<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                FORM 10-K/A NO. 3

(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, 1998



                                       OR

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

For the transition period from                              to


Commission File Number:                           0-19442


                            OXFORD HEALTH PLANS, INC.

             (Exact name of registrant as specified in its charter)

          DELAWARE                                       06-1118515
(State or other jurisdiction of incorporation  (IRS Employer Identification No.)
 or organization)

800 CONNECTICUT AVENUE, NORWALK, CONNECTICUT                          06854
(Address of principal executive offices)                           (Zip Code)

                                 (203) 852-1442
              (Registrant's telephone number, including area code)

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

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

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/A No. 3 or any amendment
to this Form 10-K/A No. 3. [X]

As of March 1, 1999, there were 80,757,351 shares of common stock issued and
outstanding. The aggregate market value of such stock held by nonaffiliates, as
of that date, was $1,451,478,000.

                       DOCUMENTS INCORPORATED BY REFERENCE
  Portions of Registrant's definitive Proxy Statement to be filed pursuant to
                           Regulation 14A (Part III)
<PAGE>   2
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>

    The operating data and balance sheet information set forth below for each
year in the five-year period ended December 31, 1998 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)                                       1998            1997            1996           1995 (3)        1994 (3)
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>              <C>              <C>            <C>             <C>
Revenues and Earnings:
    Operating revenues                                   $ 4,630,166      $ 4,179,816      $ 3,032,569    $ 1,745,975     $  752,832
    Investment and other income, net                          89,245           71,448           42,620         19,711          7,479
    Net earnings (loss)                                     (596,792)        (291,288)          99,623         52,398         28,231
    Net earnings (loss) attributable to common shares       (624,460)        (291,288)          99,623         52,398         28,231

Financial Position:
    Working capital                                          209,443           85,790          451,957        103,448         71,731
    Total assets                                           1,637,750        1,390,101        1,356,397        611,149        331,084
    Long-term debt                                           350,000                -               -              -              -
    Redeemable preferred stock                               298,816                -               -              -              -
    Common shareholders' equity (deficit)                   (181,105)         349,216          598,170        220,033        132,394

Net Earnings (Loss) Per Common Share (1):
    Basic                                                  $   (7.79)      $    (3.70)       $    1.34      $    0.78      $    0.43
    Diluted                                                $   (7.79)      $    (3.70)       $    1.25      $    0.71      $    0.40
    Weighted-average number of Common shares
    outstanding:
        Basic                                                 80,120           78,635          74,285         67,450         65,410
        Diluted                                               80,120           78,635          79,662         73,344         70,554
Operating Statistics:
    Enrollment                                             1,881,400        2,008,100       1,535,500      1,007,700        513,000
    Fully insured member months                           23,081,900       21,584,700      15,604,400      9,338,610      4,101,863
    Self-funded member months                                765,500          602,900         474,200        514,200        524,000
    Medical loss ratio (2)                                     94.4%            94.0%           80.1%          77.5%          74.1%

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Per share amounts and weighted-average number of common share amounts have
     been restated to reflect the two-for-one stock splits in 1996 and 1995.
(2)  Defined as health care services expense as a percentage of premiums earned.
(3)  In July 1995, the Company completed a merger with OakTree Health Plan, Inc.
     ("OakTree") whereby OakTree was merged into a subsidiary of the Company.
     The merger was accounted for as a pooling of interests and, accordingly,
     all prior period consolidated financial statements have been restated as if
     the merger took place at the beginning of such periods.

                                       33

<PAGE>   3

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    See Index to Consolidated Financial Statements and Schedules on page 56.






                                       54
<PAGE>   4
                                     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 56.

       2. Financial statement schedules - see Index to Consolidated Financial
          Statements and Schedules on page 56.

       3. Exhibits - see Exhibit Index on page 95.

(b)  Reports on Form 8-K

    In a report on Form 8-K dated October 2, 1998 and filed on October 5, 1998,
the Company reported under Item 5 "Other Events" its exit from a portion of the
Medicare market.

    In a report on Form 8-K dated and filed on October 14, 1998, the Company
reported under Item 5 "Other Events" its agreement to sell its Pennsylvania
subsidiary to Health Risk Management, Inc. for $10.4 million.

    In a report on Form 8-K dated and filed on October 30, 1998, the Company
reported under Item 5 "Other Events" its earnings press release for the third
quarter of 1998.

    In a report on Form 8-K dated and filed on November 19, 1998, the Company
reported under Item 5 "Other Events" an amendment to its agreement with TPG
Partners, L.P. (the "Investor") permitting principals of the Investor to
purchase up to an aggregate of 2,000,000 shares of the Company's common stock.


                                   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 30th day of
August, 1999.

                                         OXFORD HEALTH PLANS, INC.

                                         By:     /s/ Kurt B. Thompson
                                            ---------------------------------
                                                  KURT B. THOMPSON
                                               Principal Accounting Officer



                                       55
<PAGE>   5
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
                                                                                                                 Page
                                                                                                                 ----
<S>                                                                                                              <C>
Independent Auditors' Reports...............................................................................       57
Consolidated Balance Sheets as of December 31, 1998 and 1997................................................       59
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and
     1996...................................................................................................       60
Consolidated Statements of Shareholders' Equity (Deficit) and Comprehensive Earnings (Loss)
     for the years ended December 31, 1998, 1997 and 1996...................................................       61
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and
     1996...................................................................................................       62
Notes to Consolidated Financial Statements..................................................................       64
Independent Auditors' Reports on Financial Statement Schedules..............................................       89

Financial Statement Schedules:
I    Condensed Financial Information of Registrant..........................................................       91
II   Valuation and Qualifying Accounts......................................................................       94
</TABLE>




                                       56
<PAGE>   6
                          INDEPENDENT AUDITORS' REPORT

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

    We have audited the consolidated balance sheet of Oxford Health Plans, Inc.
and subsidiaries (the "Company") as of December 31, 1998, and the related
consolidated statements of operations, shareholders' equity (deficit) and
comprehensive earnings (loss) and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

    We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.

    In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Oxford
Health Plans, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.


                                                  Ernst & Young LLP

Stamford, Connecticut
March 9, 1999




                                       57
<PAGE>   7
                          INDEPENDENT AUDITORS' REPORT

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

    We have audited the accompanying consolidated balance sheet of Oxford Health
Plans, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity (deficit) and
comprehensive earnings (loss) and cash flows for each of the years in the
two-year period ended December 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

    We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Oxford
Health Plans, Inc. and subsidiaries as of December 31, 1997 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.



                                                               KPMG LLP

Stamford, Connecticut
February 23, 1998




                                       58
<PAGE>   8
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
                      (In thousands, except share amounts)

                                     Assets

<TABLE>
<CAPTION>
Current assets:                                                                      1998            1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>
    Cash and cash equivalents                                                      $237,717          $4,141
    Investments - available-for-sale, at market value                               922,990         635,743
    Premiums receivable, net                                                        110,254         275,646
    Other receivables                                                                36,540          42,517
    Prepaid expenses and other current assets                                         9,746          10,097
    Refundable income taxes                                                               -         120,439
    Deferred income taxes                                                            43,385          38,092
-----------------------------------------------------------------------------------------------------------
        Total current assets                                                      1,360,632       1,126,675

Property and equipment, net                                                         112,941         147,093
Deferred income taxes                                                                94,182          86,406
Restricted investments - held-to-maturity, at amortized cost                         44,798              --
Other noncurrent assets                                                              25,197          29,927
-----------------------------------------------------------------------------------------------------------
        Total assets                                                             $1,637,750      $1,390,101
===========================================================================================================

                                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Medical costs payable                                                          $850,197        $762,959
    Trade accounts payable and accrued expenses                                     176,833         144,264
    Unearned premiums                                                               105,993         124,603
    Current portion of capital lease obligations                                     15,938              --
    Deferred income taxes                                                             2,228           9,059
-----------------------------------------------------------------------------------------------------------
        Total current liabilities                                                 1,151,189       1,040,885

Long-term debt                                                                      350,000              --
Obligations under capital leases                                                     18,850              --
Redeemable preferred stock                                                          298,816              --

Shareholders' equity (deficit):
    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 80,515,872 in 1998 and 79,474,439 in 1997                  805             795
    Additional paid-in capital                                                      506,243         437,653
    Accumulated deficit                                                           (692,290)        (95,498)
    Accumulated other comprehensive earnings                                          4,137           6,266
-----------------------------------------------------------------------------------------------------------
        Total liabilities and shareholders' equity (deficit)                     $1,637,750      $1,390,101
===========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.



                                       59
<PAGE>   9
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                    (In thousands, except per share amounts)



<TABLE>
<CAPTION>
                                                                                        1998            1997           1996
-------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                                   <C>            <C>             <C>
    Premiums earned                                                                   $4,612,328     $4,167,224      $3,022,168
    Third-party administration, net                                                       17,838         12,592          10,401
    Investment and other income, net                                                      89,245         71,448          42,620
-------------------------------------------------------------------------------------------------------------------------------
      Total revenues                                                                   4,719,411      4,251,264       3,075,189
-------------------------------------------------------------------------------------------------------------------------------

Expenses:
    Health care services                                                               4,353,537      3,916,742       2,421,167
    Marketing, general and administrative                                                772,015        737,425         477,373
    Interest and other financing charges                                                  57,090         11,118              --
    Restructuring charges                                                                113,657             --              --
    Write-downs of strategic investments                                                  38,341         41,618              --
-------------------------------------------------------------------------------------------------------------------------------
      Total expenses                                                                   5,334,640      4,706,903       2,898,540
-------------------------------------------------------------------------------------------------------------------------------

Operating earnings (loss)                                                              (615,229)      (455,639)         176,649

Equity in net loss of affiliate                                                              --         (1,140)          (4,600)
Gain on sale of affiliate                                                                    --         25,168               --
-------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes                                                    (615,229)      (431,611)         172,049
Income tax expense (benefit)                                                            (18,437)      (140,323)          72,426
-------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                                    (596,792)      (291,288)          99,623
Less preferred dividends and amortization                                               (27,668)            --               --
-------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares                                     $(624,460)     $(291,288)        $ 99,623
===============================================================================================================================

Earnings (loss) per common and common equivalent share:
      Basic                                                                            $  (7.79)      $  (3.70)         $  1.34
      Diluted                                                                          $  (7.79)      $  (3.70)         $  1.25

Weighted-average common stock and common stock equivalents outstanding:
      Basic                                                                               80,120        78,635           74,285
      Effect of dilutive securities-stock options                                             --            --            5,377
-------------------------------------------------------------------------------------------------------------------------------
      Diluted                                                                             80,120        78,635           79,662
===============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       60
\
<PAGE>   10
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                        AND COMPREHENSIVE EARNINGS (LOSS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (In thousands)

<TABLE>
<CAPTION>

                                                     Common Stock                                                   Accumulated
                                                  ------------------      Additional    Retained                       Other
                                                   Number        Par        Paid-In     Earnings   Comprehensive    Comprehensive
                                                  of Shares     Value       Capital     (Deficit)  Earnings (Loss)  Earnings (Loss)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>           <C>        <C>              <C>
Balance at January 1, 1996                          34,390    $     343    $ 116,639    $  96,167         --         $   6,884

Exercise of stock options                            2,965           30       21,200         --           --              --
Proceeds from public offering, net                   5,227           53      220,487         --           --              --
Tax benefit realized upon exercise of stock
     options                                          --           --         33,624         --           --              --
One-for-one stock dividend                          34,794          348         (348)        --           --              --
Net earnings                                          --           --           --         99,623    $  99,623            --
Appreciation in value of available-for-sale
securities, net of deferred income taxes              --           --           --           --          3,120           3,120
                                                                                                     ---------
Comprehensive earnings                                                                               $ 102,743
                                                                                                     =========
-----------------------------------------------------------------------------------------------------         ----------------------
Balance at December 31, 1996                        77,376          774      391,602      195,790         --            10,004

Exercise of stock options                            2,098           21       21,243         --           --              --
Tax benefit realized upon exercise of stock
options                                               --           --         24,808         --           --              --
Net loss                                              --           --           --       (291,288)   $(291,288)           --
Depreciation in value of available-for-sale
securities, net of deferred income taxes              --           --           --           --         (3,738)         (3,738)
                                                                                                     ---------
Comprehensive earnings (loss)                                                                        $(295,026)
                                                                                                     =========
-----------------------------------------------------------------------------------------------------         ----------------------
Balance at December 31, 1997                        79,474          795      437,653      (95,498)        --             6,266

Exercise of stock options                              397            4        2,651         --           --              --
Proceeds from sale of common stock                     645            6        9,994         --           --              --
Issuance of Series A and Series B preferred
    stock warrants                                    --           --         67,000         --           --              --
Compensatory stock grants under executive
    stock agreements                                  --           --         16,613         --           --              --
Preferred stock dividends and amortization
    of discount                                       --           --        (26,103)        --           --              --
Amortization of preferred stock issuance costs        --           --         (1,565)        --           --              --
Net loss                                              --           --           --       (596,792)   $(596,792)           --
Depreciation in value of available-for-sale
securities, net of deferred income taxes--            --           --           --           --         (2,129)         (2,129)
                                                                                                     ---------
Comprehensive earnings (loss)                                                                        $(598,921)
                                                                                                     =========
-----------------------------------------------------------------------------------------------------         ----------------------
Balance at December 31, 1998                        80,516    $     805    $ 506,243    $(692,290)                   $   4,137
=====================================================================================================         ======================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       61
<PAGE>   11
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (In thousands)

<TABLE>
<CAPTION>
Cash flows from operating activities:                                            1998          1997           1996
------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>            <C>
    Net earnings (loss)                                                     $  (596,792)   $  (291,288)   $    99,623
    Adjustments to reconcile net earnings (loss) to net cash
      provided by operating activities:
        Depreciation and amortization                                            67,141         61,045         42,886
        Noncash restructuring charges and write-downs of
            strategic investments                                               101,547         41,618           --
        Deferred income taxes                                                   (18,437)       (75,279)       (13,196)
        Provision for doubtful accounts                                          60,209         25,000          4,505
        Equity in net loss of affiliate                                            --            1,140          4,600
        Realized gain on sale of investments                                    (10,695)       (28,736)        (4,734)
        Gain on sale of affiliate                                                  --          (25,168)          --
        Other, net                                                               13,289            245            480
        Changes in assets and liabilities, net of effect of acquisitions:
           Premiums receivable                                                  130,183         25,942       (223,353)
           Other receivables                                                      2,679        (18,320)       (11,083)
           Prepaid expenses and other current assets                                351         (3,928)        (2,251)
           Medical costs payable                                                 62,238        116,387        323,851
           Trade accounts payable and accrued expenses                           33,802         84,967         14,764
           Income taxes payable/refundable                                      121,102       (123,624)        42,098
           Unearned premiums                                                    (18,610)        61,378         12,753
           Other, net                                                             5,511         (3,959)        (3,747)
------------------------------------------------------------------------------------------------------------------------
             Net cash provided (used) by operating activities                   (46,482)      (152,580)       287,196
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Capital expenditures                                                        (40,045)      (101,946)       (48,348)
    Purchases of available-for-sale securities                               (1,353,403)      (589,690)      (794,099)
    Sales of available-for-sale securities                                      951,941        756,174        311,783
    Maturities of available-for-sale securities                                  41,547         34,621         33,298
    Acquisitions, net of cash acquired                                           (1,312)       (14,034)          --
    Investments in and advances to unconsolidated affiliates                     (5,410)       (19,842)       (18,597)
    Other, net                                                                    3,193         (1,986)           723
------------------------------------------------------------------------------------------------------------------------
             Net cash provided (used) by investing activities                  (403,489)        63,297       (515,240)
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Proceeds of notes and loans payable                                         550,000           --             --
    Redemption of notes and loans payable                                      (200,000)          --             --
    Proceeds of preferred stock, net of issuance expenses                       271,148           --             --
    Proceeds of warrants                                                         67,000           --             --
    Proceeds from issuance of common stock                                       10,000           --          220,539
    Proceeds from exercise of stock options                                       2,655         21,264         21,215
    Debt issuance expenses                                                      (11,793)          --             --
    Payments under capital leases                                                (5,463)          --             --
------------------------------------------------------------------------------------------------------------------------
             Net cash provided by financing activities                          683,547         21,264        241,754
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                            233,576        (68,019)        13,710
Cash and cash equivalents at beginning of year                                    4,141         72,160         58,450
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                    $   237,717    $     4,141    $    72,160
========================================================================================================================
</TABLE>



                                       62
<PAGE>   12
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (In thousands)
                                   (Continued)

<TABLE>
<CAPTION>
                                                                             1998            1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>           <C>
Supplemental schedule of noncash investing and financing activities:
    Unrealized appreciation (depreciation) of short-term investments      $ (4,255)      $  6,336      $  5,288
    Capital lease obligations incurred                                      40,251           --            --
    Preferred stock dividends paid in-kind                                  18,548           --            --
    Amortization of preferred stock discount                                 7,555           --            --
    Amortization of preferred stock issuance expenses                        1,565           --            --
    Tax benefit realized on exercise of stock options                         --           24,808        33,624
    Sale of affiliate in a pooling-of-interests transaction                   --           38,442          --
    One-for-one stock dividend                                                --             --             348
</TABLE>

See accompanying notes to consolidated financial statements.


                                       63
<PAGE>   13
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    ORGANIZATION

    Oxford Health Plans, Inc. ("Oxford") is a regional health care company
providing health care coverage in New York, New Jersey, Connecticut, New
Hampshire, Florida and Pennsylvania. Oxford was incorporated on September 17,
1984 and began operations in 1986. Oxford owns and operates five health
maintenance organizations ("HMOs"), three of which are qualified as Competitive
Medical Plans, and an accident and health insurance company and offers a health
benefits administrative service.

    Oxford's HMOs, Oxford Health Plans (NY), Inc. ("Oxford NY"), Oxford Health
Plans (NJ), Inc. ("Oxford NJ"), Oxford Health Plans (CT), Inc. ("Oxford CT"),
Oxford Health Plans (FL), Inc. and Oxford Health Plans (NH), 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") has been granted a license to
operate as an accident and health insurance company by the Department of
Insurance in the states of New York, New Jersey, Connecticut, Florida and New
Hampshire and in the Commonwealth of Pennsylvania. The Company anticipates that
it will have ceased doing business in Pennsylvania, Florida, Illinois and New
Hampshire by the end of 1999. Oxford also owns Oxford Health Plans (IL), Inc.
("Oxford IL") which is licensed by the Illinois Department of Insurance as an
accident and health insurance company with authority to offer HMO products.
However, Oxford ceased its Illinois operations in the third quarter of 1998.

    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 fixed levels or under certain risk-sharing
agreements 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
include the accounts of Oxford Health Plans, Inc. and all majority-owned
subsidiaries ("the Company"). All intercompany balances have been eliminated in
consolidation. The Company's investment in Health Partners, Inc. was accounted
for using the equity method until its disposal in October 1997 (see note 12).

    (b) Premium revenue. Membership contracts are generally 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 amounts
estimated for termination of members and groups. The Company receives premium
payments from the federal Health Care Financing Administration ("HCFA") on a
monthly basis for its Medicare membership. In 1998, premiums received from HCFA
represented 21.9% of the Company's total premium revenue earned during 1998.
Membership and category eligibility are periodically reconciled with HCFA and
could result in adjustments of revenue. The Company is not aware of any material
claims, disputes or settlements relating to revenues it has received from HCFA.
Premiums receivable are presented net of valuation allowances for estimated
uncollectible amounts of $37.7 million in 1998 and $6.5 million in 1997.
Unearned premiums represent 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. Investment
income is recognized in accordance with generally accepted accounting principles
("GAAP"), accrued when earned and included in investment and other income.

    (c) Health care services cost recognition. The Company contracts with
various health care providers for the provision of certain medical care services
to its members and generally compensates those providers on a fee-for-service
basis or pursuant to certain risk-sharing agreements.

    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. The Company estimates the amount of the provision for incurred but not
reported or paid claims using standard actuarial methodologies based upon
historical data including the period between the date services



                                       64
<PAGE>   14
are rendered and the date claims are received and paid, denied claim activity,
expected medical cost inflation, seasonality patterns and changes in membership.
The estimates for submitted claims and incurred but not reported or paid claims
are made on an accrual basis and adjusted in future periods as required. Any
adjustments to the prior period estimates are included in the current period.
Medical costs payable also reflects surplus or deficit experience for physicians
participating in risk-sharing arrangements. Amounts advanced to providers for
delayed claims, which are net of a valuation reserve of $35.0 million, have been
applied against medical claims payable in the accompanying balance sheet and
aggregated approximately $139.5 million at December 31, 1998. Management
believes that the Company's reserves for medical costs payable are adequate to
satisfy its ultimate 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 recognition of premium deficiency reserves since its effect is
deemed to be immaterial.

    As part of the Turnaround Plan, the Company decided that it was not in a
position to make the investment in noncore markets required to achieve
normalized operating results. Accordingly, the Company decided to withdraw from
certain states, namely Pennsylvania, New Hampshire, Florida and Illinois, and
focus on its core businesses of commercial and Medicare membership in New York,
New Jersey and Connecticut. The Company was prohibited by the various state
regulators from simply canceling the outstanding policies and immediately
withdrawing from these noncore markets. As a result, the Company was required to
continue to service the outstanding policies. Using these assumptions, the
premium deficiency reserve aggregating $25.2 million was established for the
noncore businesses in accordance with SFAS 5 and the AICPA Healthcare Audit
Guide.

    As part of its Turnaround Plan, the Company also decided to restructure its
current Medicare arrangements and/or withdraw from Medicare in the counties
where the Medicare business was not profitable and to withdraw from the Medicaid
business entirely. Premium deficiency reserves totaling $51.0 million were
established in the second quarter of 1998. Based on the Company's decision to
restructure or withdraw from these businesses by the end of 1998, the reserves
were determined by estimating the premium deficiency for the remainder of 1998.

    The Company entered into an agreement to dispose of its remaining Medicaid
business in the fourth quarter of 1998, completed two Medicare risk transfer
agreements late in the third quarter of 1998 and notified HCFA in the fourth
quarter of 1998 of its intention to withdraw from Medicare in certain counties
effective January 1, 1999. Under the two risk sharing arrangements the Company
has transferred a substantial portion of the medical cost risk associated with
the provision of medical services to certain of the Company's Medicare members
to a network management company in one case and an integrated health care system
in the other. These risk transfer agreements have five year terms and provide
for delegation of certain claims payment and utilization management functions,
subject to oversight by the Company. The providers agree to provide or arrange
for providing all covered health care services for this membership in return for
payment by the Company of a fixed per member per month payment based on a
percentage of premium received by the Company. In the event the providers fail
to fulfill their obligations under the risk transfer agreements, the Company
remains liable to provide contracted benefits to its members. Losses in these
programs amounted to $31.8 million in the second half of 1998 and were charged
against the reserves established in the second quarter of 1998. As a result of
the Company's early completion of this portion of its Turnaround Plan, the
remaining reserve balance of $19.2 million was reversed as a reduction of health
care services expense in the fourth quarter of 1998, which reduced the net loss
by $.24 per share.

    In the fourth quarter of 1998, the Company also established a premium
deficiency increase of $27 million for losses on the Company's individual
products arising from the Company's decision to seek an approximately 9%
increase in premiums on it New York individual products, instead of seeking a
higher increase which would involve uncertainties associated with the
requirement of a public rate hearing.



                                       65
<PAGE>   15
    Premium deficiency reserves are calculated using generally accepted
actuarial techniques. The significant assumptions used were based primarily on
the Company's experience and the relevant elements of the Turnaround Plan and
are as follows:

             Loss recognition period - The loss recognition period used for
         commercial business was the period through the earliest date that the
         Company believed that the various states would allow withdrawal, and
         for government programs was the earliest contract renewal/termination
         date, which was December 31, 1998 for Medicare business.

             Premiums - The premium level is fixed for the duration of the
         contracts under the terms of the applicable commercial, federal and
         state government contracts.

             Medical expenses - Medical expense assumptions were based on
         historical experience of the Company for all contracts.

             Maintenance expenses - Maintenance expenses for commercial
         contracts are estimated at a level sufficient to provide for member
         maintenance, billing and collections and some provider relations. This
         level represents a normalized expense level based on historical
         experience of the Company and excluded all marketing related expenses
         as well as costs associated with the restructuring that were separately
         evaluated. Maintenance expenses for government programs are estimated
         to be 7% of premiums. This level of expenses was intended to provide
         for member maintenance, billing and collections and some provider
         relations. This level represents a normalized expense level based on
         historical experience of the Company and excluded any substantial
         marketing related expenses and the costs associated with the
         restructuring.

    The Company evaluates the need for premium deficiency reserves on a
quarterly basis. As of December 31, 1998, premium deficiency reserves aggregated
approximately $27.4 million and are included in medical costs payable in the
accompanying consolidated balance sheet.

    The Company evaluated the necessity for premium deficiency reserves in
periods prior to 1998 and concluded that no reserves were required since, at
that time, the Company was projecting marginal profits or immaterial losses on
these businesses based on projected premiums and medical and administrative
expense levels. The projections that had previously shown marginal profits or
immaterial losses on these businesses contemplated growth in the underlying
business to support administrative expense levels, premium increases, reductions
in medical costs resulting from improved medical management, systems and
operational improvements and revised provider contracts.

     (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
costs. 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. Realized gains and
losses are determined on a specific identification basis and are included in
results of operations. Investment income is recognized in accordance with GAAP,
accrued when earned and included in investment and other income.



                                       66
<PAGE>   16
    (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) Intangible assets. Intangible assets resulting from business
acquisitions are carried at cost and currently amortized over a period of five
years. At each balance sheet date, the Company evaluates the recoverability of
acquisition-related intangible assets based on expectations of nondiscounted
cash flows of the acquired entity. The Company had no intangible assets recorded
as of December 31, 1998 or 1997.

    (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. A
valuation allowance is recorded to reduce the deferred tax assets to the amount
that is expected to more likely than not be realized.

    (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
costs to sell.

    (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. All prior period
amounts have been restated to reflect these calculations. Both basic and diluted
earnings per share give retroactive effect to the two-for-one stock split in
1996.

    Options to purchase 15.3 million shares of common stock and preferred stock
warrants to purchase 22.5 million shares of common stock were outstanding at
December 31, 1998 but were not included in the computation of diluted earnings
per share because the Company had a net loss for 1998 and their inclusion would
have been antidilutive.

    (l) Stock option plans. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of Accounting Principals 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 made in 1995 and
subsequent years as if the fair-value-based method defined in SFAS 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS 123 (see
note 9). With respect to the independent contractor grants, it is the Company's
policy to record such grants and reissuance 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 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. Actual results could differ from those estimates.



                                       67
<PAGE>   17
    Reclassifications. Certain reclassifications have been made to prior years'
financial statement amounts to conform to the 1998 presentation.

    Adoption of New Accounting Standards. The Company has adopted Statements of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes new rules for the reporting and display of
comprehensive earnings (loss) and its components. The adoption of this statement
had no impact on the Company's net income or shareholder's equity. SFAS No. 130
requires unrealized gains or losses, net of taxes, on the Company's
available-for-sale securities which, prior to adoption, were reported separately
in shareholders' equity, to be included in other comprehensive earnings.

    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 on available-for-sale
securities of $6.4 million, $22.4 million and $10.0 million, reduced by the tax
effects of $1.6 million, $7.5 million and $4.1 million in 1998, 1997 and 1996,
respectively, and reclassification adjustments of $10.7 million, $28.7 million
and $4.7 million, reduced by the tax effects of $3.7 million, $10.1 million and
$1.9 million in 1998, 1997 and 1996, respectively.

    The Company has adopted the standards associated with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information". Management
evaluates its operating performance as a single segment. Therefore, the Company
has not included the additional disclosures required by SFAS No. 131. Adoption
of this accounting standard has no impact on the Company's financial position or
net income.

    The Company has adopted the standards associated with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The Company does
not invest in derivative instruments or use hedging activities. The adoption of
this accounting standard has no impact on the Company's financial position or
results of operations.

    The Company is required to adopt Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use",
effective January 1, 1999. The Company's current practice in accounting for
costs of software developed or obtained for internal use is consistent with
those required by the statement.





                                       68
<PAGE>   18
(3)    INVESTMENTS

    The following is a summary of marketable securities as of December 31, 1998
and 1997:

<TABLE>
<CAPTION>
                                                                                           Gross            Gross
(In thousands)                                                        Amortized         Unrealized       Unrealized         Fair
December 31, 1998:                                                      Cost               Gains            Losses          Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>               <C>
    Available-for-sale:
      U.S. government obligations                                     $585,028            $4,568            $1,673          $587,923
      Corporate obligations                                            331,596             3,688               218           335,066
                                                                      --------          --------          --------          --------
        Total debt securities                                          916,624             8,256             1,891           922,989
      Equity securities
                                                                             1                --                --                 1
                                                                      --------          --------          --------          --------
        Total short-term investments                                  $916,625            $8,256            $1,891          $922,990
                                                                      ========          ========          ========          ========
    Held-to-maturity - U.S. government obligations                     $44,798            $1,028               $--           $45,826
                                                                      ========          ========          ========          ========

December 31, 1997-all available-for-sale:
      U.S. government obligations                                     $252,817            $1,863              $256          $254,424
      Corporate obligations                                            140,434             1,276               307           141,403
      Municipal tax-exempt bonds                                       171,037             2,425                35           173,427
                                                                      --------          --------          --------          --------
        Total debt securities                                          564,288             5,564               598           569,254
      Equity securities                                                 60,834             6,027               372            66,489
                                                                      --------          --------          --------          --------
        Total short-term investments                                  $625,122           $11,591              $970          $635,743
                                                                      ========          ========          ========          ========
</TABLE>


    The amortized cost and estimated fair value of marketable debt securities at
December 31, 1998, 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.

<TABLE>
<CAPTION>
                                                                     Available-for-Sale                     Held-to-Maturity
                                                                   -----------------------------------------------------------------
                                                                   Amortized            Fair            Amortized            Fair
(In thousands)                                                        Cost              Value              Cost              Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>               <C>                <C>
Due in one year or less                                             $74,138            $74,447             $3,229             $3,242
Due after one year through five years                               811,330            816,669             41,569             42,584
Due after five years through ten years                               31,156             31,873                 --                 --
                                                                   --------           --------           --------           --------
    Total                                                          $916,624           $922,989            $44,798            $45,826
                                                                   ========           ========           ========           ========
</TABLE>


Certain information related to marketable securities is as follows:

<TABLE>
<CAPTION>
(In thousands)                                                                        1998              1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>               <C>
Proceeds from sale or maturity of available-for-sale securities                     $993,488          $790,795          $345,081
Proceeds from sale or maturity of held-to-maturity securities                          3,500                --                --
                                                                                    --------          --------          --------
Total proceeds from sale or maturity of marketable securities                       $996,988          $790,795          $345,081
                                                                                    ========          ========          ========

Gross realized gains on sale of available-for-sale securities                        $19,986           $36,615            $9,036
Gross realized losses on sale of available-for-sale securities                        (9,291)           (7,879)           (4,302)
                                                                                    --------          --------          --------
Net realized gains on sale of marketable securities                                  $10,695           $28,736            $4,734
                                                                                    ========          ========          ========

Net unrealized gain (loss) on available-for-sale securities included
    in comprehensive earnings (loss)                                                 $(4,255)          $(6,336)           $5,288
Deferred income tax expense (benefit)                                                 (2,126)           (2,598)            2,168
                                                                                    --------          --------          --------
Other comprehensive earnings (loss)                                                  $(2,129)          $(3,738)           $3,120
                                                                                    ========          ========          ========
</TABLE>


                                       69
<PAGE>   19
(4) INCOME TAXES

Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
(In thousands)                                                          Current                  Deferred                  Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                       <C>                       <C>
Year ended December 31, 1998:
    Federal                                                           $      --                 $ (14,371)                $ (14,371)
    State and local                                                   $      --                    (4,066)                   (4,066)
                                                                      ---------                 ---------                 ---------
      Total                                                           $      --                 $ (18,437)                $ (18,437)
                                                                      =========                 =========                 =========

Year ended December 31, 1997:
    Federal                                                           $ (68,604)                $ (78,577)                $(147,181)
    State and local                                                       3,560                     3,298                     6,858
                                                                      ---------                 ---------                 ---------
      Total                                                           $ (65,044)                $ (75,279)                $(140,323)
                                                                      =========                 =========                 =========

Year ended December 31, 1996:
    Federal                                                           $  64,358                 $ (10,093)                $  54,265
    State and local                                                      21,264                    (3,103)                   18,161
                                                                      ---------                 ---------                 ---------
      Total                                                           $  85,622                 $ (13,196)                $  72,426
                                                                      =========                 =========                 =========
</TABLE>



    For the year ended December 31, 1998, cash refunds, net of cash taxes paid,
were $113.0 million. For the years ended December 31, 1997 and 1996, cash
payments for income taxes, net of refunds received, were $66.9 million and $51.9
million, respectively.

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


<TABLE>
<CAPTION>
(In thousands)                                                                    1998                 1997                  1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                   <C>                   <C>
Income tax expense (benefit) at statutory tax rate                            $(217,415)            $(151,064)            $  60,217
Write-off of goodwill                                                                --                 9,895                    --
State and local income taxes, net of Federal income tax benefit                 (44,073)                4,458                11,805
Nontaxable gain on sale of affiliate                                                 --                (4,104)                   --
Equity in net loss of affiliate                                                      --                   399                 1,610
Tax-exempt interest on municipal bonds                                           (1,060)               (2,484)               (1,630)
Change in valuation allowance - federal                                         242,632                    --                    --
Other, net                                                                        1,479                 2,577                   424
                                                                              ---------             ---------             ---------
Actual income tax expense (benefit)                                           $ (18,437)            $(140,323)            $  72,426
                                                                              =========             =========             =========
</TABLE>





                                       70
<PAGE>   20
    The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at December 31, 1998 and 1997 are as
follows:

<TABLE>
<CAPTION>
(In thousands)                                                                                    1998                       1997
--------------                                                                                    ----                       ----
<S>                                                                                            <C>                        <C>
Deferred tax assets:
    Net operating loss carryforwards                                                           $ 256,024                  $  99,895
    Medical costs payable                                                                         15,357                     16,440
    Allowance for doubtful accounts                                                               18,804                     11,799
    Unearned premiums                                                                              9,088                     10,509
    Trade accounts payable and accrued expenses                                                   20,298                      8,361
    Write-down of investment in affiliate                                                         19,402                      5,618
    Property and equipment                                                                         6,750                      3,404
    Restructuring related                                                                         64,712                         --
    Other                                                                                          9,730                      5,368
                                                                                               ---------                  ---------
      Total gross deferred assets                                                                420,165                    161,394
    Less valuation allowances                                                                   (282,598)                   (36,896)
                                                                                               ---------                  ---------
      Total deferred tax assets                                                                  137,567                    124,498
                                                                                               ---------                  ---------

Deferred tax liabilities:
    Unrealized appreciation of short-term investments                                              2,228                      4,354
    Gain on sale of affiliate                                                                         --                      4,705
                                                                                               ---------                  ---------
      Total deferred tax liabilities                                                               2,228                      9,059
                                                                                               ---------                  ---------
      Net deferred tax assets                                                                  $ 135,339                  $ 115,439
                                                                                               =========                  =========
</TABLE>



    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 full valuation allowance pending the results
of its Turnaround Plan. Subsequent to the second quarter of 1998, the Company
performed detailed analyses to assess the realizability of the Company's
deferred tax assets. These analyses included an evaluation of the results of
operations for 1998 and prior periods, the progress to date in its Turnaround
Plan and projections of future results of operations, including the estimated
impact of the Turnaround Plan . Based on these analyses, the Company does not
currently believe it is more likely than not that all of its deferred tax assets
will be fully realizable, and the Company has established a valuation allowance
of $282.6 million so that deferred tax assets related to net operating loss
carryforwards and other net tax deductible temporary differences are stated at
their estimated realizable value. The Company will continue to evaluate the
realizability of its net deferred tax assets in future periods and will make
adjustments to the valuation allowances when facts and circumstances indicate
that a change is necessary. The amounts of future taxable income necessary
during the carryforward period to utilize the unreserved net deferred tax assets
is approximately $320 million.

    As of December 31, 1998, the Company has federal net operating loss
carryforwards of approximately $600 million, which will begin to expire in 2012.

(5)    PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                                                         As of December 31,
                                                                                             --------------------------------------
(In thousands)                                                                                 1998                         1997
--------------                                                                                 ----                         ----
<S>                                                                                          <C>                          <C>
Land and buildings                                                                           $     230                    $   2,313
Furniture and fixtures                                                                          31,747                       32,298
Equipment                                                                                      204,249                      176,803
Leasehold improvements                                                                          37,146                       61,605
                                                                                             ---------                    ---------
    Property and equipment, gross                                                              273,372                      273,019
Accumulated depreciation and amortization                                                     (160,431)                    (125,926)
                                                                                             ---------                    ---------
    Property and equipment, net                                                              $ 112,941                    $ 147,093
                                                                                             =========                    =========
</TABLE>



                                       71
<PAGE>   21
    Depreciation and amortization of property and equipment aggregated $63.7
million in 1998, $57.9 million in 1997 and $40.3 million in 1996.

(6)    DEBT

Long-term debt at December 31, 1998 consists of the following:

<TABLE>
<CAPTION>
(In thousands)                                                            1998
                                                                        --------
<S>                                                                    <C>
11% Senior Notes due 2005                                               $200,000
Term Loan due 2003                                                       150,000
                                                                        --------
    Total long-term debt                                                $350,000
                                                                        ========
</TABLE>


    Simultaneously with the consummation of the agreement with TPG described in
note 7, the Company issued $200 million principal amount of 11% Senior Notes due
May 15, 2005 (the "Senior Notes"). The Senior Notes were issued in a private
placement to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), the
initial purchaser, who agreed to sell the Senior Notes only to "qualified
institutional buyers", as defined in Rule 144A under the Securities Act in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Rule 144A, or outside the United States in accordance with
Regulation S under the Securities Act. DLJ received $6,000,000 in discounts and
commissions in connection with the initial purchase of the Senior Notes. The
Senior Notes are senior unsecured obligations of the Company and rank pari passu
in right of payment with all current and future senior indebtedness of the
Company. The Company's obligations under the Senior Notes are effectively
subordinated to all existing and future secured indebtedness of the Company to
the extent of the value of the assets securing such indebtedness and are
structurally subordinated to all existing and future indebtedness, if any, of
the Company's subsidiaries. Interest is payable semiannually on May 15 and
November 15 of each year commencing November 15, 1998.

    At any time on or before May 15, 2001, the Company may redeem for cash up to
33 1/3% of the original aggregate principal amount of the Senior Notes at a
redemption price of 111% of the principal amount thereof, in each case plus any
accrued and unpaid interest thereon to the redemption date, with the net
proceeds of a public equity offering provided that at least 66 2/3% of the
original aggregate principal amount of the Senior Notes remains outstanding
immediately after the occurrence of such redemption. After May 15, 2002, the
Senior Notes will be subject to redemption for cash at the option of the
Company, in whole or in part, at redemption prices ranging from 105.5% of face
amount beginning May 15, 2002 to 100% on and after May 15, 2004.

    The Senior Notes indenture provides that upon the occurrence of a change of
control (as defined), each holder of Senior Notes will have the right to require
the Company to repurchase all or any part of such holder's Senior Notes pursuant
to the offer described therein at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase. The indenture also
contains covenants for the benefit of the holders of Senior Notes that, among
other things, restrict the ability of the Company to pay any dividend or make
any payment or distribution or incur additional indebtedness.

    At the same time, the Company entered into a Term Loan Agreement that
provided for a new $150 million senior secured term loan (the "Term Loan") with
a final maturity in 2003 at which time all outstanding amounts will be due and
payable. Prior to the final maturity of the Term Loan, there are no scheduled
principal payments. The Term Loan provides for mandatory prepayments of the Term
Loan from (1) net proceeds from the sale of assets, subject to certain
exceptions and to the receipt of any required regulatory approvals (2) net
proceeds from the issuance of debt securities and (3) 50% of the net proceeds
from certain equity issuances. The Term Loan also provides for mandatory
prepayment of the entire aggregate principal amount of the Term Loan plus a
premium equal to 1.00% of the aggregate principal amount of the Term Loan upon a
"change of control." The Term Loan bears interest at a rate per annum equal to
the administrative agent's reserve adjusted LIBO rate plus 4.25%. As of December
31, 1998, the interest rate on the Term Loan was 9.335%. Interest is payable
semiannually on May 15 and November 15 each year commencing November 15, 1998.
The Term Loan is secured by a perfected first priority security interest in
substantially all of the assets of the Company. The Term Loan contains covenants


                                       72
<PAGE>   22
that, among other things, restrict the ability of the Company to pay any
dividend or make any payment or distribution or incur additional indebtedness.

    The costs incurred in connection with the issuance of the Senior Notes and
Term Loan, aggregating approximately $7.1 million and $4.7 million,
respectively, have been capitalized and are being amortized over periods of
seven years and five years, respectively.

    On February 6, 1998, the Company issued a $100 million senior secured
increasing rate note due February 6, 1999 ("Bridge Note") and on March 30, 1998
issued an additional $100 million Bridge Note, pursuant to a Bridge Securities
Purchase Agreement, dated February 6, 1998 as amended on March 30, 1998 (the
"Bridge Agreement"). The Bridge Notes bore interest at prime plus 2.5% per annum
during the first three months, and thereafter the spread over prime increased by
0.5% every three months; provided, however that the per annum interest rate
would not be less than 10.5%, nor more than 17%. The Company used the proceeds
of the Bridge Notes to make capital contributions to certain of its HMO
subsidiaries, to pay for expenses in connection with the issuance of the Bridge
Notes and for general corporate purposes. The Company capitalized the costs of
$9.9 million incurred in the issuance of the Bridge Notes, and these costs were
to be amortized over the life of the Bridge Notes. The capitalized debt issuance
costs were written off on May 13, 1998 due to extinguishment of the Bridge Notes
using funds obtained through the financings referred to above and in note 7.

    The Company made cash payments for interest expense on indebtedness and
delayed claims aggregating approximately $38.7 million in 1998 and $5.3 million
in 1997. No payments for interest expense were made in 1996.

(7)    REDEEMABLE PREFERRED STOCK

    Pursuant to an Investment Agreement, dated as of February 23, 1998 (the
"Investment Agreement"), between the Company and TPG Oxford LLC ("TPG", together
with the investors thereunder, the "Investors"), the Investors, on May 13, 1998,
purchased $350 million in redeemable Preferred Stock with Warrants to acquire up
to 22,530,000 shares of common stock. The Preferred Stock and Warrants were
issued without registration under the Securities Act in reliance on Section 4(2)
of the Securities Act, which provides an exemption for transactions not
involving any public offering. In determining that such exemption was available,
the Company relied on, among other things, the facts that the Preferred Stock
and Warrants were being issued through direct communication only to a limited
number of sophisticated investors having knowledge and access to information
regarding the Company and that the certificates evidencing such Preferred Stock
and Warrants bear a legend restricting transfer in nonregistered transactions.
Dividends on the Preferred Stock may be paid in kind for the first two years.
The Warrants have an exercise price of $17.75, which represents a 5% premium
over the average trading price of Oxford shares for the 30 trading days ended
February 20, 1998. The exercise price will become 115% of the average trading
price of Oxford common stock for the 20 trading days following the filing of the
Company's annual report on Form 10-K for the year ended December 31, 1998, if
such adjustment would reduce the exercise price.

    The Preferred Stock was originally issued as 245,000 shares of Series A and
105,000 shares of Series B. The Series A Preferred Stock carried a cash dividend
of 8% per annum, payable quarterly, provided that prior to May 13, 2000, the
Series A Preferred Stock accumulated dividends at a rate of 8.243216% per annum,
payable annually in cash or additional shares of Series A Preferred Stock, at
the option of the Company. The Series A Preferred Stock and was issued with
Series A Warrants to purchase 15,800,000 shares of common stock, or
approximately 19.9% of the then outstanding voting power of the Company's common
stock. The Series A Preferred Stock had approximately 16.6% of the combined
voting power of the Company's then outstanding common stock and the Series A
Preferred Stock. The Series B Preferred Stock, which was originally issued with
Series B Warrants to purchase nonvoting junior participating preferred stock,
was nonvoting and carried a cash dividend of 9% per annum, payable quarterly,
provided that prior to May 13, 2000, the Series B Preferred Stock accumulated
dividends at a rate of 9.308332% per annum, payable annually in cash or
additional shares of Series B Preferred Stock, at the option of the Company. The
terms of the agreement prohibit the Company from paying cash dividends on its
common stock. The Preferred Stock was not redeemable by the Company prior to May
13, 2003. Thereafter, subject to certain conditions, the Series A and B
Preferred Stock were each redeemable at the option of the Company at a
redemption price of $1,000 per share (in each case, plus accrued



                                       73
<PAGE>   23
and unpaid dividends), and were subject to mandatory redemption at the same
price on May 13, 2008. The Series A and Series B Warrants expire on the earlier
of May 13, 2008 or redemption of the related series of Preferred Stock. The
Warrants are detachable from the Preferred Stock. The carrying value of the
Preferred Stock has been reduced in the financial statements by the value of the
Warrants, estimated to be approximately $67 million at the date of issuance.
This amount has been added to additional paid-in capital and is being amortized
using the interest method over five years. The costs incurred in connection with
the issuance of the Preferred Stock aggregated approximately $11.9 million and
have been charged against the Preferred Stock in the accompanying balance sheet.
Such costs will be amortized over a period of five years. With respect to
dividend rights, the Series A and Series B Preferred Stock rank on a parity with
each other and prior to the Company's common stock. On August 28, 1998, the
Company held its annual shareholders meeting at which its shareholders approved
the vesting of voting rights in respect of the Series B Preferred Stock and the
issuance, subject to adjustment, of up to 6,730,000 shares of common stock upon
exercise of the Series B Warrants. This approval resulted in the reduction of
the dividend on the Series B Preferred Stock to 8% (8.243216% prior to May 13,
2000) and an increase in the voting rights of TPG to approximately 22.1% of the
combined voting power of the Company's then outstanding common stock and Series
A and Series B Preferred Stock.

    Activity for redeemable preferred stock for the year 1998 is as follows:

<TABLE>
<CAPTION>
(In thousands)                                                                                                     Activity
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                               <C>
Balance at December 31, 1997                                                                                            $ -
Issuance of preferred stock, net of issuance expenses                                                               338,148
Discount allocated to detachable warrants                                                                          (67,000)
Amortization of discount                                                                                              7,555
Amortization of issuance expenses                                                                                     1,565
Accrued  in-kind dividends                                                                                           18,548
                                                                                                                   --------
Balance at December 31, 1998                                                                                       $298,816
                                                                                                                   ========
</TABLE>



    On February 13, 1999, the Company entered into a Share Exchange Agreement
(the "Exchange Agreement") with TPG, its affiliates and others to make an
adjustment of the dividends payable on shares of Series A Preferred Stock and
Series B Preferred Stock in connection with the possible sale of shares of
Preferred Stock by the holders thereof to institutional holders. Pursuant to the
Exchange Agreement, the 245,000 shares of Series A Preferred Stock were
exchanged for 260,146.909 shares of a new Series D Preferred Stock (the "Series
D Preferred Stock"), and the 105,000 shares of Series B Preferred Stock were
exchanged for 111,820.831 shares of a new Series E Preferred Stock (the "Series
E Preferred Stock"). In the exchange, (1) a holder received in exchange for each
share of Series A Preferred Stock, one share of Series D Preferred Stock, plus
0.061824118367 share of Series D Preferred Stock representing dividends on the
Series A Preferred Stock accrued and unpaid through February 13, 1999, and (2) a
holder received in exchange for each share of Series B Preferred Stock, one
share of Series E Preferred Stock, plus 0.064960295238 share of Series E
Preferred Stock representing dividends on the Series B Preferred Stock accrued
and unpaid through February 13, 1999. As a result of the exchange, the holders
hold only Series D preferred Stock and Series E Preferred Stock. On March 9,
1999, the Company filed Certificates of Elimination for the Series A Preferred
Stock and the Series B Preferred Stock that have the effect of eliminating from
the Certificate of Incorporation all matters set forth in the Certificates of
Designations with respect to the Series A Preferred Stock and the Series B
Preferred Stock. The terms of the shares of the Series D Preferred Stock are
identical to the terms of the Series A Preferred Stock, except that the Series D
Preferred Stock accumulates cash dividends at the rate of 5.12981% per annum,
payable quarterly, provided that prior to May 13, 2000, the Series D Preferred
Stock accumulates dividends at a rate of 5.319521% per annum, payable annually
in cash or additional shares of Series D Preferred Stock, at the option of the
Company. The terms of the shares of the Series E Preferred Stock are identical
to the terms of the shares of the Series B Preferred Stock, except that the
Series E Preferred Stock accumulates cash dividends at a rate of 14% per annum,
payable quarterly, provided that prior to May 13,2000, the Series E Preferred
Stock accumulates dividends at a rate of 14.589214% per annum, payable annually
in cash or additional shares of Series E Preferred Stock, at the option of the
Company. In addition, prior to May 13, 2001, the holders of the Series D
Preferred Stock may not use the Series D Preferred Stock in connection with the
exercise of the Warrants, unless they use a percentage of the total amount of
Series D Preferred Stock issued on February 13,



                                       74
<PAGE>   24
1999 that does not exceed the percentage of the total number of shares of Series
E Preferred Stock issued on February 13, 1999 that have been redeemed,
repurchased or retired by the Company, or used as consideration in connection
with the exercise of the Warrants by the holders. With respect to dividend
rights, the Series D Preferred Stock and Series E Preferred Stock rank on a
parity with each other and prior to the Company's common stock.

    The aggregate cost to the Company of dividends on the Series D Preferred
Stock and Series E Preferred Stock is the same as the aggregate cost to the
Company of dividends on the Series A Preferred Stock and Series B Preferred
Stock. The respective voting rights of the holders of the Series A Preferred
Stock and Series B Preferred Stock have not changed as the result of the
exchange of such shares for shares of Series D Preferred Stock and Series E
Preferred Stock. The exchange had no effect on the consolidated balance sheet as
the issuance of additional redeemable preferred stock effected the in-kind
payment of the accrued redeemable preferred stock dividend which had previously
been credited to redeemable preferred stock. In the Company's view, there was no
difference in the aggregate fair value between the redeemable preferred stock
issued in the exchange and the redeemable preferred stock canceled in the
exchange.

    Simultaneously with closing of the Investment Agreement, Norman C. Payson,
M.D., the Company's Chief Executive Officer, purchased 644,330 shares of Oxford
common stock at an aggregate purchase price of $10 million pursuant to his
employment agreement. The common stock issued to Dr. Payson was issued without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, which provides an exemption for transactions not involving any
public offering.

    The aggregate proceeds of $710 million related to the Senior Notes, Term
Loan, common stock sale to Dr. Payson and the Investment Agreement were
utilized, in part, to retire the previously outstanding Bridge Notes, make
capital contributions to certain regulated subsidiaries and pay fees and
expenses related to the transactions. The balance has been and will be used for
subsidiary capital contributions, as necessary, and for general corporate
purposes.

(8)    COMMON STOCK

    On March 17, 1997, Oxford's Board of Directors unanimously adopted a
resolution authorizing an amendment to Oxford's certificate of incorporation to
increase the number of authorized shares of common stock from 200,000,000 shares
to 400,000,000 shares, subject to shareholder approval. On April 22, 1997, the
Company's shareholders approved such amendment.

    On March 15, 1996, Oxford's Board of Directors approved a two-for-one split
of the Company's common stock to be effected by distribution of a dividend of
one share of common stock for each share of common stock outstanding, payable to
shareholders of record on March 25, 1996. A total of 34,793,720 shares of common
stock were issued in connection with the split. The stated par value of $0.01
was not changed and the amount of $347,937 was reclassified from additional
paid-in capital to common stock.

    All appropriate share, weighted-average share and earnings per share amounts
in the consolidated financial statements were restated to retroactively reflect
the stock split.

(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 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 committee consisting of five members of the Board of
Directors,



                                       75
<PAGE>   25
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 date of grant. The Company's previous nonqualified employee stock
option plan terminated in 1991, except as to options theretofore granted.

    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 five 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 date of
grant.

    The Nonemployee Plan provides for granting of nonqualified stock options to
eligible nonemployee directors of the Company. The plan provides that each year
on the first Friday following the Company's annual meeting of stockholders, each
individual elected, reelected or continuing as a nonemployee director will
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 provides that one-fourth of the options granted under the plan vest 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.

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

<TABLE>
<CAPTION>
                                                                  Weighted-Average
                                                   Shares          Exercise Prices
----------------------------------------------------------------------------------
<S>                                              <C>               <C>
    Outstanding at January 1, 1996               11,549,436              $ 11.65
    Granted                                       1,518,176              $ 42.58
    Exercised                                    (3,368,208)                6.30
    Cancelled                                      (407,592)               20.51
-----------------------------------------------------------
    Outstanding at December 31, 1996              9,291,812                18.25
    Granted                                       3,332,186                72.58
    Exercised                                    (2,098,157)               10.14
    Cancelled                                      (319,012)               37.35
-----------------------------------------------------------
    Outstanding at December 31, 1997             10,206,829                37.06
    Granted                                      11,810,173                12.95
    Exercised                                      (397,103)                6.67
    Cancelled/exchanged                          (6,319,168)               46.41
-----------------------------------------------------------
    Outstanding at December 31, 1998             15,300,731              $ 15.40
================================================================================

    Exercisable at December 31, 1998              4,378,029              $ 16.80
================================================================================
</TABLE>



    As of December 31, 1998, there were 19,052,625 shares of common stock
reserved for issuance under the plans, including 3,751,894 shares reserved for
future grant. In addition, there were 22,530,000 shares of common stock reserved
for issuance in connection with the warrants issued to TPG (see note 7).

    With the exception of the options described in the next paragraph, the
Company, as of October 1, 1998, offered certain option holders the right to
exchange unexercised options granted subsequent to January 10, 1995 and prior to
December 2, 1997 for options equal to one-half the number of unexercised shares
exchanged. Exercise prices of options granted during that period ranged from
$21.22 per share to $85.812 per share. The options received in exchange were
granted at the then current market value of $9.875 per share and vest over a
period of three years. A total of 1,234,464 original option shares were
exchanged. The Directors, the Chairman, the President, the Chief Executive
Officer and certain Executive Vice Presidents were not permitted to participate
in this exchange.


                                       76
<PAGE>   26
    On August 8, 1997, the Company granted a total of 3,162,436 options under
the Employee Plan and the Independent Contractor Plan to employees and certain
independent contractors of the Company with an exercise price of $74.00. As a
consequence of the significant decrease in the market price of the Company's
common stock in the fourth quarter of 1997, in order to ensure that options
granted in 1997 provide a meaningful incentive to the grantees, the Board of
Directors, on December 13, 1997, approved an option reissuance grant for
employees and certain independent contractors. All of the Directors, the
Chairman, the President, the Chief Executive Officer and Executive Vice
Presidents (other than one Executive Vice President, who commenced employment in
October 1997) were excluded from the reissuance grant. Under the reissuance
grant, the grantees were offered the right to cancel options granted during 1997
and receive options to purchase the same number of shares so canceled with a
grant date of January 2, 1998 and an exercise price of $17.125 per share.

    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 1998 was approximately
$3.2 million. The Additional Option has an exercise price equal to $6.0625,
vests ratably over the four years from the date of grant, 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). On March 30, 1998, another executive officer of the
Company received a nonqualified option to acquire 800,000 shares of the
Company's common stock at the then current market price.

    Information about fixed stock options outstanding at December 31, 1998, is
summarized as follows:

<TABLE>
<CAPTION>
                                                                    Weighted-
                                               Weighted -            Average
   Range of                Number              Average            Remaining
Exercise Prices         Outstanding         Exercise Price       Contractual Life
------------------      -----------        ---------------       ----------------
<S>        <C>          <C>                 <C>                <C>
$0.32 -     $5.00           393,414             $0.84              1.8 Years
 5.01 -     10.00         5,154,357              6.99              3.5 Years
10.01 -     15.00           280,200             12.67              4.8 Years
15.01 -     20.00         7,797,801             16.17              5.4 Years
20.01 -     25.00           795,593             23.78              1.9 Years
25.01 -     50.00           451,866             44.91              2.6 Years
50.01 -     74.00           427,500             73.26              3.9 Years
                         ----------
$0.32 -    $74.00        15,300,731            $15.46              4.4 Years
======     =======       ===========           =======
</TABLE>





                                       77
<PAGE>   27
    Information about fixed stock options exercisable at December 31, 1998, is
summarized as follows:

<TABLE>
<CAPTION>
                                                     Weighted -
   Range of                 Number                   Average
Exercise Prices           Exercisable            Exercise Price
------------------        -------------          ---------------
<S>          <C>          <C>                    <C>
$0.32 -      $5.00            393,414                  $0.84
 5.01 -      10.00          1,198,618                   7.94
10.01 -      15.00             90,200                  14.15
15.01 -      20.00          1,718,309                  16.40
20.01 -      25.00            615,857                  23.80
25.01 -      50.00            238,506                  44.60
50.01 -      74.00            123,125                  72.76
                            ---------
$0.32 -     $74.00          4,378,029                 $16.80
======      ======          =========                 =======
</TABLE>



    The Company applies APB Opinion 25 and related interpretations in accounting
for the plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant dates for grants
under this plan consistent with the methodology of SFAS 123, the Company's net
earnings (loss) and earnings (loss) per share for the years ended December 31,
1998, 1997 and 1996, would have been reduced to the pro forma amounts indicated
below:


<TABLE>
<CAPTION>
(In thousands, except per share amounts)                                             1998           1997            1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                         <C>            <C>               <C>
Net earnings (loss) attributable                     As reported                  $(624,460)     $(291,288)        $99,623
   To common shares                                  Pro forma                    $(711,311)     $(315,188)        $90,011

Basic earnings (loss) per share                      As reported                     $(7.79)        $(3.70)          $1.34
                                                     Pro forma                       $(8.88)        $(4.01)          $1.21

Diluted earnings (loss) per share                    As reported                     $(7.79)        $(3.70)          $1.25
                                                     Pro forma                       $(8.88)        $(4.01)          $1.13
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



    The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $9.00, $40.03 and $19.58, 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 72.94% in 1998, 69.56% in 1997 and 48.99% in 1996,
risk-free interest rates of 5.33% in 1998, 6.15% in 1997 and 6.5% in 1996; and
expected lives of four years for all years.

    Pro forma net income reflects only options granted since 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented for 1997 and
1996 because compensation cost is reflected over the options' vesting period of
four years and compensation cost for options granted prior to January 1, 1995 is
not considered.

(10)   LEASES

    Oxford leases office space and equipment under capital and operating leases.
Rent expense under operating leases for the years ended December 31, 1998, 1997
and 1996 was approximately $31.0 million, $22.6 million and $18.5 million,
respectively. The Company's lease terms range from one to eleven years with
certain options to renew. Certain lease agreements provide for escalation of
payments which are based on fluctuations in certain published cost-of-living
indices.



                                       78
<PAGE>   28
    Property held under capital leases at December 31, 1998 is summarized as
follows:

<TABLE>
<CAPTION>
(In thousands)                                                                                    1998
---------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>
Computer equipment                                                                                $39,792
Other equipment
                                                                                                      459
---------------------------------------------------------------------------------------------------------
    Gross
                                                                                                   40,251
Less accumulated amortization                                                                      (7,940)
---------------------------------------------------------------------------------------------------------
    Net capital lease assets                                                                      $32,311
=========================================================================================================
</TABLE>



    Future minimum lease payments required under capital and operating leases
that have initial or remaining noncancelable lease terms in excess of one year
at December 31, 1998 were as follows:


<TABLE>
<CAPTION>
                                                                                                   Capital         Operating
(In thousands)                                                                                     Leases           Leases
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>              <C>
1999                                                                                               $17,837          $26,471
2000                                                                                                13,576           24,409
2001                                                                                                 6,704           16,027
2002                                                                                                     -           12,848
Thereafter                                                                                               -           23,848
---------------------------------------------------------------------------------------------------------------------------
Total minimum future rental payments                                                                38,117         $103,603
                                                                                                                   ========
Less amount representing interest                                                                   (3,329)
----------------------------------------------------------------------------------------------------------
Present value of minimum lease payments                                                             34,788
Less current maturities                                                                            (15,938)
----------------------------------------------------------------------------------------------------------
Obligations under capital leases                                                                   $18,850
==========================================================================================================
</TABLE>



    The above amounts for operating leases are net of future minimum subrentals
aggregating approximately $7.0 million.

(11)   ACQUISITIONS

    As of August 1, 1997, the Company acquired all of the outstanding stock of
Compass PPA, Incorporated, the holding company for a Chicago-based HMO, for
approximately $8.2 million in cash. The acquisition was recorded as a purchase
and resulted in goodwill of approximately $24.1 million. Subsequent to the
acquisition, the Company decided to reduce the level of its future investment in
expansion markets and, based on an analysis of the negative cash flows of this
Illinois company, determined that the carrying amount in excess of tangible book
value of its investment was not recoverable. Accordingly, the Company, as of
December 31, 1997, wrote off the remaining unamortized goodwill of $23.4
million.

    On November 3, 1997, the Company acquired all of the outstanding stock of
Riscorp Health Plans, Inc., a Florida-based HMO, for approximately $5.3 million
in cash. The acquisition was recorded as a purchase and resulted in goodwill of
approximately $3.9 million. During 1998, the Company made an additional
contingent payment of $1.3 million. Subsequent to the acquisition, the Company
decided to reduce the level of its future investment in expansion markets and,
based on an analysis of the negative cash flows of this Florida company,
determined that the carrying amount in excess of tangible book value of its
investment was not recoverable. Accordingly, the Company, wrote off the goodwill
of $3.9 million in 1997 and the contingent payment of $1.3 million in 1998.

    Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
permits evaluation of asset value and impairment based upon present value of
expected cash flows, using discount rates commensurate with the risks involved.
Based on decisions not to make additional investments and projected negative
cash flow, asset values of the above



                                       79
<PAGE>   29
investments were deemed to be equal to tangible net assets, which consisted
primarily of cash and marketable securities held to pay claims and premiums
receivable.

    These acquisitions were accounted for by the purchase method and have been
included from the date of acquisition. The pro forma effects of the acquisitions
on the consolidated results of operations for the years ended December 31, 1997
and 1996, assuming these acquisitions had occurred as of January 1, 1996, are
not material and have not been presented.

(12)   RELATED PARTY TRANSACTIONS

    In October 1997, the Company disposed of its 47% interest in Health
Partners, Inc. ("Health Partners") in a pooling of interests transaction. Health
Partners was established to provide management and administrative services to
physicians, medical groups and other providers of health care. The investment
had been accounted for using the equity method. Under this method, the Company
recognized losses of $1.1 million in 1997 and $4.6 million in 1996. The Company
received 2,090,109 shares of common stock of FPA Medical Management, Inc.
("FPAM") with a market value as of the closing of approximately $76.4 million,
resulting in a pretax gain at the time of closing of approximately $63.1
million. As of December 31, 1997, the market value of the FPAM stock had been
reduced to approximately $38.4 million. Because management believed that the
decline was other than temporary, the Company as of December 31, 1997 wrote down
its investment in FPAM by $38.0 million. As a result, the Company ultimately
recognized in 1997 a pretax gain of approximately $25.2 million ($20.5 million
after taxes, or $.26 per share) on the sale of Health Partners. During 1998, the
Company wrote down to nominal value its remaining investment in FPAM (see note
14). The Company contracts with provider groups managed by Health Partners in
the Company's service areas.

    Oxford provided $14.3 million in equity and debt financing, representing a
19.9% interest, to St. Augustine Health Care, Inc. ("St. Augustine"). As of
December 31, 1997, the Company decided to reduce the level of its future
investment in expansion markets. The Company determined that its investment in
St. Augustine was worthless after attempts to dispose of the investment through
a sale process failed. During 1997, the Company wrote off the $14.3 million
carrying value of its investment in the capital stock and subordinated surplus
notes of St. Augustine. The Company fully disposed of its interest in St.
Augustine in October 1998 for consideration of less than one thousand dollars.
No gain or loss was recognized on the transaction.

(13)   RESTRUCTURING CHARGES

    The Company recorded restructuring charges totaling $123.5 million, ($114.8
million after income taxes, or $1.43 per share) in the first half of 1998. These
charges resulted from the Company's actions to better align its organization and
cost structure as part of the Company's Turnaround Plan. These charges included
estimated costs related to: (i) the disposition or closure of noncore
businesses; (ii) write-down of certain property and equipment; (iii) severance
and related costs; and (iv) costs of operations consolidation, including long
term lease commitments. These reserves are generally classified in the Company's
balance sheet as accounts payable and accrued expenses with the exception of
property and equipment, which have been written-down to their estimated net
realizable values. These reserve charges and their activity for 1998 are
summarized in the table below:


<TABLE>
<CAPTION>
                                                                                                                        Ending
                                                  Restructuring                       Noncash         Changes in     Restructuring
(In thousands)                                      Charges         Cash Used         Activity         Estimate        Reserves
--------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>              <C>              <C>             <C>
Provisions for loss on noncore businesses          $  55,700        $  (9,827)       $ (18,725)       $ (13,343)       $  13,805
Write-down of property and equipment                  29,272               --          (28,267)          (1,005)              --
Severance and related costs                           24,800           (4,246)         (11,200)              --            9,354
Costs of consolidating operations                     13,728             (548)              --            4,505           17,685
                                                   -----------------------------------------------------------------------------
                                                   $ 123,500        $ (14,621)       $ (58,192)       $  (9,843)       $  40,844
                                                   =============================================================================
</TABLE>



                                       80
<PAGE>   30
    The changes in estimate totaling $9.8 million were a result of, among other
things, the receipt of proceeds from the sale of the Pennsylvania business at an
amount higher than anticipated in the Turnaround Plan, accelerated closing of
HMO and insurance operations in New Hampshire, Florida and Illinois which
resulted in a decrease in premium deficiency reserves and the completion of
Medicare risk transfer arrangements sooner than expected. These changes in
estimate totaling $9.8 million were recognized as a credit to restructuring
charges in the fourth quarter of 1998 and reduced the net loss by $.12 per
share.

    Provisions for loss on noncore business

    As part of its Turnaround Plan, the Company decided to withdraw from noncore
markets by selling or closing its HMO and insurance businesses in Pennsylvania,
Illinois, Florida and New Hampshire. Total premium revenue for these businesses
in 1998 was approximately $170.4 million, with operating losses totaling
approximately $37.0 million. In addition, the Company decided to close its
specialty management initiatives and to sell or close certain other health care
services operations and investments in noncore businesses. Restructuring
reserves were established relating to estimated losses associated with premium
deficiencies in the HMO and insurance subsidiaries to be sold or closed, the net
book value of noncore investments was reduced to their estimated recoverable
value, and accruals were recorded for incremental disposition and closing costs
associated with the Turnaround Plan. The Company estimated the net recovery of
its investments in these entities by evaluating the assets and operations for
impairment. This evaluation included an assessment of asset recoverability for
these entities, premium deficiency analysis assuming timely exit of these
noncore markets and the establishment of premium deficiency reserves, estimated
incremental disposition and closing costs including professional services and
anticipated proceeds related to the disposition of assets. In determining the
estimated fair values, the Company reviewed detailed asset listings for each
location to be vacated. Based upon the asset classification, acquisition date
and anticipated net proceeds, if any, upon disposition, as determined by the
Company, the assets were written down to estimated fair value. The fair values
were determined based on the best information available in the circumstances,
including prior experience in disposing of similar assets and discussions with
potential purchasers of the assets. The Company expects to dispose of all of the
property and equipment throughout 1999. The Company calculates premium
deficiency reserves based upon expected premium revenue, medical expense and
administrative expense levels and remaining contractual obligations using the
Company's historical experience. Of the $55.7 million originally recorded as
provision for loss on noncore businesses approximately $25.2 million related to
premium deficiency reserves, approximately $27.9 million related to asset
valuation write-downs and reserves, approximately $2.2 million related to
accounting fees to be incurred for final statutory audits and legal fees to be
incurred in connection with preparation of agreements for sale or disposition of
assets and brokerage costs and approximately $.4 million related to defined
severance arrangements for employees of these entities. Approximately 250
employees in the noncore businesses have been terminated since June 30, 1998. As
of December 31, 1998, the remaining reserve for severance related to individuals
who were no longer employed with the Company.

    During the second half of 1998, the Company entered into an agreement to
sell its Pennsylvania subsidiary to a third party for $7.1 million in cash plus
a subordinated capital surplus note of $2.5 million and transferred its
membership in Illinois to a third party. Oxford Specialty Management, Inc., the
subsidiary through which the Company operated its specialty care management
initiative, ceased operations as of December 31, 1998. The Company concluded the
sale of one of its three health centers in third quarter of 1998 and expects to
sell or close the remaining two health centers by the end of 1999. The Company
is also currently evaluating its telephone nurse triage service and expects that
this service will be substantially restructured by the end of 1999. In 1996 and
1997, the Company invested in several specialty care businesses as noncore
investments. Although the Company will continue to attempt to dispose of these
noncore investments, to date it has been unsuccessful in completing satisfactory
transactions.

    Cash expenses charged against the reserves amounted to $9.8 million. These
payments include net payments of $8.9 million related to disposition of the HMO
and insurance businesses in the noncore markets, payments of $2.9 million
related to premium deficiencies, severance, professional fees and other
incremental exit costs. These payments were partially offset by proceeds of $2.0
million related to the sale of the health center in the third quarter of 1998.


                                       81
<PAGE>   31
    Noncash charges against the reserve of $18.7 million relate to the specific
write-off of assets of the HMO and insurance businesses in the noncore markets
of $1.3 million, specialty care management initiative of $7.2 million, the
health centers and telephone nurse triage service of $4.5 million and write-off
of investments in noncore businesses of $5.7 million.

    Due to recoveries greater than anticipated, primarily the sale of the
Pennsylvania subsidiary for $9.6 million and the early shut-down of other
operations, the Company has revised its estimate of the remaining costs
associated with the final disposition or closure of these operations and
investments, and accordingly a total of $13.3 million of reserves were reversed
as a reduction of restructuring charges in the fourth quarter of 1998. The
change in estimate of $13.3 million was comprised primarily of a $7.3 million
reduction in the estimated liability established relative to the sale of the
Pennsylvania subsidiary due to the receipt of sale proceeds in excess of
anticipated proceeds, and a reduction in the premium deficiency reserve due to
the earlier than anticipated exit from that state. In addition, a $1.3 million
reduction in other asset valuation reserves, a $4.3 million reduction in premium
deficiency reserves, and a $.4 million reduction of accounting and legal fee
reserves were recorded relative to other noncore businesses. The remaining
liability at December 31, 1998 represents premium deficiency reserves for
operations in Illinois and Florida and full valuation allowances for the
investments in the remaining two health centers and the telephone nurse triage
service. The ending restructuring reserve at December 31, 1998 included premium
deficiency reserves totaling approximately $3.5 million, approximately $9.2
million of asset valuation reserves and approximately $1.1 million related to
other closing costs. The Company expects to complete the closure, disposal or
restructure of these noncore businesses and investments during 1999.

    Write-down of property and equipment

    In connection with the Company's attempts to reduce administrative costs
under the Turnaround Plan, the Company decided to consolidate operations and
reduce its occupied square footage from approximately 2,000,000 square feet
under lease to approximately 1,200,000 square feet. The Company attempts to
dispose of property and equipment as it vacates the facilities. The original
estimate for write-down of property and equipment recorded in the second quarter
of 1998 included provisions for the estimated losses related to vacating certain
facilities in connection with the Company's Turnaround Plan. The initial charge
included an estimated provision for loss related to leasehold improvements
($12.5 million), office furniture ($11.8 million), computers and office
equipment ($4.0 million) and software ($1.0 million). In determining the
estimated fair values, the Company reviewed detailed asset listings for each
location to be vacated. Based upon the asset classification, acquisition date
and anticipated net proceeds, if any, upon disposition, as determined by the
Company, the assets were written down to their estimated fair value. The fair
values were determined based on the best information available in the
circumstances, including prior experience in disposing of similar assets and
discussions with potential purchasers of the assets. The Company expects to
dispose of all of the property and equipment throughout 1999. Additionally, the
Company anticipated and experienced a reduction in workforce of over 1,000
employees as a result of this consolidation and its administrative expense
reduction plan. A write-down of approximately $29.3 million, against
approximately $37.1 million of net book value, was established for the estimated
unrecoverable book value of furniture and equipment and leasehold improvements
no longer in use or to be disposed of as a result of these steps. The Company
expects to complete the disposition or sale of these assets by the end of the
fourth quarter of 1999. Depreciation on these assets was suspended as of June
30, 1998. The effect of this write-down was to reduce depreciation expense by
approximately $6.3 million for the second half of 1998.

    Severance and related costs

    The Company's Turnaround Plan contemplated significant changes in the
Company's senior management and, in connection therewith, fifteen members of
senior management were replaced and certain members of the former management
team were granted severance arrangements. As a result, the Company recorded
restructuring charges related to severance costs of $20.8 million in the first
quarter of 1998 and an additional $4.0 million in the second quarter of 1998 for
the former executives and managers. The noncash charges of approximately $11.2
million are attributable to the accelerated vesting of stock options of one
former executive. The December 31, 1998 balance represents contracted amounts
payable through the first half of 2001. The costs associated with the reduction
in workforce of over 1,000 employees were charged as incurred to marketing,



                                       82
<PAGE>   32
general and administrative expense during 1998. Severance arrangements with
these former employees did not carryover to future fiscal periods. As of
December 31, 1998 the entire reserve related to individuals who were no longer
employed with the Company.

    Costs of consolidating operations

    In connection with the consolidating of operations to reduce its occupied
square footage, restructuring charges totaling approximately $13.7 million were
recorded in the first half of 1998 for estimated costs associated with future
rental obligations (net of estimated sublease revenues), commissions, legal
costs, penalties and other expenses relating to disposition of excess space. The
Company will vacate its leased space located in Philadelphia, Pennsylvania;
Edison, New Jersey; Chicago, Illinois; Sarasota, Florida; and one of two
facilities in Milford, CT. In addition, the amount of leased space located in
Norwalk, Connecticut; New York, New York and White Plains, New York will be
significantly reduced. The Company recorded an additional restructuring charge
of approximately $4.5 million in the fourth quarter as a change in estimate as
the Company's experience in negotiating subleases and lease cancellations
through the fourth quarter indicates that costs will exceed previous estimates.
The remaining restructuring reserve of $17.7 million is comprised of the
following estimated costs associated with the disposition of excess space:


<TABLE>
<CAPTION>
<S>                                               <C>
               Gross future minimum rentals       $ 26.1 million
               Sublease income                    $(14.0) million
               Lease termination penalties        $  2.5 million
               Build-out costs                    $  1.5 million
               Brokers commissions                $  1.4 million
               Professional fees and other        $  0.2 million
</TABLE>



    Oxford has estimated future savings as a result of operations consolidation
of approximately $90 million, including $29 million in depreciation.

    The Company's relevant lease obligations extend to July 2005, but the
Company expects that a significant portion of these expenses will be incurred
prior to January 1, 2000.

(14)   WRITE-DOWNS OF STRATEGIC INVESTMENTS

    The Company disposed of its 47% interest in Health Partners, Inc. ("Health
Partners") in October 1997, and received 2,090,109 shares of common stock of FPA
Medical Management, Inc. ("FPAM") stock with a market value of approximately
$76.4. million, resulting in a pretax gain of approximately $63.1 million. As of
December 31, 1997, the market value of the FPAM stock had dropped to
approximately $38.4 million. At year-end 1997, the Company wrote down its
investment in FPAM by $38.0 million, thereby reducing the pretax 1997 gain on
the sale of Health Partners to approximately $25.2 million ($20.5 million after
taxes, or $.26 per share).

    During the second quarter of 1998, the Company sold 540,000 shares of FPAM
and recognized a loss of $8.1 million. In July 1998, FPAM filed for protection
under Chapter 11 of the U.S. Bankruptcy Code and the market value per share of
its common stock fell below one dollar. The Company wrote its remaining
investment in FPAM down to nominal value and recognized a loss in the second
quarter of 1998 of $30.2 million. The total 1998 recognized loss and write-down
of $38.3 million, or $.49 per share, has been recognized as write-downs of
strategic investments in the accompanying financial statements.

    The 1997 charges, resulted from a reduction in the level of future
investment in expansion markets and, accordingly, the Company wrote down its
investments in two subsidiaries (see note 11) and one affiliate (see note 12).
These write-downs have been shown as write-downs of strategic investments in the
accompanying financial statements and are summarized as follows:





                                       83
<PAGE>   33
<TABLE>
<CAPTION>
(In thousands)
--------------------------------------------------------------------------------
<S>                                                                      <C>
Compass PPA, Incorporated                                                $23,427
Riscorp Health Plans, Inc.                                                 3,894
St. Augustine Health Care, Inc.                                           14,297
--------------------------------------------------------------------------------
    Total                                                                $41,618
================================================================================
</TABLE>


(15)   DEFINED CONTRIBUTION PLAN

    The Company has a qualified defined contribution plan (the "Savings Plan")
that covers all employees with six months of service and at least a part-time
employment status as defined. The Savings Plan also provides that the Company
make matching contributions, up to certain limits, of the salary contributions
made by the participants. The Company's contributions to the Savings Plan were
approximately $2.8 million in 1998, $3.2 million in 1997 and $1.8 million in
1996.

(16)   REGULATORY AND CONTRACTUAL CAPITAL REQUIREMENTS

    Certain restricted investments at December 31, 1998 and 1997 are held on
deposit with various financial institutions to comply with federal and state
regulatory capital requirements. As of December 31, 1998, approximately $44.8
million was so restricted and is shown as restricted investments in the
accompanying balance sheet. With respect to Oxford NY, the minimum amount of
surplus required is based on a formula established by the State of New York.
These statutory surplus requirements amounted to approximately $130 million and
$155.6 million at December 31, 1998 and 1997, 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 1998, the Company made cash contributions to its HMO and insurance
subsidiaries of approximately $537.5 million. The capital contributions were
made to ensure that each subsidiary had sufficient surplus as of December 31,
1998 under applicable regulations after giving effect to operating losses and
reductions to surplus resulting from the nonadmissibility of certain assets.

    The Company is subject to ongoing examinations with respect to financial
condition and market conduct for its HMO and insurance subsidiaries. In
connection with these financial examinations, the NYSID is requiring the Company
to obtain written acknowledgements of certain advances made in prior years in
respect to delayed claims, and the New Jersey Department of Banking and
Insurance is requiring the Company to provide collateral for repayment of the
advances by setting aside in trust at the parent company funds equal to the
advances on the New Jersey subsidiary's statutory financial statements. If the
Company is unable to receive written acknowledgements or fails to provide such
collateral, there can be no assurance that the insurance regulators will
continue to recognize such advances as admissible assets for regulatory
purposes.

(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, 1998 and 1997, the Company had no significant
concentrations of credit risk. Financial instruments which potentially subject
the Company to concentrations of such credit risk consist primarily of
short-term investments in equity securities, obligations of the United States
government, certain state governmental entities and high-grade corporate bonds
and notes. 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



                                       84
<PAGE>   34
concentrated in New York, New Jersey and Connecticut, with more than 80% of its
tri-state 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 condition or results of operations. In addition, the
Company's revenue under its contracts with HCFA represented 21.9% of its premium
revenue earned during 1998.

(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 Connecticut Superior Court. The purported securities class and derivative
actions assert claims arising out of the October 27 decline in the price per
share of the Company's common stock. The purported class actions are now all
consolidated before Judge Charles L. Brieant of the United States District Court
for the Southern District of New York. The purported federal derivative actions
have been consolidated before Judge Brieant for all purposes, and any discovery
in the Connecticut derivative actions will be coordinated with discovery in the
federal derivative actions under the supervision of Judge Brieant. 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. Additional purported securities class, shareholder
derivative, and individual actions may be filed against the Company and certain
of its officers and directors 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 also 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 or
results of operations.

(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.

    Short-term and restricted 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 form 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, 1998.

    Preferred stock: The carrying amount of preferred stock approximates fair
value as the stated dividend rates are similar to like investments at December
31, 1998 after the impact of discounting for the value attributed to the
detachable warrants.


                                       85
<PAGE>   35
(20)   GOVERNMENT PROGRAMS

    As a risk contractor for Medicare programs, the Company is subject to
regulations covering operating procedures. During 1998, 1997, and 1996, the
Company had premiums earned of $1.26 billion, $1.24 billion and $850.7 million,
respectively, associated with Medicare and Medicaid.

    The Company has executed agreements with third-parties to transfer a
substantial portion of the risk of providing health care and administrative
services to certain of the participants in its Medicare programs. However, the
Company remains primarily 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. The Health Care Financing Administration ("HCFA") 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 HCFA.

(21)   YEAR 2000 READINESS

    The Company has completed its assessment of its computer systems and
facilities that could be affected by the "Year 2000" date conversion and is
continuing to carry out the implementation plan to resolve the Year 2000 date
issue which it developed as a result of the assessment. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize the date "00" as the year 1900 rather than
the year 2000. This could result in system failure or miscalculations. The
Company is utilizing and will utilize both internal and external resources to
identify, correct or reprogram, and test the systems for Year 2000 compliance.
The Company has divided its Year 2000 compliance program into the following
phases: assessment, planning, remediation and testing. As of December 31, 1998,
the Company was 80% complete with its Year 2000 compliance program and
anticipates being complete with all phases of the program by the second quarter
of 1999. The Company's Year 2000 compliance program requires remediation of
certain programs within particular time frames in order to avoid disruption of
the Company's operations. These time frames include certain dates throughout
1999. Although the Company believes it will complete the remediation of these
programs within the applicable time frames, there can be no assurance that such
remediation will be completed or that the Company's operations will not be
disrupted to some degree.

    The Company is communicating with certain material vendors to determine the
extent to which the Company may be vulnerable to such vendors' failure to
resolve their own Year 2000 issues. The Company is attempting to mitigate its
risk with respect to the failure of such vendors to be Year 2000 compliant by,
among other things, requesting project plans, status reports and Year 2000
compliance certifications or written assurances from its material vendors,
including certain software vendors, business partners, landlords and suppliers.
The effect of such vendors' noncompliance, if any, is not reasonably estimable
at this time.

    The Company is required to submit periodic reports regarding Year 2000
compliance to certain of the regulatory authorities which regulate its business.
The Company is in compliance with such Year 2000 reporting requirements. Such
regulatory authorities have also asked the Company to submit to certain audits
regarding its Year 2000 compliance.

    The Company is in the process of completing the modifications of its
computer systems to accommodate the Year 2000 and will undertake testing to
ensure its systems and applications will function properly after December 31,
1999. The Company currently expects this modification and testing to be
completed in a time frame to avoid any material adverse effect on operations.
The Company has deferred certain other information technology initiatives to
concentrate on its Year 2000 compliance efforts but the Company believes that
such deferral is not reasonably likely to have a material effect on the
Company's financial condition or results of operations. The Company's inability
to complete Year 2000 modifications on a timely basis or the inability of other
companies with which the Company does business to complete their Year 2000
modifications on a timely basis could adversely affect the Company's operations.



                                       86
<PAGE>   36
    The Company expects to incur associated expenses of approximately $5 million
in 1999 to complete this effort. As of December 31, 1998, the Company had
incurred approximately $9.8 million of expenses in connection with its Year 2000
compliance efforts. The costs of the project and the date on which the Company
plans to complete the necessary Year 2000 modifications are based on
management's best estimate, which include assumptions of future events including
the continued availability of certain resources. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans.

    The Company has contracted with an external consulting firm to assist in the
generation of a Year 2000 contingency plan in the event compliance is not
achieved. In connection therewith, the Company has begun to identify reasonably
likely scenarios which could arise in the event of the Company's Year 2000
noncompliance. The Company has completed a contingency strategy and will develop
detailed plans to support this strategy. The Company expects to be substantially
complete with these detailed plans by the second quarter of 1999. However, there
can be no assurance that this contingency plan will be completed on a timely
basis or that such a plan will protect the Company from experiencing a material
adverse effect on its financial condition or results of operations.

    Potential consequences of the Company's failure to timely resolve its Year
2000 issues could include, among others: (i) the inability to accurately and
timely process claims, enroll and bill groups and members, pay providers, record
and disclose accurate data and perform other core functions; (ii) increased
scrutiny by regulators and breach of contractual obligations; and (iii)
litigation in connection therewith.

(22)   QUARTERLY INFORMATION (UNAUDITED)

    Tabulated below are certain data for each quarter of 1998 and 1997.


<TABLE>
<CAPTION>
                                                                                          Quarter Ended
                                                            ------------------------------------------------------------------------
(In thousands, except membership and per share amounts)        Mar. 31             Jun. 30            Sep. 30             Dec. 31
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>                 <C>                 <C>
Year ended December 31, 1998:
    Net operating revenues                                  $ 1,218,087         $ 1,160,263         $ 1,147,134         $ 1,104,682
    Operating expenses                                        1,292,470           1,672,023           1,188,848           1,124,209
    Net loss                                                    (45,302)           (507,620)            (35,922)             (7,948)
    Net loss attributable to common shares                      (45,302)           (513,338)            (46,989)            (18,831)


    Per common and common equivalent share:
      Basic                                                 $     (0.57)        $     (6.41)        $     (0.58)        $     (0.23)
      Diluted                                               $     (0.57)        $     (6.41)        $     (0.58)        $     (0.23)

    Membership at quarter-end                                 2,095,700           2,004,700           1,924,900           1,881,400

Year ended December 31, 1997:
    Net operating revenues                                  $   973,191         $ 1,047,550         $ 1,049,160         $ 1,109,915
    Operating expenses                                          927,520             998,712           1,196,198           1,573,355
    Net earnings (loss)                                          34,379              37,175             (78,157)           (284,685)


    Per common and common equivalent share:
      Basic                                                 $      0.44         $      0.48         $     (0.99)        $     (3.58)
      Diluted                                               $      0.42         $      0.45         $     (0.99)        $     (3.58)

    Membership at quarter-end                                 1,738,800           1,833,500           1,942,600           2,008,100
</TABLE>



    Net operating revenues include premiums earned and third-party
administration fees, net. Operating expenses include health care services and
marketing, general administrative expenses, and restructuring charges and
write-downs of strategic investments and credits.


                                       87
<PAGE>   37
    Restructuring charges related to severance and operations consolidation
costs increased operating expenses by $25.0 million in the first quarter of
1998.

    Results of operations for the second quarter of 1998 reflects restructuring
charges of $98.5 million. These charges include a $55.7 million provision for
loss on disposal of noncore businesses and unconsolidated affiliates; a $29.3
million write-down of property and equipment, primarily leasehold improvements;
and a $13.5 million provision for operations consolidation and severance costs
(see note 13). Results for the second quarter of 1998 also reflect a premium
deficiency reserve of $51.0 million for losses on government contracts (see note
2) and write-downs of strategic investments of $38.3 million related to the
write-down of the Company's investment in FPA Medical Management, Inc. (see note
14).

    The second quarter 1998 amount shown for operating expenses differs from
that included in the Company's Form 10-Q for the period ended June 30, 1998 due
to the reclassification to income tax expense of $6.0 million which was
originally included in restructuring charges.

    Results of operations for the fourth quarter of 1998 includes a net
restructuring credit of $9.8 million which represents a change in estimate of
the restructuring charges incurred in the second quarter of 1998 (see note 13).

    Write-downs of strategic investments related to write-downs of subsidiaries
and unconsolidated affiliates increased operating expenses by $41.6 million in
the fourth quarter of 1997 (see note 14).



                                       88
<PAGE>   38
                    INDEPENDENT AUDITORS REPORT ON SCHEDULES

    We have audited the consolidated financial statements of Oxford Health
Plans, Inc. and subsidiaries as of December 31, 1998, and for the year then
ended, and have issued our report thereon dated March 9, 1999. Our audit also
included the financial statement schedules listed in Item 14(a) of this Annual
Report on Form 10-K. These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.

    In our opinion, the financial statement schedules referred to above, 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

Stamford, Connecticut
March 9, 1999




                                       89
<PAGE>   39
                          INDEPENDENT AUDITORS' REPORT

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

    Under date of February 23, 1998, we reported on the consolidated balance
sheet of Oxford Health Plans, Inc. and subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, shareholders' equity
(deficit) and comprehensive earnings (loss) and cash flows for each of the years
in the two-year period ended December 31, 1997, which are included in the annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules in the annual report on Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.

    In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.


     KPMG LLP


Stamford, Connecticut
February 23, 1998





                                       90
<PAGE>   40
\

                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
                                 (In thousands)


<TABLE>
<CAPTION>
Current assets:                                                            1998              1997
                                                                        ---------         ---------
<S>                                                                     <C>               <C>
   Cash and cash equivalents                                            $ 225,248         $   1,657
   Investments - available-for-sale                                         4,575            38,442
   Receivables, net                                                         4,309             3,844
   Refundable income taxes                                                     --           120,439
   Deferred income taxes                                                       --            38,092
   Other current assets                                                     5,000             5,409
---------------------------------------------------------------------------------------------------
     Total current assets                                                 239,132           207,883

Property and equipment, net                                               103,105           131,606
Investments in and advances to subsidiaries, net                          301,657            51,089
Deferred income taxes                                                      40,681            86,406
Other assets                                                               13,496            21,853
---------------------------------------------------------------------------------------------------
     Total assets                                                       $ 698,071         $ 498,837
===================================================================================================


Current liabilities:
   Accounts payable, accrued expenses and medical claims payable        $ 195,568         $ 140,562
   Current portion of capital lease obligations                            15,938                --
   Deferred income taxes                                                        4             9,059
---------------------------------------------------------------------------------------------------
     Total current liabilities                                            211,510           149,621
---------------------------------------------------------------------------------------------------

Long-term debt                                                            350,000                --
Obligations under capital leases                                           18,850                --
Redeemable preferred stock                                                298,816                --

Shareholders' equity (deficit):
   Common stock                                                               805               795
   Additional paid-in capital                                             506,243           437,653
   Retained earnings (deficit)                                           (692,290)          (95,498)
   Accumulated other comprehensive earnings                                 4,137             6,266
---------------------------------------------------------------------------------------------------
     Total shareholders' equity (deficit)                                (181,105)          349,216
---------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity (deficit)               $ 698,071         $ 498,837
===================================================================================================
</TABLE>


                                       91
<PAGE>   41
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
                       CONDENSED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (In thousands)


<TABLE>
<CAPTION>
                                                         1998              1997              1996
                                                       ---------         ---------         ---------
<S>                                                    <C>               <C>               <C>
Revenues-management fees and investment and
   other income, net                                   $ 696,119         $ 697,426         $ 494,500
----------------------------------------------------------------------------------------------------

Expenses:
   Health care services                                   34,627                --
   Marketing, general and administrative                 713,021           702,136           474,215
   Interest and other financing charges                   43,038                --                --
   Restructuring charges                                 113,657                --                --
   Write-downs of strategic investments                       --            41,618                --
----------------------------------------------------------------------------------------------------
     Total expenses                                      904,343           743,754           474,215
----------------------------------------------------------------------------------------------------

Operating earnings (loss)                               (208,224)          (46,328)           20,285

Equity in net earnings (losses) of subsidiaries         (401,160)         (265,439)           91,214
Equity in net loss of affiliate                               --            (1,140)           (4,600)
Gain on sale of affiliate                                     --            25,168                --
----------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes                     (609,384)         (287,739)          106,899
Income tax expense (benefit)                             (12,592)            3,549             7,276
----------------------------------------------------------------------------------------------------
Net earnings (loss)                                    $(596,792)        $(291,288)        $  99,623
====================================================================================================
</TABLE>

   During 1998, the Registrant received a cash dividend from one consolidated
   subsidiary aggregating $9.6 million.


                                       92
<PAGE>   42
                   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, 1998, 1997 AND 1996
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                      1998              1997              1996
                                                                    ---------         ---------         ---------
<S>                                                                 <C>               <C>               <C>
Net cash provided (used) by operating activities                    $  88,212         $ (92,956)        $  99,321
-----------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Capital expenditures                                               (34,895)          (89,846)          (45,820)
   Sale or maturity of available-for-sale securities                       --           275,872            78,923
   Purchase of available-for-sale investments                          (4,563)         (143,873)         (127,442)
   Acquisitions and other investments                                  (1,312)          (33,876)          (10,295)
   Other, net                                                          20,675            (2,437)           (3,078)
-----------------------------------------------------------------------------------------------------------------
     Net cash provided (used) by investing activities                 (20,095)            5,840          (107,712)
-----------------------------------------------------------------------------------------------------------------

Cash flow from financing activities:
   Proceeds from issuance of common stock                              10,000                --           220,539
   Proceeds from exercise of stock options                              2,655            21,264            21,215
   Proceeds of preferred stock and warrants, net of issuance
      expenses                                                        338,148                --                --
   Proceeds of notes and loans payable                                550,000                --                --
   Redemption of notes and loans payable                             (200,000)               --                --
   Debt issuance expenses                                             (11,793)               --                --
   Investments in and advances to subsidiaries, net                  (528,073)           65,953          (233,423)
   Payments under capital lease obligations                            (5,463)               --                --
-----------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                        155,474            87,217             8,331
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                  223,591               101               (60)
Cash and cash equivalents at beginning of year                          1,657             1,556             1,616
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $ 225,248         $   1,657         $   1,556
=================================================================================================================
</TABLE>


                                       93
<PAGE>   43
                   OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (In thousands)


<TABLE>
<CAPTION>
                Column A                      Column B                    Column C             Column D         Column E
----------------------------------------------------------------------------------------------------------------------------
                                                                         Additions
                                                               ----------------------------
                                             Balance at         Charged to       Charged to                      Balance at
                                             Beginning of        Cost and          Other                          End of
              Description                      Period            Expenses         Accounts     Deductions         Period
----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>              <C>           <C>                <C>
Year Ended December 31, 1998:
   Estimated uncollectible amount of
     notes and accounts receivable            $   6,514          $  35,209        $      --     $   3,964          $  37,759
                                              =========          =========        =========     =========          =========

   Estimated uncollectible amount of
     claims advances                          $  10,000          $  25,000        $      --     $      --          $  35,000
                                              =========          =========        =========     =========          =========

Year Ended December 31, 1997:
   Estimated uncollectible amount of
     notes and accounts receivable            $   5,117          $  15,000        $      --     $  13,603          $   6,514
                                              =========          =========        =========     =========          =========

   Estimated uncollectible amount of
     claims advances                          $      --          $  10,000        $      --     $      --          $  10,000
                                              =========          =========        =========     =========          =========

Year Ended December 31, 1996:
   Estimated uncollectible amount of
     notes and accounts receivable            $   3,029          $   4,505        $      --     $   2,417          $   5,117
                                              =========          =========        =========     =========          =========
</TABLE>


                                       94
<PAGE>   44
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>         <C>   <C>
     2      --    Agreement of Plan and Merger, dated as of March 30, 1995, by
                  and among Oxford Health Plans, Inc., OHP Acquisition
                  Corporation and OakTree Health Plan, Inc., incorporated by
                  reference to the Registrant's Registration Statement on Form
                  S-3 (File No. 33-92006)

     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-K for
                  the year ended December 31, 1998, filed on March 19, 1999
                  (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 September 30, 1998 (File No.
                  0-19442)

     4      --    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 August 14, 1996, between the
                  Registrant and Stephen F. Wiggins, incorporated by reference
                  to Exhibit 10(a) of the Registrant's Form 10-Q for the
                  quarterly period ended September 30, 1996 (File No. 0-19442)

     10(b)  --    Employment Agreement, dated August 14, 1996, between the
                  Registrant and William M. Sullivan, incorporated by reference
                  to Exhibit 10(b) of the Registrant's Form 10-Q for the
                  quarterly period ended September 30, 1996 (File No. 0-19442)

     10(c)  --    Employment Agreement, dated August 14, 1996, between the
                  Registrant and Jeffery H. Boyd, incorporated by reference to
                  Exhibit 10(c) of the Registrant's Form10-Q for the quarterly
                  period ended September 30, 1996 (File No. 0-19442)

     10(d)  --    Employment Agreement, dated August 14, 1996, between the
                  Registrant and Robert M. Smoler, incorporated by reference to
                  Exhibit 10(e) of the Registrant's Form 10-Q for the quarterly
                  period ended September 30, 1996 (File No. 0-19442)

     10(e)  --    Employment Agreement, dated August 14, 1996, between the
                  Registrant and David B. Snow, Jr., incorporated by reference
                  to Exhibit 10(f) of the Registrant's Form 10-Q for the
                  quarterly period ended September 30, 1996 (File No. 0-19442)

     10(f)  --    Employment Agreement, dated August 14, 1996 between the
                  Registrant and Andrew B. Cassidy, incorporated by reference to
                  Exhibit 10(d) of the Registrant's Form 10-Q for the quarterly
                  period ended September 30, 1996 (File No. 0-19442)

     10(g)  --    1991 Stock Option Plan, as amended, incorporated by reference
                  to Exhibit 10(h) of the Registrant's Annual Report on Form
                  10-K for the year ended December 31, 1995 (File No. 0-19442)

     10(h)  --    Letter Agreement, dated April 13, 1990, between the Registrant
                  and Lincoln National Administrative Services Corporation,
                  incorporated by reference to Exhibit 10(p) of the Registrant's
                  Registration Statement on Form S-1 (File No. 33-40539)

     10(i)  --    Incentive Compensation Plan, adopted June 7, 1991,
                  incorporated by reference to Exhibit 10(n) of the Registrant's
                  Registration Statement on Form S-1 (File No. 33-40539)

     10(j)  --    Oxford Health Plans, Inc. 401(k) Plan, as amended,
                  incorporated by reference to Exhibit 10(k) of the Registrant's
                  Annual Report on Form 10-K for the year ended December 31,
                  1995 (File No. 0-19442)

     10(k)  --    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(l)  --    Letter Agreement, dated April 18, 1990, between the Registrant
                  and Phoenix Mutual Life Insurance Company, incorporated by
                  reference to Exhibit 10(q) of the Registrant's Registration
                  Statement on Form S-1 (File No. 33-40539)

     10(m)  --    Securities Purchase Agreement among Health Partners, Inc.,
                  Foxfield Ventures, Inc., the Registrant and certain management
                  investors, dated May 18, 1994, incorporated by reference to
                  Exhibit 10 of the Registrant's Form 10-Q for the quarterly
                  period ended June 30, 1994 (File No. 0-19442)

     10(n)  --    Agreement and Plan of Merger by and among FPA Medical
                  Management, Inc., FPA Acquisition Corp. and Health Partners,
                  Inc. dated as of July 1, 1997, incorporated by reference to
                  Exhibit 10(n) of the Registrant's Annual Report on Form 10-K/A
                  for the period ended December 31, 1997 (File No. 0-19442)
</TABLE>


                                       95
<PAGE>   45
                            EXHIBIT INDEX (CONTINUED)

<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>         <C>   <C>
     10(o)  --    Bridge Securities Purchase Agreement, dated as of February 6,
                  1998, between the Registrant and Oxford Funding, Inc.,
                  incorporated by reference to Exhibit 10(o) of the Registrant's
                  Annual Report on Form 10-K/A for the period ended December 31,
                  1997 (File No. 0-19442)

     10(p)  --    Security Agreement, dated as of February 6, 1998, between the
                  Registrant and Oxford Funding, Inc., incorporated by reference
                  to Exhibit 10(p) of the Registrant's Annual Report on Form
                  10-K/A for the period ended December 31, 1997 (File No.
                  0-19442)

     10(q)  --    Amendment No. 1, dated as of March 30, 1998, to the Bridge
                  Securities Purchase Agreement, dated as of February 6, 1998,
                  between the Registrant and Oxford Funding, Inc., incorporated
                  by reference to Exhibit 10(q) of the Registrant's Annual
                  Report on Form 10-K/A for the period ended December 31, 1997
                  (File No. 0-19442)

     10(r)  --    Investment Agreement, dated as of February 23, 1998, between
                  TPG Oxford LLC and the Registrant., incorporated by reference
                  to Exhibit 10(r) of the Registrant's Annual Report on Form
                  10-K/A for the period ended December 31, 1997 (File No.
                  0-19442)

     10(s)  --    Registration Rights Agreement, dated as of February 23, 1998,
                  between TPG Oxford LLC and the Registrant, incorporated by
                  reference to Exhibit 10(s) of the Registrant's Annual Report
                  on Form 10-K/A for the period ended December 31, 1997 (File
                  No. 0-19442)

     10(t)  --    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(u)  --    Oxford Health Plans, Inc. Stock Option Agreement, dated
                  February 23, 1998, by and between Dr. Norman C. Payson and the
                  Registrant, 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(v)  --    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(w)  --    Amendment, dated as of February 23, 1998, to Employment
                  Agreement between the Registrant and William M. Sullivan,
                  incorporated by reference to Exhibit 10(v) of the Registrant's
                  Annual Report on Form 10-K/A for the period ended December 31,
                  1997 (File No. 0-19442)

     10(x)  --    Amendment, dated as of February 23, 1998, to Employment
                  Agreement between the Registrant and Jeffery H. Boyd,
                  incorporated by reference to Exhibit 10(w) of the Registrant's
                  Annual Report on Form 10-K/A for the period ended December 31,
                  1997 (File No. 0-19442)

     10(y)  --    Employment Agreement, dated as of February 16, 1998, between
                  the Registrant and Kevin F. Hickey, incorporated by reference
                  to Exhibit 10(x) of the Registrant's Annual Report on Form
                  10-K/A for the period ended December 31, 1997 (File No.
                  0-19442)

     10(z)  --    Retirement, Consulting and Non-Competition Agreement, dated as
                  of February 23, 1998, between the Registrant and Stephen F.
                  Wiggins, incorporated by reference to Exhibit 10(y) of the
                  Registrant's Annual Report on Form 10-K/A for the period ended
                  December 31, 1997 (File No. 0-19442)

     10(aa) --    Employment Agreement, dated as of March 30, 1998, by and
                  between the Registrant and Marvin P. Rich, incorporated by
                  reference to Exhibit 10(z) of the Registrant's Annual Report
                  on Form 10-K/A for the period ended December 31, 1997 (File
                  No. 0-19442)

     10(bb) --    Purchase Agreement, dated May 7, 1998, between Registrant and
                  Donaldson, Lufkin & Jenrette Securities Corporation,
                  incorporated by reference to Exhibit 10(a) of the Registrant's
                  Form 10-Q for the quarterly period ended March 31, 1998 (File
                  No. 0-19442)

     10(cc) --    Registration Rights Agreement, dated May 13, 1998, between
                  Registrant and Donaldson, Lufkin & Jenrette Securities
                  Corporation, incorporated by reference to Exhibit 10(b) of the
                  Registrant's Form 10-Q for the quarterly period ended March
                  31, 1998 (File No. 0-19442)
</TABLE>


                                       96
<PAGE>   46
                            EXHIBIT INDEX (CONTINUED)


<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>         <C>   <C>
     10(dd) --    Indenture of Registrant, dated May 13, 1998, between
                  Registrant and the Chase Manhattan Bank, as Trustee, including
                  for of 11% Senior Notes, incorporated by reference to Exhibit
                  10(c) of the Registrant's Form 10-Q for the quarterly period
                  ended March 31, 1998 (File No. 0-19442)

     10(ee) --    Term Loan Agreement, dated May 13, 1998, among Registrant,
                  Lenders listed therein, DLJ Capital Funding, Inc. and IBJ
                  Schroder Bank & Trust Company, including exhibits,
                  incorporated by reference to Exhibit 10(d) of the Registrant's
                  Form 10-Q for the quarterly period ended March 31, 1998 (File
                  No. 0-19442)

     10(ff) --    Amendment, dated June 26, 1998, to Employment Agreement
                  between the Registrant and William M. Sullivan, incorporated
                  by reference to Exhibit 10(a) of the Registrant's Form 10-Q
                  for the quarterly period ended June 30, 1998 (File No.
                  0-19442)

     10(gg) --    Amendment, dated June 23, 1998, to Employment Agreement
                  between the Registrant and Jeffery H. Boyd, incorporated by
                  reference to Exhibit 10(b) of the Registrant's Form 10-Q for
                  the quarterly period ended June 30, 1998 (File No. 0-19442)

     10(hh) --    Employment Agreement, dated as of June 9, 1998, between the
                  Registrant and Yon Y. Jorden, incorporated by reference to
                  Exhibit 10(c) of the Registrant's Form 10-Q for the quarterly
                  period ended June 30, 1998 (File No. 0-19442)

     10(ii) --    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(jj) --    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(kk) --    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(ll) --    Amendment Number 1 to Investment Agreement, dated as of May
                  13, 1998 between TPG Oxford LLC and the Registrant, 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(mm) --    Amendment Number 2 to Investment Agreement, dated as of August
                  27, 1998, by and between TPG Partners II, L.P. and the
                  Registrant, 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(nn) --    Amendment Number 3 to Investment Agreement, dated as of
                  November 19, 1998, by and between TPG Partners II, L.P. and
                  the Registrant, 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(oo) --    Oxford Health Plans, Inc. 1996 Management Incentive
                  Compensation Plan, 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(pp) --    Amendment, dated December 10, 1998, to Employment Agreement
                  between the Registrant and Jeffery H. Boyd, 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(qq) --    Amendment, dated December 9, 1998, to Employment Agreement
                  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(rr) --    Share Exchange Agreement, dated as February 13, 1999 by and
                  among TPG Partners II, L.P., TPG Investors II, L.P., TPG
                  Parallel II, L.P., Chase Equity Associates, L.P., Oxford
                  Acquisition Corp. and the DLJ Entities listed therein,
                  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)

     16     --    Letter from KPMG Peat Marwick LLP regarding change in
                  certifying accountant of Registrant, incorporated by reference
                  to Exhibit 16 of the Registrant's Form 8-K dated June 2, 1998
                  (File No. 0-19442)
</TABLE>


                                       97
<PAGE>   47
                           EXHIBIT INDEX (CONTINUED)


<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION OF DOCUMENT
-----------                     -----------------------
<S>         <C>   <C>
     21     --    Subsidiaries of the Registrant, 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)

     23(a)  --    Consent of Ernst & Young LLP*

     23(b)  --    Consent of KPMG LLP*
</TABLE>

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


                                       98