------------------------------------------------- | ------------- | 
|                                               |                                                                                        
|                                              
|/s/ Benjamin M. Cutler(Benjamin M. Cutler)     | Director, Chairman of the Boardand Chief Executive Officer(Principal Executive Officer) | March 9, 2005
|                                              
|/s/ Alan H. Freudenstein(Alan H. Freudenstein) | Director                                                                                | March 9, 2005
|                                              
|/s/ Gregory M. Grimaldi(Gregory M. Grimaldi)   | Director                                                                                | March 9, 2005
|                                              
|/s/ George R. Hornig(George R. Hornig)         | Director                                                                                | March 9, 2005
|                                              
|/s/ David G. Kaytes(David G. Kaytes)           | Director                                                                                | March 9, 2005
|                                              
|/s/ Michael A. Kramer(Michael A. Kramer)       | Director                                                                                | March 9, 2005
|                                              
|/s/ Paul E. Suckow(Paul E. Suckow)             | Director                                                                                | March 9, 2005
|                                              



# Exhibit 21.1

# SUBSIDIARIES OF
USHEALTH GROUP, INC.

|    | Percentage Subsidiary                               | Ownership | 
|--- | --------------------------------------------------- | --------- | 
|   
|1.  | National Foundation Life Insurance Company (Texas)  | 100%     
|   
|2.  | American Insurance Company of Texas (Texas)         | 100%     
|   
|3.  | National Financial Insurance Company (Texas)        | 100%     
|   
|4.  | Freedom Life Insurance Company of America (Texas)   | 100%     
|   
|5.  | Ascent Funding, Inc. (Delaware)                     | 100%     
|   
|6.  | Foundation Financial Services, Inc. (Nevada)        | 100%     
|   
|7.  | NationalCare® Marketing, Inc. (Delaware)            | 100%     
|   
|8.  | Ascent Management, Inc. (Delaware)                  | 100%     
|   
|9.  | Precision Dialing Services, Inc. (Delaware)         | 100%     
|   
|10. | Senior Benefits, LLC (Arizona)                      | 100%     
|   
|11. | LifeStyles Marketing Group, Inc. (Delaware)         | 100%     
|   
|12. | Health Care-One Insurance Agency, Inc. (California) | 50%      
|   
|13. | Pacific Casualty Company, Inc. (Hawaii)             | 100%     
|   
|14. | HPI Marketing, Inc. (Delaware)                      | 100%     



# Exhibit 23.1

# CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

We consent to the incorporation by
reference in the Registration Statement (Form S-8 No. 333-82155) pertaining to the Ascent
Assurance, Inc. 1999 Stock Option Plan of our report dated February 24, 2005, with respect
to the consolidated financial statements and schedules of USHEALTH Group, Inc. (formerly Ascent Assurance, Inc.) included in
the Form 10-K for the year ended December 31, 2004.

Ernst &
Young, LLP

Dallas, TexasMarch 4,
2005