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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended                                                                           
         December 31, 2001

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OR

[    ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from                                                                                            to

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Commission File Number:                                                                                           0-19442

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OXFORD HEALTH PLANS, INC.

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(Exact name of registrant as specified in its charter)

|                                                               |  |                                   |            | 
|-------------------------------------------------------------- |  | --------------------------------- | ---------- | 
|Delaware                                                       |  |                                   | 06-1118515 | 
|                                                               |  |                                  
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                              
|48 Monroe Turnpike, Trumbull, Connecticut                      |  | 06611                             |           
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       

(203) 459  6000

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par
Value $.01 Per Share

Securities registered pursuant to Section 12(g) of the Act: None

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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [    ]

As of February 19,
2002, there were 87,530,289 shares of common stock issued and
outstanding. The aggregate market value of such stock held by nonaffiliates,
as of that date, was approximately $3,426,811,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrants definitive Proxy Statement to be filed pursuant to
Regulation 14A (Part III)





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PART I

Item 1. BUSINESS

General

Oxford Health Plans, Inc. (Oxford or the Company), incorporated under
the laws of the State of Delaware on September 17, 1984, is a health care
company currently providing health benefit plans primarily in New York, New
Jersey and Connecticut. The Companys product line includes its
point-of-service (POS) plans, the Freedom Plan and the Liberty Plan, health
maintenance organizations (HMOs), preferred provider organizations (PPOs),
Medicare+Choice (Medicare) plans and third-party administration of
employer-funded benefit plans (self-funded health plans). The Companys
principal executive offices are located at 48 Monroe Turnpike, Trumbull,
Connecticut 06611, and its telephone number is (203) 459-6000. Unless the
context otherwise requires, references to Oxford or the Company include its
subsidiaries.

The Company currently offers its products through its HMO subsidiaries,
Oxford Health Plans (NY), Inc. (Oxford NY), Oxford Health Plans (NJ), Inc.
(Oxford NJ) and Oxford Health Plans (CT), Inc. (Oxford CT) and through
Oxford Health Insurance, Inc. (OHI), the Companys health insurance
subsidiary. OHI currently does business under accident and health insurance
licenses granted by the Departments of Insurance of New York and Connecticut,
the Department of Banking and Insurance of New Jersey and the Commonwealth of
Pennsylvania. In May 2001, the Company acquired all of the outstanding stock
of Investors Guaranty Life Insurance Company, a domestic California insurance
company licensed to write annuity, life and health insurance policies in many
states. Further, in December 2001, the Company signed a definitive agreement
to acquire MedSpan, Inc., the parent company of a Connecticut health
maintenance organization, for cash consideration of approximately $19 million.
The transaction is subject to customary conditions including regulatory
approvals and is anticipated to close during the first quarter of 2002.

The Company is not dependent on any single employer or group of employers,
as the largest employer group contributed less than 1% of total premiums earned
during 2001 and the ten largest employer groups contributed approximately 5% of
total premiums earned during 2001. The Companys Medicare revenue under its
contracts with the federal Centers for Medicare and Medicaid Services (CMS,
formerly HCFA) represented approximately 15% of its premium revenue earned
during 2001.

Companys Future Strategy

The Company intends to focus its strategy for the years 2002 and 2003 on
four main areas: (1) continuing its efforts to make quality health care
affordable by focusing on health care costs, (2) developing new products to
serve the marketplace, (3) expanding its business through additional market
penetration in its current market area and contiguous geographic markets, and
(4) continuing to increase administrative efficiencies by, among other things,
enhancing the functionalities of its Internet offerings.

Products

Freedom Plan

Oxfords Freedom Plan is a POS health care plan combining the benefits of
Oxfords HMOs with some of the benefits of conventional indemnity health
insurance. Oxfords Freedom Plan gives members the option of using the network
of providers under contract with Oxfords HMOs or exercising their freedom to
choose providers not under contract with Oxford, although certain benefits are
only available through network providers. In 2000, the Company launched
Freedom Plan Metro which features access to Oxfords largest network of doctors
and hospitals at lower monthly premium rates primarily through higher
copayments for certain services. The Freedom Plan had approximately 1.13
million members at December 31, 2001 compared with 1.09 million at the end of
2000. Freedom Plan premiums were 70.1% of total premium revenue in 2001 and
69.1% in 2000. The largest employer group offering the Freedom Plan accounted
for approximately 0.8% of Freedom Plan premiums earned during 2001, and the ten
largest employer groups offering the Freedom Plan accounted for 4.9% of Freedom
Plan premiums earned in 2001.

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Oxford believes that the target market for the Freedom Plan is small to
medium-size employers (10 to 1,500 employees). New York Freedom Plan
enrollment accounts for approximately 76% of all Freedom Plan enrollment. In
New York, each Freedom Plan member currently receives two forms of coverage -
HMO coverage through Oxford NY for in-network coverage and indemnity insurance
through OHI. In New Jersey and Connecticut, each member receives Freedom Plan
coverage through one contract through either Oxford NJ or Oxford CT. Oxford
also offers a similar plan design in New York, which is provided only through
OHI on a pure indemnity basis.

HMOs

Oxford currently offers HMO plans in New York, New Jersey and Connecticut.
The largest HMO commercial employer group accounted for 5.4% of total HMO
premiums earned during 2001, while the ten largest HMO groups accounted for
22.8% of total HMO premiums earned in 2001. Commercial HMO membership was
approximately 218,000 members at December 31, 2001, compared with 222,000
members at the end of 2000. Group commercial HMO revenues were 12.5% of total
premiums in 2001 and 12.6% in 2000.

Liberty Plan

The Companys Liberty Plan is a POS health care plan. This plan offers
lower premiums than the standard Freedom Plan by allowing member groups to
choose from a smaller network of in-network providers. The Company believes
that the Liberty Plan provider network, while smaller than the Freedom Plan
network, is competitive in size and quality with networks of certain other
health plans in the New York metropolitan area. Liberty Plan membership, which
is included in the Freedom Plan membership, was approximately 164,000 members
at December 31, 2001, compared with 148,000 members at the end of 2000.

Individual Plans

New York regulations require HMOs in the community-rated small group
market to offer POS and HMO coverage with mandated benefits to individuals (the
New York Mandated Plans). Oxford also continues to cover individuals in New
York under a grandfathered POS plan (together with the New York Mandated Plans,
the New York Individual Plans). The grandfathered plan is closed to new
membership. The New York Mandated Plans are served by the Liberty Plan network
of providers and the grandfathered plan is served by the Freedom Plan network.
The Company had approximately 47,000 members in the New York Individual Plans
as of December 31, 2001, as compared with approximately 54,000 members as of
December 31, 2000. Membership amounts are included in the HMO Plan membership.

The New York State Insurance Department (NYSID) has created Market
Stabilization Pools (the New York Stabilization Pools). Insurers
participating in the small group and individual insurance market in New York
may be required to contribute certain amounts to the New York
Stabilization Pools based upon certain
criteria outlined in the regulations. These amounts are later distributed to
insurers based upon the demographic makeup of the insurers membership base
(for years 1999 and prior) and the experience of the insurers membership with
regard to certain special medical conditions, as defined in the New York
regulations. The Company contributed $15.2 million and $13.9 million,
respectively, to the New York Stabilization Pools for the years 1997 and 1998.
Prior to 2000, the Company received approximately $9 million in distributions
from the 1997 New York Stabilization Pools. In January 2001, the Company
received distributions from the 1997 and 1998 New York Stabilization Pools of
approximately $4 million and $21.1 million, respectively, which were included
in income for the year ended December 31, 2000. In January 2002, the Company
received an additional distribution from the 1998 New York Stabilization Pool
of approximately $3.6 million that was included in income for the year ended
December 31, 2001. The Company contributed $7 million to the New York
Stabilization Pools in 1999 and has established reserves of $15.3 million and
$14.3 million for 1999 and 2000, respectively, related to the New York
Stabilization Pools.

The Company has also established receivables of $11.2 million and $9.6
million for 2000 and 2001, respectively, related to certain stop loss pools
established by the State of New York under the Health Care Reform Act of New
York (the Stop Loss Pools, together with the New York Stabilization Pools,
the Pools), which provides a limited amount of stop loss insurance funds to
cover 90% of certain of the paid claims for the New York Mandated Plans and for
the Healthy New York plan. While the Company has established its liabilities
and recoveries under the Pools based on its interpretations of the regulations,
the amounts recorded related to

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the 1999, 2000 and 2001 Pool years may differ materially from amounts that
will ultimately be paid or received from the Pools based on final
reconciliations. There can be no assurance that the Company will receive
additional funds in the future related to the Pools.

The Company offers individual HMO and various individual indemnity plans
in New Jersey (the New Jersey Mandated Plans). The Company had approximately
4,000 members in the New Jersey Mandated Plans as of December 31, 2001 and
2000. Membership amounts are included in the HMO Plan membership.

Medicare

The Company offers a number of Medicare plans, as Oxford Medicare
Advantage,to Medicare eligible individuals through its New York, New Jersey
and Connecticut HMO subsidiaries.

At December 31, 2001, the Company had approximately 77,000 members
enrolled in its Medicare plans compared with 92,000 members at the end of 2000.
The reduction in Medicare membership is primarily the result of exiting
certain counties in New Jersey during 2001. Medicare accounted for
approximately 15.3% of total premiums earned for the year ended December 31,
2001 and 16.8% in 2000. The Company expects its Medicare membership to be
about 11,000 members lower in 2002 as the result of withdrawals from Medicare
in all but Hudson County in New Jersey and the withdrawal from Nassau County,
New York. The lower levels are expected to result in 2002 Medicare revenue
being approximately $100 million lower than in 2001. Based on 2002 renewals,
Medicare membership was approximately 63,000 at the end of January 2002. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations for a description of prior operating losses incurred in the
Companys Medicare programs.

Under its Medicare contracts with the CMS, the Company receives a fixed
per member per month capitation amount established annually by CMS. The
Company bears the risk that the actual costs of health care services may exceed
the capitation amounts received by the Company. See Business  Government
Regulation  Federal Regulation. Medicare contracts provide revenues that are
generally higher per member than those for non-Medicare members. Such
contracts, however, also carry certain risks such as higher comparative medical
costs per member and additional regulatory and reporting requirements. The
Company has developed a network of physicians and other providers to serve its
Medicare enrollees. In an effort to control its costs associated with its
Medicare business, the Company has entered into risk-sharing agreements with
two hospitals and a provider organization covering approximately 21,000
Medicare members at December 31, 2001 in certain New York counties. See
Business  Cost-Containment Arrangements  Medicare.

The Company believes that future Medicare premiums may not keep up with
the cost of health care increases. Given current public policy and the fact
that Medicare premiums are not scheduled to keep up with the cost of health
care, it is possible that the Company may decrease its Medicare membership by,
among other things, reducing benefits and exiting certain counties that it
currently serves.

Other Products

The Company currently has a PPO product in New Jersey and Pennsylvania.
At December 31, 2001, the Company had approximately 48,000 members enrolled in
New Jersey compared with 29,000 members at December 31, 2000. The current
Pennsylvania PPO membership is minimal. Beginning in January 2001, the Company
began offering the New York state mandated Healthy New York health plan that is
a streamlined, comprehensive benefit package for uninsured individuals working
for employers with 50 or fewer employees and individuals who have generally not
had health care coverage for a specified period. The State of Connecticut
also requires the Company to offer a similar, lower cost streamlined plan to
small groups. At December 31, 2001, the Company had less than 500 members
enrolled in these plans. The Company believes that its enrollment may grow in
these plans during 2002 in response to state efforts to reduce the number of
uninsured.

Oxford also offers self-funded health plans pursuant to which the employer
self-insures, and Oxford processes, health care expenses. Oxford assumes no
insurance risk for the cost of health care for these contracts and receives a
monthly fee for its administrative services. As of December 31, 2001, the
Company was administering nineteen self-funded groups in New York and nine
self-funded groups in New Jersey, covering approximately 60,000 members in
total as compared with nineteen self-funded groups in New York and eleven in

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New Jersey, covering approximately 62,000 members in total as of December
31, 2000. Self funded membership, based on January 2002 renewals, was
approximately 43,000.

Marketing and Sales

Oxford distributes its products through several different internal
channels, including direct sales representatives, business representatives, the
Internet, telemarketing representatives and executive account representatives
as well as through external insurance agents, brokers and consultants.

Internal Representatives

The direct sales representatives sell the Companys HMO programs, point of
service plans including the Freedom Plan and the Liberty Plan, PPO plans and
self-funded plans directly to employers. The direct sales force is organized
into units in each of the Companys regions with sales executives responsible
for each direct sales unit. The Company also maintains a Medicare sales force
that sells directly to Medicare beneficiaries. The Companys marketing
department develops television and print advertising, as well as direct mail
programs and marketing collateral materials for use by the direct sales force,
the Medicare sales force and independent brokers, agents and consultants.

The Company maintains regional executive account representatives who work
directly with employer groups generally exceeding 500 lives as well as accounts
maintained by noncommissioned consultants. The Company also maintains staff
that is responsible for business opportunities associated with inbound
inquiries from prospective members and group accounts. Account managers are
responsible for servicing employer accounts sold directly or through a broker
or agent. These account managers are the principal administrative contact for
employers and their benefit managers by, among other things, conducting on-site
employee meetings and by providing reporting and troubleshooting services.

Independent Insurance Agents and Brokers

The primary distribution system for the group health insurance industry in
the Companys service areas has been independent insurance agents and brokers.
Oxford markets its commercial products through approximately 9,300 independent
insurance agents and brokers as of December 31, 2001 who are paid a commission
on sales. The Company maintains regional broker business unit representatives
who work directly with the independent agents and brokers. Independent
insurance agents and brokers have been responsible for a significant portion of
Oxfords Freedom Plan and Liberty Plan enrollment, and the Company expects to
continue using independent insurance agents and brokers in its marketing system
in the future. The Company believes that the New York metropolitan market, in
particular, is influenced significantly by independent agents and brokers, and
that utilization of this distribution system is an integral part of a
successful marketing strategy in the region. However, no assurance can be
given that the Company will continue to be able to maintain as large a
distribution system of independent insurance agents and brokers as it has in
the past.

Oxfordhealth.com

In March 2000, the
Company launched its website, www.oxfordhealth.com,
with functionalities for members, brokers, employer groups and providers.
During 2001, use of the Companys website by its customers more than doubled as
the Company added new functionalities. The Company anticipates that features
such as its on-line provider directory and the ability of employer groups to
submit enrollment changes directly into Oxfords databases, will provide added
value to its constituents and ease the administration of, streamline costs
associated with and add efficiencies to its products and services. The Company
currently has 30 on-line transaction or inquiry functions available. Through
oxfordhealth.com, prospective enrollees, benefit administrators and brokers can
view, among other things, possible benefit packages, obtain rate quotes and
enroll members in certain products. However, because of certain regulatory
restrictions, not all functions are available in all markets or for all
products.

The Company has entered into strategic relationships with vendors to
provide such services as purchasing discounts for physicians on Internet-based
physician practice management services. The Company expects that these added
functionalities and relationships, in addition to other relationships and
services that it is currently

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pursuing, will simplify and streamline its processes and provide added
value to its members, benefit administrators, brokers and providers.

Further, the Company has invested in MedUnite, Inc., an independent
company conceived and originally financed by seven major health care payors.
MedUnite, Inc. has been organized to provide claims submission and payment,
referrals, eligibility information and other Internet provider connectivity
services. Since its inception, the Company has invested $11 million in
MedUnite, Inc., including $7.2 million in 2001 and $1 million in 2002. The
Company may make further investments in the future. Such amounts are included
in other noncurrent assets at December 31, 2001. There can be no assurance
that the Companys investment in MedUnite will be successful. For a
description of the risks associated with doing business on the Internet, see
Business  Cautionary Statement Regarding Forward-Looking Statements.

Physician Network

The Companys HMO and POS health care programs are designed around primary
care physicians, who generally coordinate the care of members and generally
determine or recommend the nature and extent of services provided to any given
member. Primary care physicians provide preventive and routine medical care
and, in connection with certain products, are also responsible for making
referrals to contracted specialist physicians, hospitals and other providers.
Medical care provided directly by primary care physicians may include the
treatment of illnesses not requiring referrals, as well as periodic physical
examinations, routine immunizations, maternity and well child care and other
preventive health services.

Oxford maintains a
network of approximately 50,000 physicians and other
providers (compared with approximately 44,400 in 2000) that are under contract with the Company, of which approximately
29,500 are in New York, 13,000 are in New Jersey and 7,500 are in Connecticut.
The majority of Oxfords physicians have contracted individually and directly
with Oxford, although Oxford also has contracts with hospitals, physician
hospital organizations, individual practice associations (IPAs) and physician
groups. The Company has an arrangement with a physician group (the Physician
Group) covering approximately 27,000 members, 7,000 of which are Medicare
members, whereby the Physician Group assumes certain risks for medical costs
and can receive incentive payments upon achievement of certain benchmarks.

Exclusive of the Physician Group and the cost containment arrangements
described below, Oxford compensates its participating physicians primarily
based upon a fixed fee schedule, under which physicians receive payment for
specific procedures and services.

The Company continues to work to improve its relations with the physician
community and obtain physician input in its practices. Local physicians serve
on the board of directors of Oxford NY, Oxford NJ and Oxford CT and local
specialty colleges have been involved in the development of the Companys
utilization management policies.In addition, the Company has over 100
practicing physicians from its service area participating on committees that
advise the Company on the development of treatment and payment policies.

Hospital Arrangements

The Company has contracts with over 200 hospitals in its New York, New
Jersey and Connecticut service areas providing for inpatient and outpatient
care to the Companys members at prices usually discounted from the hospitals
billed charges. The Company believes that the rates in these contracts are
generally competitive. Many of these contracts may be terminated after a
specified notice period or have remaining terms of less than one year. In
addition, there has been significant consolidation among hospitals in the
Companys service area, which tends to enhance the combined entitys bargaining
power with managed care payors. As a result, the Company has the risk that
certain hospitals may seek higher rates or seek to impose limitations on the
Companys utilization management efforts. The Company is routinely engaged in
negotiations with various hospitals and hospital systems and, in connection
therewith, such hospitals and hospital systems may threaten to or, in fact,
provide notice of termination of their agreements with the Company as part of
their negotiation strategy. The Company has several multi-year agreements with
hospitals and hospital systems that are designed to reduce its future risk with
respect to hospital costs and is currently negotiating with other hospitals and
hospital systems for similar multi-year arrangements. See Cautionary
Statement Regarding Forward  Looking Statements.

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Ancillary Providers

The Company maintains
a network of over 700 ancillary providers and facilities for
such services as home health and hospice care, skilled nursing, dialysis and
radiation treatment, family planning and fertility, behavioral health,
occupational, speech, infusion and physical therapy, sub-acute care and related services.
The Company also has contracts for the provision of certain equipment or
treatment aids such as durable medical equipment, orthotics and prosthetics to
the members of its subsidiary health plans.

Influencing Health Care Costs

Internal Efforts

Oxfords medical review program attempts to measure and, in some cases,
influence inappropriate utilization of certain services, including but not
limited to pharmacy, radiology, physical therapy, elective surgeries and
hospitalizations provided to Oxford members. Under the medical review program,
for many of Oxfords plans, physicians and members are obligated to contact
Oxford prior to providing or receiving specified treatments. Utilizing
standardized protocols on a procedure-specific basis, Oxfords staff of
registered nurses and physicians may review the proposed treatment for
consistency with established clinical practice guidelines, community norms and
other consensus guidelines or standards as required.

Oxfords outpatient cost control program is based on the primary care
system of health care coordination, which promotes consistency and continuity
in the delivery of health care. For most plans sold, each person who enrolls
in an Oxford plan must select a participating primary care physician who
generally coordinates the members health care needs. Members generally see
their primary care physician for routine and preventive medical services. The
primary care physician either provides necessary services directly or
authorizes referrals for specialist physicians, diagnostic tests and
hospitalizations. For out-of-network non-emergency services, the member
generally must obtain approval directly from Oxford in order to receive the
highest level of benefits.

In connection with its review of certain claims, the Company may compare
the services rendered by its participating physicians to an independently
developed pattern of treatment standards to identify procedures that were not
consistent with a patients diagnoses, as well as billing abuses and
irregularities. Separate claims auditing systems are utilized for certain
hospital diagnosis related group payments and other surgical payments. Oxford
utilizes a hospital bill audit program that has yielded savings with respect to
hospital claims, through pricing reviews, medical chart audits and on-site
hospital reviews. Oxfords claim auditing programs seek to identify aberrant
physician billing practices. In addition, regulatory considerations, the
threat of litigation or liability concerns, operational and systems issues and
relationships and arrangements with hospitals and physicians may limit the
Companys ability to apply all available cost control measures.

To mitigate retrospective denial of inpatient payments for health care
services, improve communication and enhance customer service and improve
relationships with hospitals, the Company maintains the Day of Service-Decision
Making program (the DOS Program). The DOS Program involves the Company in
making payment certification decisions about continued hospital stays generally
at least a day in advance so the hospital is advised if additional hospital
days will likely be authorized and can, therefore, more appropriately manage
post-hospital care programs. As a result of the Day of Service-Decision Making
program, the Companys use of retrospective denials of hospital days has
generally ceased except in unusual circumstances, which generally has led to
better relationships with hospitals.

Cost-Containment Arrangements  Medicare

In an effort to control increasing medical costs in its Medicare programs,
the Company currently has certain risk-share agreements in effect with Lenox
Hill and Montefiore Hospitals and with a provider organization. Premium
revenues for the Medicare members covered under these agreements and pursuant
to a risk agreement with North Shore Long Island Health System (North Shore)
totaled approximately $251 million in 2001 and $240 million in 2000 for
approximately 32,200 members in 2001 and 33,800 members in 2000. Prior to
January 1, 2002, the Company had transferred the medical cost risk for its
Medicare members in certain New York counties to North Shore. However, as of
January 1, 2002, the Company exited the Medicare line of business in Long
Island. Although North Shore is obligated under the contract to pay all claims
for dates of service through December 31, 2001, the Company is ultimately
responsible for any claims not paid by North

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Shore. The Company is continuing to explore other risk-sharing or
risk-transfer opportunities relating to its remaining Medicare members with
providers and other organizations.

Implementing Medicare risk-sharing contracts involves various risks and
operational challenges, and there can be no assurance that these contracts will
be successful in reducing the Companys future costs. Moreover, cost savings
under these agreements are achieved in certain instances through fee
reductions, more rigorous utilization review and reductions in the size of the
provider networks, all of which may adversely affect member and provider
satisfaction with the Companys Medicare plans. These arrangements are also
subject to compliance with risk-sharing regulations adopted by CMS and the
States of New York and New Jersey that require disclosure and reinsurance for
specified levels of risk-sharing. See Cautionary Statement Regarding Forward
- Looking Statements.

Cost Containment  Ancillary Services

The Company has cost-containment agreements with various entities that are
structured to provide savings to the Company or to limit its risk for medical
costs for laboratory, radiology and physical therapy services. In 2001, the
Company entered into a five-year agreement with Merck-Medco, effective January
1, 2002, pursuant to which Merck-Medco and certain of its subsidiaries will
provide pharmacy benefit management services, including retail and mail-order
pharmacy services, to the Companys members. The Company also entered into an
alliance agreement with Merck-Medco under which the Company will develop,
de-identify and provide certain historic and current information and furnish
strategic consultative and other services to Merck-Medco over the term of the
agreement. With respect to laboratory and radiology services, the Companys
exposure for specified procedures is generally at a negotiated aggregate per
member per month cost which is generally less than the Companys historical
costs for such services. The laboratory agreement expires on December 31, 2002
and the radiology agreement expires on February 28, 2003. The Company is
currently considering its options regarding extensions or replacement of the
agreements. In the case of physical therapy services, the vendor has a
financial incentive to reduce the Companys annual costs for physical therapy
services.

In these agreements, the Company undertakes various obligations, including
changes to its medical management policies and internal business procedures,
some of which require computer programming, alteration of existing referral
patterns, as well as regulatory approvals, among other items. Because of the
complexity of its medical delivery system, disputes arise over the degree of
the Companys satisfaction of its various obligations under these
cost-containment agreements. The Company also bears the risk of non-performance
or default by the parties to such cost-containment arrangements. The aggregate
effect of such cost-containment agreements in 2001 was to reduce the Companys
costs for covered services and to contribute in part to the Companys ability
to constrain the net increase in its total medical costs. The Company expects
such agreements to assist in constraining 2002 medical cost increases, but
there can be no assurances that all of these arrangements will persist
throughout 2002.

Status of Information Systems

In December 2000, the Company entered into an agreement to outsource
certain of its information technology services, including data center
operations, help desk services, desktop systems and network operations. The
five-year agreement with Computer Services Corporation (CSC) provided for the
transition of approximately 150 of the Companys Information Technology staff
to CSC. Under the agreement, the Company sold certain computer-related
equipment to CSC at its estimated fair market value and recorded a loss on the
sale of approximately $5.4 million in the fourth quarter of 2000. The
Companys Information Technology department continues to support application
development and maintenance, data base administration, and quality assurance
program management and architecture. CSC is expected to invoice the Company
for base operating and capital costs under the agreement totaling approximately
$195 million over the agreement term. Costs for CSC services and equipment
utilization fluctuate based on the Companys actual usage and are billed by CSC
at rates established in the agreement. Under the agreement, in the event the
Company were to terminate the agreement prior to its expiration, the Company
would incur termination fees and penalties of approximately $15 million to $20
million in 2002, declining to approximately $8 million to $10 million in 2005, charges to
write-off equipment leased from CSC of approximately $7 million and
additional costs to rehire staff and purchase equipment.

The Company continues to assess and make improvements relating to
additional integration and functionality for its information technology
systems. There can be no assurance that the Company will be successful in

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preventing future system problems that could result in payment delays and
claims processing errors. Operating and other issues can lead to data problems
that affect performance of important functions, including claims payment and
group and individual billing. Computer hardware is subject to unplanned
downtime, as well as natural disasters and other catastrophic events, which
could adversely affect the Companys operations.

Quality Management

The majority of Oxfords physicians in its commercial and Medicare rosters
are board certified in their specialty (by passing certifying examinations in
the specialty as recognized by the American Board of Specialties) or become
board certified within five years of becoming eligible. In certain limited
circumstances such as community need or academic affiliation, board
certification may be waived. Board certification is one measure of a
physicians expertise. Additionally, Oxford maintains a credentialing process
consistent with the National Committee on Quality Assurance (NCQA)
guidelines. All provider assessments consist of primary verification of
credentials, query of the National Practitioner Data Bank, state medical boards
and admitting hospitals for malpractice history, disciplinary actions and/or
restrictions of hospital privileges, and on-site office evaluation of selected
providers to determine compliance with Oxford standards. Oxford also
re-credentials all providers every two years. The re-credentialing review
consists of repeating select components of the initial credentialing process
(as required by NCQA) and a review of the providers practice history with
Oxford. This process also includes evaluating the results of quality assurance
reviews, complaints from members concerning the provider, utilization patterns
and the providers compliance with Oxfords administrative protocols.

The Companys physician contracts require adherence to Oxfords Quality
Assurance and Utilization Management Programs. Oxfords Quality Management
Committees, which are composed of physicians from within Oxfords network of
providers, advise the Companys Chief Medical Officer concerning the
development of credentialing and other medical quality criteria. The Quality
Management Committees may elect to sanction providers based upon their review
of a providers practice patterns or outcomes. The committees also provide
oversight of Oxfords Quality Assurance and Utilization Management Programs
through peer review and ongoing review of performance indicators.

The Company seeks to evaluate the quality and appropriateness of medical
services provided to its members by performing member and physician
satisfaction studies. The Company also conducts on-site review of medical
records at selected physician offices facilitating retrieval of statistical
information which allows for problem resolution in the event of member or
physician complaints and for retrieval of data when conducting focused studies.

In September 2001, the NCQA, an independent, non-profit organization
dedicated to improving managed care quality and service, upgraded the Companys
status to excellent for its New York line of business. Oxfords New Jersey and
Connecticut lines of business maintain a commendable status. NCQA will
conduct its regular periodic review of the Companys accreditation in March
2002. There can be no assurance that the Companys accreditation will be
renewed or that the Company will achieve the same level of accreditation in the
future.

Risk Management

The Company limits, in part, the risk of certain catastrophic losses by
maintaining high deductible reinsurance coverage. The Company does not consider
this coverage to be material as the cost is not significant and the likelihood
that coverage will be applicable is minimal. The Company also maintains
general liability, property, employee fidelity, directors and officers, and
professional liability insurance coverage in amounts the Company deems prudent.
The Company requires contracting physicians, physician groups and hospitals to
maintain professional liability and malpractice insurance in an amount
consistent with industry standards.

The Company and certain of its former and present Directors and Officers
are currently defendants in certain securities class actions. In the fourth
quarter of 1999, the Company purchased new insurance policies providing
additional coverage of certain legal defense costs, including judgments and
settlement, if any, incurred by the Company and individual defendants in
certain pending lawsuits and investigations, including among others, the
securities class action pending against the Company and certain of its
directors and officers and the pending stockholder derivative actions. Subject
to the terms of the policies, the insurers have agreed to pay 90% of the
amount, if any, by which covered costs exceed a retention of between $155
million and $165 million (the Retention), provided that the aggregate amount
of insurance under these new policies is limited to $200 million

9



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and the aggregate amount of new insurance in respect of defense costs
other than judgments and settlements, if any, is limited to $10 million. A
charge of $24 million for premiums and other costs associated with the new
insurance coverage was included in the Companys results of operations for
1999. The policies do not cover taxes, fines or penalties imposed by law or the
cost to comply with any injunctive or other non-monetary relief or any
agreement to provide any such relief. The coverage under the new policies is
in addition to approximately $25 million of coverage remaining under
preexisting primary insurance that is not subject to the Retention applicable
to the new policies. The Company has fully reserved for anticipated
legal expenses for this matter. Of the remaining $25 million in primary insurance
coverage, collectibility of some portion of $15 million is in doubt because one of the
Companys Directors and Officers insurance carriers, Reliance Insurance Company
(Reliance), was placed in liquidation in October 2001 by the Commonwealth
Court of Pennsylvania. Accordingly, during the third quarter of 2001, the
Company recorded a charge of $10 million related to a provision
for estimated insurance recoveries that may not be
recoverable from Reliance.

Government Regulation

The Companys HMO and insurance subsidiaries are subject to substantial
federal and state government regulation, including licensing and other
requirements relating to the offering of the Companys existing products in new
markets and offerings of new products, both of which may restrict the Companys
ability to expand its business. The failure of the Companys subsidiaries to
comply with existing or future laws and regulations could materially and
adversely affect the operations, financial condition and prospects of the
Company.

Federal Regulation

In order to be eligible to enter into Medicare contracts with CMS, an HMO
must be a competitive medical plan (CMP). Oxford NY, Oxford NJ and Oxford CT
are qualified CMPs under CMSs requirements. In order to maintain this status,
Oxford NY, Oxford NJ and Oxford CT must remain in compliance with certain
financial, reporting and organizational requirements under applicable federal
statutes and regulations in addition to meeting the requirements established
pursuant to applicable state law.

The Companys health plans with Medicare contracts, Oxford NY, Oxford NJ
and Oxford CT, are subject to regulation by CMS. CMS has the right, directly
and through peer review organizations, to audit health plans operating under
Medicare contracts to determine each health plans compliance with CMSs
contracts and regulations and the quality of care being rendered to the health
plans Medicare members. In addition, CMS regulations prohibit HMOs with
Medicare contracts from including any direct or indirect payment to physicians
or groups as an inducement to reduce or limit medically necessary services to a
Medicare beneficiary. These regulations impose risk limitation disclosure and
other requirements relating to physician incentive plans that place physicians
participating in a Medicare plan at substantial financial risk. The Companys
ability to maintain compliance with these rules and regulations depends, in
part, on its receipt of timely and accurate information from its providers.

Other federal laws which govern the Companys business and which
significantly affect its operations include, among others:



|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The federal Health Insurance Portability and Accountability Act of 1996
(HIPAA) was promulgated to (i) ensure portability of health insurance to
certain individuals, (ii) guarantee availability of health insurance to
employees in the small group market (iii) prevent exclusion of individuals
from coverage under group plans based on health status, and (iv) develop
national standards for the electronic exchange of health information. In
furtherance of the latter, the Department of Health & Human Services
(DHHS) was directed to develop rules for standardizing electronic
transmission of health care information and to protect its security and
privacy. On December 20, 2000, DHHS issued its final privacy rules that
must be complied with by April 2003. Under these rules health plans,
clearinghouses and providers will now be required to (a) comply with a
variety of requirements concerning their 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 those companies to whom protected health
information is disclosed. Violations of these rules will be subject to
significant penalties. The final privacy 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. HIPAA privacy rules
could expose the Company to additional liability for, among other things,
violations by its business associates. Also as a result of HIPAA, DHHS has
issued final rules standardizing electronic transactions between health
plans, providers and clearinghouses.

10



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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Health plans, providers and clearinghouses, including the Company, are
required to conform their electronic and data processing systems with
HIPAAs electronic transaction requirements. The effective date of these
rules has been delayed until October 2003 for those plans that file an
application by October 2003. The Company intends to file its application
no later than October 2003. The cost of complying with HIPAA is likely to
be significant. The Company currently estimates its costs for HIPAA
compliance to be approximately $10 million in 2002 and
anticipates it will incur
additional costs in 2003 and beyond. The Company cannot predict the
ultimate impact HIPAA will have on its business and results of operations
in future periods;



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Mental Health Parity Act of 1996 (MHPA) prohibits group health
plans and health insurance issuers providing mental health benefits from
imposing lower aggregate annual or lifetime dollar-limits on mental
health benefits than any such limits for medical or surgical benefits.
MHPAs requirements do not apply to small employers who have between 2
and 50 employees or to any group health plan whose costs increase one
percent or more due to the application of these requirements.



| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Womens Health and Cancer Rights Act of 1998 requires health
insurance carriers of group and individual commercial policies that
cover mastectomies to cover reconstructive surgery or related services
following a mastectomy.



| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Newborns and Mothers Health Protection Act of 1996 generally
prohibits group health plans and health insurance issuers from
restricting benefits for a mothers or newborn childs hospital stay in
connection with childbirth to less than 48 hours for a vaginal delivery
and to less than 96 hours for a cesarean section.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Employee Retirement Income Security Act of 1974 (ERISA) governs
self-funded plans. There have been recent legislative attempts to limit
ERISAs preemptive effect on state laws. If such limitations are
enacted, they might increase the Companys exposure under state law
claims that relate to self-funded plans administered by the Company and
may permit greater state regulation of other aspects of those business
operations.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Balanced Budget Act of 1997 (the 1997 Act) changed the way
health plans are compensated for Medicare members by eliminating over
five years amounts paid for graduate medical education, increasing the
blend of national cost factors applied in determining local
reimbursement rates over a six-year phase-in period and direct CMS to
implement a risk adjusted mechanism on its monthly member payment to
Medicare plans over the same period. These changes have had the effect
of reducing reimbursement in high cost metropolitan areas with a large
number of teaching hospitals, such as the Companys service areas.
Congress has subsequently lengthened this timetable to allow the risk
adjusted mechanism to be fully implemented by 2007. In December 2000,
Congress approved the Benefits Improvement and Protection Act that,
among other things, enacted modest increases to the payment formula for
Medicare plans. The Company believes that under the 1997 Act, future
Medicare premiums will not keep up with the cost of health care
increases. The Company cannot predict the effect of this result on its
Medicare business and results of operations in future periods.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The US Department of Labor published regulations that revise claims
procedures for employee benefit plans governed by ERISA (insured and
self-insured), effective for claims filed on or after July 1, 2002.
Although the cost of complying with these regulations is likely to be
significant, the Company cannot predict the ultimate impact on its
business and results of operations in future periods.

State Regulation

Oxfords HMO subsidiaries are licensed to operate as HMOs by the insurance
departments, and, in some cases, health departments, in the states in which
they operate. Applicable state statutes and regulations require Oxfords HMO
subsidiaries to file periodic reports with the relevant state agencies and
contain requirements relating to operations, premium rates and covered
benefits, financial condition and marketing practices. In addition, state
regulations require the Companys HMO and insurance subsidiaries to maintain
restricted cash or available cash reserves and restrict their abilities to make
dividend payments, loans or other transfers of cash to the Company. For a
description of regulatory capital requirements, see Managements Discussion
and Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources. State regulatory authorities

11



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exercise oversight regarding the Companys HMOs provider networks, medical
care delivery and quality assurance programs and reporting requirements, the
formation of contracts, including risk-sharing contracts, claims payment
standards, compliance with benefit mandates, utilization review standards,
including internal and external appeals, and financial condition. The
Companys HMOs are also subject to periodic examination by the relevant state
regulatory authorities. For a description of recent examinations, see Legal
Proceedings  State Insurance and Health Departments.

OHI is an accident and health insurance company licensed by the New York
State Insurance Department (NYSID) and licensed as a foreign insurer by the
insurance departments of New Jersey, Pennsylvania and Connecticut. IGL is a
California insurance company licensed to write life, annuity and health
insurance in many states. Applicable state laws and regulations contain
requirements relating to OHI and IGLs financial condition, reserve
requirements, premium rates, forming of contracts, and the periodic filing of
reports with the applicable insurance departments. OHI and IGL are also
subject to periodic examination by the applicable state regulatory authorities.
From time to time, the Company has disagreements with such state regulatory
authorities on the application of actuarial methodologies and is routinely
discussing these issues with them.

Certain state regulations require that HMOs utilize standard community
rates in determining HMO premiums. Such community rates are generally revised
annually by the HMO and, in most cases, must be approved in advance by the
applicable state regulatory authorities. The methodology employed in
determining premiums for the Companys Freedom Plan products utilizing an HMO
must also be approved in advance by the applicable state regulatory authorities
and combine the relevant community rate with traditional indemnity insurance
rating criteria. The Companys ability to increase rates on its products is,
in certain instances, subject to prior approval of state insurance departments.
For a description of certain regulatory issues relating to the Companys
rates, see Legal Proceedings  State Insurance and Health Departments.

Applicable New York statutes and regulations require the prior approval of
the New York State Commissioner of Health and the New York State Superintendent
of Insurance for any change of control of Oxford NY or the Company and the
prior approval of the New York State Superintendent of Insurance for any change
of control of OHI or the Company. Similar laws in other states where the
Company has HMOs or insurance companies require insurance department approval
of any change in control of the Company or the relevant subsidiary. For
purposes of these statutes and regulations, generally control means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity. Control is presumed to
exist when a person, group of persons or entity acquires the power to vote 10%
or more of the voting securities of another entity.

During the past four years, New Jersey, Connecticut and New York enacted
significant pieces of legislation relating to managed care plans which contain
provisions relating to, among other things, consumer disclosure, utilization
review, removal of providers from the network, appeals processes for both
providers and members, mandatory benefits and products, state funding pools,
prompt payment and provider contract requirements. These states also all
passed legislation governing the prompt payment of claims that requires, among
other things, that health plans pay claims within certain prescribed time
periods or pay interest ranging from 10% to 15% per annum plus penalties. In
2001, the NYSID established a policy of fining insurers as much as $1,750 for
each prompt payment violation. Unless the New York legislature passes
legislation that would create an accuracy threshold, such proposed fines could
have an adverse effect on the Companys results of operations. The Company
incurred fines of approximately $918,000, $215,000 and $152,000 in 2001, 2000
and 1999, respectively, relating to prompt pay issues, primarily related to
claims incurred prior to 2000. The fine incurred in 2001 is reflective of the
NYSID fine policy referred to above. In 2001, the Company also paid a fine of
approximately $108,000 to resolve ostensible prompt pay violations relating to
an old provider complaint that had been filed in 1999. The Company may incur
additional prompt pay fines in the future.

Other recent state legislation which governs the Companys business and
which significantly affects its operations includes, among others:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Health Care Reform Act of New York (HCRA) governs health care
financing policies in New York, including graduate medical education
(GME) and bad debt and charity care (BDCC) assessments. Among other
things, the 1999 reauthorization of HCRA: (i) reduces the amount of GME
funding financed by payors by a total of $90 million through June 2003;
(ii) excludes certain laboratory services from the BDCC assessments
effective October 1, 2000; (iii) requires New York HMOs in 2001 to offer
a Healthy New York health plan with limited benefits to certain small groups and
individuals for which a limited amount of stop loss insurance will be
available; and (iv) provides a limited amount of stop loss insurance funds
to cover 90% of certain of the paid claims for the New York Mandated Plans
and for the Healthy New York plan. In January 2002, the New York
legislature restored the GME funding described above, effective January
2002 through June 2003.

12



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Effective July 1, 1999, New York enacted a law establishing a right
for health care consumers to obtain an external review of determinations
made by HMOs and insurers when coverage of health care has been denied
on grounds that the service is not medically necessary or such service
is experimental or investigational. The law also imposes other
burdensome contractual and reporting requirements on New York health
plans.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In December 1999, the State of New Jersey announced a voluntary
agreement by nine New Jersey HMOs, including Oxford NJ, to cover routine
patient care costs, including but not limited to, physician fees and
laboratory expenses associated with hospitalization of their members who
qualify for enrollment in certain cancer clinical trials. A cancer
clinical trials law mandating similar provisions on health plans became
effective in Connecticut on January 1, 2002.



| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Both Connecticut and New Jersey have enacted changes to certain of
their mental health coverage requirements generally to require health
plans to provide coverage for mental health conditions generally at the
same level of benefits as other medical conditions.



| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In March 2000, the State of New Jersey enacted a law which includes
an assessment on HMOs in the state proportionate to market share up to
$50 million over three years to help cover unpaid provider claims from
two insolvent HMOs. The Company paid approximately $1.8 million in 2001
and may be required to pay an additional amount in 2002.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Effective October 28, 2001 a new law in New Jersey allows members to
sue their health insurance plan for injuries caused by negligence,
including delay, in making coverage decisions. Although the law
requires most cases to exhaust the plans internal appeal process as
well as the external appeal process, this law could expose the Company
to additional litigation risk. Such litigation could be costly to the
Company and could have a significant affect on the Companys results
of operations. Although the Company could attempt to mitigate its
ultimate exposure from such costs through, among other things,
increases in premiums, there can be no assurance that the Company will
be able to mitigate or cover the costs stemming from such litigation.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Legislation in New Jersey giving the State Attorney General the
authority to regulate the process by which physicians may jointly
negotiate with health plans over fees and other contractual provisions
passed into law in January 2002 and will expire April 2008.
Physicians who want to jointly negotiate fees may do so only with a
plan that has substantial market power and only if the State
Attorney General approves the providers written request to do so.
The State Attorney General is required to issue regulations before
this law is effective. The Company cannot predict the ultimate impact
this law will have on its business and results of operations in future
periods.

Proposed Regulatory Developments

Congress is considering significant changes to the Medicare program,
including changes to reimbursement of HMOs. In addition, long-term structural
changes to the Medicare program, including the addition of a prescription drug
benefit, are currently being considered by Congress and the Administration.

State and federal government authorities are continually considering
changes to laws and regulations applicable to Oxfords HMO and insurance
subsidiaries. Over the past several years there has been significant
controversy over claims that payment for care has allegedly been
inappropriately withheld or delayed by managed care plans. This has led to
significant public and political support for reform of managed care regulation.
The U.S. Congress and each of the states in which Oxford operates are
currently considering regulation or legislation relating to mandatory benefits
(such as mental health), provider compensation arrangements, health plan
liability to members who do not receive appropriate care, disclosure and
composition of physician networks, health plan solvency standards and
procedures dictating health plan utilization management and claim payment
standards,

13



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among other matters. In recent years, bills have been introduced in the
legislatures in New York, New Jersey and Connecticut including some form of the
so-called Any Willing Provider initiative which would require HMOs to allow
any provider or facility meeting their credentialing criteria to join their
network regardless of geographic need, hospital admitting privileges and other
important factors. Certain of these bills have also included provisions
relating to mandatory disclosure of medical management policies and physician
reimbursement methodologies. Numerous other health care proposals have been
introduced in the U.S. Congress and in state legislatures. These include
provisions which place limitations on premium levels, impose health plan
liability to members who do not receive appropriate care, increase minimum
capital and reserves and other financial viability requirements, prohibit or
limit capitated arrangements or provider financial incentives, mandate benefits
(including mandatory length of stay with surgery or emergency room coverage)
and an antitrust exemption to permit competing health care professionals to
bargain collectively with health plans and other entities.

Congress is also considering proposals relating to health care reform,
including a comprehensive package of requirements on managed care plans called
the Patient Bill of Rights (PBOR) legislation. In 2001, the U.S. Senate
and U.S. House of Representatives passed separate versions of the PBOR.
Although the Senate and House versions of the PBOR legislation have significant
differences, both seek to hold health plans liable for claims regarding health
care delivery and accusations of improper denial of care, among other things.
If PBOR legislation is ultimately passed by Congress and signed into law, it
could expose the Company to significant litigation risk. Such litigation could
be costly to the Company and could have a significant affect on the Companys
results of operations. Although the Company could attempt to mitigate its
ultimate exposure from such costs through, among other things, increases in
premiums, there can be no assurance that the Company will be able to mitigate
or cover the costs stemming from such PBOR legislation or the other costs
incurred in connection with complying with such PBOR legislation.

Recently enacted legislation and the proposed regulatory and legislative
changes described above, if enacted, could increase health care costs and
administrative expenses, reduce Medicare reimbursement rates and otherwise
adversely affect the Companys business, results of operations and financial
condition.

Competition

HMOs and health insurance companies operate in a highly competitive
environment. The Company has numerous competitors, including for-profit and
not-for-profit HMOs, PPOs, and indemnity insurance carriers, some of which have
substantially larger enrollments than the Company. The Company competes with
independent HMOs, such as Health Insurance Plan of New York, which have
significant enrollment in the New York metropolitan area. The Company also
competes with HMOs and managed care plans sponsored by large health insurance
companies, such as CIGNA Corporation, Aetna Inc., UnitedHealth Group and Blue
Cross/Blue Shield affiliated companies. These competitors have large
enrollment in the Companys service areas and, in some cases, greater financial
resources than the Company. Additional competitors, including emerging
competitors in e-commerce insurance or benefit programs, may enter the
Companys markets in the future. The Company believes that the network of
providers under contract with Oxford is an important competitive factor.
However, the cost of providing benefits is in many instances the controlling
factor in obtaining and retaining employer groups, and certain of Oxfords
competitors have set premium rates at levels below Oxfords rates for
comparable products. Oxford anticipates that premium pricing will continue to
be highly competitive.

To address rising health care costs, some large employer groups have
consolidated their health benefits programs and are offering fewer options to
their employees. Other employer groups have considered a variety of health
care options to encourage employees to use the most cost-effective form of
health care services. These options, which include traditional indemnity
insurance plans, HMOs, POS plans, and PPO plans, may be provided by third
parties or may be self-funded by the employer. The Company believes that
employers will seek to offer health plans, similar to the Companys Freedom and
Liberty Plans, that provide for in plan and out-of-plan options while
encouraging members to use the most cost-effective form of health care services
through, among other things, increased copayments, deductibles and coinsurance.
Although the Companys POS products, the Freedom Plan and Liberty Plan, offer
this alternative to employers, there is no assurance that the Company will be
able to continue to compete effectively for the business of employer groups.

14



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Employees

At December 31, 2001, the Company had approximately 3,400 full-time
employees, none of whom is represented by a labor union.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in Business, Legal Proceedings and
Managements Discussion and Analysis of Financial Condition and Results of
Operations, including, but not limited to, statements concerning future
results of operations or financial position, future liquidity, future ability
to receive cash from the Companys regulated subsidiaries, future ability to
pay dividends, future ability to retire debt or purchase outstanding shares of
the Companys common stock, future deployment of excess cash, future capital
structure, the completion of pending acquisitions, future health care and
administrative costs, future premium rates and yields for commercial and
Medicare business, the employer renewal process, future growth and retention of
membership and development of new lines of business, future growth in
contiguous geographic markets, future health care benefits, future provider
network, future provider utilization rates, future medical loss ratio levels,
future claims payment, service performance and other operations matters, future
administrative loss ratio levels, the Companys information systems, proposed
efforts to control health care and administrative costs, future impact of
risk-transfer, risk-sharing and other cost-containment agreements with health
care providers and related organizations of providers, future reinsurance
coverage for risk-transfer arrangements, future enrollment levels, future
government regulation such as, the Patient Bill of Rights (PBOR) legislation
and the Health Insurance Portability and Accountability Act of 1996 (HIPAA),
and relations and the impact of new laws and regulation, the future of the
health care industry, and the impact on the Company of legal proceedings and
regulatory investigations and examinations, and other statements contained
herein regarding matters that are not historical facts, are forward-looking
statements (as such term is defined in the Securities Exchange Act of 1934, as
amended). Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed below.

IBNR estimates; Inability to control health care costs

Medical costs payable in Oxfords financial statements include reserves
for incurred but not reported or paid claims (IBNR) that are estimated by
Oxford. Oxford estimates the amount of such reserves primarily using standard
actuarial methodologies based upon historical data including, among other
factors, the average interval between the date services are rendered and the
date claims are received and paid, denied claims activity, expected medical
cost inflation, seasonality patterns and changes in membership. The estimates
for submitted claims and IBNR are made on an accrual basis and adjusted in
future periods as required. Oxford believes that its reserves for IBNR are
adequate to satisfy its ultimate claim liability. However, there can be no
assurances as to the ultimate accuracy of such estimates. Any adjustments to
such estimates could benefit or adversely affect Oxfords results of operations
in future periods.

The Companys future results of operations depend, in part, on its ability
to predict and influence health care costs (through, among other things,
appropriate benefit design, utilization review and case management programs,
risk-transfer and risk-sharing and other payment arrangements with providers)
while providing members with coverage for the health care benefits provided
under their contracts. However, Oxfords ability to contain such costs may be
adversely affected by various factors, including, but not limited to: changes
in the historical patterns of health care utilization and/or unit costs
generally and directly or indirectly related to the war on terrorism or the
concerns of members or providers due to the threat of terrorism, new
technologies and health care practices, hospital costs, changes in demographics
and trends, changes in laws or regulations, mandated benefits or practices,
selection biases, increases in unit costs paid to providers, termination of
provider arrangements, termination of, or disputes under, risk-transfer or
risk-sharing arrangements, epidemics, acts of terrorism and bioterrorism or
other catastrophes, including war, inability to establish or maintain
acceptable compensation arrangements with providers, operational and regulatory
issues which could delay, prevent or impede those arrangements, and higher
utilization of medical services, including, but not limited to, higher
out-of-network utilization under point-of-service plans. There can be no
assurance that Oxford will be successful in mitigating the effect of any or all
of the above-listed or other factors.

15



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General economic conditions

Changes in economic conditions could affect the Companys business and
results of operations. The state of the economy could affect the Companys
employer group renewal prospects and its ability to increase premiums.
Although the Company has attempted to diversify its product offerings to
address the changing needs of its membership, there can be no assurance that
the effects of the current downturn in economic conditions will not cause its
existing membership to seek health coverage alternatives that the Company does
not offer or will not result in significant membership loss, or decreased
margins on continuing membership.

Effects of terrorism

There can be no assurance that the September 11, 2001 terrorist attack,
the recent cases of anthrax infection or exposure, the war on terrorism, the
threat of future acts of terrorism or the related concerns of members or
providers will not adversely affect the Companys health care costs and its
ability to predict and control such costs.

Future acts of terrorism and bio-terrorism could adversely affect the
Company through, among other things: (i) increased utilization of health care
services including, without limitation, hospital and physician services,
ancillary testing and procedures, prescriptions for drugs such as Ciprofloxacin
Hydrochloride, mental health services and other services; (ii) loss of
membership as the result of lay-offs or other in force reductions of
employment; (iii) adverse effects upon the financial condition or business of
employers who sponsor health care coverage for their employees; (iv) disruption
of the Companys business or operations; or (v) disruption of the financial and
insurance markets in general.

The effect of higher administrative costs

Although the Company has been successful in reducing the levels of its
administrative expenses, no assurance can be given that the Company will be
able to maintain such levels. The increased administrative costs of new laws
or regulations, such as HIPAA or PBOR legislation, could adversely affect the
Companys ability to maintain its current levels of administrative expenses.

Changes in laws and regulations

The health care financing industry in general, and HMOs in particular, are
subject to substantial federal and state government regulation, including, but
not limited to, regulations relating to cash reserves, minimum net worth,
licensing requirements, approval of policy language and benefits, mandatory
products and benefits, provider compensation arrangements, member disclosure,
premium rates and periodic examinations by state and federal agencies. State
regulations require the Companys HMO and insurance subsidiaries to maintain
restricted cash or available cash reserves and restrict their ability to make
dividend payments, loans or other payments to the Company.

State and federal government authorities are continually considering
changes to laws and regulations applicable to the Company. Any such changes
could have a material adverse effect upon the Company and its results of
operations. Such state and federal government authorities are currently
considering regulations relating to, among other things, mandatory benefits and
products, parity of access to certain medical benefits such as mental health,
defining medical necessity, provider compensation, health plan liability to
members who fail to receive appropriate care, disclosure and composition of
physician networks, and allowing physicians to collectively negotiate contract
terms with carriers, including fees. All of these proposals would apply to the
Company and could have a material adverse effect upon the Company and its
results of operations. Congress is also considering significant changes to
Medicare, including a pharmacy benefit requirement and changes to payment of
Medicare plans, as well as proposals relating to health care reform, including
PBOR legislation, a comprehensive package of requirements on managed care
plans. In 2001, the United States Senate and the House of Representatives
passed separate versions of the PBOR. Although the Senate and the House passed
versions of the PBOR legislation have significant differences, both seek to
hold health plans liable for claims regarding health care delivery and
accusations of improper denial of care, among other items. The State of New
Jersey recently passed a health plan liability law similar to certain portions
of the PBOR legislation being considered by Congress. Under the New Jersey law
generally, after exhausting an appeal through an independent review board, a
person covered under a health plan is permitted to sue the carrier for economic
and

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non-economic losses, including pain and suffering, that occur as the
result of the carriers negligence with respect to the denial of, or delay in,
approving or providing medically necessary covered services. The New Jersey
legislation will, and the Federal PBOR legislation if passed could, expose the
Company to significant litigation risk. Such litigation could be costly to the
Company and could have a significant effect on the Companys results of
operations. Although the Company could attempt to mitigate its ultimate
exposure from such costs through, among other things, increases in premiums,
there can be no assurance that the Company will be able to mitigate or cover
the costs stemming from such PBOR legislation or the other costs incurred in
connection with complying with such PBOR legislation.

Under the new HIPAA privacy rules, the Company will now be required to (a)
comply with a variety of requirements concerning their 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 those companies to whom protected health information is
disclosed. Violations of these rules will be subject to significant penalties.
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. HIPAA could expose the Company to additional liability for, among
other things, violations by its business associates. Also as a result of
HIPAA, DHHS has issued final rules standardizing electronic transactions
between health plans, providers and clearinghouses. Health plans, providers
and clearinghouses, including the Company, are required to conform their
electronic and data processing systems with HIPAAs electronic transaction
requirements. The effective date of these rules has been delayed until October
2003 for those plans that file an application by October 2003. The Company
intends to file its application no later than October 2003. The cost of
complying with HIPAA is likely to be significant. The Company currently
estimates its costs for HIPAA compliance to be approximately $10 million in
2002 and anticipates it will incur additional costs in 2003 and beyond. The Company cannot
predict the ultimate impact HIPAA will have on its business and results of
operations in future periods.

National Committee on Quality Assurance (NCQA) accreditation

In September 2001, NCQA, an independent, non-profit organization dedicated
to improving managed care quality and service, upgraded the Companys status to
excellent for Oxfords New York line of business. Oxford Health Plans New
Jersey and Connecticut lines of business maintain a commendable status. NCQA
will conduct its regular periodic review of the Companys accreditation in
March 2002. There can be no assurance that the Companys accreditation will be
renewed or that the Company will achieve the same level of accreditation in the
future.

Doing business on the Internet

Federal and state laws and regulations directly applicable to
communications or commerce over the Internet such as HIPAA are becoming more
prevalent. For example, CMS has prohibited the transmission of Medicare
eligibility information over the Internet unless certain encryption and other
standards are met. New laws and regulations could adversely affect, or
increase costs related to, the business of the Company on the Internet. The
Company relies on certain external vendors to provide content and services with
respect to maintaining its website at www.oxfordhealth.com. Any failure of
such vendors to abide by the terms of their agreement with the Company or to
comply with applicable laws and regulations, could expose the Company to
liability and could adversely affect the Companys ability to provide services
and content on the Internet.

Matters Affecting Medicare Business

Premiums for Oxfords Medicare programs are determined through formulas
established by CMS for Oxfords Medicare contracts. Generally, since the
Balanced Budget Act of 1997 went into effect, annual health care premium
increases for Medicare members have not kept up with the increases in health
care cost. Federal law provides for annual adjustments in Medicare
reimbursement by CMS that could reduce the reimbursement received by the
Company. Premium rate increases in a particular region that are lower than the
rate of increase in health care service expenses for Oxfords Medicare members
in such region, could adversely affect Oxfords results of operations. Given
the current public policy and the fact that Medicare premiums are not scheduled
to keep up with the cost of health care, it is possible that the Company may
have to decrease its Medicare membership by, among other things, reducing
benefits and exiting additional counties. For example, the Company withdrew
from the Medicare market in Nassau County in New York and from all but one New
Jersey counties effective January 1, 2002. Any Medicare risk agreements
entered into by Oxford could pose operational

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and financial challenges for the Company and could be adversely affected
by regulatory actions or by the failure of the Company or the risk contractor
to comply with the terms of such agreement, and failure under any such
agreement could have a material adverse effect on the Companys cost of
providing benefits to Medicare members, Medicare membership, the Companys
Medicare results of operations and, ultimately, the Companys ability to remain
in Medicare programs. Oxfords Medicare programs are subject to certain
additional risks compared to commercial programs, such as substantially higher
comparative medical costs and higher levels of utilization.

Service and management information systems

The Companys claims and service systems depend upon the smooth
functioning of its computer systems. While these systems presently operate
satisfactorily and are sufficient to operate the Companys current business,
the systems remain subject to unexpected interruptions resulting from
occurrences such as hardware failures or the impact of ongoing program
modifications. There can be no assurance that such interruptions will not
occur in the future, and any such interruptions could adversely affect the
Companys business and results of operations. Moreover, operating and other
issues can lead to data problems that affect the performance of important
functions, including, but not limited to, claims payment and group and
individual billing. There can also be no assurance that the Companys agreement
to outsource certain informational technology services will prevent increases
in future information technology costs or fulfill its needs including reducing
technology risk or that the process of improving existing systems, developing
new systems to support the Companys operations and improving service levels
will not be delayed or that additional systems issues will not arise in the
future.

Health care provider network

The Company is subject to the risk of disruption in its health care
provider network. Network physicians, hospitals and other health care
providers could terminate their contracts with the Company. In addition,
disputes often arise under provider contracts that could adversely affect the
Company or could expose the Company to regulatory or other liabilities. Such
events, coupled with new legislation in New Jersey and proposed legislation in
other states which provides or may provide physicians and other providers with
collective bargaining power, could have a material adverse effect on the
Companys ability to influence its medical costs and market its products and
service to its membership. Cost-containment and risk-sharing arrangements
entered into by Oxford could be adversely affected by regulatory actions,
contractual disputes, or the failure of the providers to comply with the terms
of such agreements. Furthermore, the effect of mergers and consolidations of
health care providers or potential unionization of, or concerted action by,
physicians, hospitals or other providers in the Companys service areas could
enhance the providers bargaining power with respect to higher reimbursement
levels and changes to the Companys utilization review and administrative
procedures.

Pending litigation and other proceedings against Oxford

The Company is a defendant in a number of purported securities class
action lawsuits that were filed after a substantial decline in the price of the
Companys common stock in October 1997. The Company is also involved in
certain legal proceedings including without limitation those related to (i) a
purported Connecticut class action grounded in ERISA claims, (ii) an action
brought by the Connecticut Attorney Generals office on similar claims, (iii)
two Connecticut actions, brought by the Connecticut State Medical Society and a
purported class action brought by four individual physicians, based on
Connecticut Unfair Trade Practices Act claims, (iv) two New York actions,
brought by the Medical Society of the State of New York and a purported class
action brought by three individual physicians, based on New York General
Business Law claims, among other things, and (v) a class action in New Jersey
brought on behalf of Oxford members seeking recovery of subrogation payments
recovered by Oxford alleged to have been collected in violation of New Jersey
insurance laws. The Company is also the subject of examinations,
investigations and inquiries by Federal and state governmental agencies. The
results of these lawsuits, examinations, investigations and inquiries could
adversely affect the Companys results of operations, financial condition,
membership growth and ability to retain members through the imposition of
sanctions, required changes in operations and potential limitations on
enrollment. In addition, evidence obtained in governmental proceedings could
be used adversely against the Company in civil proceedings. The Company cannot
predict the outcomes of these lawsuits, examinations, investigations and
inquiries.

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Negative HMO publicity and potential for additional litigation

The managed care industry, in general, has received significant negative
publicity and does not have a positive public perception. This publicity and
perception have led to increased legislation, regulation and review of industry
practices. Certain litigation, including purported class actions on behalf of
plan members commenced against certain large, national health plans, and
recently against the Company, has resulted in additional negative publicity for
the managed care industry and creates the potential for similar additional
litigation against the Company. See Legal Proceedings. These factors may
adversely affect the Companys ability to market its products and services, may
require changes to its products and services and may increase the regulatory
burdens under which the Company operates, further increasing the costs of doing
business and adversely affecting the Companys results of operations.

Concentration of business

The Companys commercial and Medicare business is concentrated in New
York, New Jersey and Connecticut, with approximately 80% of its commercial
premium revenues received from New York business. In addition, the Companys
Medicare revenue represented approximately 15% of premiums earned during the
year 2001. As a result, changes in regulatory, market, or health care provider
conditions in any of these states, particularly New York, and changes in the
environment for the Companys Medicare business, could have a material adverse
effect on the Companys business, financial condition and results of
operations.

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Item 2.     PROPERTIES

Summarized in the table below are the Companys major lease commitments
for currently occupied office space, excluding formerly occupied office space
in various cities which have been either subleased to new tenants or charged to
the Companys restructuring reserve.

|                 |  |                |  |                      |  |             |         | 
|---------------- |  | -------------- |  | -------------------- |  | ----------- | ------- | 
|                 |  | Type           |  | Earliest Termination |  | Current    
|Location         |  | of Space       |  | Date                 |  | Square Feet
|                
|Trumbull, CT     |  | Administrative |  | December-02          |  |             | 238,000 | 
|Nashua, NH       |  | Administrative |  | June-04              |  |             | 116,000 | 
|Hooksett, NH     |  | Administrative |  | November-07          |  |             | 121,000 | 
|Trumbull, CT     |  | Administrative |  | December-06          |  |             | 115,000 | 
|White Plains, NY |  | Sales/Admin    |  | November-05          |  |             | 85,000  | 
|Hidden River, FL |  | Administrative |  | January-04           |  |             | 76,000  | 
|Woodbridge, NJ   |  | Administrative |  | October-02           |  |             | 45,000  | 
|New York, NY     |  | Sales/Admin    |  | July-05              |  |             | 27,000  | 
|Melville, NY     |  | Sales/Admin    |  | August-11            |  |             | 23,000  | 
|New York, NY     |  | Sales/Admin    |  | May-03               |  |             | 13,000  | 

Item 3.     LEGAL PROCEEDINGS

Securities Class Action Litigation

As previously reported by the Company, following the October 27, 1997
decline in the price per share of the Companys common stock, more than fifty
purported securities class action lawsuits were filed against the Company and
certain of its officers in the United States District Courts for the Eastern
District of Arkansas, the Eastern District of New York, the Southern District
of New York and the District of Connecticut. By order dated April 29, 1998, the
Judicial Panel on Multidistrict Litigation (JPML) transferred these actions
together with the federal shareholder derivative actions discussed below, for
coordinated or consolidated pretrial proceedings in the United States District
Court for the Southern District of New York before Judge Charles L. Brieant.
Judge Brieant consolidated the class actions for pretrial purposes under the
caption In re Oxford Health Plans, Inc. Securities Litigation, MDL-1222 (CLB).

On October 2, 1998, the co-lead plaintiffs filed a Consolidated and
Amended Class Action Complaint (Amended Complaint). The Amended Complaint
(which has since been further amended by stipulation) names as defendants
Oxford, Oxford Health Plans (NY), Inc. (Oxford NY), KPMG LLP (Oxfords
outside independent auditor during 1996 and 1997) and several current or former
Oxford directors and officers. The Amended Complaint purports to be brought on
behalf of purchasers of Oxfords common stock during the period from November
6, 1996 through December 9, 1997 (the Class Period), purchasers of Oxford
call options or sellers of Oxford put options during the Class Period and on
behalf of persons who, during the Class Period, purchased Oxfords securities
contemporaneously with sales of Oxfords securities by one or more of the
individual defendants. The Amended Complaint: (i) alleges that defendants
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by making false and misleading statements and failing to disclose
certain allegedly material information regarding changes in Oxfords computer
system and the Companys membership, enrollment, revenues, medical expenses and
ability to collect on its accounts receivable, (ii) asserts claims against the
individual defendants alleging controlling person liability under Section
20(a) of the Exchange Act, and (iii) alleges violations of Section 20A of the
Exchange Act by virtue of the individual defendants sales of shares of
Oxfords common stock while the price of that common stock was allegedly
artificially inflated by allegedly false and misleading statements and
omissions. The Amended Complaint seeks unspecified damages, attorneys and
experts fees and costs, and such other relief as the court deems proper. On
March 9, 2000, Judge Brieant issued decisions denying the motions to dismiss
previously filed on March 15, 1999 by Oxford, the individual defendants and,
separately, KPMG LLP.

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On September 22, 1999, the State Board of Administration of Florida (the
SBAF) filed an Amended Complaint in the securities class action brought by it
individually (the Amended SBAF Complaint). The Amended SBAF Complaint
asserts claims that are substantially similar to those asserted in Amended
Class Action Complaint, with the addition of certain state and federal law
claims.

On February 28, 2000 and February 9, 2001, the Court issued decisions
granting plaintiffs motion to certify a class action on behalf of purchasers
of Oxford common stock and call options, and sellers of Oxford put options,
during the Class Period and named five class representatives. The parties
expect to complete all discovery, including expert discovery, in the summer of
2002, after which the Court will hold a status conference to discuss the
scheduling of a trial date.

In the fourth quarter of 1999, the Company purchased new insurance
policies providing additional coverage of certain legal defense costs,
including judgments and settlements, if any, incurred by the Company and
individual defendants in certain pending lawsuits and investigations,
including, among others, the securities class action pending against the
Company and certain of its directors and officers and the pending stockholder
derivative actions. Subject to the terms of the policies, the insurers have
agreed to pay 90% of the amount, if any, by which covered costs exceed a
retention of between $155 million and $165 million (the Retention), provided
that the aggregate amount of insurance under these new policies is limited to
$200 million over the Retention.
The policies do not cover taxes, fines or penalties imposed by law or the cost
to comply with any injunctive or other nonmonetary relief or any agreement to
provide any such relief. The coverage under the new policies is in addition to
approximately $25 million of coverage remaining under preexisting primary
insurance that is not subject to the Retention applicable to the new
policies. The Company has fully reserved for anticipated legal
expenses for this matter. Of the remaining $25 million in
primary insurance coverage, collectibility of some portion of $15
million is in doubt because one of the Companys Directors and Officers
insurance carriers, Reliance Insurance Company (Reliance), was placed in
liquidation in October 2001 by the Commonwealth Court of Pennsylvania.
Accordingly, during the third quarter of 2001, the Company recorded a charge of
$10 million related to a provision for estimated insurance
recoveries that may not be recoverable from Reliance.

The outcomes of these actions cannot be predicted at this time although
the Company believes that it and the individual defendants have substantial
defenses to the claims asserted and intends to defend the actions vigorously.

Stockholders Derivative Litigation

As previously reported by the Company, in the months following the October
27, 1997 decline in the price per share of the Companys common stock, ten
purported stockholder derivative actions were commenced on behalf of the
Company in Connecticut Superior Court (the Connecticut derivative actions)
and in the United States District Courts for the Southern District of New York
and the District of Connecticut (the federal derivative actions). On April
28, 1998, the JPML entered an order transferring all of these actions for
consolidated or coordinated pretrial proceedings, together with the securities
class actions discussed above, before Judge Brieant. A stipulation
consolidating the federal derivative actions under the caption In re Oxford
Health Plans, Inc. Derivative Litigation, MDL-1222-D, and appointing lead
counsel for the federal derivative plaintiffs, was entered and so ordered by
Judge Brieant on September 26, 1998.

On June 13, 2001, the Company and the plaintiffs in the federal and
Connecticut derivative actions entered into an agreement providing for the
settlement of these actions. This stipulation provides for, among other
things, the payment by the Companys directors and officers (D&O) insurance
carriers of $13.7 million to the Company, with not more than $3.7 million of
that amount for legal fees and expenses of the plaintiffs attorneys. Although
the Court preliminarily approved this settlement on June 20, 2001, the
implementation and funding of the settlement were delayed because one of the
Companys D&O insurers, Reliance Insurance Company (Reliance), was placed in
liquidation on October 3, 2001 by the Commonwealth Court of Pennsylvania. As a
result of the Reliance liquidation, the parties negotiated an amendment to the
derivative settlement, which amendment was approved by the Court on December 7,
2001. Pursuant to the terms of the amended stipulation of settlement, (i) the
carrier responsible for the Companys current layer of D&O insurance agreed to pay
approximately $7.5 million to the Company, which is the amount such carrier
represented to be the remaining amount of its coverage obligations
and (ii) the Company agreed to deposit approximately $2 million of this sum into an account
maintained for the payment of the attorneys fees and costs for plaintiffs
counsel. The remaining $5.5 million was applied to the payment
of legal fees. The amended settlement further provides that

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the Company and the derivative plaintiffs will cooperate to seek to recover
from the liquidator of Reliance or alternative insurance the remaining portion
of the $13.7 million settlement amount, with the Company  retaining control and final
authority in connection with all claims related to Reliance. Notices to
shareholders regarding the derivative settlement were mailed on or about
January 11, 2002, and the settlement was fully approved by Judge Brieant at a
hearing on February 14, 2002.

Securities and Exchange Commission

The Company received an informal request on December 9, 1997 from the
Securities and Exchange Commissions Northeast Regional Office seeking
production of certain documents and information concerning a number of
subjects, including disclosures made in the Companys October 27, 1997 press
release announcing a loss in the third quarter. Oxford has produced documents
and has provided information in response to this informal request.

The Commission served the Company and certain of its current and former
officers and directors with several subpoena duces tecum requesting documents
concerning a number of subjects, including, but not limited to, the Companys
public disclosure of internal and external audits, uncollectible premium
receivables, timing of and reserves with respect to payments to vendors,
doctors and hospitals, payments and advances to medical providers, adjustments
related to terminations of group and individual members and for nonpaying group
and individual members, computer system problems, agreements with the New York
State Attorney General, employment records of former employees, and the sale of
Oxford securities by officers and directors. Oxford and certain of its current
and former officers and directors have produced documents in response to these
subpoenas. Certain of Oxfords present and former directors, officers and
employees have provided testimony to the Commission. Oxford is cooperating
fully with the Commission.

New York State Attorney General

As previously reported, on November 6, 1997, the New York State Attorney
General served a subpoena duces tecum on the Company requiring the production
of various documents, records and materials in regard to matters relating to
the practices of the Company and others in the offering, issuance, sale,
promotion, negotiation, advertisement, distribution or purchase of securities
in or from the State of New York. Since then, the Company has produced a
substantial number of documents in response to the subpoena, and expects to
produce additional documents. In addition, some of the Companys present and
former directors and officers have provided testimony to the Attorney Generals
staff. The Company has cooperated fully with the Attorney General.

ERISA and Provider Class Actions

On September 7, 2000, the Connecticut Attorney General filed suit against
four HMOs, including the Company and the Companys Connecticut HMO subsidiary,
in the United States District Court for the District of Connecticut, on behalf
of a putative class consisting of all Connecticut members of the defendant HMOs
who are enrolled in plans governed by ERISA (the Connecticut Attorney General
action). The suit alleges that the named HMOs breached their disclosure
obligations and fiduciary duties under ERISA by, among other things, (i)
failing to timely pay claims; (ii) the use of inappropriate and arbitrary
coverage guidelines as the basis for denials; (iii) the inappropriate use of
drug formularies; (iv) failing to respond to member communications and
complaints; and (v) failing to disclose essential coverage and appeal
information. The suit seeks preliminary and permanent injunctions enjoining
the defendants from pursuing the complained of acts and practices. Also, on
September 7, 2000, a group of plaintiffs law firms commenced an action in
federal district court in Connecticut against the Company and four other HMOs
on behalf of a putative national class consisting of all members of the
defendant HMOs who are or have been enrolled in plans governed by ERISA within
the past six years. The substantive allegations of this complaint, which also
claims violations of ERISA, are nearly identical to that filed by the
Connecticut Attorney General. The complaint seeks the restitution of premiums
paid and/or the disgorgement of profits, in addition to injunctive relief.
Although this complaint was dismissed without prejudice as to the Oxford
defendants, another identical complaint against the Company was filed on
December 28, 2000 in the federal district court in Connecticut, under the
caption Patel v. Oxford Health Plans of Connecticut, Inc. (the Patel action).
On April 27, 2001, the Company filed a motion to dismiss the Patelaction in its
entirety. That motion has been fully briefed, and oral argument was held on
October 29, 2001. On November 30, 2000, the JPML issued a Conditional Transfer Order,

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directing that the Connecticut Attorney General action be transferred to
the Southern District of Florida for consolidated pretrial proceedings along
with various other ERISA and RICO cases pending against other HMOs, which order
was confirmed on April 17, 2001. On November 13, 2001, the JPML issued a
Conditional Transfer Order, directing that the Patelaction also be transferred
to the consolidated proceedings in Florida, which order was confirmed
on February 20, 2002.

On February 14, 2001, the Connecticut State Medical Society (CSMS), and
four individual physicians, filed two separate but nearly identical lawsuits
against the Companys Connecticut HMO subsidiary in Connecticut state court, on
behalf of all members of the CSMS who provided health care services pursuant to
contracts with the Company during the period February 1995 through the present. The
suit filed by the individual physicians (the McIntoshaction) is styled as a
class action complaint. The suits assert claims for breach of contract, breach
of the implied duty of good faith and fair dealing, violation of the
Connecticut Unfair Trade Practices Act (CUTPA) and negligent
misrepresentation based on, among other things, the Companys alleged (i) failure to
timely pay claims or interest; (ii) refusal to pay all or part of claims by
improperly bundling or downcoding claims, or by including unrelated claims
in global rates; (iii) use of inappropriate and arbitrary coverage guidelines
as the basis for denials; and (iv) failure to provide adequate staffing to
handle physician inquiries. The complaint filed by the CSMS seeks a permanent
injunction enjoining the Company from pursuing the complained of acts and practices,
as well as attorneys fees and costs. The complaint filed by the individual
physicians seeks compensatory and punitive damages, as well as attorneys fees
and costs. On April 26, 2001 the Company filed motions to stay both actions
pending mandatory arbitration under the physicians contracts
with the Company. In
response, both CSMS and the individual physicians filed amended complaints that
dropped all causes of action except for those alleging violations of CUTPA, but
kept all of the same factual allegations. The Company filed new motions to
dismiss or, in the alternative, for a stay pending arbitration in both cases on
July 18, 2001. By Memorandum dated November 30, 2001, the Court granted
the Companys motion to dismiss the purported provider class action (the McIntosh
action) in its entirety. With respect to the CSMS action, by Memorandum dated
December 13, 2001, the Court ruled that CSMS lacked standing to assert any
claims on behalf of its member physicians, but had sufficiently alleged injury
to pursue claims in its own right.

On August 15, 2001, the Medical Society of the State of New York
(MSSNY), and three individual physicians, filed two separate but nearly
identical lawsuits against the Company and the Companys New York HMO
subsidiary in New York state court, on behalf of all members of the MSSNY who
provided health care services pursuant to contracts with the Company during the
period August 1995 through the present. The suit filed by the individual
physicians is styled as a class action complaint. Both suits assert claims for
breach of contract and violations of New York General Business Law, Public
Health Law and Prompt Payment Law, based on, among other things, the
Companys
alleged (i) failure to timely pay claims or interest; (ii) refusal to pay all
or part of claims by improperly bundling or downcoding claims, or by
including unrelated claims in global rates; (iii) use of inappropriate and
arbitrary coverage guidelines as the basis for denials; and (iv) failure to
provide adequate staffing to handle physician inquiries. The complaint filed
by the MSSNY seeks a permanent injunction enjoining the Company from pursuing the
complained of acts and practices, as well as attorneys fees and costs. The
complaint filed by the individual physicians seeks compensatory damages, as
well as reimbursement of attorneys fees and costs. The Companys time to
respond to both lawsuits has been extended by agreement between counsel.

Although the outcome of these ERISA actions and the CSMS, MSSNY and
physician actions cannot be predicted at this time, the Company believes that
the claims asserted are without merit and intends to defend the actions
vigorously.

New Jersey Subrogation Class Action

The Company has recently been sued in a New Jersey state court in a purported
class action on behalf of all the Company's members in New Jersey between 1993 and the
present who were injured by the actions of third parties and with respect to
whom the Company recovered reimbursement for medical expenses pursuant to the
subrogation provision in the Company's member certificates. The Complaint alleges
that any subrogation payments collected by the Company have been in violation of New
Jersey insurance regulations and state law, and seeks monetary damages and
injunctive relief. The action is based upon a recent decision of the New
Jersey Supreme Court holding that subrogation by health insurers in certain
circumstances is prohibited under New Jersey laws and regulations.
The Company has
removed the complaint to federal court, where it has been consolidated with
other, similar complaints against other HMOs. Plaintiffs in all of these
complaints have filed motions to remand the complaints back to state court,

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and briefing is ongoing on this issue. The Company believes it has substantial
defenses under federal and state law to this case, and intends to defend the
action vigorously.

State Insurance and Health Departments

The Company is subject to regulation by various state and federal
regulatory agencies, including, among others, the New York State Insurance
Department (NYSID), the New York Department of Health (NYDOH), the New
Jersey Department of Banking and Insurance (NJDOBI), the New Jersey
Department of Health and Senior Services (NJDHSS) and the Connecticut
Insurance Department (CTDOI). All of the foregoing shall, collectively,
herein be referred to as the Insurance Regulatory Agencies.

From time to time, the Company has issues pending with or has operating
issues under review with and is the subject of periodic audits by the Insurance
Regulatory Agencies. The Company works with these Insurance Regulatory
Agencies to resolve all of these issues as they arise and considers its
relationship with such Insurance Regulatory Agencies to be good. Examples of
recent such regulatory issues, examinations and audits include, but are not
limited to the following pending matters: an annual on-site survey by the
NYDOH, a utilization review and market conduct examination by the CTDOI and a
market conduct examination by the NYSID. The outcome of any such examinations cannot be predicted at this time.

In 2001, 2000 and 1999, the Company agreed to pay fines of $918,000,
$215,000 and $152,000, respectively, to the NYSID for ostensible violations of
the New York Prompt Pay law, primarily related to claims incurred prior to
2000. The fine incurred in 2001 is reflective of a NYSID policy established in
2001 of fining insurers as much as $1,750 for each prompt pay violation. In
2001, the Company also paid a fine of approximately $108,000 to resolve
ostensible prompt pay violations relating to an old provider complaint that had
been filed in 1999. The Company may incur additional prompt pay fines in the
future.

As previously reported, on or about July 20, 1999, the New York Attorney
General commenced an investigation into the utilization review process of
Oxford and a number of other health plans. On August 30, 2001, Oxford executed
an Assurance of Discontinuance (AOD) in which the Attorney General agreed to
close its investigation in return for Oxfords agreement to (i) pay $160,000
towards the cost of the investigation and (ii) undertake certain steps to
ensure future compliance with the Utilization Management statute. The AOD
expressly states that the settlement does not constitute and shall not be
deemed an admission of any wrongdoing or violation of law.

Other Matters

On March 30, 2001, the Company and Express Scripts, Inc. (ESI) executed a
Settlement Agreement and a Amendment to a 1998 Prescription Drug Program
Agreement (the Amended ESI Agreement), which agreements resolved the
Companys claims against ESI and ESIs subsidiary, Diversified Pharmaceutical
Services, Inc., under the risk arrangement portions of the 1998 Agreement in
exchange for a payment to the Company of $37 million. The Amended ESI Agreement further
provided that, among other things, (i) ESI would continue to administer the
Companys prescription drug benefits until December 31, 2005 and (ii) in the
event that the Company terminated the agreement without cause prior to this
date, ESI would be entitled to certain annual payments through 2005 (the Termination Payments), which Termination Payments would
constitute ESIs sole remedy for such early termination. In September, 2001,
the Company formally notified ESI that it would terminate its agreement with
ESI on December 31, 2001 and recorded an estimated liability for the
Termination Payments plus estimated defense costs. ESI has subsequently
notified the Company that it believes the Companys termination constitutes a
material breach of the Amended ESI Agreement and that it intends to commence an
arbitration proceeding to enforce its rights and seek remedies. The Company
believes that ESIs claims are without merit and that the Company has
substantial defenses in the event that ESI pursues arbitration in this matter.

The Company is also a party to various types of risk arrangements for
certain categories of medical expense (e.g., pharmacy, physical therapy,
laboratory, etc.) and has risk arrangements with two hospitals and a provider
organization covering its Medicare members. From time to time, the Company is
in negotiation or arbitration over the reconciliations required, or other
disputes under these agreements and receives requests to renew or terminate
such agreements.

24



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##### 



The Company, like HMOs and health insurers generally, excludes certain health
care services from coverage under its POS, HMO, PPO and other plans. In the
ordinary course of business, the Company is subject to legal claims asserted by
its members for damages arising from decisions to restrict reimbursement for
certain treatments. The loss of even one such claim, if it were to result in a
significant punitive damage award, could have a material adverse effect on the
Companys financial condition or results of operations. The risk of potential
liability under punitive damages theories may also significantly increase the
difficulty of obtaining reasonable settlements of coverage claims.

In the ordinary course of its business, the Company also is subject to
claims and legal actions by members in connection with benefit coverage
determinations and alleged acts by network providers and by health care
providers and others.

Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2001.

25



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##### 



PART II

Item 5.     MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Companys common stock is traded on the New York Stock Exchange under
the symbol OHP. Prior to April 18, 2001, the Company traded under the symbol
OXHP on NASDAQ. The following table sets forth the range of high and low
sale prices for the common stock for the periods indicated as reported on the
New York Stock Exchange in 2001 and the NASDAQ in 2000.

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  | 2001 |       | 2000
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 37.06 |      |  | $    | 24.42 |     |  | $ | 15.97 |  |  | $ | 12.63 | 
|Second Quarter |  |      | 31.50 |      |  |      | 24.13 |     |  |   | 24.25 |  |  |   | 13.88 | 
|Third Quarter  |  |      | 30.50 |      |  |      | 25.65 |     |  |   | 33.06 |  |  |   | 21.69 | 
|Fourth Quarter |  |      | 31.27 |      |  |      | 23.05 |     |  |   | 42.25 |  |  |   | 27.06 | 

As of February 19,
2002, there were 1,008 shareholders of record of the
Companys common stock.

The Company has not paid any cash dividends on its common stock since its
formation and does not intend to pay any cash dividends on common stock in the
foreseeable future. Additionally, the Companys ability to declare and pay
dividends to its shareholders may be dependent on its ability to obtain cash
distributions from its operating subsidiaries. The Companys ability to pay
dividends is also restricted by insurance and health regulations applicable to
its subsidiaries. See Business  Government Regulation.

For a discussion of the repurchase of certain of the Series D and Series E
Preferred Stock and warrants during 2000 coupled with the exchange of all
remaining Preferred Stock and warrants for common stock of the Company, see
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

In July 2001, the Companys Board of Directors approved a share repurchase
program for up to $250 million of the Companys outstanding common stock
through August 1, 2003. In November 2001, the Companys Board of Directors
approved an increase of $250 million to its existing share repurchase program
and extended the program through September 2003. The program authorizes the
Company to purchase shares on the open market and in privately negotiated
transactions from time to time depending on general market conditions. Through
December 31, 2001, the Company had repurchased approximately 13 million of its
common shares at an aggregate cost of approximately $366.5 million. At December
31, 2001, the Company had remaining repurchase authority of approximately
$133.5 million.

26



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##### 



Item 6.     SELECTED CONSOLIDATED FINANCIAL DATA

Revenue and Earnings, Financial Position and per common share information
set forth below for each year in the five-year period ended December 31, 2001,
have been derived from the consolidated financial statements of the Company.
The information below is qualified by reference to and should be read in
conjunction with the audited consolidated financial statements and related
notes and with Managements Discussion and Analysis of Financial Condition and
Results of Operations included herein.

|                                                                 |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |            |        | 
|---------------------------------------------------------------- | ----------------------------------------------------- | ------- | - | ---------- | ------- | ---- | - | ---------- | ------ | ---- | - | ---------- | ------ |  | - | ---------- | ------ |  | - | ---------- | ------ | 
|(In thousands, except per share amounts and operating            |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |           
|statistics)                                                      |                                                       | 2001    |   | 2000       |         | 1999 |   | 1998       |        | 1997
|                                                                
|Revenues and Earnings:                                           |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |           
|                                                                 | Operating revenues                                    |         | $ | 4,326,182  |         |      | $ | 4,038,787  |        |      | $ | 4,115,134  |        |  | $ | 4,630,166  |        |  | $ | 4,179,816  |       
|                                                                 | Investment and other income, net                      |         |   | 95,046     |         |      |   | 73,015     |        |      |   | 82,632     |        |  |   | 89,245     |        |  |   | 71,448     |       
|                                                                 | Net earnings (loss) before extraordinary items        |         |   | 322,421    |         |      |   | 285,419    |        |      |   | 319,940    |        |  |   | (596,792   | )      |  |   | (291,288   | )     
|                                                                 | Net earnings (loss)                                   |         |   | 322,421    |         |      |   | 265,094    |        |      |   | 319,940    |        |  |   | (596,792   | )      |  |   | (291,288   | )     
|                                                                 | Net earnings (loss) for common shares (1)             |         |   | 322,421    |         |      |   | 191,303    |        |      |   | 274,440    |        |  |   | (624,460   | )      |  |   | (291,288   | )     
|Financial Position:                                              |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |           
|                                                                 | Working capital                                       |         | $ | 468,924    |         |      | $ | 298,175    |        |      | $ | 442,693    |        |  | $ | 209,443    |        |  | $ | 85,790     |       
|                                                                 | Total assets                                          |         |   | 1,576,725  |         |      |   | 1,444,610  |        |      |   | 1,686,888  |        |  |   | 1,637,750  |        |  |   | 1,390,101  |       
|                                                                 | Long-term debt                                        |         |   | 126,876    |         |      |   | 28,000     |        |      |   | 350,000    |        |  |   | 350,000    |        |  |   |           |       
|                                                                 | Redeemable preferred stock                            |         |   |           |         |      |   |           |        |      |   | 344,316    |        |  |   | 298,816    |        |  |   |           |       
|                                                                 | Common shareholders equity (deficit)                 |         |   | 462,920    |         |      |   | 459,222    |        |      |   | 98,755     |        |  |   | (181,105   | )      |  |   | 349,216    |       
|Net earnings (loss) per common share before extraordinary
items: |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |           
|                                                                 | Basic                                                 |         | $ | 3.35       |         |      | $ | 2.50       |        |      | $ | 3.38       |        |  | $ | (7.79      | )      |  | $ | (3.70      | )     
|                                                                 | Diluted                                               |         | $ | 3.21       |         |      | $ | 2.24       |        |      | $ | 3.26       |        |  | $ | (7.79      | )      |  | $ | (3.70      | )     
|Net earnings (loss) per common
share:                            |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |           
|                                                                 | Basic                                                 |         | $ | 3.35       |         |      | $ | 2.26       |        |      | $ | 3.38       |        |  | $ | (7.79      | )      |  | $ | (3.70      | )     
|                                                                 | Diluted                                               |         | $ | 3.21       |         |      | $ | 2.02       |        |      | $ | 3.26       |        |  | $ | (7.79      | )      |  | $ | (3.70      | )     
|                                                                 | Weighted-average number of
common shares outstanding: |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |            |       
|                                                                 |                                                       | Basic   |   |            | 96,269  |      |   |            | 84,728 |      |   |            | 81,273 |  |   |            | 80,120 |  |   |            | 78,635 | 
|                                                                 |                                                       | Diluted |   |            | 100,543 |      |   |            | 94,573 |      |   |            | 84,231 |  |   |            | 80,120 |  |   |            | 78,635 | 
|Operating Statistics:                                            |                                                       |         |   |            |         |      |   |            |        |      |   |            |        |  |   |            |        |  |   |           
|                                                                 | Enrollment                                            |         |   | 1,510,100  |         |      |   | 1,491,400  |        |      |   | 1,593,700  |        |  |   | 1,881,400  |        |  |   | 2,008,100  |       
|                                                                 | Fully insured member months                           |         |   | 17,402,400 |         |      |   | 17,345,500 |        |      |   | 19,326,700 |        |  |   | 23,081,900 |        |  |   | 21,581,700 |       
|                                                                 | Self-funded member months                             |         |   | 704,500    |         |      |   | 708,400    |        |      |   | 625,600    |        |  |   | 765,500    |        |  |   | 602,900    |       
|                                                                 | Medical loss ratio (2)                                |         |   | 78.9%      |         |      |   | 77.5%      |        |      |   | 82.1%      |        |  |   | 94.4%      |        |  |   | 94.0%      |       
|                                                                 | Administrative loss ratio (3)                         |         |   | 11.3%      |         |      |   | 11.8%      |        |      |   | 14.6%      |        |  |   | 16.7%      |        |  |   | 17.6%      |       
|                                                                



|(1) |  | Net earnings for common shares in 2000 includes $41,085 of costs
associated with the redemption of preferred stock.
|--- |  | -------------------------------------------------------------------------------------------------------------------
|(2) |  | Defined as health care services expense as a percentage of premiums
earned.                                        
|(3) |  | Defined as marketing, general and administrative expense as a percentage
of operating revenues.                    

27



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##### 



Item 7.     MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                   RESULTS OF OPERATIONS

Overview

The Companys revenues consist primarily of commercial premiums derived
from its Freedom Plan, Liberty Plan and health maintenance organizations
(HMOs). Revenues also include reimbursements under government contracts
relating to its Medicare+Choice (Medicare) programs, third-party
administration fee revenue for its self-funded plan services (which is stated
net of direct expenses such as third-party reinsurance premiums) and investment
income. Since the Company provides services on a prepaid basis, with premium
levels fixed for one-year periods, unexpected cost increases during the annual
contract period cannot be passed on to employer groups or members.

Health care services expense primarily comprises payments to physicians,
hospitals and other health care providers under fully insured health care
business and includes an estimated amount for incurred but not reported or paid
claims (IBNR). The Company estimates IBNR based on a number of factors,
including prior claims experience. The ultimate payment of unpaid claims
attributable to any period may be more or less than the amount of IBNR
recorded. See Liquidity and Capital Resources.

Results for 2001 were positively impacted by approximately $15 million of
favorable development of prior period estimates of medical costs and recoveries
from the New York State Market Stabilization Pools (the Pools or New York
Stabilization Pools). Results for 2000 were adversely affected by charges
related to recapitalization transactions. An extraordinary charge of $20.3
million, net of income tax benefits of $13.9 million, was recorded in 2000 in
connection with the prepayment of the Term Loan Agreement, dated as of May 13,
1998 (the Term Loan) and the repurchase or tender of $200 million of its 11%
Senior Notes due 2005 (the Senior Notes). The extraordinary charges include
premiums paid, transaction costs and the write-off of unamortized original
issuance debt costs. In addition, the Company completed an exchange and
repurchase agreement for all of its outstanding Series D Cumulative Preferred
Stock, par value $0.01 per share, and Series E Cumulative Preferred Stock, par
value $0.01 per share (together, the Preferred Stock) and incurred costs of
approximately $41.1 million related to the write-off of unamortized Preferred
Stock discount and costs from the original issuance in 1998 and related
transaction fees in 2000. Results for 2000 were also positively impacted by
approximately $86 million of favorable development of prior period estimates of
medical costs, claims recoveries and Pool recoveries. The Companys results
for 1999 were adversely affected by significant restructuring charges and
included a charge of $24 million for the purchase of insurance policies for
litigation matters. Net income for 2001, 2000 and 1999 was favorably affected
by the reversal of $21 million, $10 million and $225 million, respectively, of
deferred tax valuation allowances.

Restructuring Charges

During the third quarter of 1999, the Company recorded pretax
restructuring charges totaling $19.9 million ($11.3 million after income tax
benefits, or $0.13 per diluted share) in connection with additional steps taken
under the Companys plan to improve operations and restore the Companys
profitability. These charges included estimated costs related to work force
reductions; additional consolidation of the Companys office facilities
inclusive of the net write-off of fixed assets, consisting primarily of
leasehold improvements; write-off of certain computer equipment; and leases for
equipment no longer used in operations. These charges were partially offset by
a pretax gain of $2.5 million related to the disposal of the Companys minority
investment in Ralin Medical, Inc., which was written down in value as part of
the Companys 1998 restructuring charge.

During the first half of 1998, the Company recorded restructuring charges
totaling $123.5 million ($114.8 million after income tax benefits, or $1.43 per
share). These charges resulted from the Companys actions to better align its
organization and cost structure. These charges included estimated costs
related to the disposition or closure of noncore businesses; the write-down of
certain property and equipment; severance and related costs; and operations
consolidation, including long-term lease commitments. The ending reserves for
these charges have generally been classified in the Companys consolidated
balance sheets as accounts payable and accrued expenses.

28



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##### 



The table below presents the activity for the three years ended December
31, 2001, for the restructuring reserves established in 1999 and 1998.

|                             |  |                     |         |               |  |               |         |          |  |   |         |   |  |   |         |  
|---------------------------- |  | ------------------- | ------- | ------------- |  | ------------- | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                             |  | Provisions for loss |         |               |  |               |         | Costs of |  |   |         |  
|                             |  | on noncore          |         | Severance and |  | consolidating |         |          |  |  
|                             |  | businesses          |         | related costs |  | operations    |         | Total   
|                            
|Balance at December 31, 1998 |  | $                   | 13,805  |               |  | $             | 9,354   |          |  | $ | 17,685  |   |  | $ | 40,844  |  
|Cash received (used)         |  |                     | 4,343   |               |  |               | (10,380 | )        |  |   | (14,272 | ) |  |   | (20,309 | )
|Noncash activity             |  |                     | (14,493 | )             |  |               |        |          |  |   |        |   |  |   | (14,493 | )
|Restructuring charges        |  |                     |        |               |  |               | 8,750   |          |  |   | 3,003   |   |  |   | 11,753  |  
|Changes in estimate          |  |                     | (1,590  | )             |  |               |        |          |  |   | 1,590   |   |  |   |        |  
|                            
|Balance at December 31, 1999 |  |                     | 2,065   |               |  |               | 7,724   |          |  |   | 8,006   |   |  |   | 17,795  |  
|Cash used                    |  |                     | (219    | )             |  |               | (2,133  | )        |  |   | (3,667  | ) |  |   | (6,019  | )
|Noncash activity             |  |                     | (17     | )             |  |               |        |          |  |   |        |   |  |   | (17     | )
|                            
|Balance at December 31, 2000 |  |                     | 1,829   |               |  |               | 5,591   |          |  |   | 4,339   |   |  |   | 11,759  |  
|Cash used                    |  |                     | (1      | )             |  |               | (5,591  | )        |  |   | (3,487  | ) |  |   | (9,079  | )
|Noncash activity             |  |                     |        |               |  |               |        |          |  |   | 12      |   |  |   | 12      |  
|Changes in estimate          |  |                     | (1,530  | )             |  |               |        |          |  |   | 1,530   |   |  |   |        |  
|                            
|Balance at December 31, 2001 |  | $                   | 298     |               |  | $             |        |          |  | $ | 2,394   |   |  | $ | 2,692   |  
|                            

The Company believes that the remaining restructuring reserves as of
December 31, 2001 are adequate and that no revisions of estimates are necessary
at this time.

* * * * *

The Companys results of operations are dependent, in part, on its ability
to predict and influence health care costs (through, among other things,
appropriate benefit design, utilization review and case management programs,
risk-transfer and risk-sharing and payment arrangements with providers) while
providing members with coverage for the health care benefits provided under
their contracts. However, the Companys ability to contain such costs may be
adversely affected by various factors, including, but not limited to: changes
in the historical patterns of health care utilization and/or unit costs
generally and directly or indirectly related to the war on terrorism or the
concerns of members or providers due to the threat of terrorism, new
technologies and health care practices, hospital costs, changes in demographics
and trends, changes in laws and regulations, mandated benefits or practices,
selection biases, increases in unit costs paid to providers, termination of
provider arrangements, termination of, or disputes under, risk-transfer or
risk-sharing arrangements, major epidemics, catastrophes, acts of terrorism or
war, inability to establish or maintain acceptable compensation agreements with
providers, higher utilization of medical services, including, without
limitation, higher out-of-network utilization under point-of-service plans,
operational and regulatory issues and numerous other factors may affect the
Companys ability to control such costs. The Company attempts to use its
medical cost-containment capabilities, such as claim auditing systems, with a
view to reducing the rate of growth in health care service expense.

29



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##### 



Results of Operations

Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

Total revenues for the year ended December 31, 2001 were $4.42 billion, up
7.5% from $4.11 billion in the prior year. Net income attributable to common
stock in 2001 totaled $322.4 million, or $3.21 per diluted common share,
compared with $191.3 million, or $2.02 per diluted common share in 2000
(including the effect of recapitalization charges in 2000). During 2000, the
Company recorded an extraordinary charge of $20.3 million, net of income tax
benefits of $13.9 million, in connection with the prepayment of its Term Loan
and the repurchase or tender of its $200 million Senior Notes. The
extraordinary charges included premiums paid, transaction costs and the
write-off of unamortized original issuance debt costs. In addition, the
Company completed an exchange agreement for all of its outstanding Preferred
Stock and incurred costs of approximately $41.1 million related to the
write-off of unamortized preferred stock discount and costs from the original
issuance in 1998 and related transaction fees. Results for 2001 and 2000 were
also positively impacted by approximately $15 million and $86 million,
respectively, of favorable development of prior period estimates of medical
costs and claims recoveries and New York Stabilization Pool recoveries. See
Liquidity and Capital Resources and Overview.

The following tables show plan revenues earned and membership by product:

|                       |                                  |      |   |           |  |  |   |           | 
|---------------------- | -------------------------------- | ---- | - | --------- |  |  | - | --------- | 
|(Dollars in thousands) |                                  | 2001 |   | 2000     
|                      
|Revenues:              |                                  |      |   |           |  |  |   |          
|                       | Freedom, Liberty and Other Plans |      | $ | 3,114,138 |  |  | $ | 2,839,999 | 
|                       | HMOs                             |      |   | 538,958   |  |  |   | 505,946   | 
|                      
|                       | Commercial                       |      |   | 3,653,096 |  |  |   | 3,345,945 | 
|                       | Medicare                         |      |   | 659,295   |  |  |   | 677,452   | 
|                      
|                       | Total premium revenues           |      |   | 4,312,391 |  |  |   | 4,023,397 | 
|                       | Third-party administration, net  |      |   | 13,791    |  |  |   | 15,390    | 
|                       | Investment and other income      |      |   | 95,046    |  |  |   | 73,015    | 
|                      
|                       | Total revenues                   |      | $ | 4,421,228 |  |  | $ | 4,111,802 | 
|                      

|            |                                  |                    |  |           |  |  |  |           | 
|----------- | -------------------------------- | ------------------ |  | --------- |  |  |  | --------- | 
|            |                                  | As of December 31,
|            |                                  |                    | 
|            |                                  | 2001               |  | 2000     
|           
|Membership: |                                  |                    |  |           |  |  |  |          
|            | Freedom, Liberty and Other Plans |                    |  | 1,154,100 |  |  |  | 1,115,400 | 
|            | HMOs                             |                    |  | 218,200   |  |  |  | 221,600   | 
|           
|            | Commercial                       |                    |  | 1,372,300 |  |  |  | 1,337,000 | 
|            | Medicare                         |                    |  | 77,800    |  |  |  | 92,000    | 
|           
|            | Total fully insured              |                    |  | 1,450,100 |  |  |  | 1,429,000 | 
|            | Third-party administration       |                    |  | 60,000    |  |  |  | 62,400    | 
|           
|            | Total membership                 |                    |  | 1,510,100 |  |  |  | 1,491,400 | 
|           

Total commercial premiums earned for the year ended December 31, 2001 were
$3.65 billion, compared with $3.35 billion in the prior year. Average premium
yield increases were 8.3% and member months increased 0.9% for commercial
products during 2001. Overall commercial membership increased by 2.6% at
December 31, 2001 compared with the prior year primarily due to growth in the
Companys Freedom Plan group of products. The Company expects commercial
enrollment to grow by approximately 2% in 2002, excluding the anticipated
impact of the acquisition of MedSpan, Inc., the parent of a Connecticut health
maintenance organization, anticipated to be completed by the end of the first
quarter of 2002.

Premiums earned from the Companys Medicare programs decreased 2.7% to
$659.3 million in 2001 compared with $677.5 million in 2000. The overall
decrease was attributable to a 7.6% decrease in member months of Medicare
programs, due to the withdrawal from certain New Jersey counties in January
2001. The member month decline was partially offset by a 5.3% increase in
premium yields as a result of annual rates of

30



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##### 



increase from CMS and the county-specific mix of membership. The Company
expects its Medicare membership to be about 11,000 members lower in 2002 as the
result of withdrawals from Medicare in all but Hudson County in New Jersey and
the withdrawal from Nassau County, New York. The lower levels are expected to
result in 2002 Medicare revenue being approximately $100 million lower than in
2001. Reimbursement levels for the Companys 2002 Medicare business are
expected to be approximately 2% higher than 2001 on a county-specific basis due
to minimum CMS mandated increases. The average per member reimbursement will
likely be higher due to a change in the Companys county-specific mix of
business. The Company believes that future Medicare premiums may not keep up
with the cost of health care increases. Given current public policy and the
fact that Medicare premiums are not scheduled to keep up with the cost of
health care, it is possible that the Company may decrease its Medicare
membership further by, among other things, reducing benefits and exiting
additional counties. See Business  Government Regulations  Federal
Regulation.

Net investment and other income for the year ended December 31, 2001
increased 30.2% to $95 million from $73 million in the prior year. Net
investment income increased $16.1 million or 20.8% to $93.6 million in 2001
compared with $77.4 million in 2000. The improvement is due primarily to a
$20.5 million increase in capital gains realized during the year, partially
offset by a decrease in interest income due to lower investment yields.
Included in other income for the year ended December 31, 2000 are losses on the
sale of fixed assets of approximately $5.4 million, investment valuation losses
of approximately $1.5 million and gains on asset disposals of $1.6 million.
See Liquidity and Capital Resources.

Health care service expense stated as a percentage of premium revenues
(the medical loss ratio) was 78.9% for 2001 compared with 77.5% for 2000.
Overall per member per month revenue in 2001 increased 6.8% to $247.80 from
$231.96 in 2000 due primarily to a 8.3% increase in premium yields for the
Companys commercial products and lesser increases for the Companys Medicare
programs. Overall per member per month health care services expenses increased
8.8% to $195.45 in 2001 from $179.67 in 2000. For the year ended December 31,
2001, net favorable development of prior period medical cost estimates, other
reserve adjustments and recoveries from the New York Stabilization Pools
approximated $15 million. For the year ended December 31, 2000, health care
services expense benefited from favorable development of prior period estimates
of medical costs of approximately $47.7 million, claim recoveries of
approximately $13.2 million and additional New York Stabilization Pool
recoveries applicable to 1997 and 1998 of approximately $25.1 million.
Excluding these items, the medical loss ratio would have been 79.0% for 2001
and 79.6% for 2000. Health care services expense benefited from initiatives to
improve health care utilization and reduce costs as well as a change in
membership mix whereby government program membership was reduced.

In 2001 and 2000, the Company expensed a total of $59 million and $63
million, respectively, for graduate medical education and a total of $43.3
million and $38.9 million, respectively, for hospital bad debt and charity
care. See Liquidity and Capital Resources.

Marketing, general and administrative expenses increased $12.7 million, or
2.7%, to $489.1 million for 2001 compared with $476.4 million for 2000.
Marketing, general and administrative expenses as a percent of operating
revenue improved to 11.3% in 2001 compared with 11.8% in 2000. The increase in
dollars spent in 2001 when compared with the prior year is primarily due to
increased information technology spending and broker commissions. Partially
offsetting these increases were lower payroll, benefits and occupancy costs,
the result of reduced staffing levels, and lower depreciation charges. During
2001, the Company recorded a charge of $10 million for estimated legal expenses
related to the securities class action pending against the Company that may not
be recoverable from one of the Companys primary directors and officers
insurance carriers due to its insolvency. Included in marketing, general and
administrative expenses for 2001 and 2000 are severance charges of
approximately $6.4 million and $7.5 million, respectively. Administrative
costs in future periods may also be adversely affected by costs associated with
responding to regulatory inquiries, investigations and defending pending
securities class actions and other litigation, including fees and disbursements
of counsel and other experts to the extent such costs are not reimbursed under
existing policies of insurance. See Legal Proceedings.

The Company incurred interest and other financing charges of $15.6 million
and $29.4 million in 2001 and 2000, respectively, related to bank debt.
Interest on bank debt decreased in part during 2001 due to the repayment in
full of the Term Loan during the second quarter of 2000. During December 2000,
the Company completed a capital restructuring whereby all outstanding Senior
Notes were repurchased or tendered and

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replaced with new senior bank facilities totaling $250 million, $175
million of which is a 5 1/2 year term loan (the New Term Loan) and $75 million
of which is a 5 year revolving credit facility (the Revolver, together with
the New Term Loan, the Senior Credit Facilities). In addition, the Company
repaid approximately $21.9 million of its New Term Loan during the year ended
December 31, 2001. See Liquidity and Capital Resources  Financing. The
Companys average interest rate on bank debt was 9.4% in 2001 compared with
12.1% in 2000. Interest expense on capital leases approximated $0.9 million in
2000. Interest expense on delayed claims totaled $3.4 million in 2001 compared
with $4 million in 2000, reflecting more timely payment of claims and lower
levels of older claims outstanding.

During the second quarter of 1998, the Company incurred a net loss of
$507.6 million. At that time, the Company evaluated the deferred tax assets
arising from the net loss and established a valuation allowance pending the
results of its restructuring. Based on managements analysis during 1998,
management concluded that it was not more likely than not that all of its
deferred tax assets would be fully realized. In that regard, the Company
established a valuation allowance of $282.6 million as of December 31, 1998.

In light of the Companys progress from 1999 through 2001, estimates of
future earnings and the expected timing of the reversal of other net tax
deductible temporary differences, management concluded that a valuation
allowance was no longer necessary for substantially all of the remaining
deferred tax assets at December 31, 2001. The income tax expense (benefit)
recorded for the years ended December 31, 2001, 2000 and 1999 includes the
reversal of $21 million, $10 million and $225 million, respectively, of
deferred tax valuation allowances. The Company adjusted its net deferred tax
assets during 2000 to reflect anticipated tax rates relating to the periods
when the net deferred tax assets are expected to reverse. The impact was to
increase the 2000 income tax expense by approximately $11.8 million. The
remaining valuation allowance at December 31, 2001 of $3.1 million relates
primarily to the recognition of certain restructuring related and property and
equipment deferred tax assets. Management believes that the Company will
obtain the full benefit of the net deferred tax assets recorded at December 31,
2001.

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Year Ended December 31, 2000 Compared with Year Ended December 31, 1999

Total revenues for the year ended December 31, 2000 were $4.1 billion,
down 2% from $4.2 billion in the prior year. Net income attributable to common
stock in 2000 totaled $191.3 million, or $2.02 per diluted common share
(including the effect of recapitalization charges in 2000) compared with $274.4
million, or $3.26 per diluted common share in 1999, which included a $225
million tax benefit. During 2000, the Company recorded an extraordinary charge
of $20.3 million, net of income tax benefits of $13.9 million, in connection
with the prepayment of the Term Loan and the repurchase or tender of its $200
million Senior Notes. The extraordinary charges include premiums paid,
transaction costs and the write-off of unamortized original issuance debt
costs. In addition, the Company completed an exchange agreement for all of its
outstanding Preferred Stock and incurred costs of approximately $41.1 million
related to the write-off of unamortized preferred stock discount and costs from
the original issuance in 1998 and related transaction fees. Results of
operations in 1999 were adversely affected by net restructuring charges of
$19.9 million and a charge of $24 million for litigation insurance coverage.
See Liquidity and Capital Resources and Overview.

The following tables show plan revenues earned and membership by product:

|                       |                                  |      |   |           |  |  |   |           | 
|---------------------- | -------------------------------- | ---- | - | --------- |  |  | - | --------- | 
|(Dollars in thousands) |                                  | 2000 |   | 1999     
|                      
|Revenues:              |                                  |      |   |           |  |  |   |          
|                       | Freedom, Liberty and Other Plans |      | $ | 2,839,999 |  |  | $ | 2,848,931 | 
|                       | HMOs                             |      |   | 505,946   |  |  |   | 500,888   | 
|                      
|                       | Commercial                       |      |   | 3,345,945 |  |  |   | 3,349,819 | 
|                      
|                       | Medicare                         |      |   | 677,452   |  |  |   | 737,754   | 
|                      
|                       | Government programs              |      |   | 677,452   |  |  |   | 749,737   | 
|                      
|                       | Total premium revenues           |      |   | 4,023,397 |  |  |   | 4,099,556 | 
|                       | Third-party administration, net  |      |   | 15,390    |  |  |   | 15,578    | 
|                       | Investment and other income      |      |   | 73,015    |  |  |   | 82,632    | 
|                      
|                       | Total revenues                   |      | $ | 4,111,802 |  |  | $ | 4,197,766 | 
|                      

|            |                                  |                    |  |           |  |  |  |           | 
|----------- | -------------------------------- | ------------------ |  | --------- |  |  |  | --------- | 
|            |                                  | As of December 31,
|            |                                  |                    | 
|            |                                  | 2000               |  | 1999     
|           
|Membership: |                                  |                    |  |           |  |  |  |          
|            | Freedom, Liberty and Other Plans |                    |  | 1,115,400 |  |  |  | 1,210,500 | 
|            | HMOs                             |                    |  | 221,600   |  |  |  | 235,400   | 
|           
|            | Commercial                       |                    |  | 1,337,000 |  |  |  | 1,445,900 | 
|            | Medicare                         |                    |  | 92,000    |  |  |  | 97,700    | 
|           
|            | Total fully insured              |                    |  | 1,429,000 |  |  |  | 1,543,600 | 
|            | Third-party administration       |                    |  | 62,400    |  |  |  | 50,100    | 
|           
|            | Total membership                 |                    |  | 1,491,400 |  |  |  | 1,593,700 | 
|           

Total commercial premiums earned for the year ended December 31, 2000 were
basically unchanged at $3.3 billion compared with the prior year. A 9.8%
decrease in member months in the Companys commercial health care programs,
primarily due to a 10.3% member month decrease in the Freedom Plan, was offset
by average premium yield increases in commercial programs of 10.7% when
compared with 1999. The Company experienced attrition of commercial members in
its core commercial markets beginning in 1999 through the third quarter of
2000, adversely affecting revenue. The majority of the attrition in commercial
members was concentrated in the small group market, where the Companys switch
to 4-tier pricing contributed to the decline in membership. Although
commercial membership declined 7.5% year over year, overall commercial
membership increased from the third to fourth quarter of 2000.

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Premiums earned from the Companys Medicare programs decreased 8.2% to
$677.5 million in 2000 compared with $737.8 million in 1999. The overall
decrease was attributable to a 16.9% decrease in member months of Medicare
programs, due to the withdrawal from Suffolk County, New York in January 2000,
partially offset by an 8.7% increase in premium yields.

Net investment and other income for the year ended December 31, 2000
decreased 11.6% to $73 million from $82.6 million in the prior year. Net
investment income increased $15.3 million or 24.7% to $77.4 million in 2000
compared with $62.1 million in 1999. The improvement is due primarily to an
increase in interest income due to higher investment yields and invested
balances and a $5 million increase in capital gains realized during the year.
Included in other income for the year ended December 31, 2000 are losses on the
sale of fixed assets of approximately $5.4 million, investment valuation losses
of approximately $1.5 million and gains on asset disposals of $1.6 million. In
1999, other income includes a $13.5 million gain on the sale of the Companys
New York Medicaid business and a $7 million gain on the sale of the business
and certain assets of the Companys wholly-owned mail order pharmacy
subsidiary, Direct Script, Inc. See Liquidity and Capital Resources.

Health care service expense stated as a percentage of premium revenues
(the medical loss ratio) was 77.5% for 2000 compared with 82.1% for 1999.
Overall per member per month revenue in 2000 increased 9.4% to $231.96 from
$212.12 in 1999 due primarily to a 10.7% increase in premium yields for the
Companys commercial products and lesser increases for the Companys Medicare
programs. Overall per member per month health care services expenses increased
3.2% to $179.67 in 2000 from $174.13 in 1999. For the year ended December 31,
2000, health care services expense benefited from favorable development of
prior period estimates of medical costs of approximately $47.7 million, claim
recoveries of approximately $13.2 million and additional New York Stabilization
Pool recoveries applicable to 1997 and 1998 of approximately $25.1 million.
Excluding these items, the medical loss ratio was 79.6% for 2000. Health care
services expense benefited from initiatives to improve health care utilization
and reduce costs as well as a change in membership mix whereby government
program membership was reduced. Health care services expense in 1999 included
the favorable development of prior period estimates of medical costs and claim
recoveries of approximately $28.6 million. Excluding favorable development and
claims recoveries in 1999, the 1999 medical loss ratio was 82.8%.

In 2000 and 1999, the Company expensed a total of $63 million and $73.9
million, respectively, for graduate medical education and a total of $38.9
million and $41.9 million, respectively, for hospital bad debt and charity
care.

Marketing, general and administrative expenses decreased $122.7 million or
20.5% to $476.4 million for 2000 compared with $599.2 million for 1999.
Marketing, general and administrative expenses as a percent of operating
revenue were 11.8% in 2000 compared with 14.6% in 1999. Significant expense
reductions in 2000 compared to 1999 include $44.9 million in payroll and
employee related expenses, $20.3 million in occupancy and depreciation costs,
$15.1 million in operating costs (primarily equipment rental and maintenance,
telephone, postage expense and other services), $8.7 million in marketing and
outside services and $24 million in other general and administrative costs,
representing a charge in 1999 for the purchase of insurance policies for
litigation matters. Included in marketing, general and administrative expenses
for 2000 are severance charges of approximately $7.5 million.

The Company incurred interest and other financing charges of $29.4 million
and $38.3 million in 2000 and 1999, respectively, related to bank debt.
Interest on bank debt decreased during 2000 due to the repayment in full of the
Term Loan during the second quarter of 2000. During December 2000, the Company
completed a capital restructuring whereby all outstanding Senior Notes were
repurchased or tendered and replaced with the Senior Credit Facilities. See
Liquidity and Capital Resources  Financing. Interest expense on capital
leases aggregated $0.9 million in 2000 and $2 million in 1999. Interest
expense on delayed claims totaled $4 million in 2000 compared with $9.2 million
in 1999, reflecting a more timely payment of claims and lower levels of older
claims outstanding.

In light of the Companys progress during 1999 and 2000, estimates of
future earnings and the expected timing of the reversal of other net tax
deductible temporary differences, management concluded that a valuation
allowance was no longer necessary for its federal net operating loss
carryforwards and certain other temporary differences. The income tax expense
(benefit) recorded for the years ended December 31, 2000 and 1999 includes the
reversal of $10 million and $225 million, respectively, of deferred tax
valuation allowances. The Company adjusted its net deferred tax assets during
2000 to reflect anticipated tax rates relating to the periods

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when the net deferred tax assets are expected to reverse. The impact was
to increase 2000 income tax expense by approximately $11.8 million. The
remaining valuation allowance at December 31, 2000 of $24.1 million relates
primarily to capital loss carryforwards and certain state net operating loss
carryforwards.

As of December 31, 2000, the Company had federal net operating loss
carryforwards for tax purposes of approximately $202 million, which, if unused,
will begin to expire in 2012.

Inflation

Although the rate of inflation has remained relatively stable in recent
years, health care costs have generally been rising at a significantly higher
rate than the consumer price index. The Company employs various means to
reduce the negative effects of inflation. The Company has increased overall
commercial premium rates when practicable in order to attempt to maintain
margins. The Companys cost-control measures and risk-sharing and
cost-containment arrangements with various health care providers may mitigate
the effects of inflation on its operations. There is no assurance that the
Companys efforts to reduce the impact of inflation will be successful or that
the Company will be able to increase premiums to offset cost increases
associated with providing health care.

Liquidity and Capital Resources

As of December 31, 2001, the Company had approximately $1.3 billion in
current cash and marketable securities, including approximately $180 million at
the parent company. In addition, in January 2002, the parent company received
a dividend from its New York HMO of $80 million. Parent company cash is used
for, among other things, capital expenditures, acquisitions, debt repayment,
stock repurchases, costs of litigation and other general corporate purposes. A
significant portion of parent company cash is directly dependent upon operating
profits generated by the Companys regulated operating subsidiaries and the
ability to receive dividends from those subsidiaries beyond amounts that would
be payable without prior regulatory approval. There is no assurance that the
Company will receive regulatory approval for these future dividend payments.
Cash provided by operations was $613.8 million in 2001 compared with $404.7
million in 2000. The improvement is primarily attributable to increased net
earnings, a new pharmacy benefit management agreement, improved working capital
management and the benefit of one extra collection day in December 2001.

During 2001, the Company received distributions from the 1997 and 1998 New
York Stabilization Pools of approximately $25.1 million and collected
receivables of approximately $22 million from a health care risk contract for
fiscal 1999 and 2000. These assets were classified as other receivables in the
Companys December 31, 2000 consolidated balance sheet. In September 2001, the
Company entered into a five-year agreement with Merck-Medco, effective
beginning January 1, 2002, pursuant to which Merck-Medco and certain of its
subsidiaries will provide pharmacy benefit management services, including
retail and mail-order pharmacy services, to the Companys members. This
agreement provided for a payment of $4.5 million to Oxford to offset systems
and other costs associated with implementation of designated services. In
addition to the pharmacy services agreement, the Company also entered into an
alliance agreement with Merck-Medco under which the Company will develop,
de-identify and provide certain historic and current information and furnish
strategic consultative and other services to Merck-Medco over a five-year
period in return for a total payment of approximately $82.9 million. The
Company received these amounts, which are included in unearned revenue at
December 31, 2001, during the third and fourth quarters of 2001. Substantially
all of these amounts will be amortized to income on a straight line basis
beginning January 1, 2002. The Company anticipates that operating cash flow in
2002 will be lower than that in 2001 as a result of the non-recurring receipts
described above and higher income tax payments.

Capital expenditures totaled $21.4 million during 2001 compared with $12.8
million in 2000. This amount was used primarily for computer equipment and
software, including approximately $13.6 million paid under the Companys
computer system outsource agreement. The Company currently anticipates that
capital expenditures in 2002 will be approximately $35 million, a significant
portion of which will be devoted to management information systems, including
amounts due under the Companys computer systems outsource agreement. In May
2001, the Company purchased all of the outstanding shares of Investors Guaranty
Life Insurance Company (IGL), a California insurance company, for
approximately $11.8 million, net of cash acquired. The acquisition is intended
to allow the Company to, among other things, expand offerings of its various
health plans to New York and New Jersey based employers with employees outside
the tri-state area. The Company made additional

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investments of approximately $7.7 million in 2001 and $1 million in 2002,
for a total investment of approximately $11 million, in MedUnite Inc., a
company originally founded by certain healthcare payors to create an
Internet-based health care transaction system.

Cash used by financing activities totaled $364.6 million for the year
ended December 31, 2001, compared with $519.7 million in 2000. During 2001,
the Company repaid approximately $21.9 million of its New Term Loan. In July
2001, the Companys Board of Directors approved a share repurchase program for
up to $250 million of the Companys outstanding common stock through August 1,
2003. In November 2001, the Companys Board of Directors approved an increase
of $250 million to its existing share repurchase program and extended the
program through September 2003. The program authorizes the Company to purchase
shares on the open market and in privately negotiated transactions from time to
time depending on general market conditions. Through December 31, 2001, the
Company had repurchased approximately 13 million of its common shares at an
aggregate cost of approximately $366.5 million. The Company has remaining
repurchase authority of approximately $133.5 million as of December 31, 2001.
During 2000, the Company retired its $150 million Term Loan and its $200
million Senior Notes, including premiums of approximately $26.4 million. In
addition, the Company consummated two transactions, including an exchange and
repurchase agreement during the fourth quarter of 2000, whereby the Company
paid a total of $350 million to repurchase certain of the shares of Preferred
Stock and approximately 11.5 million of the outstanding warrants. The Company
entered into new senior credit facilities during 2000 that included a term loan
of $175 million and a revolving credit facility of $75 million, which has not
been drawn. Under the terms of the new senior credit facilities, the Company
must make scheduled payments and reductions in the revolving credit facility
and must prepay the term loan or reduce the revolving credit facility upon the
occurrence of certain events, as defined. See Liquidity and Capital Resources
- Financing. The Company paid cash dividends on the then outstanding
Preferred Stock of approximately $13.8 million during 2000. Proceeds from the
exercise of stock options were approximately $29.5 million during 2001 compared
with $64.6 million and $18.2 million in 2000 and 1999, respectively.

In December 2001, the Company signed a definitive agreement to acquire
MedSpan, Inc. (MedSpan), a provider-sponsored managed healthcare
organization, for cash of approximately $19 million. MedSpans network
services approximately 52,000 commercial members and 22,000 self-funded members
in Connecticut and had total commercial HMO revenues of approximately $128.1
million in 2001. The transaction, which is subject to customary conditions
including regulatory approvals, is anticipated to close by the end of the first
quarter of 2002. The acquisition of MedSpan is not expected to have a material
effect on the Companys financial condition or results of operations in 2002.

Cash and investments aggregating $58.8 million at December 31, 2001 have
been segregated as restricted investments to comply with state regulatory
requirements. With respect to the Companys HMO and insurance subsidiaries,
the minimum amount of surplus required is based on formulas established by the
state insurance departments. At December 31, 2001, the Companys regulated
subsidiaries had statutory net worth of approximately $448.3 million, or
approximately $257.2 million in excess of current regulatory requirements. The
Company primarily manages its subsidiary capital against 125% of Risk Based
Capital (RBC) rules, although RBC standards are not yet applicable to all of
the Companys operating subsidiaries. Under Company Action Level (CAL) RBC,
the Company had approximately $206.3 million of excess capital. The Companys
subsidiaries are subject to certain restrictions on their ability to make
dividend payments, loans or other transfers of cash to the parent company.
These restrictions limit the ability of the Company to use cash generated by
subsidiary operations to pay the obligations of the parent, including debt
service and other financing costs. The Company intends to continue to seek
dividends for capital in excess of 125% of CAL RBC standards from most of its
subsidiaries. The Company currently estimates amounts requested for dividends
to be approximately $146 million, $80 million of which was received in January
2002. There is no assurance that the Company will receive regulatory
approval for these future dividends. During 2001 and 2000, the Companys HMO
subsidiaries paid dividends to the parent company of approximately $328.4
million and $317.6 million, respectively, and the Company made cash
contributions to its HMO and insurance subsidiaries of approximately $6 million
and $4.5 million during 2000 and 1999, respectively. The capital contributions
were made to ensure that each subsidiary had sufficient surplus under
applicable regulations after giving effect to operating results and reductions
to surplus resulting from the non-admissibility of certain assets. The Company
may be required to contribute additional amounts to MedSpan in 2002 in order to
maintain capital at 125% of CAL RBC. In addition, a dividend of approximately
$80.1 million was approved and paid in January 2002 from the Companys
indemnity insurance company to its parent company, Oxfords New York HMO. New
York State regulatory authorities authorized the repayment in 2000 of a $38
million surplus note plus $6 million in accrued interest by Oxford NY to

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the parent company. Although the Company received dividends from its HMO
subsidiaries in 2001 and 2000, there can be no assurances that such dividend
payments will be made in future periods.

In September 1998, the National Association of Insurance Commissioners
(NAIC) adopted new minimum capitalization requirements, known as risk-based
capital rules, for health care coverage provided by HMOs and other risk-bearing
health care entities. Depending on the nature and extent of the rules
ultimately adopted by each state, there could be an increase in the minimum
capital requirement for certain of the Companys regulated subsidiaries. The
Connecticut Department of Insurance has promulgated regulations based on the
NAIC model that are applicable to its 2001 annual financial statements.
Neither New York nor New Jersey has enacted similar legislation.
Legislation has been introduced in the New York
State Senate to strengthen
current solvency regulations to allow the New York State Insurance
Department (NYSID) to take over failing health plans
without a court order; however, capitalization requirements continue to be
subject to state interpretation from time to time. The Company believes that
the current capitalization of the subsidiaries is sufficient to meet these
requirements.

The New Jersey State legislature has passed legislation that includes a
$50 million assessment on HMOs in the state proportionate to market share to be
collected over a three-year period. The Company paid $1.8 million in 2001
related to this assessment and may be required to pay a similar amount in 2002.

The Companys medical costs payable was $595.1 million (approximately 83%
of which was IBNR) as of December 31, 2001 compared with $612.9 million
(approximately 85% of which was IBNR) as of December 31, 2000. The Company
estimates the amount of its IBNR reserves and other medical costs payable using
standard actuarial methodologies based upon historical data, including the
average intervals between the date services are rendered and the date claims
are received and paid, denied claims activity, expected medical cost inflation,
seasonality patterns and changes in membership. During the past three years,
there has been no significant adverse development of actual claims history when
compared with recorded reserves. Due to the nature of health care services,
claims submission methods and processing, and payment practices utilized by the
Company, there is a relatively short time lag between service provided and
claim payment. During the past two years, approximately 95% of claims have
been paid within six months of incurral. The Company revises its estimates for
IBNR in future periods based upon continued actuarial analysis of claims
payments, receipts and other items subsequent to the incurral period.
Revisions to estimates, where material, have been disclosed and are recorded in
the period they arise. The liability is also affected by shared risk
arrangements, including arrangements relating to the Companys Medicare
business in certain counties. In determining the liability for medical costs
payable, the Company accounts for the financial impact of the transfer of risk
for certain Medicare members and the experience of risk-sharing providers (who
may be entitled to credits from Oxford for favorable experience or subject to
deductions for accrued deficits) as well as the impact of cost-containment
arrangements and reserves for estimated settlements. In the case of the prior
North Shore Medicare risk arrangement discussed below, the Company maintains a
reserve for a portion of the potential claims liability though the payment
obligation has been transferred to North Shore for claims incurred prior to
January 1, 2002. The Company believes that its reserves for medical costs
payable are adequate to satisfy its ultimate claim liabilities.

The Company currently has risk-sharing agreements with two hospitals and a
provider organization covering approximately 21,000 Medicare members. Premium
revenues for the Medicare members covered under risk-share agreements in place
at December 31, 2001 totaled approximately $251 million and $240 million in
2001 and 2000, respectively. Prior to January 1, 2002, the Company had
transferred the medical cost risk for its Medicare members in certain New York
counties to North Shore. However, as of January 1, 2002, the Company exited
the Medicare line of business in Long Island. Although North Shore is
obligated under the contract to pay all claims for dates of service through
December 31, 2001, the Company is ultimately responsible for any claims not
paid by North Shore. The Company is continuing to explore other risk-sharing
or risk-transfer opportunities relating to its remaining Medicare members with
providers and other organizations.

The Company and certain of its former and present Directors and Officers
are currently defendants in certain securities class actions. In the fourth
quarter of 1999, the Company purchased new insurance policies providing
additional coverage of, among other things, certain judgments and
settlements, if any, incurred by the Company and individual defendants in
certain pending lawsuits and investigations, including among others, the
securities class action pending against the Company and certain of its
directors and officers and the pending stockholder derivative actions. Subject
to the terms of the policies, the insurers have agreed to pay 90% of the
amount, if any, by which covered costs exceed a retention of between $155
million and $165 million (the Retention), provided that the aggregate amount
of insurance under these new policies is limited to $200

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million over the Retention. A charge of $24 million for premiums and other costs associated with the new
insurance coverage was included in the Companys results of operations for
1999. The policies do not cover taxes, fines or penalties imposed by law or the
cost to comply with any injunctive or other non-monetary relief or any
agreement to provide any such relief. The coverage under the new policies is
in addition to approximately $25 million of coverage remaining under
preexisting primary insurance that is not subject to the Retention applicable
to the new policies. The Company has fully reserved for anticipated
legal expenses for this matter. Of the remaining $25 million in primary insurance
coverage, collectibility of some portion of $15 million is in doubt because one of the
Companys Directors and Officers insurance carriers, Reliance Insurance Company
(Reliance), was placed in liquidation in October 2001 by the Commonwealth
Court of Pennsylvania. Accordingly, during the third quarter of 2001, the
Company recorded a charge of $10 million related to a provision
for estimated insurance recoveries that may not be
recoverable from Reliance. The Company, in the opinion of management with the
advice of external counsel, has substantial defenses to the plaintiffs claims
and may ultimately prevail. These matters continue toward a trial. At the
present time, no amount or range of loss can be reasonably estimated.
Accordingly, the Company has not recorded a liability for a
potential unfavorable judgment. In the event the Company ultimately suffers a
judgment, or settles such actions prior to trial, the Company would be liable
to fund such judgment or settlement up to the Retention, less any remaining
available primary Directors and Officers insurance. The Company has $200
million in insurance over the Retention (subject to the 10% co-pay referred to
above) and would be uninsured for any liability exceeding these amounts.
There can be no assurance as to the ultimate result in this litigation.

Financing

In order to fund operating losses incurred in 1997 and 1998 and make
necessary capital contributions to its HMO and insurance subsidiaries, in May
1998, the Company raised a total of $700 million in capital (the Financing)
through the following arrangements: (i) the Company sold $350 million of
Preferred Stock to TPG Partners II, L.P. (formerly TPG Oxford LLC) and certain
of its affiliates and designees (TPG Investors) under an Investment
Agreement, dated as of February 23, 1998, as amended (the Investment
Agreement), together with warrants to acquire up to 22,530,000 shares of the
Companys common stock at an exercise price of $17.75; (ii) the Company issued
$200 million of Senior Notes and (iii) the Company entered into the $150
million Term Loan. Simultaneously with these transactions, Norman C. Payson,
M.D., the Companys Chairman and Chief Executive Officer, purchased 644,330
newly issued shares of Oxford common stock for a purchase price of $10 million.

In February 2000, the Company commenced a capital restructuring with the
repurchase of (i) $130 million of Preferred Stock and (ii) $19 million of loans
outstanding under its existing Term Loan. In May 2000, the Company prepaid the
remaining $131 million balance of the Term Loan, including pre-payment
premiums, for a total amount of $134.3 million. During the second half of
2000, the Company repurchased or tendered all of its $200 million Senior Notes
and paid $22.4 million in tender and consent premiums. The purchase price for
each $1,000 principal amount of the remaining Senior Notes validly tendered and
accepted was determined based on a fixed spread of 0.5% over the yield to
maturity of the 7.5% U.S. Treasury Note due May 15, 2002. All of the
outstanding Senior Notes were tendered with consent. The total purchase price,
including tender and consent premiums, was approximately $215.9 million, or
$1,115.50 per $1,000 principal amount. In addition, in December 2000, the
Company consummated an exchange and repurchase agreement pursuant to which,
among other things, (i) the Company paid $220 million to TPG Investors to
repurchase certain of the shares of Preferred Stock and certain of the warrants
and (ii) TPG Investors exchanged their remaining shares of Preferred Stock and
remaining warrants for 10,986,455 newly issued shares of common stock (the
Recapitalization). The TPG Investors agreed not to sell the newly issued
shares of common stock prior to February 15, 2001. In connection with the
Recapitalization in the fourth quarter of 2000, the Company incurred costs of
approximately $38.5 million related to the write-off of unamortized Preferred
Stock discount and costs from the original issuance in 1998 and related
transaction fees. Accordingly, as of the end of 2000, the Company had no
warrants, Preferred Stock or Senior Notes remaining outstanding.

During 2000, the Company recorded an extraordinary charge of $20.3
million, net of income tax benefits of $13.9 million, in connection with the
prepayment of the Term Loan and the repurchase or tender of its $200 million
Senior Notes. The extraordinary charges include premiums paid, transaction
costs and the write-off of unamortized original issuance debt costs.

38



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##### 



Simultaneously with the consummation of the Recapitalization and the
tender offer for the Senior Notes, the Company entered into the Senior Credit
Facilities, comprised of the $175 million Term Loan and the $75 million
Revolver. The proceeds of the New Term Loan were used, along with available
Company cash, to fund the Recapitalization. The Company has not drawn on the
Revolver.

The agreement governing the Senior Credit Facilities (the Credit
Agreement), provides for scheduled quarterly repayments of principal of the
New Term Loan with a final maturity of June 2006. The Credit Agreement
provides for voluntary prepayments of principal and voluntary reductions in
commitments under the Revolver without penalty of a minimum amount of $5
million and mandatory prepayments of principal from proceeds upon the
occurrence of certain events. Mandatory prepayments of principal and/or
reductions in the Revolver are required from (1) the net proceeds from the sale
of assets, subject to certain exceptions; (2) 50% of the net proceeds from
certain equity issuances; and (3) the net proceeds from the issuance of debt
securities. The Credit Agreement also provides for mandatory prepayment of the
entire amount outstanding under the Senior Credit Facilities at a 1% premium
upon the occurrence of a change in control (as defined). In July 2001, the
Company and its Lenders amended the Credit Agreement (the Amendment) to,
among other things, (i) eliminate the mandatory prepayment provisions as they
related to excess cash flows, (ii) allow the Company to use unrestricted Parent
Company cash to repurchase common stock and make other payments as defined in
the Credit Agreement, subject to a minimum of $150 million of liquidity and
(iii) allow the Company, subject to certain restrictions, to borrow an
additional $300 million. As a result of the Amendment, the Company adjusted
the amounts included in current and long-term liabilities to reflect the
scheduled repayments of principal according to the New Term Loan. At December
31, 2000, prior to the Amendment and based on financial projections at that
time for 2001 and 2002, the Company expected to repay the New Term Loan in full
by June 30, 2002. Accordingly, a portion of the debt had been classified as
current at December 31, 2000 based on these estimates.

The commitment under the Revolver shall be reduced to $50 million plus the
then outstanding amount upon the settlement of certain securities litigation,
and $50 million on January 1, 2005, with the expiration of all commitments
under the Revolver on December 31, 2005.

Borrowings under the Senior Credit Facilities bear interest, subject to
periodic resets, at either a base rate (Base Rate Borrowings) or LIBOR plus
an applicable margin based on the Companys credit ratings. Interest on Base
Rate Borrowings is calculated as the higher of (a) the prime rate or (b) the
federal funds effective rate plus 0.5% and is payable quarterly. Currently,
interest is being calculated based on a $76 million tranche at a rate of
approximately 5.50% through August 13, 2002, a $6.6 million tranche at a rate
of approximately 5.34% through March 13, 2002, and a $70.6 million tranche at a
rate of 5.92% through April 16, 2002. Commitment fees of 0.5% per annum are
payable on the unused portion of the Revolver.

The Senior Credit Facilities grant a first priority lien to the Lenders on
all property of the Company and material non-regulated subsidiaries and all
capital stock of its material subsidiaries, and require the Company to maintain
certain financial ratios and prohibit certain restricted payments, as defined.

Contractual Obligations

The Company is contractually obligated to make payments as follows within
the next five years:

|                                                      |  |       |         |        |  |                        |        |           |  |               |         |  |  |   |         |  |  |   |       | 
|----------------------------------------------------- |  | ----- | ------- | ------ |  | ---------------------- | ------ | --------- |  | ------------- | ------- |  |  | - | ------- |  |  | - | ----- | 
|                                                      |  |       |         |        |  | Payments Due by Period
|                                                     
|Contractual Obligations                               |  | Total |         | 1 Year |  | 2-3 Years              |        | 4-5 Years |  | After 5 Years
|                                                     
|Long term debt                                        |  | $     | 153,125 |        |  | $                      | 26,250 |           |  | $             | 65,625  |  |  | $ | 61,250  |  |  | $ |      | 
|Operating leases                                      |  |       | 45,100  |        |  |                        | 10,800 |           |  |               | 18,400  |  |  |   | 7,600   |  |  |   | 8,300 | 
|Obligations under
computer system
outsource agreement |  |       | 134,200 |        |  |                        | 35,900 |           |  |               | 65,600  |  |  |   | 32,700  |  |  |   |      | 
|                                                     
|Total                                                 |  | $     | 332,425 |        |  | $                      | 72,950 |           |  | $             | 149,625 |  |  | $ | 101,550 |  |  | $ | 8,300 | 
|                                                     

39



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##### 



Operating lease terms generally range from one to five years with certain
early termination or renewal provisions at the Companys option.

Under the computer system outsource agreement, CSC invoices the Company
for base operating and capital costs, which covers payments for asset purchases
and services, including data center operations and help desk services, among
other things. Costs for CSC services and equipment utilization fluctuate based
on the Companys actual usage and are billed by CSC at rates established in the
agreement. The outsource agreement, may be terminated by the Company at any
time prior to its expiration subject to early termination fees and penalties of
approximately $15 million to $20 million through 2002, declining to
approximately $8 million to $10 million in 2005..

The Company is subject to various contracts with certain health care
providers, facilities and the federal government for the provision of health
care services to its members. Such contracts involve payments to or from the
Company, generally on a monthly basis, in the ordinary course of business and
are not included in the above table.

40



---



##### 



Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys consolidated balance sheet as of December 31, 2001 includes
a significant amount of assets whose fair values are subject to market risk.
Since a substantial portion of the Companys investments are in fixed income
securities, interest rate fluctuations represent the largest market risk factor
affecting the Companys consolidated financial position. Interest rates are
managed within a tight duration band, generally averaging 3.5 to 4.5 years, and
credit risk is managed by investing in U.S. government obligations, corporate
debt and asset and mortgage backed securities with high average quality ratings
and maintaining a diversified sector exposure within the debt securities
portfolio. The Companys investment policies are subject to revision based
upon market conditions and the Companys cash flow and tax strategies, among
other factors.

In May 2001, the Company adjusted its investment strategy based on
projections of future cash flow needs and changes in the interest rate
environment. In order to take advantage of a steepening yield curve, the
Company extended the duration of the portfolio from an average of 2.25 years to
an average duration between 3.5 and 4.5 years resulting in an increased
sensitivity to interest rate changes. In addition to extending the portfolios
duration, the Company added mortgage-backed and asset-backed securities to its
list of approved investments in an effort to improve its asset class
diversification. The Company continues to require a high credit rating, A or
higher, and maintains an average rating of AA+ on the overall portfolio.

In order to determine the sensitivity of the Companys investment
portfolio to changes in market risk, valuation estimates were made on each
security in the portfolio using a duration model. Duration models measure the
expected change in security market prices arising from hypothetical movements
in market interest rates. Convexity further adjusts the estimated price change
by mathematically correcting the changes in duration as market interest rates
shift. The model used industry standard calculations of security duration and
convexity as provided by third party vendors such as Bloomberg and Yield Book.
For certain structured notes, callable corporate notes, and callable agency
bonds, the duration calculation utilized an option-adjusted approach, which
helps to ensure that hypothetical interest rate movements are applied in a
consistent way to securities that have embedded call and put features. The
model assumed that changes in interest rates were the result of parallel shifts
in the yield curve. Therefore, the same basis point change was applied to all
maturities in the portfolio. The change in valuation was tested using positive
and negative adjustments in yield of 100 and 200 basis points. Hypothetical
immediate increases of 100 and 200 basis points in market interest rates would
decrease the fair value of the Companys investments in debt securities as of
December 31, 2001 by approximately $42.7 million and $83.7 million,
respectively (compared to $20.6 million and $40.9 million as of December 31,
2000, respectively). Hypothetical immediate decreases of 100 and 200 basis
points in market interest rates would increase the fair value of the Companys
investment in debt securities as of December 31, 2001 by approximately $41.5
million and $81.8 million, respectively (compared to $20.7 million and $41.9
million as of December 31, 2000, respectively). Because duration and convexity
are estimated rather than known quantities for certain securities, there can be
no assurance that the Companys portfolio would perform in-line with the
estimated values. The year over year variation in the portfolios sensitivity
to changes in interest rates is a function of increased investment balances and
an increase in the average duration of the portfolio.

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements and Schedule on page 44.

41



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##### 



PART III

|        |  |                                                                |  | 
|------- |  | -------------------------------------------------------------- |  | 
|Item 10 |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT            
|Item 11 |  | EXECUTIVE COMPENSATION                                        
|Item 12 |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|Item 13 |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                

The information required by Items 10 through 13 is incorporated by
reference to Registrants definitive proxy statement to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, within
120 days after December 31, 2001.

PART IV

Item 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)   Exhibits and Financial Statement Schedules



| |    |                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------
| | 1. | All financial statements  see Index to Consolidated Financial
Statements and Schedules on page 44.    
| | 2. | Financial statement schedules  see Index to Consolidated
Financial Statements and Schedules on page 44
| | 3. | Exhibits  see Exhibit Index beginning on page 75.                                                     

(b)   Reports on Form 8-K

In a report on Form 8-K dated and filed on November 7, 2001, the Company
reported, under Item 5. Other Events, its earnings press release for the
third quarter of 2001 and the additional authority under its Share Repurchase
Program.

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
22 day of
February, 2002.

| |  |                           |  |                                                                                      | 
| |  | ------------------------- |  | ------------------------------------------------------------------------------------ | 
| |  | OXFORD HEALTH PLANS, INC.
|
|
| |  | By:                       |  | /s/ NORMAN C. PAYSON, M.D.Norman C. Payson, M.D.Chairman and Chief Executive Officer

42



---



##### 



Pursuant to the requirements of the Securities Act of 1933, this Report
has been signed by the following persons on behalf of the Registrant on
February 22, 2002 in the capacities indicated.

|                                 |  |                              |  | 
|-------------------------------- |  | ---------------------------- |  | 
|Signature                        |  | Title                       
|                                 |  |                             
|                                
|/s/ NORMAN C. PAYSON, M.D.       |  | Principal Executive Officer,
|                                 |  | and Chairman of the Board   
|Norman C. Payson, M.D.           |  |                             
|                                
|/s/ KURT B. THOMPSON             |  | Principal Financial Officer 
|                                 | 
|Kurt B. Thompson                 |  |                              |  | 
|                                
|/s/ MARC M. KOLE                 |  | Principal Accounting Officer
|                                 | 
|Marc M. Kole                     |  |                              |  | 
|                                
|                                 |  | Director                    
|                                 | 
|Fred F. Nazem                    |  |                              |  | 
|                                
|/s/ DAVID BONDERMAN              |  | Director                    
|                                 | 
|David Bonderman                  |  |                              |  | 
|                                
|/s/ JONATHAN J. COSLET           |  | Director                    
|                                 | 
|Jonathan J. Coslet               |  |                              |  | 
|                                
|                                 |  | Director                    
|                                 | 
|Robert B. Milligan, Jr.          |  |                              |  | 
|                                
|/s/ BENJAMIN H. SAFIRSTEIN, M.D. |  | Director                    
|                                 | 
|Benjamin H. Safirstein, M.D.     |  |                              |  | 
|                                
|/s/ KENT J. THIRY                |  | Director                    
|                                 | 
|Kent J. Thiry                    |  |                              |  | 
|                                
|/s/ JOSEPH W. BROWN              |  | Director                    
|                                 | 
|Joseph W. Brown                  |  |                              |  | 
|                                
|/s/ ELLEN A. RUDNICK             |  | Director                    
|                                 | 
|Ellen A. Rudnick                 |  |                              |  | 

43



---



##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

|                                                                                                                                                 |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                                                 |  | Page
|                                                                                                                                                 |  |     
|Independent Auditors Report                                                                                                                     |  |      | 45 | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                                                                     |  |      | 46 | 
|Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999                                                           |  |      | 47 | 
|Consolidated Statements of Shareholders Equity (Deficit) and Comprehensive Earnings (Loss)
for the years ended December 31, 2001, 2000 and 1999 |  |      | 48 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                                                       |  |      | 49 | 
|Notes to Consolidated Financial Statements                                                                                                       |  |      | 51 | 
|Financial Statement Schedules:                                                                                                                   |  |      |    | 
|I     Condensed Financial Information of Registrant                                                                                              |  |      | 71 | 
|II   Valuation and Qualifying Accounts                                                                                                           |  |      | 74 | 

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission that are not included
with this additional financial data have been omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or Notes thereto.

44



---



##### 



Independent Auditors Report

The Board of Directors and Shareholders
Oxford Health Plans, Inc.:

We have audited the accompanying consolidated balance sheets of Oxford
Health Plans, Inc. and subsidiaries (the Company) as of December 31, 2001 and
2000, and the related consolidated statements of income, shareholders equity
(deficit) and comprehensive earnings (loss) and cash flows for each of the three years in
the period ended December 31, 2001. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These consolidated
financial statements and schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Oxford Health Plans, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States. 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.

| |  |                  
| |  | -----------------
| |  | Ernst & Young LLP

New York, New York
January 25, 2002 (except for Note 21
as to which the date is February 14, 2002)

45



---



##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIESConsolidated Balance Sheets
December 31, 2001 and 2000
(In thousands, except share amounts)

|                                                             |                                                                                                                                |      |                                            |          |   |           |         |          |   |           | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------ | ---- | ------------------------------------------ | -------- | - | --------- | ------- | -------- | - | --------- | 
|Assets                                                       |                                                                                                                                |      |                                            |          |   |           |         |         
|Current assets:                                              |                                                                                                                                | 2001 |                                            | 2000    
|                                                            
|                                                             | Cash and cash equivalents                                                                                                      |      | $                                          | 345,530  |   |           | $       | 198,632  |  
|                                                             | Investments  available-for-sale, at fair value                                                                                |      |                                            | 961,652  |   |           |         | 868,380  |  
|                                                             | Premiums receivable, net                                                                                                       |      |                                            | 37,127   |   |           |         | 56,694   |  
|                                                             | Other receivables                                                                                                              |      |                                            | 24,678   |   |           |         | 80,994   |  
|                                                             | Prepaid expenses and other current assets                                                                                      |      |                                            | 3,450    |   |           |         | 4,761    |  
|                                                             | Deferred income taxes                                                                                                          |      |                                            | 83,416   |   |           |         | 46,102   |  
|                                                            
|                                                             |                                                                                                                                |      | Total current assets                       |          |   | 1,455,853 |         |          |   | 1,255,563 | 
|Property and equipment, net                                  |                                                                                                                                |      | 35,084                                     |          |   |           | 19,779  |         
|Deferred income taxes                                        |                                                                                                                                |      | 8,348                                      |          |   |           | 102,133 |         
|Restricted investments  held-to-maturity, at amortized cost |                                                                                                                                |      | 58,813                                     |          |   |           | 57,194  |         
|Other noncurrent assets                                      |                                                                                                                                |      | 18,627                                     |          |   |           | 9,941   |         
|                                                            
|                                                             |                                                                                                                                |      | Total assets                               |          | $ | 1,576,725 |         |          | $ | 1,444,610 | 
|                                                            
|Liabilities and Shareholders Equity                         |                                                                                                                                |      |                                            |          |   |           |         |         
|Current liabilities:                                         |                                                                                                                                |      |                                            |          |   |           |         |         
|                                                             | Medical costs payable                                                                                                          |      | $                                          | 595,064  |   |           | $       | 612,930  |  
|                                                             | Current portion of long term debt                                                                                              |      |                                            | 26,250   |   |           |         | 147,000  |  
|                                                             | Trade accounts payable and accrued expenses                                                                                    |      |                                            | 116,601  |   |           |         | 103,459  |  
|                                                             | Unearned revenue                                                                                                               |      |                                            | 201,225  |   |           |         | 88,299   |  
|                                                             | Income taxes payable                                                                                                           |      |                                            | 47,789   |   |           |         |         |  
|                                                             | Current portion of capital lease obligations                                                                                   |      |                                            |         |   |           |         | 5,700    |  
|                                                            
|                                                             |                                                                                                                                |      | Total current liabilities                  |          |   | 986,929   |         |          |   | 957,388   | 
|Long-term debt                                               |                                                                                                                                |      | 126,876                                    |          |   |           | 28,000  |         
|Shareholders equity:                                        |                                                                                                                                |      |                                            |          |   |           |         |         
|                                                             | Preferred stock, $.01 par value, authorized 2,000,000 shares;
none issued and outstanding                                      |      |                                            |         |   |           |         |         |  
|                                                             | Common stock, $.01 par value, authorized 400,000,000 shares;
issued and outstanding 100,353,007 in 2001 and 98,304,384 in 2000 |      |                                            | 1,004    |   |           |         | 983      |  
|                                                             | Additional paid-in capital                                                                                                     |      |                                            | 605,661  |   |           |         | 561,857  |  
|                                                             | Retained earnings (Accumulated deficit)                                                                                        |      |                                            | 215,165  |   |           |         | (107,256 | )
|                                                             | Accumulated other comprehensive earnings                                                                                       |      |                                            | 7,587    |   |           |         | 3,638    |  
|                                                             | Treasury stock, at cost                                                                                                        |      |                                            | (366,497 | ) |           |         |         |  
|                                                            
|                                                             |                                                                                                                                |      | Total shareholders equity                 |          |   | 462,920   |         |          |   | 459,222   | 
|                                                            
|                                                             |                                                                                                                                |      | Total liabilities and shareholders equity |          | $ | 1,576,725 |         |          | $ | 1,444,610 | 
|                                                            

See accompanying notes to consolidated financial statements.

46



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except per share amounts)

|                                                                                                     |  |                                       |                |   |           |           |         |   |           |           |          |   |           |           | 
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------- | -------------- | - | --------- | --------- | ------- | - | --------- | --------- | -------- | - | --------- | --------- | 
|                                                                                                     |  |                                       |                |   | 2001      |           | 2000    |   | 1999     
|                                                                                                    
|Revenues:                                                                                            |  |                                       |                |   |           |           |         |   |           |           |          |  
|                                                                                                     |  | Premiums earned                       |                | $ | 4,312,391 |           |         | $ | 4,023,397 |           |          | $ | 4,099,556 |          
|                                                                                                     |  | Third-party administration, net       |                |   | 13,791    |           |         |   | 15,390    |           |          |   | 15,578    |          
|                                                                                                     |  | Investment and other income, net      |                |   | 95,046    |           |         |   | 73,015    |           |          |   | 82,632    |          
|                                                                                                    
|                                                                                                     |  |                                       | Total revenues |   |           | 4,421,228 |         |   |           | 4,111,802 |          |   |           | 4,197,766 | 
|                                                                                                    
|Expenses:                                                                                            |  |                                       |                |   |           |           |         |   |           |           |          |  
|                                                                                                     |  | Health care services                  |                |   | 3,401,331 |           |         |   | 3,116,544 |           |          |   | 3,365,340 |          
|                                                                                                     |  | Marketing, general and administrative |                |   | 489,143   |           |         |   | 476,422   |           |          |   | 599,151   |          
|                                                                                                     |  | Interest and other financing charges  |                |   | 19,003    |           |         |   | 34,332    |           |          |   | 49,626    |          
|                                                                                                     |  | Restructuring charges                 |                |   |          |           |         |   |          |           |          |   | 19,963    |          
|                                                                                                    
|                                                                                                     |  |                                       | Total expenses |   |           | 3,909,477 |         |   |           | 3,627,298 |          |   |           | 4,034,080 | 
|                                                                                                    
|Operating earnings before income taxes and extraordinary item                                        |  |                                       | 511,751        |   |           |           | 484,504 |   |           |           | 163,686  |  
|Income tax expense (benefit)                                                                         |  |                                       | 189,330        |   |           |           | 199,085 |   |           |           | (156,254 | )
|                                                                                                    
|Net earnings before extraordinary item                                                               |  |                                       | 322,421        |   |           |           | 285,419 |   |           |           | 319,940  |  
|Extraordinary item  Loss on early retirement of debt, net of income tax benefits of
$13,916 in 2000 |  |                                       |               |   |           |           | (20,325 | ) |           |           |         |  
|                                                                                                    
|Net earnings                                                                                         |  |                                       | 322,421        |   |           |           | 265,094 |   |           |           | 319,940  |  
|Less preferred dividends and amortization                                                            |  |                                       |               |   |           |           | (73,791 | ) |           |           | (45,500  | )
|                                                                                                    
|Net earnings attributable to common shares                                                           |  | $                                     | 322,421        |   |           | $         | 191,303 |   |           | $         | 274,440  |  
|                                                                                                    
|Earnings per common share  basic:                                                                   |  |                                       |                |   |           |           |         |   |           |           |          |  
|                                                                                                     |  | Earnings before extraordinary item    |                | $ | 3.35      |           |         | $ | 2.50      |           |          | $ | 3.38      |          
|                                                                                                     |  | Extraordinary item                    |                |   |          |           |         |   | (0.24     | )         |          |   |          |          
|                                                                                                    
|                                                                                                     |  | Net earnings per common share         |                | $ | 3.35      |           |         | $ | 2.26      |           |          | $ | 3.38      |          
|                                                                                                    
|Earnings per common share  diluted:                                                                 |  |                                       |                |   |           |           |         |   |           |           |          |  
|                                                                                                     |  | Earnings before extraordinary item    |                | $ | 3.21      |           |         | $ | 2.24      |           |          | $ | 3.26      |          
|                                                                                                     |  | Extraordinary item                    |                |   |          |           |         |   | (0.22     | )         |          |   |          |          
|                                                                                                    
|                                                                                                     |  | Net earnings per common share         |                | $ | 3.21      |           |         | $ | 2.02      |           |          | $ | 3.26      |          
|                                                                                                    
|Weighted-average common stock and
common stock equivalents outstanding:                              |  |                                       |                |   |           |           |         |   |           |           |          |  
|                                                                                                     |  | Basic                                 |                |   | 96,269    |           |         |   | 84,728    |           |          |   | 81273     |          
|                                                                                                     |  | Effect of dilutive securities:        |                |   |           |           |         |   |           |           |          |   |           |          
|                                                                                                     |  | Stock options                         |                |   | 4,274     |           |         |   | 4,779     |           |          |   | 2,958     |          
|                                                                                                     |  | Warrants                              |                |   |          |           |         |   | 5,066     |           |          |   |          |          
|                                                                                                    
|                                                                                                     |  | Diluted                               |                |   | 100,543   |           |         |   | 94,573    |           |          |   | 84,231    |          
|                                                                                                    

See accompanying notes to consolidated financial statements.

47



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity (Deficit) and Comprehensive Earnings (Loss)
Years Ended December 31, 2001, 2000 and 1999
(In thousands)

|                                                                              |  |              |         |           |  |         |       |            |  |          |          |                 |  |               |          |             |  |   |         |   |  |   |         |   |  |   |          |  
|----------------------------------------------------------------------------- |  | ------------ | ------- | --------- |  | ------- | ----- | ---------- |  | -------- | -------- | --------------- |  | ------------- | -------- | ----------- |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                              |  | Common Stock |         |           |  |         |       |            |  |          |          |                 |  |               |          |             |  |   |         |   |  |  
|                                                                              |  |              |         |           |  |         |       |            |  |          |          |                 |  |               |          | Accumulated |  |   |         |  
|                                                                              |  | Number       |         |           |  |         |       | Additional |  | Retained |          |                 |  |               |          | Other       |  |   |         |  
|                                                                              |  | of           |         |           |  |         |       | Paid-In    |  | Earnings |          | Comprehensive   |  | Comprehensive |          | Treasury   
|                                                                              |  | Shares       |         | Par Value |  | Capital |       | (Deficit)  |  | Earnings |          | Earnings (Loss) |  | Stock        
|                                                                             
|Balance at January 1, 1999                                                    |  |              | 80,516  |           |  | $       | 805   |            |  | $        | 506,243  |                 |  | $             | (692,290 | )           |  |   |         |   |  | $ | 4,137   |   |  | $ |         |  
|Exercise of stock options                                                     |  |              | 1,470   |           |  |         | 15    |            |  |          | 18,171   |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                             |  |              |        |           |  |         |      |            |  |          | 2,648    |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Compensatory stock grants under executive
stock agreements                    |  |              |        |           |  |         |      |            |  |          | 6,468    |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Preferred stock dividends and amortization of
discount                        |  |              |        |           |  |         |      |            |  |          | (43,136  | )               |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Amortization of preferred stock issuance costs                                |  |              |        |           |  |         |      |            |  |          | (2,364   | )               |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                    |  |              |        |           |  |         |      |            |  |          |         |                 |  |               | 319,940  |             |  |   | 319,940 |   |  |   |        |   |  |   |         |  
|Depreciation in value of available-for-sale
securities, net of deferred taxes |  |              |        |           |  |         |      |            |  |          |         |                 |  |               |         |             |  |   | (21,882 | ) |  |   | (21,882 | ) |  |   |         |  
|Comprehensive earnings                                                        |  |              |         |           |  |         |       |            |  |          |          |                 |  |               |          |             |  | $ | 298,058 |   |  |   |         |   |  |   |         |  
|                                                                             
|Balance at December 31, 1999                                                  |  |              | 81,986  |           |  |         | 820   |            |  |          | 488,030  |                 |  |               | (372,350 | )           |  |   |         |   |  |   | (17,745 | ) |  |   |         |  
|                                                                             
|Exercise of stock options                                                     |  |              | 5,332   |           |  |         | 53    |            |  |          | 64,537   |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Issuance of common shares                                                     |  |              | 10,986  |           |  |         | 110   |            |  |          | 194,900  |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                             |  |              |        |           |  |         |      |            |  |          | 27,665   |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Repurchase of warrants                                                        |  |              |        |           |  |         |      |            |  |          | (141,408 | )               |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Compensatory stock grants under executive
stock agreements                    |  |              |        |           |  |         |      |            |  |          | 1,924    |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Preferred stock dividends and amortization of
discount                        |  |              |        |           |  |         |      |            |  |          | (30,978  | )               |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Amortization of preferred stock issuance costs                                |  |              |        |           |  |         |      |            |  |          | (1,728   | )               |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Write-off of preferred stock discount and costs                               |  |              |        |           |  |         |      |            |  |          | (41,085  | )               |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Net income                                                                    |  |              |        |           |  |         |      |            |  |          |         |                 |  |               | 265,094  |             |  | $ | 265,094 |   |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
securities, net of deferred taxes |  |              |        |           |  |         |      |            |  |          |         |                 |  |               |         |             |  |   | 21,383  |   |  |   | 21,383  |   |  |   |         |  
|Comprehensive earnings                                                        |  |              |         |           |  |         |       |            |  |          |          |                 |  |               |          |             |  | $ | 286,477 |   |  |   |         |   |  |   |          | 
|                                                                             
|Balance at December 31, 2000                                                  |  |              | 98,304  |           |  |         | 983   |            |  |          | 561,857  |                 |  |               | (107,256 | )           |  |   |         |   |  |   | 3,638   |   |  |   |         |  
|                                                                             
|Exercise of stock options                                                     |  |              | 2,049   |           |  |         | 21    |            |  |          | 29,473   |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                             |  |              |        |           |  |         |      |            |  |          | 12,411   |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Compensatory stock grants under executive
stock agreements                    |  |              |        |           |  |         |      |            |  |          | 1,920    |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   |         |  
|Purchase of treasury stock                                                    |  |              |        |           |  |         |      |            |  |          |         |                 |  |               |         |             |  |   |        |   |  |   |        |   |  |   | (366,497 | )
|Net income                                                                    |  |              |        |           |  |         |      |            |  |          |         |                 |  |               | 322,421  |             |  | $ | 322,421 |   |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
securities, net of deferred taxes |  |              |        |           |  |         |      |            |  |          |         |                 |  |               |         |             |  |   | 3,949   |   |  |   | 3,949   |   |  |   |         |  
|Comprehensive earnings                                                        |  |              |         |           |  |         |       |            |  |          |          |                 |  |               |          |             |  | $ | 326,370 |   |  |   |         |   |  |   |          |  
|                                                                             
|Balance at December 31, 2001                                                  |  |              | 100,353 |           |  | $       | 1,004 |            |  | $        | 605,661  |                 |  | $             | 215,165  |             |  |   |         |   |  | $ | 7,587   |   |  | $ | (366,497 | )
|                                                                             

See accompanying notes to consolidated financial statements.

48



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In thousands)

|                                                     |                                                                                     |                                                                         |                                             |                                                  |         |         |          |          |         |         |          |          |          |          |        | 
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------ | ------- | ------- | -------- | -------- | ------- | ------- | -------- | -------- | -------- | -------- | ------ | 
|                                                     |                                                                                     |                                                                         |                                             |                                                  |         | 2001    |          | 2000     |         | 1999   
|                                                    
|Cash flows from operating activities:                |                                                                                     |                                                                         |                                             |                                                  |         |         |          |          |         |         |          |         
|                                                     | Net earnings                                                                        |                                                                         | $                                           | 322,421                                          |         |         | $        | 265,094  |         |         | $        | 319,940  |         
|                                                     | Adjustments to reconcile net earnings to net cash
provided by operating activities: |                                                                         |                                             |                                                  |         |         |          |          |         |         |          |          |         
|                                                     |                                                                                     | Depreciation and amortization                                           |                                             |                                                  | 21,417  |         |          |          | 34,229  |         |          |          | 54,542   |         
|                                                     |                                                                                     | Deferred income taxes                                                   |                                             |                                                  | 66,127  |         |          |          | 190,596 |         |          |          | (159,563 | )       
|                                                     |                                                                                     | Extraordinary item                                                      |                                             |                                                  |        |         |          |          | 20,325  |         |          |          |         |         
|                                                     |                                                                                     | Realized loss (gain) on sale of investments                             |                                             |                                                  | (20,787 | )       |          |          | (111    | )       |          |          | 5,181    |         
|                                                     |                                                                                     | Loss (gain) on sale of assets                                           |                                             |                                                  |        |         |          |          | 5,365   |         |          |          | (9,500   | )       
|                                                     |                                                                                     | Non-cash restructuring charges and write-downs
of strategic investments |                                             |                                                  |        |         |          |          |        |         |          |          | 8,355    |         
|                                                     |                                                                                     | Credit for doubtful accounts and advances                               |                                             |                                                  |        |         |          |          |        |         |          |          | (4,200   | )       
|                                                     |                                                                                     | Other, net                                                              |                                             |                                                  |        |         |          |          |        |         |          |          | 6,468    |         
|                                                     |                                                                                     | Changes in assets and liabilities:                                      |                                             |                                                  |         |         |          |          |         |         |          |          |          |         
|                                                     |                                                                                     |                                                                         | Premiums receivable                         |                                                  |         | 19,567  |          |          |         | 7,377   |          |          |          | 46,183   |       
|                                                     |                                                                                     |                                                                         | Other receivables                           |                                                  |         | 56,316  |          |          |         | (48,406 | )        |          |          | 7,290    |       
|                                                     |                                                                                     |                                                                         | Prepaid expenses and other current assets   |                                                  |         | 1,684   |          |          |         | (899    | )        |          |          | 2,526    |       
|                                                     |                                                                                     |                                                                         | Medical costs payable                       |                                                  |         | (17,866 | )        |          |         | (43,133 | )        |          |          | (189,934 | )     
|                                                     |                                                                                     |                                                                         | Trade accounts payable and accrued expenses |                                                  |         | 2,295   |          |          |         | (19,853 | )        |          |          | (39,995  | )     
|                                                     |                                                                                     |                                                                         | Income taxes payable                        |                                                  |         | 47,789  |          |          |         |        |          |          |          |         |       
|                                                     |                                                                                     |                                                                         | Unearned revenue                            |                                                  |         | 112,926 |          |          |         | (8,856  | )        |          |          | (8,838   | )     
|                                                     |                                                                                     |                                                                         | Other, net                                  |                                                  |         | 1,920   |          |          |         | 2,976   |          |          |          | (2,927   | )     
|                                                    
|                                                     |                                                                                     |                                                                         |                                             | Net cash provided by operating activities        |         |         | 613,809  |          |         |         | 404,704  |          |          |          | 35,528 | 
|                                                    
|Cash flows from investing activities:                |                                                                                     |                                                                         |                                             |                                                  |         |         |          |          |         |         |          |         
|                                                     | Capital expenditures                                                                |                                                                         |                                             | (21,386                                          | )       |         |          | (12,774  | )       |         |          | (8,987   | )       
|                                                     | Purchases of available-for-sale securities                                          |                                                                         |                                             | (1,193,074                                       | )       |         |          | (466,999 | )       |         |          | (868,655 | )       
|                                                     | Sales and maturities of available-for-sale securities                               |                                                                         |                                             | 1,130,811                                        |         |         |          | 450,082  |         |         |          | 919,940  |         
|                                                     | Proceeds from sale of assets                                                        |                                                                         |                                             |                                                 |         |         |          | 2,734    |         |         |          | 12,450   |         
|                                                     | Acquisitions, net of cash acquired                                                  |                                                                         |                                             | (19,483                                          | )       |         |          | (2,300   | )       |         |          |         |         
|                                                     | Other, net                                                                          |                                                                         |                                             | 798                                              |         |         |          | 10,030   |         |         |          | 3,237    |         
|                                                    
|                                                     |                                                                                     |                                                                         |                                             | Net cash provided (used) by investing activities |         |         | (102,334 | )        |         |         | (19,227  | )        |          |          | 57,985 | 
|                                                    
|Cash flows from financing activities:                |                                                                                     |                                                                         |                                             |                                                  |         |         |          |          |         |         |          |         
|                                                     | Proceeds from exercise of stock options                                             |                                                                         |                                             | 29,494                                           |         |         |          | 64,590   |         |         |          | 18,186   |         
|                                                     | Payments under capital leases                                                       |                                                                         |                                             | (5,700                                           | )       |         |          | (12,554  | )       |         |          | (16,534  | )       
|                                                     | Proceeds of notes and loans payable                                                 |                                                                         |                                             |                                                 |         |         |          | 175,000  |         |         |          |         |         
|                                                     | Redemption of notes and loans payable                                               |                                                                         |                                             | (21,874                                          | )       |         |          | (376,050 | )       |         |          |         |         
|                                                     | Redemption of preferred stock, net of issuance expenses                             |                                                                         |                                             |                                                 |         |         |          | (208,592 | )       |         |          |         |         
|                                                     | Redemption of warrants                                                              |                                                                         |                                             |                                                 |         |         |          | (142,122 | )       |         |          |         |         
|                                                     | Cash dividends paid on preferred stock                                              |                                                                         |                                             |                                                 |         |         |          | (13,792  | )       |         |          |         |         
|                                                     | Purchase of treasury stock                                                          |                                                                         |                                             | (366,497                                         | )       |         |          |         |         |         |          |         |         
|                                                     | Debt issuance expenses                                                              |                                                                         |                                             |                                                 |         |         |          | (6,207   | )       |         |          |         |         
|                                                    
|                                                     |                                                                                     |                                                                         |                                             | Net cash provided (used) by financing activities |         |         | (364,577 | )        |         |         | (519,727 | )        |          |          | 1,652  | 
|                                                    
|Net increase (decrease) in cash and cash equivalents |                                                                                     |                                                                         | 146,898                                     |                                                  |         |         | (134,250 | )        |         |         | 95,165   |         
|Cash and cash equivalents at beginning of year       |                                                                                     |                                                                         | 198,632                                     |                                                  |         |         | 332,882  |          |         |         | 237,717  |         
|                                                    
|Cash and cash equivalents at end of year             |                                                                                     | $                                                                       | 345,530                                     |                                                  |         | $       | 198,632  |          |         | $       | 332,882  |         
|                                                    

49



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In thousands)
(Continued)

|                                                                      |                                                       |  |   |        |  |      |   |         |  |      |   |         |   |  |  | 
|--------------------------------------------------------------------- | ----------------------------------------------------- |  | - | ------ |  | ---- | - | ------- |  | ---- | - | ------- | - |  |  | 
|                                                                      |                                                       |  |   |        |  | 2001 |   | 2000    |  | 1999
|                                                                     
|Supplemental schedule of non-cash investing and financing activities: |                                                       |  |   |        |  |      |   |         |  |      |   |         |   | 
|                                                                      | Unrealized appreciation (depreciation) of investments |  | $ | 4,920  |  |      | $ | 23,911  |  |      | $ | (21,882 | )
|                                                                      | Obligation under outsource agreement                  |  |   | 13,603 |  |      |   |        |  |      |   |        |  
|                                                                      | Preferred stock dividends paid in-kind                |  |   |       |  |      |   | 4,565   |  |      |   | 30,486  |  
|                                                                      | Amortization of preferred stock discount              |  |   |       |  |      |   | 12,619  |  |      |   | 12,650  |  
|                                                                      | Amortization of preferred stock issuance expenses     |  |   |       |  |      |   | 1,728   |  |      |   | 2,364   |  
|                                                                      | Tax benefit realized on exercise of stock options     |  |   | 12,411 |  |      |   | 27,665  |  |      |   | 2,648   |  
|                                                                      | Exchange of warrants for common stock                 |  |   |       |  |      |   | 195,008 |  |      |   |        |  
|                                                                      | Write-off of preferred stock discount and costs       |  |   |       |  |      |   | 40,373  |  |      |   |        |  

See accompanying notes to consolidated financial statements.

50



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization

Oxford Health Plans, Inc. (Oxford or the Company) is a regional health
care company providing health care coverage primarily in New York, New Jersey
and Connecticut. Oxford was incorporated on September 17, 1984 and began
operations in 1986. Oxford owns and operates three health maintenance
organizations (HMOs), which are qualified as Competitive Medical Plans, and
two insurance companies and offers a health benefits administrative service.

Oxfords HMOs, Oxford Health Plans (NY), Inc. (Oxford NY), Oxford Health
Plans (NJ), Inc. (Oxford NJ) and Oxford Health Plans (CT), Inc. (Oxford
CT), have each been granted a certificate of authority to operate as a health
maintenance organization by the appropriate regulatory agency of the state in
which it operates. Oxford Health Insurance, Inc. (OHI), a wholly-owned
subsidiary of Oxford NY, currently does business under accident and health
insurance licenses granted by the Department of Insurance in the states of New
York and Connecticut, the Department of Banking and Insurance of New Jersey and
the Commonwealth of Pennsylvania. As discussed in Note 13, in 2001, Oxford
acquired all of the outstanding stock of Investors Guaranty Life Insurance
Company (IGL), a California insurance company licensed to issue individual
and group annuity, life and health insurance policies in most states. Further,
in December 2001, the Company signed a definitive agreement to acquire MedSpan,
Inc., a Connecticut health care organization, for cash consideration of
approximately $19 million. The transaction is subject to customary conditions
including regulatory approvals, and is anticipated to close during the first
quarter of 2002.

Oxford maintains a health care network of physicians and ancillary health
care providers who have entered into formal contracts with Oxford. These
contracts set reimbursement at either fixed levels or pursuant to certain
risk-sharing arrangements and require adherence to Oxfords policies and
procedures for quality and cost-effective treatment.

(2) Summary of Significant Accounting Policies

(a)  Principles of consolidation. The consolidated financial statements
are presented in accordance with accounting principles generally accepted in
the United States (GAAP) and include the accounts of Oxford Health Plans,
Inc. and all majority-owned subsidiaries. All intercompany balances have been
eliminated in consolidation.

(b)  Premium revenue.Membership contracts are generally established on a
yearly basis subject to cancellation by the employer group or Oxford upon 30
days written notice. Premiums, including premiums from both commercial and
governmental programs, are due monthly and are recognized as revenue during the
period in which Oxford is obligated to provide services to members, and are net
of estimated terminations of members and groups. The Company receives premium
payments from the federal Centers for Medicare and Medicaid Services (CMS,
formerly HCFA) on a monthly basis for its Medicare membership. In 2001,
premiums received from CMS represented approximately 15.3% of the Companys
total premium revenue earned. Membership and category eligibility are
periodically reconciled with CMS and could result in revenue adjustments. The
Company is not aware of any material claims, disputes or settlements relating
to revenues it has received from CMS. Premiums receivable are presented net of
valuation allowances for estimated uncollectible amounts of $10 million in 2001
and 2000, respectively, and retroactive billing adjustments of approximately
$9.8 million and $18.6 million in 2001 and 2000, respectively. Operations
include net write-offs and other premium adjustments of approximately $7
million, $9.9 million and $46.9 million in 2001, 2000 and 1999, respectively. A
component of unearned revenue represents the portion of premiums received for
which Oxford is not obligated to provide services until a future date. All
other material revenue is generated from investments, as described in (f)
below.

(c)  Health care services cost recognition.The Company contracts with
various health care providers for the provision of medical care services to its
members and generally compensates those providers on a fee-for-service basis or
pursuant to certain risk-sharing arrangements. Costs of health care and
medical costs payable for health care services provided to enrollees are
estimated by management based on evaluations of providers claims submitted and
provisions for incurred but not reported or paid claims (IBNR). The Company
estimates the provision for IBNR using standard actuarial methodologies based
upon historical data including the period

51



---



##### 



between the date services are rendered and the date claims are received
and paid, denied claim activity, expected medical cost inflation, seasonality
patterns and changes in membership. These estimates are reviewed by the
Companys external auditors and state regulatory authorities on a periodic
basis. The estimates for submitted claims and IBNR are made on an accrual
basis and adjusted in future periods as required. Adjustments to prior period
estimates, if any, are included in the current period. Medical costs payable
also reflects payments required by or anticipated benefits from public policy
initiatives, rebates, reinsurance and cost sharing arrangements. Management
believes that the Companys reserves for medical costs payable are adequate to
satisfy its ultimate unpaid claim liabilities.

Losses, if any, are recognized when it is probable that the expected
future health care cost of a group of existing contracts (and the costs
necessary to maintain those contracts) will exceed the anticipated future
premiums, investment income and reinsurance recoveries on those contracts.
Groups of contracts are defined as commercial, individual and government
contracts consistent with the method of establishing premium rates. The
Company recognizes premium deficiency reserves based upon expected premium
revenue, medical expense and administrative expense levels and remaining
contractual obligations using the Companys historical experience. Anticipated
investment income is not included in the determination of premium deficiency
reserves since its effect is deemed to be immaterial. The Company evaluates
the need for premium deficiency reserves on a quarterly basis. No such
reserves were required as of December 31, 2001. Premium deficiency reserves
aggregated approximately $9.8 million as of December 31, 2000. Such reserves
are included in medical costs payable in the accompanying consolidated balance
sheet.

(d)  Reinsurance.Reinsurance premiums are reported as health care
services expense, while related reinsurance recoveries are reported as
deductions from health care services expense. The Company limits, in part, the
risk of catastrophic losses by maintaining high deductible reinsurance
coverage. The Company does not consider this coverage to be material as the
cost is not significant and the likelihood that coverage will be applicable is
low.

(e)  Cash equivalents.The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.

(f)  Investments. Investments are classified as either available-for-sale
or held-to-maturity. Investments that the Company has the intent and ability
to hold to maturity are designated as held-to-maturity and are stated at
amortized cost. The Company has determined that all other investments might be
sold prior to maturity to support its investment strategies. Accordingly,
these other investments are classified as available-for-sale and are stated at
fair value based on quoted market prices. Unrealized gains and losses on
available-for-sale investments are excluded from earnings and are reported in
accumulated other comprehensive earnings (loss), net of income tax effects
where applicable. Realized gains and losses are determined on a specific
identification basis and are included in results of operations. Investment
income is accrued when earned and included in investment and other income. The
Company requires a credit rating of A or higher on its investments and
maintains an average rating of AA+ on the overall portfolio.

(g)  Property and equipment.Property and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation is calculated
using the straight-line method over the estimated useful lives of the related
assets, which range from three to five years. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease terms or
the estimated useful lives of the assets.

(h)  Computer software costs.Internal and external direct and incremental
costs of $4.4 million and $3.3 million incurred in developing or obtaining
computer software for internal use were capitalized for the years ended
December 31, 2001 and 2000, respectively. These costs are presented in
property and equipment and are being amortized using the straight-line method
over their estimated useful lives, generally two years.

(i)  Income taxes.The Company recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Accordingly, deferred tax
liabilities and assets are determined based on the temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company provides a valuation reserve against the estimated
amounts of deferred taxes that it believes do not meet the more likely than not
recognition criteria.

52



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##### 



(j)  Impairment of long-lived assets and assets to be disposed of.The
Company reviews assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less estimated costs to sell. In August 2001, the Financial Accounting
Standards Board issued Statement No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143) and Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 143
addresses the accounting for the removal, including the sale, abandonment,
recycling or disposal, of a long-lived asset from service and is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144 supercedes SFAS No. 121 and addresses the impairment of long-lived
assets and is effective for financial statements issued for fiscal years
beginning after December 15, 2001. Management believes that the implementation
of these standards will not have a material impact on the Companys
consolidated financial position, results of operations or cash flows.

(k)  Earnings per share.Basic earnings per share is calculated on the
weighted-average number of common shares outstanding. Diluted earnings per
share is calculated on the weighted-average number of common shares and common
share equivalents resulting from options and warrants outstanding.

(l)  Stock option plans. The Company has adopted the provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), which permits entities to continue to
apply the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and provide pro forma net earnings
and pro forma earnings per share disclosures for employee stock option grants
as if the fair-value-based method defined in SFAS 123 had been applied (see
Note 9). With respect to the independent contractor grants, it is the Companys
policy to record such grants and re-issuance grants issued after December 15,
1995, based on the fair market value measurement criteria of SFAS 123.

(m)  Marketing costs.Marketing and other costs associated with the
acquisition of plan member contracts are expensed as incurred.

(n)  Use of estimates. The accompanying consolidated financial statements
have been prepared in accordance with GAAP. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. The more significant estimates include
reserves for IBNR, litigation defense costs and settlements, bad debts and
retroactivity, the carrying value of investments, and the valuation of the Companys investment in MedUnite.
Actual results could differ from these and other estimates.

(o)  Reporting comprehensive income. The changes in value of
available-for-sale securities as reported in the consolidated statements of
shareholders equity (deficit) and comprehensive earnings (loss) include
unrealized holding gains (losses) on available-for-sale securities of $4.9
million, $6.2 million and $(27.1) million in 2001, 2000 and 1999, respectively,
reduced by the tax effects of $2 million and $2.5 million in 2001 and 2000,
respectively, and reclassification adjustments of $1 million, $17.7 million and
$5.2 million in 2001, 2000 and 1999, respectively.

(p)  Reclassifications.Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.

(q)  Business segment information.The Company operates in one principal
business segment, offering commercial (large group, small group, individual and
HMO) and Medicare products to a diverse group of customers in the metropolitan
New York area. All products entitle an insured to obtain services from a
specified subset of the Companys provider network. Substantially all of these
products are supported by the same executive management team and share common
underwriting and claim functions. The Company does not allocate indirect
expenses to any product lines. Assets are not separately identified by
product. Accordingly, the Company does not maintain separate comprehensive
profit and loss accounts for these product lines, other than tracking
membership, premium revenue and medical expense. In the opinion of the
Companys management,

53



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##### 



these product lines possess similar economic characteristics and meet the
aggregation criteria described in SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information.

Membership in the Companys commercial and Medicare plans was 1,372,300
and 77,800, respectively, at December 31, 2001, 1,337,000 and 92,000,
respectively, at December 31, 2000, and 1,445,900 and 97,700, respectively, at
December 31, 1999. Premium revenue for the Companys commercial and Medicare
plans was $3.65 billion and $659.3 million, respectively, for the year ended
December 31, 2001, $3.35 billion and $677.5 million, respectively, for the year
ended December 31, 2000, and $3.35 billion and $737.8 million, respectively,
for the year ended December 31, 1999. The medical loss ratio for the Companys
commercial and Medicare plans (defined as the ratio of health care services
expense to premium revenue) was 78.4% and 81.2%, respectively, for the year
ended December 31, 2001, 76.2% and 83.9%, respectively, for the year ended
December 31, 2000 and 81.6% and 84.8%, respectively, for the year ended
December 31, 1999.

Generally, the Company maintains separate subsidiaries for each state
where it conducts business and for which financial information is accumulated
and reported, both internally and externally. However, this structure is
necessitated by regulatory requirements and generally not viewed by management
as a means to operate the business. Administrative expenses are not tracked
individually by subsidiary, but rather are subject to an allocation process
approved by regulatory authorities.

(3) Investments

The following is a summary of marketable securities as of December 31,
2001 and 2000:

|                                               |                                      |                   |        |            |         |            |       |       |        |       |      |        |        |   |        |         |         | 
|---------------------------------------------- | ------------------------------------ | ----------------- | ------ | ---------- | ------- | ---------- | ----- | ----- | ------ | ----- | ---- | ------ | ------ | - | ------ | ------- | ------- | 
|                                               |                                      |                   |        |            |         |            |       | Gross |        | Gross |      |        |        |  
|(In thousands)                                 |                                      | Amortized         |        | Unrealized |         | Unrealized |       | Fair 
|December 31, 2001:                             |                                      | Cost              |        | Gains      |         | Losses     |       | Value
|                                               |                                      |                   |        |            |         |            |       |      
|Available-for-sale:                            |                                      |                   |        |            |         |            |       |       |        |       |      |        |        |   |        |        
|                                               | U.S. government obligations          |                   | $      | 276,920    |         |            | $     | 3,467 |        |       | $    | (1,887 | )      |   | $      | 278,500 |        
|                                               | Corporate obligations                |                   |        | 376,116    |         |            |       | 8,669 |        |       |      | (1,045 | )      |   |        | 383,740 |        
|                                               | Municipal bonds                      |                   |        | 67,640     |         |            |       | 469   |        |       |      | (630   | )      |   |        | 67,479  |        
|                                               | Mortgage and asset backed securities |                   |        | 229,890    |         |            |       | 2,686 |        |       |      | (643   | )      |   |        | 231,933 |        
|                                               |                                      |                   |        |            |         |            |       |       |        |       |      |        |        |   |        |        
|                                               |                                      | Total investments |        | $          | 950,566 |            |       | $     | 15,291 |       |      | $      | (4,205 | ) |        | $       | 961,652 | 
|                                               |                                      |                   |        |            |         |            |       |       |        |       |      |        |        |   |        |        
|Held-to-maturity  U.S. government obligations |                                      | $                 | 58,813 |            |         | $          | 2,198 |       |        | $     | (189 | )      |        | $ | 60,822 |        
|                                               |                                      |                   |        |            |         |            |       |       |        |       |      |        |        |   |        |        

|                                               |                             |                   |        |            |         |            |     |       |       |       |     |        |        |   |        |         |         | 
|---------------------------------------------- | --------------------------- | ----------------- | ------ | ---------- | ------- | ---------- | --- | ----- | ----- | ----- | --- | ------ | ------ | - | ------ | ------- | ------- | 
|                                               |                             |                   |        |            |         |            |     | Gross |       | Gross |     |        |        |  
|(In thousands)                                 |                             | Amortized         |        | Unrealized |         | Unrealized |     | Fair 
|December 31, 2000:                             |                             | Cost              |        | Gains      |         | Losses     |     | Value
|                                               |                             |                   |        |            |         |            |     |      
|Available-for-sale:                            |                             |                   |        |            |         |            |     |       |       |       |     |        |        |   |        |        
|                                               | U.S. government obligations |                   | $      | 385,871    |         |            | $   | 5,157 |       |       | $   | (1,517 | )      |   | $      | 389,511 |        
|                                               | Corporate obligations       |                   |        | 456,079    |         |            |     | 4,238 |       |       |     | (2,045 | )      |   |        | 458,272 |        
|                                               | Municipal bonds             |                   |        | 20,264     |         |            |     | 333   |       |       |     |       |        |   |        | 20,597  |        
|                                               |                             |                   |        |            |         |            |     |       |       |       |     |        |        |   |        |        
|                                               |                             | Total investments |        | $          | 862,214 |            |     | $     | 9,728 |       |     | $      | (3,562 | ) |        | $       | 868,380 | 
|                                               |                             |                   |        |            |         |            |     |       |       |       |     |        |        |   |        |        
|Held-to-maturity  U.S. government obligations |                             | $                 | 57,194 |            |         | $          | 890 |       |       | $     | (11 | )      |        | $ | 58,073 |        
|                                               |                             |                   |        |            |         |            |     |       |       |       |     |        |        |   |        |        

The amortized cost and estimated fair value of marketable debt securities
at December 31, 2001, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because the issuers of
securities may have the right to prepay such obligations without prepayment
penalties.

|                                       |       |      |                    |         |                  |      |           |         |      |   |        |        |  |   |        |        | 
|-------------------------------------- | ----- | ---- | ------------------ | ------- | ---------------- | ---- | --------- | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                       |       |      | Available-for-Sale |         | Held-to-Maturity
|                                       |       |      |                    |         |                 
|                                       |       |      | Amortized          |         | Fair             |      | Amortized |         | Fair
|(In thousands)                         |       | Cost |                    | Value   |                  | Cost |           | Value  
|                                       |       |      |                    |         |                  |      |           |        
|Due in one year or less                |       | $    | 56,703             |         |                  | $    | 57,439    |         |      | $ | 7,681  |        |  | $ | 7,755  |       
|Due after one year through five years  |       |      | 340,543            |         |                  |      | 347,285   |         |      |   | 46,211 |        |  |   | 48,290 |       
|Due after five years through ten years |       |      | 553,320            |         |                  |      | 556,928   |         |      |   | 4,921  |        |  |   | 4,777  |       
|                                       |       |      |                    |         |                  |      |           |         |      |   |        |        |  |   |        |       
|                                       | Total |      | $                  | 950,566 |                  |      | $         | 961,652 |      |   | $      | 58,813 |  |   | $      | 60,822 | 
|                                       |       |      |                    |         |                  |      |           |         |      |   |        |        |  |   |        |       

54



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Certain information related to marketable securities is as follows:

|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|(In thousands)                                                                                        |  | 2001 |           | 2000 |  | 1999
|                                                                                                      |  |      |           |      |  |     
|Proceeds from sale or maturity of available-for-sale securities                                       |  | $    | 1,111,138 |      |  | $    | 430,682 |   |  | $ | 916,231 |  
|Proceeds from maturity of held-to-maturity securities                                                 |  |      | 19,673    |      |  |      | 19,400  |   |  |   | 3,709   |  
|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  
|Total proceeds from sale or maturity of marketable securities                                         |  | $    | 1,130,811 |      |  | $    | 450,082 |   |  | $ | 919,940 |  
|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  
|Gross realized gains on sale of available-for-sale securities                                         |  | $    | 21,923    |      |  | $    | 2,192   |   |  | $ | 2,474   |  
|Gross realized losses on sale of available-for-sale securities                                        |  |      | (1,136    | )    |  |      | (2,081  | ) |  |   | (7,655  | )
|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  
|Net realized gains (losses) on sale of marketable securities                                          |  | $    | 20,787    |      |  | $    | 111     |   |  | $ | (5,181  | )
|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  
|Net unrealized gain (loss) on available-for-sale securities included
in comprehensive earnings (loss) |  | $    | 4,920     |      |  | $    | 23,911  |   |  | $ | (21,882 | )
|Deferred income tax expense                                                                           |  |      | (971      | )    |  |      | (2,528  | ) |  |   |        |  
|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  
|Other comprehensive earnings (loss)                                                                   |  | $    | 3,949     |      |  | $    | 21,383  |   |  | $ | (21,882 | )
|                                                                                                      |  |      |           |      |  |      |         |   |  |   |         |  

Net investment income in 2001, 2000 and 1999 was $93.6 million, $77.4
million and $62.1 million, respectively. Other income in 2000 includes a $5.4
million loss on the sale of fixed assets, a $1.5 million investment valuation
loss, and a gain on disposition of assets of $1.6 million and, in 1999, a $13.5
million gain on the sale of the New York Medicaid business and a $7 million
gain on the sale of the assets of the Companys wholly-owned subsidiary, Direct
Script, Inc.

(4) Income Taxes

Income tax expense (benefit) consists of:

|                              |                 |         |   |          |         |       |   |          |          |   |   |          |          |  
|----------------------------- | --------------- | ------- | - | -------- | ------- | ----- | - | -------- | -------- | - | - | -------- | -------- | -
|(In thousands)                |                 | Current |   | Deferred |         | Total
|                              |                 |         |   |          |         |      
|Year ended December 31, 2001: |                 |         |   |          |         |       |   |          |          |   |   |         
|                              | Federal         |         | $ | 119,076  |         |       | $ | 30,625   |          |   | $ | 149,701  |         
|                              | State and local |         |   | 14,754   |         |       |   | 24,875   |          |   |   | 39,629   |         
|                              |                 |         |   |          |         |       |   |          |          |   |   |         
|                              |                 | Total   |   | $        | 133,830 |       |   | $        | 55,500   |   |   | $        | 189,330  |  
|                              |                 |         |   |          |         |       |   |          |          |   |   |         
|Year ended December 31, 2000: |                 |         |   |          |         |       |   |          |          |   |   |         
|                              | Federal         |         | $ |         |         |       | $ | 155,257  |          |   | $ | 155,257  |         
|                              | State and local |         |   | 1,180    |         |       |   | 42,648   |          |   |   | 43,828   |         
|                              |                 |         |   |          |         |       |   |          |          |   |   |         
|                              |                 | Total   |   | $        | 1,180   |       |   | $        | 197,905  |   |   | $        | 199,085  |  
|                              |                 |         |   |          |         |       |   |          |          |   |   |         
|Year ended December 31, 1999: |                 |         |   |          |         |       |   |          |          |   |   |         
|                              | Federal         |         | $ |         |         |       | $ | (150,406 | )        |   | $ | (150,406 | )       
|                              | State and local |         |   |         |         |       |   | (5,848   | )        |   |   | (5,848   | )       
|                              |                 |         |   |          |         |       |   |          |          |   |   |         
|                              |                 | Total   |   | $        |        |       |   | $        | (156,254 | ) |   | $        | (156,254 | )
|                              |                 |         |   |          |         |       |   |          |          |   |   |         

Cash paid for income taxes was approximately $75.9 million, $8.6 million
and $3 million for 2001, 2000 and 1999, respectively. Cash paid for income
taxes in 2000 and 1999 principally represents estimated federal alternative
minimum taxes.

Income tax expense differed from the amounts computed by applying the
federal income tax rate of 35% to earnings before income taxes and
extraordinary items as a result of the following:

|                                                                  |                              |      |         |         |  |      |         |         |  |   |          |          |  
|----------------------------------------------------------------- | ---------------------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | -------- | -------- | -
|(In thousands)                                                    |                              | 2001 |         | 2000    |  | 1999
|                                                                  |                              |      |         |         |  |     
|Income tax expense at statutory tax rate                          |                              | $    | 179,113 |         |  | $    | 169,576 |         |  | $ | 57,290   |         
|State and local income taxes, net of federal income tax benefit   |                              |      | 31,217  |         |  |      | 27,719  |         |  |   | 11,746   |         
|Change in valuation allowance                                     |                              |      | (21,000 | )       |  |      | (10,000 | )       |  |   | (225,002 | )       
|Effect of future state and local tax rates on deferred tax assets |                              |      |        |         |  |      | 11,790  |         |  |   |         |         
|Other, net                                                        |                              |      |        |         |  |      |        |         |  |   | (288     | )       
|                                                                  |                              |      |         |         |  |      |         |         |  |   |          |         
|                                                                  | Income tax expense (benefit) |      | $       | 189,330 |  |      | $       | 199,085 |  |   | $        | (156,254 | )
|                                                                  |                              |      |         |         |  |      |         |         |  |   |          |         

55



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The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at December 31, 2001 and 2000 are as
follows:

|                     |                                                           |                             |   |        |        |  |   |         |         | 
|-------------------- | --------------------------------------------------------- | --------------------------- | - | ------ | ------ |  | - | ------- | ------- | 
|(In thousands)       |                                                           | 2001                        |   | 2000  
|                     |                                                           |                             |   |       
|Deferred tax assets: |                                                           |                             |   |        |        |  |   |        
|                     | Unearned revenue                                          |                             | $ | 43,907 |        |  | $ | 7,191   |        
|                     | Trade accounts payable and accrued expenses               |                             |   | 17,277 |        |  |   | 9,593   |        
|                     | Medical costs payable                                     |                             |   | 13,488 |        |  |   | 12,548  |        
|                     | Property and equipment                                    |                             |   | 10,519 |        |  |   | 11,249  |        
|                     | Allowance for doubtful accounts                           |                             |   | 9,664  |        |  |   | 13,630  |        
|                     | Net operating loss carryforwards                          |                             |   | 2,635  |        |  |   | 85,340  |        
|                     | Restructuring related                                     |                             |   | 1,728  |        |  |   | 5,668   |        
|                     | Unrealized appreciation of available for sale investments |                             |   | (3,499 | )      |  |   | (2,528  | )      
|                     | Capital loss carryforwards                                |                             |   |       |        |  |   | 12,960  |        
|                     | Other                                                     |                             |   | (821   | )      |  |   | 16,718  |        
|                     |                                                           |                             |   |        |        |  |   |        
|                     |                                                           | Total gross deferred assets |   |        | 94,898 |  |   |         | 172,369 | 
|                     | Less valuation allowances                                 |                             |   | (3,134 | )      |  |   | (24,134 | )      
|                     |                                                           |                             |   |        |        |  |   |        
|                     |                                                           | Net deferred tax assets     |   | $      | 91,764 |  |   | $       | 148,235 | 
|                     |                                                           |                             |   |        |        |  |   |        

In light of the Companys progress from 1999 through 2001, its estimates
of future earnings and the expected timing of the reversal of other net tax
deductible temporary differences, management concluded that a valuation
allowance was no longer necessary for its federal and state net operating loss
carryforwards and certain other temporary differences. In addition, in 2001,
based on the recognition of realized gains, the valuation allowance related to
capital loss carryforwards was reversed. The income tax expense (benefit)
recorded for the years ended December 31, 2001, 2000 and 1999 includes the
reversal of $21 million, $10 million and $225 million, respectively, of
deferred tax valuation allowances. The remaining valuation allowance at
December 31, 2001 of $3.1 million relates primarily to the recognition of
certain restructuring related and property and equipment deferred tax assets.
The Company adjusted its net deferred tax assets during 2000 for the effects of
changes in state and local tax rates relating to the periods when the net
deferred tax assets are expected to reverse. The impact was to increase 2000
income tax expense by approximately $11.8 million. Management believes that
the Company will obtain the full benefit of the net deferred tax assets
recorded at December 31, 2001.

(5) Property and Equipment

Property and equipment, net of accumulated depreciation, is as follows:

|                                          |                               |      |                    |         |  |   |         |         | 
|----------------------------------------- | ----------------------------- | ---- | ------------------ | ------- |  | - | ------- | ------- | 
|                                          |                               |      | As of December 31,
|                                          |                               |      |                   
|(In thousands)                            |                               | 2001 |                    | 2000   
|                                          |                               |      |                    |        
|Land and buildings                        |                               | $    | 40                 |         |  | $ | 40      |        
|Furniture and fixtures                    |                               |      | 10,734             |         |  |   | 11,075  |        
|Equipment                                 |                               |      | 63,769             |         |  |   | 65,446  |        
|Leasehold improvements                    |                               |      | 33,537             |         |  |   | 33,572  |        
|                                          |                               |      |                    |         |  |   |         |        
|                                          | Property and equipment, gross |      |                    | 108,080 |  |   |         | 110,133 | 
|Accumulated depreciation and amortization |                               |      | (72,996            | )       |  |   | (90,354 | )      
|                                          |                               |      |                    |         |  |   |         |        
|                                          | Property and equipment, net   |      | $                  | 35,084  |  |   | $       | 19,779  | 
|                                          |                               |      |                    |         |  |   |         |        

Depreciation and amortization of property and equipment aggregated $16.3
million, $32.8 million and $49.8 million during the years ended December 31,
2001, 2000 and 1999, respectively.

As part of an agreement to outsource certain information technology
operations (see Note 11), during the fourth quarter of 2000 the Company sold
certain computer-related equipment, with a cost of approximately $79.6 million
and a net book value of approximately $7.9 million, at its estimated fair
market value and recognized a loss on disposal of approximately $5.4 million,
which is included in investment and other income, net. As also discussed in
Note 11, costs for equipment purchased by the Companys outsourcing vendor that
will be used in the Companys operations are capitalized and amortized over
three to five years. For the year ended December 31, 2001, the Company
capitalized equipment purchases of approximately $27.2 million under this
agreement.

56



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(6) Debt

Debt consists of the following:

|                         |  |                    |         |      |  |   |          |  
|------------------------ |  | ------------------ | ------- | ---- |  | - | -------- | -
|                         |  | As of December 31,
|                         |  |                   
|(In thousands)           |  | 2001               |         | 2000
|                         |  |                    |         |     
|Senior Secured Term Loan |  | $                  | 153,126 |      |  | $ | 175,000  |  
|Less current portion     |  |                    | (26,250 | )    |  |   | (147,000 | )
|                         |  |                    |         |      |  |   |          |  
|Long-term debt           |  | $                  | 126,876 |      |  | $ | 28,000   |  
|                         |  |                    |         |      |  |   |          |  

The Company entered into a Credit Agreement, dated as of December 22, 2000
(the Credit Agreement), that provides for a senior secured term loan (New
Term Loan) and a revolving credit facility (Revolver, together with the New
Term Loan, the Senior Credit Facilities), with several financial institutions
(Lenders) that provides for maximum borrowings under the New Term Loan of
$175 million and $75 million under the Revolver. The proceeds of the New Term
Loan, along with available Company cash, were used to fund the Recapitalization
described in Note 8. The Company has not drawn on the Revolver.

The New Term Loan provides for scheduled quarterly repayments of principal
ranging from $21.9 million to $39.4 million with a final maturity in June 2006.
During the year ended December 31, 2001, the Company repaid approximately
$21.9 million of principal outstanding under the New Term Loan.

The Credit Agreement also provides for voluntary prepayments of principal
and voluntary reductions in commitments under the Revolver without penalty of a
minimum amount of $5 million and mandatory prepayments of principal from
proceeds upon the occurrence of certain events. Mandatory prepayments of
principal and/or reductions in the Revolver were required from (1) the net
proceeds from the sale of assets, subject to certain exceptions; (2) 50% of the
net proceeds from certain equity issuances; and (3) the net proceeds from the
issuance of debt securities. The Credit Agreement also provides for mandatory
prepayment of the entire amount outstanding under the Senior Credit Facilities
at a 1% premium upon the occurrence of a change in control (as defined). In
July 2001, the Company and its Lenders amended the Credit Agreement (the
Amendment) to, among other things, (i) eliminate the mandatory prepayment
provisions as they related to excess cash flows, (ii) allow the Company to use
unrestricted Parent Company cash to repurchase common stock and make other
payments as defined in the Credit Agreement subject to a minimum of $150
million of liquidity (see Note 7) and (iii) allow the Company, subject to
certain restrictions, to borrow an additional $300 million. The
Company is in compliance with all covenants in the Credit Agreement. As a result of the
Amendment, the Company adjusted the amounts included in current and long-term
liabilities to reflect the scheduled repayments of principal according to the
New Term Loan. At December 31, 2000, prior to the Amendment and based on
financial projections at that time for 2001 and 2002, the Company expected to
repay the New Term Loan in full by June 30, 2002. Accordingly, a portion of
the debt had been classified as current at December 31, 2000 based on these
estimates.

The commitment under the Revolver shall be reduced to $50 million plus the
then outstanding amount if a settlement of certain securities litigation occurs
(see Note 18), and $50 million on January 1, 2005, with the expiration of all
commitments under the Revolver on December 31, 2005.

Borrowings under the Senior Credit Facilities bear interest, subject to
periodic resets, at either a base rate (Base Rate Borrowings) or LIBOR plus
an applicable margin based on the Companys credit ratings. Interest on Base
Rate Borrowings is calculated as the higher of (a) the prime rate or (b) the
federal funds effective rate plus 0.5% and is payable quarterly. On February
13, 2002, the interest rate on the New Term Loan was reset (see Note 21).
Commitment fees of 0.5% per annum are payable on the unused portion of the
Revolver.

The Senior Credit Facilities grant a first priority lien to the Lenders on
all property of the Company and material non-regulated subsidiaries, and all
capital stock of its material subsidiaries and provide that the Company
maintain certain financial ratios and prohibits certain restricted payments, as
defined.

The costs incurred in connection with the issuance of the New Term Loan
and Revolver, aggregating approximately $4.3 million and $1.9 million,
respectively, have been capitalized and are being amortized over a period of 60
months.

57



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##### 



During the second half of 2000, the Company repurchased or tendered all of
its $200 million 11% Senior Notes due 2005 (the Senior Notes) and paid $22.4
million in premiums. The purchase price for each $1,000 principal amount of the
remaining Senior Notes validly tendered and accepted was determined based on a
fixed spread of 0.5% over the yield to maturity of the 7.5% U.S. Treasury Note
due May 15, 2002. All of the outstanding Senior Notes were tendered with
consent. The total purchase price, including tender and consent premiums, was
approximately $215.9 million, or $1,115.50 per $1,000 principal amount.

During 2000, the Company redeemed $150 million outstanding under the Term
Loan Agreement, dated as of May 13, 1998, (the Term Loan), due 2003, prior to
maturity. Proceeds from dividend and surplus note repayments received from the
Companys HMO subsidiaries were used to redeem the Term Loan. The Term Loan
bore interest at a rate equal to the administrative agents reserve adjusted
LIBOR rate plus 4.25%. As of December 31, 1999, the interest rate on the Term
Loan was 10.7125%. Interest was payable semi-annually on May 15 and November
15.

As a result of the redemption of the Senior Notes and the Term Loan in
2000 as discussed above, the Company recorded an extraordinary charge of $20.3
million, or $0.22 per diluted share, net of income tax benefits of $13.9
million. The extraordinary charge represents the payment of redemption
premiums, transaction costs and the write off of deferred finance costs, net of
related tax benefits.

The Company made cash payments for interest expense on indebtedness and
delayed claims of approximately $16.1 million, $35.5 million and $53 million in
2001, 2000 and 1999, respectively.

(7) Share Repurchase Program

In July 2001, the Companys Board of Directors approved a share repurchase
program for up to $250 million of the Companys outstanding common stock
through August 1, 2003. In November 2001, the Companys Board of Directors
approved an increase of $250 million to its existing share repurchase program
and extended the program through September 2003. The program authorizes the
Company to purchase shares on the open market and in privately negotiated
transactions from time to time depending on general market conditions. As of
December 31, 2001, the Company had repurchased 12,961,000 shares of its common
stock at a total cost of approximately $366.5 million. The Company had
remaining share repurchase authority of approximately $133.5 million at
December 31, 2001.

(8) Redeemable Preferred Stock

Activity for redeemable preferred stock is as follows:

|                                             |  |      |          |      |  |   |         | 
|-------------------------------------------- |  | ---- | -------- | ---- |  | - | ------- | 
|(In thousands)                               |  | 2000 |          | 1999
|                                             |  |      |          |     
|Beginning balance                            |  | $    | 344,316  |      |  | $ | 298,816 | 
|Accrued in-kind dividends                    |  |      | 4,565    |      |  |   | 30,486  | 
|Accrued cash dividends                       |  |      | 13,792   |      |  |   |        | 
|Cash dividends paid                          |  |      | (13,792  | )    |  |   |        | 
|Redemption of principal in cash              |  |      | (208,592 | )    |  |   |        | 
|Redemption of principal to exercise warrants |  |      | (195,008 | )    |  |   |        | 
|Write-off preferred stock discount and costs |  |      | 40,373   |      |  |   |        | 
|Amortization of discount                     |  |      | 12,619   |      |  |   | 12,650  | 
|Amortization of issuance expenses            |  |      | 1,727    |      |  |   | 2,364   | 
|                                             |  |      |          |      |  |   |         | 
|Ending balance                               |  | $    |         |      |  | $ | 344,316 | 
|                                             |  |      |          |      |  |   |         | 

In February 2000, the Company commenced a capital restructuring with the
repurchase of approximately $130 million of Series E Cumulative Preferred
Stock, par value $.01 per share (the Series E Preferred Stock) and Series D
Cumulative Preferred Stock, par value $.01 per share (the Series D Preferred
Stock, together with the Series E Preferred Stock, the Preferred Stock) and
in December 2000, the Company consummated an exchange and repurchase agreement
pursuant to which, among other things, (i) the Company paid $220 million to TPG
Partners II, L.P. (formerly TPG Oxford LLC) and certain of its affiliates and
designees (TPG Investors) to repurchase certain of the shares of Preferred
Stock and certain of the warrants and (ii) TPG Investors exchanged their
remaining shares of Preferred Stock and remaining warrants for 10,986,455 newly
issued

58



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##### 



shares of common stock (the Recapitalization). Accordingly, as of the
end of 2000, the Company had no warrants or Preferred Stock outstanding.

As a result of the Recapitalization in the fourth quarter of 2000, and the
repurchase of the Preferred Stock in the first quarter of 2000, the Company
recorded a charge against earnings available to common shareholders of
approximately $41.1 million of unamortized preferred stock original issue
discount, issuance expenses and transaction costs during 2000.

(9) Stock Option Plans

The Company grants fixed stock options under its 1991 Stock Option Plan,
as amended (the Employee Plan), to certain key employees and consultants,
under its 1997 Independent Contractor Stock Option Plan (the Independent
Contractor Plan) to certain independent contractors who materially contribute
to the long-term success of the Company and under its Nonemployee Directors
Stock Option Plan, as amended (the Nonemployee Plan), to outside directors to
purchase common stock at a price not less than 100% of quoted market value at
date of grant. The Nonemployee Plan terminated in 2001, except as to options
outstanding.

The Employee Plan provides for granting of nonqualified stock options and
incentive stock options which vest as determined by the Company and expire over
varying terms, but not more than seven years from date of grant. The Employee
Plan is administered by a compensation committee currently comprised of four
members of the Board of Directors, selected by the Board. The committee
determines the individuals to whom awards shall be granted as well as the terms
and conditions of each award, the grant date and the duration of each award.
All options are initially granted at fair market value on date of grant. The
Companys previous nonqualified employee stock option plan terminated in 1991,
except as to options outstanding.

The Independent Contractor Plan provides for granting of nonqualified
stock options which vest as determined by the Company and expire over varying
terms, but not more than seven years from the date of grant. The Employee Plan
and the Independent Contractor Plan are administered by a committee consisting
of four members of the Board of Directors, selected by the Board. The
committee determines the individuals to whom awards shall be granted as well as
the terms and conditions of each award, the grant date and the duration of each
award. All options are granted at fair market value on the date of the grant.

The Nonemployee Plan provided for granting of nonqualified stock options
to eligible nonemployee directors of the Company. The plan provided that each
year on the first Friday following the Companys annual meeting of
stockholders, each individual elected, re-elected or continuing as a
nonemployee director would automatically receive a nonqualified stock option
for 5,000 shares of common stock with an exercise price at the fair market
value on that date. The plan further provided that one-fourth of the options
granted under the plan vested on each of the date of grant and the Friday prior
to the second, third and fourth annual meeting of stockholders following the
date of such grant.

On February 7, 2002, the Companys Board of Directors approved two new
equity compensation plans (see Note 21).

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Stock option activity for all fixed option plans, adjusted for all stock
splits, is summarized as follows:

|                                 |  |        |            |                 |  |                  |       | 
|-------------------------------- |  | ------ | ---------- | --------------- |  | ---------------- | ----- | 
|                                 |  |        |            |                 |  | Weighted-Average
|                                 |  | Shares |            | Exercise Prices
|                                 |  |        |            |                
|Outstanding at January 1, 1999   |  |        | 15,300,731 |                 |  | $                | 15.40 | 
|Granted                          |  |        | 3,634,141  |                 |  |                  | 16.74 | 
|Exercised                        |  |        | (1,470,585 | )               |  |                  | 12.35 | 
|Cancelled                        |  |        | (2,201,930 | )               |  |                  | 22.51 | 
|                                 |  |        |            |                 |  |                  |       | 
|Outstanding at December 31, 1999 |  |        | 15,262,357 |                 |  |                  | 15.04 | 
|Granted                          |  |        | 3,512,223  |                 |  |                  | 13.75 | 
|Exercised                        |  |        | (5,321,694 | )               |  |                  | 12.11 | 
|Cancelled                        |  |        | (3,058,887 | )               |  |                  | 15.22 | 
|                                 |  |        |            |                 |  |                  |       | 
|Outstanding at December 31, 2000 |  |        | 10,393,999 |                 |  |                  | 16.03 | 
|Granted                          |  |        | 6,835,575  |                 |  |                  | 31.00 | 
|Exercised                        |  |        | (2,051,109 | )               |  |                  | 14.40 | 
|Cancelled                        |  |        | (1,716,678 | )               |  |                  | 27.06 | 
|                                 |  |        |            |                 |  |                  |       | 
|Outstanding at December 31, 2001 |  |        | 13,461,787 |                 |  |                  | 22.47 | 
|                                 |  |        |            |                 |  |                  |       | 
|Exercisable at December 31, 2001 |  |        | 4,832,505  |                 |  | $                | 15.65 | 
|                                 |  |        |            |                 |  |                  |       | 

As of December 31, 2001, there were 14,795,551 shares of common stock
reserved for issuance under the plans, including 1,333,764 shares reserved for
future grant.

Under the terms of an employment agreement, Norman C. Payson, M.D., the
Chief Executive Officer of the Company, was granted on February 23, 1998 a
nonqualified stock option (the Option) to purchase 2,000,000 shares of common
stock at an exercise price of $15.52 per share and, in August 1998, a
nonqualified stock option (the Additional Option) was granted to purchase an
additional 1,000,000 shares of Company common stock under the 1991 Stock Option
Plan. The Option generally provides that 800,000 shares will vest on February
23, 1999, and that the remaining 1,200,000 shares will vest ratably on a
monthly basis over the 36 month period ending February 23, 2002, provided in
each case that Dr. Payson is employed by the Company on the applicable vesting
date. The Option also provides for acceleration of vesting and extended
exercisability periods in certain circumstances, including certain terminations
of employment and a change in control (as defined in the Employee Plan) of the
Company. The difference between the exercise price and the fair market value
of the shares subject to the Option on the date of issuance has been accounted
for as unearned compensation and is being amortized to expense over the period
restrictions lapse. Unearned compensation charged to operations in 2001, 2000
and 1999 was approximately $1.9 million, $1.9 million and $2.2 million,
respectively. The Additional Option has an exercise price equal to $6.0625,
vests ratably over the four years from February 23, 1998, and is otherwise
subject to the terms and conditions of the Employee Plan. The Additional
Option also provides for accelerated vesting following a change in control (as
defined in the Employee Plan).

In the fourth quarter of 1999, terms of the option agreements between the
Company and two former executives were amended to allow for an extension of the
exercise period. As a result, the Company recorded additional compensation
expense of $4.2 million ($2.5 million net of deferred tax benefits) during
1999.

60



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Information about fixed stock options outstanding at December 31, 2001, is
summarized as follows:

|                |       |             |  |                |  |                  |   |       |  |  |  |            |  |  |   |            |  |         |            |            |  | 
|--------------- | ----- | ----------- |  | -------------- |  | ---------------- | - | ----- |  |  |  | ---------- |  |  | - | ---------- |  | ------- | ---------- | ---------- |  | 
|                |       |             |  |                |  |                  |   |       |  |  |  |            |  |  |   |            |  |         |            | Weighted

|                |       |             |  |                |  |                  |   |       |  |  |  |            |  |  |   | Weighted
 |  | Average
|Range of        |       | Number      |  | Average        |  | Remaining       
|Exercise Prices |       | Outstanding |  | Exercise Price |  | Contractual Life
|                |       |             |  |                |  |                 
|$               | 5.01  |             |  |               |  |                  | $ | 10.00 |  |  |  | 1,501,343  |  |  | $ | 6.29       |  |         | 1.64 Years
|                | 10.01 |             |  |               |  |                  |   | 15.00 |  |  |  | 1,609,923  |  |  |   | 13.50      |  |         | 5.14 Years
|                | 15.01 |             |  |               |  |                  |   | 20.00 |  |  |  | 3,618,146  |  |  |   | 16.56      |  |         | 4.92 Years
|                | 20.01 |             |  |               |  |                  |   | 25.00 |  |  |  | 135,750    |  |  |   | 22.42      |  |         | 6.45 Years
|                | 25.01 |             |  |               |  |                  |   | 50.00 |  |  |  | 6,496,625  |  |  |   | 30.95      |  |         | 6.43 Years
|                | 50.01 |             |  |               |  |                  |   | 74.00 |  |  |  | 100,000    |  |  |   | 72.54      |  |         | 1.09 Years
|                |       |             |  |                |  |                  |   |       |  |  |  |            |  |  |   |            |  |         |            |           
|                | 5.01  |             |  |               |  |                  |   | 74.00 |  |  |  | 13,461,787 |  |  |   | 22.47      |  |         | 5.30 Years
|                |       |             |  |                |  |                  |   |       |  |  |  |            |  |  |   |            |  |         |            |            | 

Information about fixed stock options exercisable at December 31, 2001, is
summarized as follows:

|                |       |             |  |                |  |  |   |       |  |  |  |           |  |  |   |            |  | 
|--------------- | ----- | ----------- |  | -------------- |  |  | - | ----- |  |  |  | --------- |  |  | - | ---------- |  | 
|                |       |             |  |                |  |  |   |       |  |  |  |           |  |  |   | Weighted

|Range of        |       | Number      |  | Average       
|Exercise Prices |       | Exercisable |  | Exercise Price
|                |       |             |  |               
|$               | 5.01  |             |  |               |  |  | $ | 10.00 |  |  |  | 983,986   |  |  | $ | 6.37       | 
|                | 10.01 |             |  |               |  |  |   | 15.00 |  |  |  | 996,954   |  |  |   | 13.43      | 
|                | 15.01 |             |  |               |  |  |   | 20.00 |  |  |  | 2,543,228 |  |  |   | 16.06      | 
|                | 20.01 |             |  |               |  |  |   | 25.00 |  |  |  | 53,750    |  |  |   | 21.56      | 
|                | 25.01 |             |  |               |  |  |   | 50.00 |  |  |  | 154,587   |  |  |   | 43.54      | 
|                | 50.01 |             |  |               |  |  |   | 74.00 |  |  |  | 100,000   |  |  |   | 72.54      | 
|                |       |             |  |                |  |  |   |       |  |  |  |           |  |  |   |           
|                | 5.01  |             |  |               |  |  |   | 74.00 |  |  |  | 4,832,505 |  |  |   | 15.65      | 
|                |       |             |  |                |  |  |   |       |  |  |  |           |  |  |  

The Company applies APB Opinion No. 25 and related interpretations in
accounting for the plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans other than for modifications of
option terms that result in new measurement dates. Had compensation cost for
the Companys stock option plans been determined based on the fair value at the
grant dates for grants under these plans consistent with the methodology of
SFAS 123, the Companys net earnings and earnings per share for the years ended
December 31, 2001, 2000 and 1999, would have been reduced to the pro forma
amounts indicated below:

|                                         |  |             |  |   |         |      |  |      |         |      |  |   |         |  |  | 
|---------------------------------------- |  | ----------- |  | - | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- |  |  | 
|(In thousands, except per share amounts) |  |             |  |   |         | 2001 |  | 2000 |         | 1999
|                                         |  |             |  |   |         |      |  |      |         |     
|Net earnings for common shares           |  | As reported |  | $ | 322,421 |      |  | $    | 191,303 |      |  | $ | 274,440 | 
|                                         |  | Pro forma   |  | $ | 296,529 |      |  | $    | 164,495 |      |  | $ | 244,422 | 
|Basic earnings per share                 |  | As reported |  | $ | 3.35    |      |  | $    | 2.26    |      |  | $ | 3.38    | 
|                                         |  | Pro forma   |  | $ | 3.08    |      |  | $    | 1.94    |      |  | $ | 3.01    | 
|Diluted earnings per share               |  | As reported |  | $ | 3.21    |      |  | $    | 2.02    |      |  | $ | 3.26    | 
|                                         |  | Pro forma   |  | $ | 2.95    |      |  | $    | 1.74    |      |  | $ | 2.90    | 
|                                         |  |             |  |   |         |      |  |      |         |      |  |   |         |  |  | 

The per share weighted-average fair value of stock options granted was
$15.25, $6.91 and $8.21 during 2001, 2000 and 1999, respectively, estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants: no dividend yield for
any year; expected volatility of 70.71%, 75.87% and 73.67%, risk-free interest
rates of 3.70%, 6.37% and 5.66% in 2001, 2000 and 1999, respectively, and
expected lives of four years.

(10) Leases

Oxford leases office space and equipment under operating leases. Rent
expense under operating leases for the years ended December 31, 2001, 2000, and
1999 was approximately $10.9 million, $12.5 million and $14.8 million,
respectively. The Companys lease terms range from one to five years with
certain options to renew. Certain lease agreements provide for escalation of
payments based on fluctuations in certain published

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cost-of-living indices. See Note 11 for information related to the
Companys obligation for certain information technology equipment under its
outsourcing agreement with Computer Sciences Corporation.

Property held under capital leases is summarized as follows and is
included in property and equipment:

|                              |                          |      |   |      |  |   |         |        | 
|----------------------------- | ------------------------ | ---- | - | ---- |  | - | ------- | ------ | 
|(In thousands)                |                          | 2001 |   | 2000
|                              |                          |      |   |     
|Computer equipment            |                          | $    |  |      |  | $ | 35,471  |       
|Other equipment               |                          |      |  |      |  |   | 671     |       
|                              |                          |      |   |      |  |   |         |       
|                              | Gross                    |      |   |     |  |   |         | 36,142 | 
|Less accumulated amortization |                          |      |  |      |  |   | (31,572 | )     
|                              |                          |      |   |      |  |   |         |       
|                              | Net capital lease assets |      | $ |     |  |   | $       | 4,570  | 
|                              |                          |      |   |      |  |   |         |       

Future minimum lease payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year at
December 31, 2001 were as follows:

|                                     |  |           |        | 
|------------------------------------ |  | --------- | ------ | 
|                                     |  | Operating
|(In thousands)                       |  | Leases   
|                                     |  |          
|2002                                 |  | $         | 10,800 | 
|2003                                 |  |           | 10,700 | 
|2004                                 |  |           | 7,700  | 
|2005                                 |  |           | 4,800  | 
|2006                                 |  |           | 2,800  | 
|Thereafter                           |  |           | 8,300  | 
|                                     |  |           |        | 
|Total minimum future rental payments |  | $         | 45,100 | 
|                                     |  |           |        | 

The above amounts for operating leases are net of estimated future minimum
subrentals aggregating approximately $8.6 million.

(11) Outsourcing Agreement

In December 2000, the Company entered into an agreement to outsource
certain of its information technology operations, including data center, help
desk services, desktop systems and network operations. The five-year agreement
with Computer Sciences Corporation (CSC) provided for the transition of
approximately 150 of the Companys information system staff to CSC. Under the
agreement, the Company sold certain computer-related equipment to CSC at its
estimated fair market value and recognized a loss of approximately $5.2
million, which is included in investment and other income for the year ended
December 31, 2000.

CSC is expected to invoice the Company for base operating and capital
costs under the agreement totaling approximately $195 million over the
agreement term. Costs for CSC services and equipment utilization fluctuate
based on the Companys actual usage and are billed by CSC at rates established
in the agreement. Costs for equipment purchased by CSC that will be used for
the Companys operations will be capitalized as leased assets and amortized
over periods ranging from three to five years based on estimated useful lives,
providing that all such equipment is to be fully amortized by the end of the
agreement. For the year ended December 31, 2001, the Company capitalized
equipment purchases by CSC of approximately $27.2 million and expensed
approximately $31.6 million for operating costs provided by CSC under the
agreement. At December 31, 2001, approximately $13.6 million is included in
accounts payable and accrued expense for equipment purchased by CSC.

As part of the outsourcing agreement, the Company has committed to make
payments related to capital equipment costs estimated as follows:

|               |  |   |       
|-------------- |  | - | ------
|(in thousands) |  |   |       
|               |  |   |       
|2002           |  | $ | 5,900 
|2003           |  |   | 1,600 
|2004           |  |   | 4,000 
|2005           |  |   | 5,200 
|               |  |   |       
|Total          |  | $ | 16,700
|               |  |   |       

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The Company has the right to terminate the agreement at any time prior to
its expiration, subject to early termination fees and penalties of
approximately $15 million to $20 million through 2002, declining to
approximately $8 million to $10 million in 2005.

(12) Pharmacy Benefit Manager Agreement

In September 2001, the Company entered into a five-year agreement with
Merck-Medco, effective beginning January 1, 2002, pursuant to which Merck-Medco
and certain of its subsidiaries will provide pharmacy benefit management
services, including retail and mail-order pharmacy services, to the Companys
members. This agreement provides for a payment of $4.5 million to Oxford to
offset systems and other costs associated with implementation of designated
services. In addition to the pharmacy services agreement, the Company also
entered into an alliance agreement with Merck-Medco under which the Company
will develop, de-identify and provide certain historic and current information
and furnish strategic consultative and other services to Merck-Medco over a
five-year period in return for a total payment of approximately $82.9 million.
The Company received a total of $87.4 million in the third and fourth quarters
of 2001, and substantially all such amounts are included in unearned revenue at
December 30, 2001, and will be amortized on a straight line basis to income
over a period of 60 months beginning January 1, 2002.

In connection with its new pharmacy benefits agreement, the Company
provided for anticipated costs related to its prior pharmacy benefits
arrangements. Estimates of any costs unpaid related to the prior agreements
are included in medical costs payable as of December 30, 2001.

(13) Acquisitions

In May 2001, the Company acquired all of the outstanding stock of
Investors Guaranty Life Insurance Company (IGL) for a purchase price of
approximately $11.8 million, net of cash acquired and subject to adjustment for
certain items. IGL is a California insurance company licensed to issue
individual and group annuity, life and health insurance policies in most
states. All pre-existing business is currently reinsured. The acquisition
will assist the Company in expanding offerings of its various health plans to
New York and New Jersey based employers with employees outside the tri-state
area. The acquisition has been accounted for as a purchase business
combination. The allocation of the purchase price, exclusive of cash received,
is summarized below:

|                                          |  |   |        |  
|----------------------------------------- |  | - | ------ | -
|(in thousands)                            |  |   |        |  
|                                          |  |   |        |  
|Short-term investments                    |  | $ | 2,203  |  
|Prepaid expenses and other current assets |  |   | 373    |  
|Restricted investments                    |  |   | 5,946  |  
|Other non-current assets                  |  |   | 3,442  |  
|Accounts payable and accrued expenses     |  |   | (196   | )
|                                          |  |   |        |  
|Purchase price, net of cash acquired      |  | $ | 11,768 |  
|                                          |  |   |        |  

The amount allocated to other noncurrent assets represents value assigned
to business licenses in various states and is being amortized on a
straight-line basis utilizing a 5-year life.

In July 2001, the Financial Accounting Standards Board issued Statement
No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). The new
pronouncement is effective January 1, 2002 for goodwill and other intangible
assets acquired before June 30, 2001. Under SFAS No. 142, acquired intangible
assets must be recognized and amortized over their useful lives. Acquired
intangible assets with indefinite lives are not subject to periodic
amortization under the new rules but would be subject to periodic assessment
for impairment.

In the opinion of management, the licenses acquired in the IGL business
combination have an indefinite life as it is the Companys intent to seek and
obtain renewals of such licenses (in those instances where the license has an
expiration date) prior to expiration. Accordingly, the Company will cease
amortizing the value assigned to the licenses effective January 1, 2002, and
perform a periodic assessment for impairment using the fair-value based tests
required by SFAS No. 142.

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The Company has invested $11 million (approximately $7.7 million in 2001
and $1 million in 2002) in MedUnite Inc. (MedUnite), an independent,
development stage company initially conceived and financed by a number of the
nations largest health care payors to provide claims submission and payment,
referral, eligibility and other Internet provider connectivity services.
MedUnite has experienced losses and negative cash flows since inception and is
expected to incur additional losses for the foreseeable future as management
invests in the execution of its business plan. MedUnite will seek additional
funding in 2002 to support its business plan through private equity financings.
The Company may make additional investments in MedUnite in the future. The
Company has not adjusted the carrying value of its investment in MedUnite, as
Company management believes that ultimately MedUnites products and services
will prove successful and its investment will be recoverable. However, there
can be no assurance that MedUnite will achieve profitability or positive cash
flow, and therefore, whether the Companys investment will be successful. The
Company intends to periodically monitor MedUnites financial results in the
future and reevaluate the carrying value of its MedUnite investment, which is
included in other noncurrent assets at December 31, 2001 and 2000.

In December 2001, the Company signed a definitive agreement to acquire
MedSpan, Inc. (MedSpan), a provider-sponsored managed healthcare
organization, for cash of approximately $19 million. MedSpans network
services approximately 52,000 commercial members and 22,000 self-funded members
in Connecticut and had total commercial HMO revenues of approximately $128.1
million in 2001. The transaction, which is subject to customary conditions
including regulatory approvals, is expected to close by the end of the first
quarter of 2002. The acquisition of MedSpan is not expected to have a material
effect on the Companys financial condition or results of operations in 2002.

(14) Restructuring Charges




During the third quarter of 1999, the Company recorded pretax
restructuring charges totaling $19.9 million ($11.3 million after income tax
benefits, or $0.13 per diluted share) in connection with additional steps taken
under the Companys plan to improve operations and restore the Companys
profitability. These charges included estimated costs related to work force
reductions, additional consolidation of the Companys office facilities
inclusive of the net write-off of fixed assets, consisting primarily of
leasehold improvements; write-off of certain computer equipment; and leases for
equipment no longer used in operations.

During the first half of 1998, the Company recorded restructuring charges
totaling $123.5 million ($114.8 million after income tax benefits, or $1.43 per
share). These charges resulted from the Companys actions to better align its
organization and cost structure. These charges included estimated costs
related to the disposition or closure of noncore businesses; the write-down of
certain property and equipment; severance and related costs; and operations
consolidation, including long-term lease commitments. The ending reserves for
these charges have been generally classified in the Companys balance sheet as
accounts payable and accrued expenses.

The table below presents the activity for the three years ended December
31, 2001.

|                             |  |                     |         |               |  |               |         |          |  |   |         |   |  |   |         |  
|---------------------------- |  | ------------------- | ------- | ------------- |  | ------------- | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                             |  | Provisions for loss |         |               |  |               |         | Costs of |  |   |         |  
|                             |  | on noncore          |         | Severance and |  | consolidating |         |          |  |  
|                             |  | businesses          |         | related costs |  | operations    |         | Total   
|                             |  |                     |         |               |  |               |         |         
|Balance at December 31, 1998 |  | $                   | 13,805  |               |  | $             | 9,354   |          |  | $ | 17,685  |   |  | $ | 40,844  |  
|Cash received (used)         |  |                     | 4,343   |               |  |               | (10,380 | )        |  |   | (14,272 | ) |  |   | (20,309 | )
|Noncash activity             |  |                     | (14,493 | )             |  |               |        |          |  |   |        |   |  |   | (14,493 | )
|Restructuring charges        |  |                     |        |               |  |               | 8,750   |          |  |   | 3,003   |   |  |   | 11,753  |  
|Changes in estimate          |  |                     | (1,590  | )             |  |               |        |          |  |   | 1,590   |   |  |   |        |  
|                             |  |                     |         |               |  |               |         |          |  |   |         |   |  |   |         |  
|Balance at December 31, 1999 |  |                     | 2,065   |               |  |               | 7,724   |          |  |   | 8,006   |   |  |   | 17,795  |  
|Cash used                    |  |                     | (219    | )             |  |               | (2,133  | )        |  |   | (3,667  | ) |  |   | (6,019  | )
|Noncash activity             |  |                     | (17     | )             |  |               |        |          |  |   |        |   |  |   | (17     | )
|                             |  |                     |         |               |  |               |         |          |  |   |         |   |  |   |         |  
|Balance at December 31, 2000 |  |                     | 1,829   |               |  |               | 5,591   |          |  |   | 4,339   |   |  |   | 11,759  |  
|Cash used                    |  |                     | (1      | )             |  |               | (5,591  | )        |  |   | (3,487  | ) |  |   | (9,079  | )
|Noncash activity             |  |                     |        |               |  |               |        |          |  |   | 12      |   |  |   | 12      |  
|Changes in estimate          |  |                     | (1,530  | )             |  |               |        |          |  |   | 1,530   |   |  |   |        |  
|                             |  |                     |         |               |  |               |         |          |  |   |         |   |  |   |         |  
|Balance at December 31, 2001 |  | $                   | 298     |               |  | $             |        |          |  | $ | 2,394   |   |  | $ | 2,692   |  
|                             |  |                     |         |               |  |               |         |          |  |   |         |   |  |   |         |  

64



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The Company believes that the remaining restructuring reserves as of
December 31, 2001 are adequate and that no revisions of estimates are necessary
at this time.

(15) Defined Contribution Plan

The Company has a qualified defined contribution 401(K) savings plan (the
Savings Plan) that covers all employees with six months of service and at
least a part-time employment status as defined. Employees may contribute up to
a maximum of 30% of compensation, as defined, up to a maximum annual
contribution of $10,500 in 2001. Employee participants are not permitted to
invest their contributions in the Companys common stock. The Savings Plan
also provides that the Company make matching contributions, currently 4% up to
certain limits, of the salary contributions made by the participants. Of this
matching contribution, 1% is in Company stock and 3% may be directed by the
participant into several investment choices, including Company stock. The
Companys contributions to the Savings Plan were approximately $1.4 million,
$1.7 million and $2.1 million in 2001, 2000 and 1999, respectively.

(16) Regulatory and Contractual Capital Requirements

Certain restricted investments at December 31, 2001 and 2000 are held on
deposit with various financial institutions to comply with federal and state
regulatory capital requirements. As of December 31, 2001, approximately $58.8
million was so restricted and is shown as restricted investments in the
accompanying consolidated balance sheet. With respect to the Companys HMO
subsidiaries, the minimum amount of surplus required is based on formulas
established by the state insurance departments. These statutory surplus
requirements amounted to approximately $191 million and $176 million at
December 31, 2001 and 2000, respectively.

In addition to the foregoing requirements, the Companys HMO and insurance
subsidiaries are subject to certain restrictions on their abilities to make
dividend payments, loans or other transfers of cash to Oxford. Such
restrictions limit the use of any cash generated by the operations of these
entities to pay obligations of Oxford and limit the Companys ability to
declare and pay dividends.

During 2001 and 2000, the Companys HMO subsidiaries paid dividends to the
parent company of approximately $328.4 million and $317.6 million,
respectively, and the Company made cash contributions to its HMO and insurance
subsidiaries of approximately $6 million and $4.5 million during 2000 and 1999,
respectively. The capital contributions were made to ensure that each
subsidiary had sufficient surplus under applicable regulations after giving
effect to operating results and reductions to surplus resulting from the
non-admissibility of certain assets. In addition, New York State regulatory
authorities authorized the repayment in 2000 of a $38 million surplus note plus
$6 million in accrued interest by Oxford NY to the parent company.

In January 2002, the Company received approval from the New York State
Insurance Department and the Department of Health to pay an $80 million
dividend from its New York health plan to the parent company.

The states of New York, New Jersey, Connecticut and California have all
enacted legislation adopting the NAIC Accounting Practices and Procedures
Manual, which is composed of statutory accounting guidelines referred to as
Statements of Statutory Accounting Principles (SSAP), which were effective
January 1, 2001. The SSAP established a comprehensive basis of accounting to
be used by insurance departments and insurers. The new guidelines did not have
a material impact on the results of operations, financial condition or
statutory net worth of the Companys insurance subsidiaries.

(17) Concentrations of Credit Risk

Concentrations of credit risk with respect to premiums receivable are
limited due to the large number of employer groups comprising the Companys
customer base. As of December 31, 2001 and 2000, the Company had no
significant concentrations of credit risk. Financial instruments that
potentially subject the Company to concentrations of such credit risk consist
primarily of obligations of the United States government, certain state
governmental entities and high-grade corporate bonds and notes and mortgage and
asset backed securities. These investments are managed by professional
investment managers within the guidelines established by the Board of
Directors, which, as a matter of policy, limit the amounts which may be
invested in any one issuer and prescribe certain minimum investee company
criteria. The Companys commercial and Medicare business is
concentrated in New York, New Jersey and Connecticut, with more than 80%
of its premium revenues received from New York business. As a result, changes
in regulatory, market or health care provider conditions in any of these
states, particularly New York, could have a material adverse effect on the
Companys business, financial

65



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condition or results of operations. In addition,
the Companys revenue under its contracts with CMS represented approximately
15.3% of its premium revenue earned during 2001.

(18) Contingencies

Following the October 27, 1997 decline in the price per share of the
Companys common stock, more than fifty purported securities class action
lawsuits were filed against the Company and certain of its officers and
directors in the United States District Courts for the Southern and Eastern
Districts of New York, the District of Connecticut and the District of
Arkansas. In addition, purported shareholder derivative actions were filed
against the Company, its directors and certain of its officers in the United
States District Courts for the Southern District of New York and the District
of Connecticut and the Connecticut Superior Court. The purported securities
class actions and the purported federal derivative actions were consolidated
before Judge Charles L. Brieant of the United States District Court for the
Southern District of New York. On February 14, 2002, Judge Brieant approved a
settlement of the purported derivative action (see Note 21). The State Board
of Administration of Florida has filed an individual action against the Company
and certain of its officers and directors, which is also now pending in the
United States District Court for the Southern District of New York, asserting
claims arising from the October 27 decline in the price per share of the
Companys common stock. Although the outcome of these actions cannot be
predicted at this time, the Company believes that the defendants have
substantial defenses to the claims asserted in the complaints and intends to
defend the actions vigorously. In addition, the Company is currently being
investigated and is undergoing examinations by various state and federal
agencies, including the Securities and Exchange Commission, various state
insurance departments, and the New York State Attorney General. The outcome of
these investigations and examinations cannot be predicted at this time.

The Company and certain of its former and present Directors and Officers
are currently defendants in certain securities class actions. In the fourth
quarter of 1999, the Company purchased new insurance policies providing
additional coverage of, among other things, certain judgments and
settlements, if any, incurred by the Company and individual defendants in
certain pending lawsuits and investigations, including among others, the
securities class action pending against the Company and certain of its
directors and officers and the pending stockholder derivative actions. Subject
to the terms of the policies, the insurers have agreed to pay 90% of the
amount, if any, by which covered costs exceed a retention of between $155
million and $165 million (the Retention), provided that the aggregate amount
of insurance under these new policies is limited to $200 million
over the Retention. A charge of $24
million for premiums and other costs associated with the new insurance coverage
was included in the Companys results of operations for 1999. The policies do
not cover taxes, fines or penalties imposed by law or the cost to comply with
any injunctive or other non-monetary relief or any agreement to provide any
such relief. The coverage under the new policies is in addition to
approximately $25 million of coverage remaining under preexisting primary
insurance that is not subject to the Retention applicable to the new
policies. The Company has fully reserved for anticipated legal
expenses for this matter.
Of the remaining $25 million in primary insurance coverage,
collectibility of some portion of $15
million is in doubt because one of the Companys Directors and Officers
insurance carriers, Reliance Insurance Company (Reliance), was placed in
liquidation in October 2001 by the Commonwealth Court of Pennsylvania.
Accordingly, during the third quarter of 2001, the Company recorded a charge of
$10 million related to a provision for estimated insurance
recoveries that may not be recoverable from Reliance.

On September 7, 2000, the Connecticut Attorney General filed suit against
four HMOs, including the Company, in a federal district court in Connecticut,
on behalf of a putative class consisting of all Connecticut members of the
defendant HMOs who are enrolled in plans governed by ERISA. The suit alleges
that the named HMOs breached their disclosure obligations and fiduciary duties
under ERISA by, among other things, (i) failing to timely pay claims; (ii) the
use of inappropriate and arbitrary coverage guidelines as the basis for
denials; (iii) the inappropriate use of drug formularies; (iv) failing to
respond to member communications and complaints; and (v) failing to disclose
essential coverage and appeal information. The suit seeks preliminary and
permanent injunctions enjoining the defendants from pursuing the complained of
acts and practices. Also, on September 7, 2000, a group of plaintiffs law
firms commenced an action in federal district court in Connecticut against the
Company and four other HMOs on behalf of a putative national class consisting
of all members of the defendant HMOs who are or have been enrolled in plans
governed by ERISA within the past six years. The substantive allegations of this complaint, which also claims
violations of ERISA, are nearly identical to that filed by the Connecticut
Attorney General. The complaint seeks the restitution of premiums paid and/or
the disgorgement of profits, in addition to injunctive relief. Although this
complaint was dismissed without prejudice as to the Oxford defendants, another
identical complaint against the Company was filed on

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\

December 28, 2000 in the
federal district court in Connecticut under the caption Patel v. Oxford Health
Plans of Connecticut, Inc.(the Patel action). On
April 27, 2001, the Company
filed a motion to dismiss the Patelaction in its entirety. That motion has
been fully briefed, and oral arguments were held on October 29, 2001. On
November 30, 2000, the Judicial Panel on Multidistrict Litigation (JPML)
issued a Conditional Transfer Order, directing that the Connecticut Attorney
General action be transferred to the Southern District of Florida for
consolidated pretrial proceedings along with various other ERISA and RICO cases
pending against other HMOs, which order was confirmed on April 17, 2001. On
November 13, 2001, the JPML issued a Conditional Transfer Order, directing that
the Patelaction also be transferred to the consolidated proceedings in
Florida, which order was confirmed on February 20, 2002.

On February 14, 2001, the Connecticut State Medical Society (CSMS), and
four individual physicians, filed two separate but nearly identical
lawsuits against Oxford CT in Connecticut state court, on behalf of all members
of the CSMS who provided health care services pursuant to contracts
with the Company
during the period February 1995 through the present. The suit filed by the
individual physicians is styled as a class action complaint. The suits assert
claims for breach of contract, breach of the implied duty of good faith and
fair dealing, violation of the Connecticut Unfair Trade Practices Act and
negligent misrepresentation based on, among other things, the Companys alleged (i)
failure to timely pay claims or interest; (ii) refusal to pay all or part of
claims by improperly bundling or downcoding claims, or by including
unrelated claims in global rates; (iii) use of inappropriate and arbitrary
coverage guidelines as the basis for denials; and (iv) failure to provide
adequate staffing to handle physician inquiries. The complaint filed by the
CSMS seeks a permanent injunction enjoining the Company from pursuing the complained
of acts and practices, as well as attorneys fees and costs. The complaint
filed by the individual physicians seeks compensatory and punitive damages, as
well as attorneys fees and costs. By Memorandum dated November 30, 2001, the
Court granted the Companys motion to dismiss the purported provider class action
(the McIntoshaction) in its entirety. With respect to the CSMS action, by
Memorandum dated December 13, 2001, the Court ruled that CSMS lacked standing
to assert any claims on behalf of its member physicians, but had sufficiently
alleged injury to pursue claims in its own right.

On August 15, 2001, the Medical Society of the State of New York (MSSNY)
and three individual physicians, filed two separate but nearly identical
lawsuits against the Company and the Companys New York HMO subsidiary in New
York state court, on behalf of all members of the MSSNY who provided health
care services pursuant to contracts with the Company during the period August 1995
through the present. The suit filed by the individual physicians is styled as
a class action complaint. The suits assert claims for breach of contract and
violations of New York General Business Law, Public Health Law and Prompt
Payment Law, based on, among other things, the Companys alleged (i) failure to
timely pay claims or interest; (ii) refusal to pay all or part of claims by
improperly bundling or downcoding claims, or by including unrelated claims
in global rates; (iii) use of inappropriate and arbitrary coverage guidelines
as the basis for denials; and (iv) failure to provide adequate staffing to
handle physician inquiries. The complaint filed by the MSSNY seeks a permanent
injunction enjoining the Company from pursuing the complained of acts and practices,
as well as attorneys fees and costs. The complaint filed by the individual
physicians seeks compensatory damages, as well as attorneys fees and costs.
The Companys time to respond to both lawsuits has been extended by agreement
between counsel.

Although the outcome of these ERISA actions and the CSMS, MSSNY and
physician actions cannot be predicted at this time, the Company believes that
the claims asserted are without merit and intends to defend the actions
vigorously.

The Company has recently been sued in a New Jersey state court in a purported
class action on behalf of all the Companys members in New Jersey between 1993 and the
present who were injured by the actions of third parties and with respect to
whom the Company recovered reimbursement for medical expenses pursuant to the
subrogation provision in the Companys member certificates. The Complaint alleges
that any subrogation payments collected by the Company have been in violation of New
Jersey insurance regulations and state law, and seeks monetary damages and
injunctive relief. The action is based upon a recent decision of the New
Jersey Supreme Court holding that subrogation by health insurers in certain
circumstances is prohibited under New Jersey laws and regulations.
The Company has
removed the complaint to federal court, where it has been consolidated with
other, similar complaints against other HMOs. Plaintiffs in all of these
complaints have filed motions to remand the complaints back to state court,
and briefing is ongoing on this issue. The Company believes it has substantial
defenses under federal and state law to this case, and intends to defend the
action vigorously.

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On March 30, 2001, the Company and Express Scripts, Inc. (ESI) executed
a Settlement Agreement and a Amendment to a 1998 Prescription Drug Program
Agreement (the Amended ESI Agreement), which agreements resolved the
Companys claims against ESI and ESIs subsidiary, Diversified Pharmaceutical
Services, Inc., under the risk arrangement portions of the 1998 Agreement in
exchange for a payment to the Company of $37 million. The Amended ESI Agreement further
provided that, among other things, (i) ESI would continue to administer the
Companys prescription drug benefits until December 31, 2005 and (ii) in the
event that the Company terminated the agreement without cause prior to this
date, ESI would be entitled to certain annual payments through 2005 (the Termination Payments), which payments would constitute
ESIs sole remedy for such early termination. In September 2001, the Company
formally notified ESI that it would terminate its agreement with ESI on
December 31, 2001 and recorded an estimated liability for the Termination
Payments plus estimated defense costs. ESI has subsequently notified the
Company that it believes the Companys termination constitutes a material
breach of the Amended ESI Agreement and that it intends to commence an
arbitration proceeding to enforce its rights and seek remedies. The Company
believes that ESIs claims are without merit and that the Company has
substantial defenses in the event that ESI pursues arbitration in this matter.

The Company is also subject to examinations from time to time with respect
to financial condition and market conduct for its HMO and insurance
subsidiaries in the states where it conducts business. The outcome of any such
examinations, if commenced, cannot be predicted at this time.

The Company is involved in other legal actions in the normal course of its
business, some of which seek monetary damages, including claims for punitive
damages, which may not be covered by insurance. The Company believes any
ultimate liability associated with these other legal actions would not have a
material adverse effect on the Companys consolidated financial position.

(19) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Cash and cash equivalents:The carrying amount approximates fair value
based on the short-term maturities of these instruments.

Investments:Fair values for fixed maturity securities are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent
pricing services.

Long-term debt:The carrying amount of long-term debt, including the
current portion, approximates fair value as the interest rates of outstanding
debt are similar to like borrowing arrangements at December 31, 2001.

(20) Government Programs

As a contractor for Medicare programs, the Company is subject to
regulations covering operating procedures. During 2001, 2000 and 1999, the
Company earned premiums of $659.3 million, $677.5 million and $738 million,
respectively, associated with Medicare. In addition, in 1999, before ceasing
participation in the program effective February 1, 1999, the Company earned
premiums of approximately $12 million associated with Medicaid.

The Company has agreements with several providers to share a portion of
the risk of providing health care and administrative services to approximately
21,000 members in its Medicare programs. However, the Company remains liable
to pay the cost of covered services provided to its Medicare members.

The laws and regulations governing risk contractors are complex and
subject to interpretation. CMS monitors the Companys operations to ensure
compliance with the applicable laws and regulations. There can be no assurance
that administrative or systems issues or the Companys current or future
provider arrangements will not result in adverse actions by CMS.

(21) Subsequent Events

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On February 7, 2002, the Companys Board of Directors approved two new
equity compensation plans, both of which are subject to shareholder approval.
The first is similar to the Employee Plan, however, it authorizes awards of
stock options, restricted stock, performance shares and other equity-based
compensation. The second plan is similar to the recently-terminated
Nonemployee Plan for Directors of the Company.

On February 13, 2002, the interest rate on the New Term Loan was reset.
Currently, interest is being calculated based on a $76 million tranche at a
rate of approximately 5.50% through August 13, 2002, a $6.6 million tranche at
a rate of approximately 5.34% through March 13, 2002, and a $70.6 million
tranche at a rate of 5.92% through April 16, 2002.

On February 14, 2002, Judge Brieant approved a settlement of the purported
derivative action whereby, among other things and subject to the Companys and
the plaintiffs ability to collect from an insurance carrier currently in
liquidation or from alternate insurance, the Companys directors and officers
insurance carriers will pay $13.7 million to the Company with not more than
$3.7 million of that amount for legal fees and expenses of the plaintiffs
attorneys.

(22) Quarterly Information (Unaudited)

Tabulated below are certain data for each quarter of 2001 and 2000.

|                                                        |                                                                    |          |   |               |      |          |   |           |      |  |   |           |      |  |   |           |      | 
|------------------------------------------------------- | ------------------------------------------------------------------ | -------- | - | ------------- | ---- | -------- | - | --------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                                                        |                                                                    |          |   | Quarter Ended
|                                                        |                                                                    |          |   |              
|(In thousands, except membership and per share amounts) |                                                                    | March 31 |   | June 30       |      | Sept. 30 |   | Dec. 31  
|                                                        |                                                                    |          |   |               |      |          |   |          
|Year ended December 31, 2001:                           |                                                                    |          |   |               |      |          |   |           |      |  |   |           |      |  |   |          
|                                                        | Net operating revenues                                             |          | $ | 1,058,364     |      |          | $ | 1,080,645 |      |  | $ | 1,088,403 |      |  | $ | 1,098,770 |     
|                                                        | Operating expenses                                                 |          |   | 957,695       |      |          |   | 996,465   |      |  |   | 962,115   |      |  |   | 974,199   |     
|                                                        | Net income                                                         |          | $ | 67,572        |      |          | $ | 74,799    |      |  | $ | 85,717    |      |  | $ | 94,333    |     
|                                                        | Per common and common equivalent share:                            |          |   |               |      |          |   |           |      |  |   |           |      |  |   |           |     
|                                                        |                                                                    | Basic    |   | $             | 0.69 |          |   | $         | 0.76 |  |   | $         | 0.88 |  |   | $         | 1.04 | 
|                                                        |                                                                    | Diluted  |   | $             | 0.65 |          |   | $         | 0.73 |  |   | $         | 0.85 |  |   | $         | 1.00 | 
|                                                        | Membership at quarter-end                                          |          |   | 1,504,100     |      |          |   | 1,512,000 |      |  |   | 1,507,900 |      |  |   | 1,510,100 |     
|Year ended December 31, 2000:                           |                                                                    |          |   |               |      |          |   |           |      |  |   |           |      |  |   |          
|                                                        | Net operating revenues                                             |          | $ | 1,004,395     |      |          | $ | 994,772   |      |  | $ | 1,016,836 |      |  | $ | 1,022,784 |     
|                                                        | Operating expenses                                                 |          |   | 939,134       |      |          |   | 921,165   |      |  |   | 878,483   |      |  |   | 854,184   |     
|                                                        | Net income before extraordinary items                              |          |   | 41,635        |      |          |   | 48,143    |      |  |   | 88,234    |      |  |   | 107,407   |     
|                                                        | Net income                                                         |          |   | 41,635        |      |          |   | 44,519    |      |  |   | 88,234    |      |  |   | 90,706    |     
|                                                        | Net income for common shares                                       |          |   | 28,800        |      |          |   | 37,003    |      |  |   | 80,596    |      |  |   | 44,904    |     
|                                                        | Per common and common equivalent share before
extraordinary items: |          |   |               |      |          |   |           |      |  |   |           |      |  |   |           |     
|                                                        | Basic                                                              |          | $ | 0.35          |      |          | $ | 0.48      |      |  | $ | 0.94      |      |  | $ | 0.70      |     
|                                                        | Diluted                                                            |          | $ | 0.35          |      |          | $ | 0.45      |      |  | $ | 0.81      |      |  | $ | 0.59      |     
|                                                        | Per common and common equivalent share:                            |          |   |               |      |          |   |           |      |  |   |           |      |  |   |           |     
|                                                        |                                                                    | Basic    |   | $             | 0.35 |          |   | $         | 0.44 |  |   | $         | 0.94 |  |   | $         | 0.51 | 
|                                                        |                                                                    | Diluted  |   | $             | 0.34 |          |   | $         | 0.41 |  |   | $         | 0.81 |  |   | $         | 0.43 | 
|                                                        | Membership at quarter-end                                          |          |   | 1,520,000     |      |          |   | 1,491,600 |      |  |   | 1,485,900 |      |  |   | 1,491,400 |     

Net operating revenues include premiums earned and third-party
administration fees, net. Operating expenses include health care services and
marketing, general and administrative expenses.

As discussed in Note 4, the second and fourth quarters of 2001 include the
reversal of deferred tax valuation allowances of $11 million ($0.11 per diluted
share) and $10 million ($0.11 per diluted share), respectively.

The fourth quarter of 2001 includes $6.6 million ($0.04 per diluted share)
in additional recoveries from the New York Stabilization Pools related to prior
years. The third quarter of 2001 includes a charge of $10 million

69



---



##### 



($0.06 per diluted share) for legal expenses related to the securities class actions. The
first quarter of 2001 includes favorable development of prior period medical
cost estimates of $8 million ($0.05 per diluted share).

The fourth quarter of 2000 includes $16.7 million of extraordinary charges
($0.16 per diluted share), net of income tax benefits of $11.3 million, in
connection with the redemption of the remaining Senior Notes (see Note 6), a
charge of $38.5 million after-tax ($0.37 per diluted share) relating to the
exchange and repurchase of the remaining preferred shares (see Note 8), New
York Stabilization Pool recoveries from 1997 and 1998 of approximately $25.1
million ($0.14 per diluted share) and approximately $30.3 million ($0.17 per
diluted share) of favorable development of prior period medical costs. The
third quarter of 2000 includes favorable development of prior period medical
costs of approximately $30.7 million ($0.18 per diluted share). The second
quarter of 2000 includes approximately $15.4 million ($0.10 per diluted share)
of favorable development of prior period medical cost estimates and $3.6
million of extraordinary charges after-tax ($0.04 per diluted share), in
connection with the redemption of the Term Loan (see Note 6). The first
quarter of 2000 includes a charge of $2.6 million ($0.03 per diluted share)
relating to the Companys repurchase of preferred stock and favorable
development of prior period medical cost estimates of approximately $8 million
($0.05 per diluted share).

70



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule I  Condensed Financial Information of Registrant
Condensed Balance Sheets
December 31, 2001 and 2000
(In thousands)

|                                                 |                                                               |                                            |         |          |         |  |         |          |         | 
|------------------------------------------------ | ------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|Current assets:                                  |                                                               | 2001                                       |         | 2000    
|                                                 |                                                               |                                            |         |         
|                                                 | Cash and cash equivalents                                     |                                            | $       | 122,599  |         |  | $       | 87,902   |        
|                                                 | Investments  available-for-sale                              |                                            |         | 58,714   |         |  |         | 3,079    |        
|                                                 | Receivables, net                                              |                                            |         | 6,925    |         |  |         | 5,869    |        
|                                                 | Deferred income taxes                                         |                                            |         | 57,342   |         |  |         | 18,151   |        
|                                                 | Other current assets                                          |                                            |         | 3,441    |         |  |         | 4,461    |        
|                                                 |                                                               |                                            |         |          |         |  |         |         
|                                                 |                                                               | Total current assets                       |         |          | 249,021 |  |         |          | 119,462 | 
|Property and equipment, net                      |                                                               |                                            | 35,080  |          |         |  | 19,772  |         
|Investments in and advances to subsidiaries, net |                                                               |                                            | 456,376 |          |         |  | 480,929 |         
|Deferred income taxes                            |                                                               |                                            | 8,348   |          |         |  | 71,860  |         
|Other assets                                     |                                                               |                                            | 15,271  |          |         |  | 9,941   |         
|                                                 |                                                               |                                            |         |          |         |  |         |         
|                                                 |                                                               | Total assets                               |         | $        | 764,096 |  |         | $        | 701,964 | 
|                                                 |                                                               |                                            |         |          |         |  |         |         
|Current liabilities:                             |                                                               |                                            |         |          |         |  |         |         
|                                                 | Accounts payable, accrued expenses and medical claims payable |                                            | $       | 63,305   |         |  | $       | 62,042   |        
|                                                 | Current portion of long-term debt                             |                                            |         | 26,250   |         |  |         | 147,000  |        
|                                                 | Unearned revenue                                              |                                            |         | 84,745   |         |  |         |         |        
|                                                 | Current portion of capital lease obligations                  |                                            |         |         |         |  |         | 5,700    |        
|                                                 |                                                               |                                            |         |          |         |  |         |         
|                                                 |                                                               | Total current liabilities                  |         |          | 174,300 |  |         |          | 214,742 | 
|                                                 |                                                               |                                            |         |          |         |  |         |         
|Long-term debt                                   |                                                               |                                            | 126,876 |          |         |  | 28,000  |         
|Shareholders equity:                            |                                                               |                                            |         |          |         |  |         |         
|                                                 | Common stock                                                  |                                            |         | 1,004    |         |  |         | 983      |        
|                                                 | Additional paid-in capital                                    |                                            |         | 605,661  |         |  |         | 561,857  |        
|                                                 | Retained earnings (accumulated deficit)                       |                                            |         | 215,165  |         |  |         | (107,256 | )      
|                                                 | Accumulated other comprehensive earnings                      |                                            |         | 7,587    |         |  |         | 3,638    |        
|                                                 | Treasury stock                                                |                                            |         | (366,497 | )       |  |         |         |        
|                                                 |                                                               |                                            |         |          |         |  |         |         
|                                                 |                                                               | Total shareholders equity                 |         |          | 462,920 |  |         |          | 459,222 | 
|                                                 |                                                               |                                            |         |          |         |  |         |         
|                                                 |                                                               | Total liabilities and shareholders equity |         | $        | 764,096 |  |         | $        | 701,964 | 
|                                                 |                                                               |                                            |         |          |         |  |         |         

71



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule I  Condensed Financial Information of Registrant (continued)
Condensed Statements of Income
Years Ended December 31, 2001, 2000 and 1999
(In thousands)

|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------------- | ------------------------------------- | -------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                              |                                       |                |         | 2001    |         | 2000 |         | 1999   
|                                                              |                                       |                |         |         |         |      |         |        
|Revenues-management fees and investment and
other income, net |                                       | $              | 368,615 |         |         | $    | 396,549 |         |         | $ | 566,209 |        
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|Expenses:                                                     |                                       |                |         |         |         |      |         |         |         |   |         |        
|                                                              | Health care services                  |                |         | (1,488  | )       |      |         | (12,674 | )       |   |         | 2,939   |        
|                                                              | Marketing, general and administrative |                |         | 364,987 |         |      |         | 373,884 |         |   |         | 488,666 |        
|                                                              | Interest and other financing charges  |                |         | 15,602  |         |      |         | 24,311  |         |   |         | 40,407  |        
|                                                              | Restructuring charges                 |                |         |        |         |      |         |        |         |   |         | 19,963  |        
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|                                                              |                                       | Total expenses |         |         | 379,101 |      |         |         | 385,521 |   |         |         | 551,975 | 
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|Operating earnings (loss)                                     |                                       |                | (10,486 | )       |         |      | 11,028  |         |         |   | 14,234  |        
|Equity in net earnings of subsidiaries                        |                                       |                | 287,874 |         |         |      | 281,530 |         |         |   | 308,683 |        
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|Earnings before income taxes and extraordinary item           |                                       |                | 277,388 |         |         |      | 292,558 |         |         |   | 322,917 |        
|Income tax expense (benefit) (1)                              |                                       |                | (45,033 | )       |         |      | 7,139   |         |         |   | 2,977   |        
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|Net earnings before extraordinary item                        |                                       |                | 322,421 |         |         |      | 285,419 |         |         |   | 319,940 |        
|Extraordinary item, net of income tax benefits                |                                       |                |        |         |         |      | (20,325 | )       |         |   |        |        
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|Net earnings                                                  |                                       |                | 322,421 |         |         |      | 265,094 |         |         |   | 319,940 |        
|Less preferred dividends and amortization                     |                                       |                |        |         |         |      | (73,791 | )       |         |   | (45,500 | )      
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        
|Net earnings attributable to common shares                    |                                       | $              | 322,421 |         |         | $    | 191,303 |         |         | $ | 274,440 |        
|                                                              |                                       |                |         |         |         |      |         |         |         |   |         |        



---

|(1) |  | Income tax expense (benefit) includes the tax on a separate company
basis plus the net effects of the tax sharing agreements with its
subsidiaries. In addition, 2001 includes the effect of the reversal of
$21 million of deferred tax valuation reserves.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During 2001 and 2000, the Registrant received cash dividends from its
consolidated subsidiaries aggregating $328.4 million and $317.6 million,
respectively.

72



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule I  Condensed Financial Information of Registrant (continued)
Condensed Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31, 2001, 2000 and 1999
(In thousands)

|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |         |         |  
|---------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------ | ------- | -------- | -------- | ---- | -------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                                     |                                                         |                                                  |         | 2001     |          | 2000 |          | 1999    
|                                                     |                                                         |                                                  |         |          |          |      |          |         
|Net cash provided by operating activities            |                                                         | $                                                | 492,450 |          |          | $    | 318,030  |          |          | $ | 50,840  |        
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|Cash flows from investing activities:                |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|                                                     | Capital expenditures                                    |                                                  |         | (21,386  | )        |      |          | (12,774  | )        |   |         | (8,987  | )      
|                                                     | Sale or maturity of available-for-sale securities       |                                                  |         | 39,061   |          |      |          | 10,400   |          |   |         | 2,600   |        
|                                                     | Purchase of available-for-sale investments              |                                                  |         | (95,260  | )        |      |          | (11      | )        |   |         | (11,587 | )      
|                                                     | Proceeds on the sale of assets                          |                                                  |         |         |          |      |          | 2,734    |          |   |         |        |        
|                                                     | Acquisitions and other investments                      |                                                  |         | (7,667   | )        |      |          |         |          |   |         |        |        
|                                                     | Other, net                                              |                                                  |         | 4,836    |          |      |          | 10,884   |          |   |         | 299     |        
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|                                                     |                                                         | Net cash provided (used) by investing activities |         |          | (80,416  | )    |          |          | 11,233   |   |         |         | (17,675 | )
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|Cash flow from financing activities:                 |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|                                                     | Proceeds from exercise of stock options                 |                                                  |         | 29,494   |          |      |          | 64,590   |          |   |         | 18,186  |        
|                                                     | Redemption of preferred stock, net of issuance expenses |                                                  |         |         |          |      |          | (208,592 | )        |   |         |        |        
|                                                     | Redemption of warrants                                  |                                                  |         |         |          |      |          | (142,122 | )        |   |         |        |        
|                                                     | Proceeds of notes and loans payable                     |                                                  |         |         |          |      |          | 175,000  |          |   |         |        |        
|                                                     | Redemption of notes and loans payable                   |                                                  |         | (21,874  | )        |      |          | (376,050 | )        |   |         |        |        
|                                                     | Cash dividends paid on preferred stock                  |                                                  |         |         |          |      |          | (13,792  | )        |   |         |        |        
|                                                     | Debt issuance expenses                                  |                                                  |         |         |          |      |          | (6,207   | )        |   |         |        |        
|                                                     | Proceeds of surplus note                                |                                                  |         |         |          |      |          | 38,000   |          |   |         |        |        
|                                                     | Investments in and advances to subsidiaries, net        |                                                  |         | (12,760  | )        |      |          | (6,000   | )        |   |         | (13,699 | )      
|                                                     | Payments under capital lease obligations                |                                                  |         | (5,700   | )        |      |          | (12,554  | )        |   |         | (16,534 | )      
|                                                     | Purchase of treasury stock                              |                                                  |         | (366,497 | )        |      |          |         |          |   |         |        |        
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|                                                     |                                                         | Net cash used by financing activities            |         |          | (377,337 | )    |          |          | (487,727 | ) |         |         | (12,047 | )
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|Net increase (decrease) in cash and cash equivalents |                                                         |                                                  | 34,697  |          |          |      | (158,464 | )        |          |   | 21,118  |        
|Cash and cash equivalents at beginning of year       |                                                         |                                                  | 87,902  |          |          |      | 246,366  |          |          |   | 225,248 |        
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        
|Cash and cash equivalents at end of year             |                                                         | $                                                | 122,599 |          |          | $    | 87,902   |          |          | $ | 246,366 |        
|                                                     |                                                         |                                                  |         |          |          |      |          |          |          |   |         |        

73



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##### 



OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Schedule II  Valuation and Qualifying Accounts
Years Ended December 31, 2001, 2000 and 1999
(In thousands)

|                             |                                    |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |   |        | 
|---------------------------- | ---------------------------------- | ------------------------------------------------------- |  | ------------------- | ------ | --------- |  | ----------- | - | ------ |  | - | ------ | ---------- |  | - | ------ | 
|                             |                                    |                                                         |  |                     |        |           |  | Charged to  |   |        |  |   |        | Balance at
|                             |                                    |                                                         |  | Balance at          |        | Costs and |  | Deductions/ |   | End of
|                             |                                    |                                                         |  | Beginning of Period |        | Expenses  |  | Write-offs  |   | Period
|                             |                                    |                                                         |  |                     |        |           |  |             |   |       
|Year ended December 31, 2001 |                                    |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |  
|                             | Deducted from Accounts Receivable: |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |   |       
|                             |                                    | Allowance for
doubtful accounts
and billing
adjustments |  | $                   | 28,620 |           |  | $           |  |        |  | $ | 8,835  |            |  | $ | 19,785 | 
|Year ended December 31, 2000 |                                    |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |  
|                             | Deducted from Accounts Receivable: |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |   |       
|                             |                                    | Allowance for
doubtful accounts
and billing
adjustments |  | $                   | 40,853 |           |  | $           |  |        |  | $ | 12,233 |            |  | $ | 28,620 | 
|Year ended December 31, 1999 |                                    |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |  
|                             | Deducted from Accounts Receivable: |                                                         |  |                     |        |           |  |             |   |        |  |   |        |            |  |   |       
|                             |                                    | Allowance for
doubtful accounts
and billing
adjustments |  | $                   | 90,317 |           |  | $           |  |        |  | $ | 49,464 |            |  | $ | 40,853 | 

74



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##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                     
|3(a)        |  | - Second Amended and Restated Certificate of Incorporation, as
amended, of the Registrant, previously filed with and incorporated by
reference to the Registrants Form 10-Q/A for the quarterly period ended
September 30, 2000 (File No. 0-19442)                                                                 
|           
|3(b)        |  |  Amended and Restated By-laws of the Registrant, incorporated by
reference to Exhibit 3(ii) of the Registrants Form 10-Q for the
quarterly period ended March 31, 2001 (File No. 0-19442)                                                                                                                         
|           
|4(a)        |  |  Form of Stock Certificate, incorporated by reference to Exhibit 4
of the Registrants Registration Statement on Form S-1 (File No.
33-40539)                                                                                                                                                                      
|           
|10(a)       |  |  Employment Agreement, dated as of February 23, 1998, between the
Registrant and Dr. Norman C. Payson, incorporated by reference to
Exhibit 10(t) of the Registrants Annual Report on Form 10-K/A for the
period ended December 31, 1997 (File No. 0-19442)                                                       
|           
|10(b)       |  |  Oxford Health Plans, Inc. Stock Option Agreement, dated February
23, 1998, by and between Dr. Norman C. Payson and the Registrant,
previously filed with and incorporated by reference to Exhibit 10(u) of
the Registrants Annual Report on Form 10-K/A for the period ended
December 31, 1997 (File No. 0-19442)
|           
|10(c)       |  |  Amendment Number 1 to Employment Agreement, dated as of December
9, 1998, by and between the Registrant and Norman C. Payson, M.D.,
previously filed with and incorporated by reference to the Registrants
Form 10-K for the year ended December 31, 1998, filed on March 19, 1999
(File No. 0-19442)            
|           
|10(d)       |  |  Amendment, dated April 13, 1999, to Employment Agreement between
Registrant and Norman C. Payson, previously filed with and incorporated
by reference to the Registrants report on Form 10-Q for the quarterly
period ended March 31, 1999.                                                                      
|           
|10(e)       |  |  Employment Agreement, dated as of March 13, 2001, between the
Registrant and Charles G. Berg, incorporated by reference to Exhibit
10(a) of the Registrants Form 10-Q for the quarterly period ended March
31, 2001 (File No. 33-40539)                                                                          
|           
|10(f)       |  |  Employment Agreement, dated as of April 1, 1998, between the
Registrant and Alan Muney, M.D., M.H.A., incorporated by reference to
Exhibit 10(d) of the Registrants Form 10-Q for the quarterly period
ended June 30, 1998 (File No. 0-19442)                                                                    
|           
|10(g)       |  |  Letter Agreement, dated September 28, 1998, between the Registrant
and Fred F. Nazem, incorporated by reference to Exhibit 10(a) of the
Registrants Form 10-Q for the quarterly period ended September 30, 1998
(File No. 0-19442)                                                                               
|           
|10(h)       |  |  Letter Agreement, dated July 24, 1998, between the Registrant and
Benjamin Safirstein, M.D., incorporated by reference to Exhibit 10(b) of
the Registrants Form 10-Q for the quarterly period ended September 30,
1998 (File No. 0-19442)                                                                        
|           
|10(i)       |  |  Letter Agreement, dated October 12, 1999, to Letter Agreement,
dated July 24, 1998, between the Registrant and Benjamin Safirstein,
M.D., incorporated by reference to Exhibit 10(a) of the Registrants
Form 10-Q for the quarterly period ended September 30, 1999 (File No.
0-19442)                           
|           
|10(j)       |  |  Employment Agreement, dated as of September 1, 2000, as amended,
by and between the Registrant and Daniel N. Gregoire, incorporated by
reference to Exhibit 10(p) of the Registrants Annual report on Form
10-K for the year ended December 31, 2001 (File No. 0-19442)                                          
|           
|10(k)       |  |  Oxford Health Plans, Inc. Stock Option Agreement, dated as of
December 1, 2000, by and between the Registrant and Daniel N. Gregoire,
incorporated by reference to Exhibit 10(q) of the Registrants Annual
report on Form 10-K for the year ended December 31, 2001 (File No.
0-19442)                           
|           
|10(l)       |  |  Letter Agreement, dated as of July 22, 1998, by and between the
Registrant and Kurt B. Thompson, incorporated by reference to the
Exhibit 10(y) of the Registrants Form 10-K for the year ended December
31, 1999 (File No. 0-19442)                                                                             
|           
|10(m)       |  |  Employment Agreement, dated March 15, 2000, by and between the
Registrant and Kurt B. Thompson, incorporated by reference to Exhibit
10(z) of the Registrants Form 10-K for the year ended December 31, 1999
(File No. 0-19442)                                                                                  
|           
|10(n)       |  |  1991 Stock Option Plan, as amended, incorporated by reference to
Exhibit 10(t) of the Registrants Annual report on Form 10-K for the
year ended December 31, 2000 (File No. 0-19442)                                                                                                                             

75



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##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|10(o)       |  |  1997 Independent Contractor Stock option plan, incorporated by
reference to the Registrants Form S-8 filed on September 16, 1997 (File
No. 0-19442)                                                                                                                                                                                                                                                      
|           
|10(p)       |  |  Oxford Health Plans, Inc. 401(k) Plan, as amended, incorporated by
reference to Exhibit 10(v) of the Registrants Annual report on Form
10-K for the year ended December 31, 2000 (File No. 0-19442)                                                                                                                                                                                                      
|           
|10(q)       |  |  Non-Employee Directors Stock Option Plan, as amended, incorporated
by reference to Exhibit 10(l)(ii) of the Registrants Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 0-19442)                                                                                                                                                                                               
|           
|10(r)       |  |  Oxford Health Plans, Inc. Special Salary Continuation Plan,
previously filed with and incorporated by reference to Exhibit 10(c) of
the Registrants report on Form 10-Q for the quarterly period ended
March 31, 1999 (File No. 0-19442)                                                                                                                                                                 
|           
|10(s)       |  |  Oxford Health Plans, Inc. 2001 Management Incentive Compensation
Plan, incorporated by reference to Exhibit 10(b) of the Registrants
report on Form 10-Q for the quarterly period ended March 31, 2001 (File
No. 0-19442)                                                                                                                                                                                
|           
|10(t)       |  |  Credit Agreement, dated as of December 22, 2000, among the
Registrant, the financial institutions listed therein as Lenders, Credit
Suisse First Boston, as Administrative Agent, and the other parties
thereto, incorporated by reference to Exhibit 10.3 of the registration
Statement on Form S-3, filed January 10, 2001 (File No. 0-19442)                                                           
|           
|10(u)       |  |  First Amendment to Credit Agreement, dated as of July 6, 2001, by
and among the Registrant, Oxford Benefit Management, Inc., the financial
institutions listed therein as Lenders, Credit Suisse First Boston,
Deutsche Banc Alex Brown, Inc. and Credit Lyonnais New York Branch,
incorporated by reference to the Registrants Form 10-Q for the
quarterly period ended June 30, 2001 (File No. 0-19442)
|           
|21          |  |  Subsidiaries of the Registrant*                                                                                                                                                                                                                                                                                                                                                                           
|           
|23(a)       |  |  Consent of Ernst & Young LLP*                                                                                                                                                                                                                                                                                                                                                                             



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|* |  | Filed herewith.
|- |  | ---------------

76