##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2003                                             
|          
|or        
|          
|o          |  | 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: 001-16437

Oxford Health Plans, Inc.

(Exact name of registrant as specified in its
charter)


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

(203) 459-6000

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) of the Act:

Common Stock, Par Value $.01 Per
Share


Securities registered pursuant to
Section 12(g) of the Act:

None


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

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

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes þ          No o

As of January 30, 2004, there were
81,294,366 shares of common stock issued and outstanding. The
aggregate market value of such stock held by nonaffiliates, as
of that date, was approximately $3,916,900,000.

DOCUMENTS INCORPORATED BY REFERENCE

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



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TABLE OF CONTENTS



|                                  |                                                                                               |  |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                           
|                                  | Item 1. Business                                                                             
|                                  | Item 2. Properties                                                                           
|                                  | Item 3. Legal Proceedings                                                                    
|                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                          
|                                  | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                  | Item 6. Selected Consolidated Financial Data                                                 
|                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                  | Item 8. Financial Statements and Supplementary Data                                          
|                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                  | Item 9A. Controls and Procedures                                                             
|PART III                         
|                                  | Item 10. Directors and Executive Officers of the Registrant                                  
|                                  | Item 11. Executive Compensation                                                              
|                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                  | Item 13. Certain Relationships and Related Transactions                                      
|                                  | Item 14. Principal Accounting Fees and Services                                              
|PART IV                          
|                                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                       
|SPECIAL SALARY CONTINUATION PLAN 
|DEFERRED COMPENSATION PLAN       
|1ST AMENDMENT TO CREDIT AGREEMENT
|SUBSIDIARIES                     
|CONSENT OF ERNST & YOUNG LLP     
|CEO 302 CERTIFICATION            
|CFO 302 CERTIFICATION            
|CEO 906 CERTIFICATION            
|CFO 906 CERTIFICATION            



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PART I




Item 1.     Business

General

Oxford Health Plans, Inc. (Oxford or
the Company), incorporated under the laws of the
State of Delaware in 1984, is a health care company providing
health benefit plans primarily in New York, New Jersey and
Connecticut. The Companys product line includes its health
maintenance organization plans (HMOs), exclusive
provider organization plans (EPOs), point-of-service
(POS) plans, preferred provider plans
(PPOs), indemnity plans and several plans offered to
Medicare beneficiaries. The Companys product line includes
third-party administration of employer-funded benefit plans
(self-funded health plans). The Company also offers
several ancillary and specialty benefit plans. The
Companys principal executive offices are located at
48 Monroe Turnpike, Trumbull, Connecticut 06611, and its
telephone number is (203) 459-6000. Unless the context
otherwise requires, references to Oxford or the Company include
its subsidiaries.

The Company offers its products through its HMO
subsidiaries, Oxford Health Plans (NY), Inc. (Oxford
NY), Oxford Health Plans (NJ), Inc. (Oxford
NJ) and Oxford Health Plans (CT), Inc. (Oxford
CT), and through its insurance subsidiaries, Oxford Health
Insurance, Inc. (OHI) and Investors Guaranty Life
Insurance Company (IGL). OHI does business under
accident and health insurance licenses granted by the
Departments of Insurance of New York and Connecticut, the
Department of Banking and Insurance of New Jersey and the
Commonwealth of Pennsylvania. IGL, a domestic California
insurance company, is licensed to write annuity, life and health
insurance policies in most states. The Companys ancillary
and specialty benefit plans are offered primarily through Oxford
Benefit Management, Inc. (OBM), a wholly-owned
subsidiary of the Company.

The Company is not dependent on any single
employer or group of employers, as the largest employer group
contributed approximately 1.4% of total premiums earned during
2003 and the ten largest employer groups contributed
approximately 5.3% of total premiums earned during 2003. The
Companys Medicare revenue under its contracts with the
federal Centers for Medicare and Medicaid Services
(CMS) represented approximately 12% of its premium
revenue earned during 2003.

Companys Future Strategy

The Companys strategy for the year 2004 is
focused on four main areas: (1) developing new products and
benefit designs to meet the changing needs of customers in the
Companys markets, (2) modest geographic expansion,
primarily to contiguous markets, (3) continuing efforts to
impact health care affordability by managing health care costs
through a variety of initiatives, and (4) achieving
administrative efficiencies by, among other things, increasing
the level of electronic transactions and automation throughout
the Company.

Health Benefit Plans



| |         
| | --------
| | Overview

The Companys health benefit product lines
include HMO, EPO, POS, PPO, indemnity plans, and self-funded
health plans with a full spectrum of cost-share options and plan
designs to meet the diverse needs of its customers. For most of
these products, the benefits to the members and the
reimbursement to the providers can be affected by whether the
services are provided by a network participating
provider or a non-participating provider. A
network participating provider generally is one that has entered
into a contractual arrangement with Oxford, directly or
indirectly, to, among other things, accept certain
pre-established compensation for services rendered to Oxford
members. Non-participating providers are generally those that
are not under contract with Oxford and, accordingly, such
non-participating providers have not agreed to any set level of
compensation. The contractual arrangements with the
Companys various health care providers are described below
under Provider Arrangements. Oxford currently
maintains two networks of participating

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providers for its commercial business. The first
is the Freedom network, which is Oxfords largest network
of providers, and is offered in New York, New Jersey and
Connecticut (the Tri-State Area). The Company
believes that the size and quality of the providers in the
Freedom network is one of its primary competitive advantages.
The second network is the Liberty network, which is smaller than
the Freedom network and is offered in New York and New Jersey.
The Company believes that the Liberty network is competitive in
size and quality to networks of certain other health plans in
the metropolitan New York City and New Jersey area. Lastly,
Oxford covers certain out-of-area employees of Tri-State Area
employers. The benefits provided to these out-of-area employees
are provided on an in-network and out-of-network basis, with the
in-network portion being served by networks of providers under
contract with independent provider network companies that, in
turn, have contracted with Oxford. The networks of these
independent provider network companies occasionally serve Oxford
covered employees of Tri-State Area employers.


The provisions in each of the Companys
health benefit plans vary regarding whether the member can
receive coverage for services from non-participating providers,
what the financial impact to the member of doing so will be and
what benefits may be available to the member from a
non-participating provider. Most of the Companys
commercial plans are available with either the Freedom network
or the Liberty network as the primary network for purposes of
determining whether a provider is participating or
non-participating for that particular plan. The selection of the
Liberty network by an employer group usually results in lower
premiums than selection of the Freedom network. Under most of
the Companys products, the benefits and corresponding
costs, such as copayments, coinsurance and deductibles, to the
members are affected by whether the services are provided by a
participating or a non-participating provider. For example, in
Oxfords POS plans described below, services rendered by a
participating physician are generally subject to lower member
cost-sharing (copayments, coinsurance and deductibles) than
benefits obtained from non-participating providers. The result
is that services rendered by non-participating providers will
typically result in higher out-of-pocket costs for members.
Further, certain benefits are available only through
participating providers.

Certain factors, such as choosing the Freedom
network rather than the Liberty network, the members need to
obtain referrals from his or her primary care physician
(PCP) before seeing a specialist and the level of
copayments, deductibles and coinsurance, all affect the premium
cost of the benefit plan purchased. As employer groups have
become more sensitive to cost, the Company has developed new
products that reduce the cost to the employer by increasing
copayments, coinsurance and deductibles and otherwise shifting
certain costs to members.

The Companys HMO membership was
approximately 190,500 at December 31, 2003, compared with
226,600 members at December 31, 2002. The Companys
POS, PPO and other commercial membership was approximately
1,239,400 at December 31, 2003, compared with 1,252,900 at
December 31, 2002. The Companys Medicare membership
was approximately 70,800 at December 31, 2003, compared
with 70,100 at December 31, 2002. Lastly, the
Companys self-funded membership was approximately 38,500
at December 31, 2003, compared with 51,900 at
December 31, 2002.

Provided below are brief descriptions of each of
the Companys main product types. These descriptions are
general in nature and the actual benefits provided to any
particular member may vary depending on the specific terms of
the members certificate of coverage.



| |                 
| | ----------------
| | Insured Products



| |          
| | ---------
| | HMO Plans

Oxfords HMO plans provide comprehensive
health care benefits through the Companys participating
network providers. HMO plans are designed to offer
cost-efficient health care coverage. Under most of the
Companys HMO plans, HMO members are required to select a
PCP who, generally, is responsible for certain preventative and
primary medical services and for coordinating the members
care. Typically, in order to receive coverage for seeing a
participating specialist, an HMO member must receive a referral
from the PCP. Oxfords EPO plans provide for in-network
access without referral to the Companys Freedom network of
providers.

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POS
Plans

Oxfords POS plans combine the benefits of
Oxfords HMOs with certain of the benefits of Oxfords
indemnity health insurance by covering services provided by
non-participating providers.These plans give members the
option of accessing HMO-style benefits through participating
providers, typically including abiding by established provisions
relating to PCP selection, referrals and utilization management,
or of accessing indemnity-style benefits with the commensurate
variation in member cost-sharing (copayments, coinsurance and
deductibles) and benefits available to the member.

PPO
Plans

Oxfords PPO plans allow members to obtain
coverage for services from participating providers or from
non-participating providers. Generally, PPO plans do not require
that PCP referrals be obtained in order for the member to see a
specialist. As with POS plans, PPO plan services rendered by
participating providers are subject to lower member cost-sharing
than benefits obtained from non-participating providers.

Other
Insured Plans

Oxford has recently begun to offer indemnity-type
plans to a targeted market that do not distinguish between
participating and non-participating providers. Under these
plans, the benefits available, and the coverage therefor, are
the same whether the member sees a participating or a
non-participating provider, although the member is still subject
to coinsurance, deductibles and other cost-sharing.

Individuals

Oxford provides HMO and POS health care products
to individuals in New York, and HMO, EPO, PPO and indemnity
products in New Jersey. In New York, regulations require HMOs in
the community-rated small group market to offer HMO and POS
coverage with mandated benefits (the New York Mandated
Plans). Oxford continues to cover individuals in New York
under a grandfathered POS plan, which is closed to new
membership. Oxford also offers a product to persons eligible for
the Healthy New York Program. The mandated small group product
in New York covers groups of one. Members of the New York
Mandated Plans have access to the Liberty network of providers
and the members of the grandfathered plan are served by the
Freedom network. In New Jersey, Oxford offers both an HMO and
PPO product, providing access to the Liberty network to
individuals.

Medicare

The Company offers Medicare managed care plans to
Medicare eligible individuals through its licensed New York, New
Jersey and Connecticut HMO subsidiaries.

Because Medicare premiums historically have not
kept up with the cost of health care, as of December 31,
2003, the Company offered Medicare plans only in those counties
within the Tri-State Area where it believed it could do so
profitably while offering viable Medicare plans to its members.
In December 2003, President Bush signed the Medicare
Prescription Drug Act of 2003 (MDA) which, among
other things, will increase reimbursements to managed care plans
offering Medicare Advantage (formerly Medicare+Choice) plans.
MDA will allow the Company to provide its current and future
Medicare members with richer benefits. The Company is also
considering re-entering counties in the Tri-State Area where it
had previously discontinued offering Medicare plans. For a more
detailed description of MDA, see Government
Regulation  Medicare Regulation.

Self-Funded
Health Plans

Oxford offers self-funded health plans to
employers who wish to retain the risk for health care costs.
Oxford assumes no insurance risk for the cost of health care for
these contracts and receives a monthly fee for its
administrative services such as underwriting, actuarial
services, medical cost management, claims processing and other
related administrative services.

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Ancillary and Specialty Products

The Company offers a range of ancillary and
specialty products. These products include, among others,
dental, vision, long-term care, work and family benefits,
flexible spending accounts and health reimbursement accounts.
The majority of these products are offered by third parties but
are brokered by OBM. OBM products can be purchased on a
stand-alone basis or in conjunction with other Oxford health
benefit plans.

Marketing and Sales

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

Internal
Representatives

The Company maintains a small direct sales team
that sells the Companys products to smaller employers. The
Company also maintains a Medicare sales force that sells
directly and via telephone to Medicare beneficiaries. The
Companys marketing department develops television and
print advertising, direct mail programs and marketing collateral
materials for use by the Companys various sales
representatives and independent brokers, agents and consultants.

The Company maintains executive account
representatives who deal directly with employer groups exceeding
1,000 eligible lives as well as accounts utilizing benefit
consultants. Account managers are responsible for servicing
employer accounts generally exceeding 50 enrolled employees sold
either directly or through a broker or agent. These account
managers are the principal administrative contact for employers
and their benefit managers by, among other things, conducting
on-site employee meetings and by providing reporting and
troubleshooting services.

Independent
Insurance Agents and Brokers

The primary distribution system for the group
health insurance industry in the Companys service areas
has been independent insurance agents and brokers. Oxford
markets its commercial products through approximately 12,500
independent insurance agents and brokers as of December 31,
2003, who are paid a commission on sales. The Company maintains
regional broker business unit representatives who work directly
with the independent agents and brokers. The Company also
provides service to independent agents and brokers via the
Internet. Independent insurance agents and brokers have been
responsible for a significant portion of Oxfords
commercial group enrollment, and the Company expects to continue
using independent insurance agents and brokers in its marketing
system in the future. The Company believes that the New York
metropolitan market, in particular, is influenced significantly
by independent agents and brokers and that utilization of this
distribution system is an integral part of a successful
marketing strategy in the region.

Oxfordhealth.com

The Companys website,
www.oxfordhealth.com, provides on-line access to the
Company for members, brokers, employer groups and providers.
During 2003, the Companys customers continued to increase
their use of the Companys website and its functionalities.
The Company anticipates that features such as its on-line
pre-certification for providers and the on-line renewal of group
policies for brokers and employer groups will continue to
streamline our customers workflow and make it easier to do
business with us. The Company currently has numerous on-line
transaction or inquiry functions available on its website.
Through oxfordhealth.com, prospective enrollees, benefit
administrators and brokers can view, among other things,
possible benefit packages, obtain rate quotes and enroll members
in certain products. However, because of certain regulatory
restrictions, not all functions are available in all markets or
for all products.

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Provider Arrangements



| |           
| | ----------
| | Physicians

Oxfords Freedom network of participating
providers consists of approximately 68,000 physicians and other
providers (compared with approximately 53,000 in 2002), of which
approximately 33,300 are in New York, 16,000 are in New Jersey,
9,700 are in Connecticut, 8,000 are in Pennsylvania and 1,000
are in Delaware. These participating providers maintain
approximately 94,000 office locations, of which approximately
45,000 are in New York, 23,000 are in New Jersey, 14,000 are in
Connecticut and 12,000 are in Pennsylvania and Delaware. The
majority of Oxfords participating physicians have
contracted individually and directly with Oxford, although
Oxford also has contracts with physician organizations,
individual practice associations, physician medical groups and
third-party vendors.

Exclusive of certain cost containment
arrangements described in Managing Health Care Costs
below, Oxford compensates its participating physicians primarily
based on a variety of fixed fee schedules, under which
physicians receive payment for specific covered procedures and
services.

The Company believes that its practice of
inviting physician participation into its clinical policymaking
activities and obtaining physician input concerning its programs
strengthens its relations with the physician community. A panel
of physicians and local specialty societies have been involved
in the development of the Companys policies.In
addition, the Company has over 100 practicing physicians from
its service areas participating on committees that advise the
Company on the development of treatment and payment policies and
quality management issues.

Hospitals

The Company has contracts with approximately 350
hospitals in its New York, New Jersey, Connecticut, Pennsylvania
and Delaware service areas providing for inpatient and
outpatient care to the Companys members. The Company
generally reimburses hospitals under these contracts based on
negotiated per diems, diagnostic related groupings
(DRGs), case rates and fee schedules and, to a
lesser extent, at prices discounted from the hospitals
billed charges. The Company believes that the rates in these
contracts are generally competitive.

The Company has numerous multi-year agreements
with hospitals and hospital systems that are designed to provide
predictability with respect to hospital costs and is currently
negotiating with other hospitals and hospital systems for
similar multi-year arrangements. The Company estimates that
approximately 24% of contracted hospital spending will require
renegotiation during 2004. In addition, there has been
significant consolidation among hospitals in the Companys
service area, which tends to enhance the combined entitys
bargaining power with managed care payors. As a result, the
Company has the risk that certain hospitals may seek higher
rates or seek to impose limitations on the Companys
utilization management efforts. The Company is routinely engaged
in negotiations with various hospitals and hospital systems and,
in connection therewith, such hospitals and hospital systems may
threaten to or, in fact, provide notice of termination of their
agreements with the Company as part of their negotiation
strategy. Hospitals have also threatened to terminate contracts
when financial disputes arise. The Company cannot guaranty that
it will be able to continue to secure multi-year agreements in
the future. See Cautionary Statement Regarding
Forward-Looking Statements.

Ancillary
Providers

The Companys Freedom and Liberty networks
include over 4,000 ancillary providers and facilities for such
services as home health and hospice care, skilled nursing,
dialysis and radiation treatment, family planning and fertility,
behavioral health, occupational, speech, infusion and physical
therapy, sub-acute care, imaging and related services. The
Company also has contracts for the provision of certain
equipment or treatment aids such as durable medical equipment,
orthotics and prosthetics to its members.

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Managing Health Care Costs

The Companys medical management program
establishes clinical policies and procedures that govern payment
policy and medical management processes and assesses the
clinical appropriateness of certain hospital inpatient, hospital
outpatient, ancillary, professional and pharmaceutical services
to ensure that payments for medical services are made in
accordance with the Companys certificates of coverage for
its health plans. The Companys medical management
policies, procedures and programs are developed in a variety of
ways including using the clinical guidance of registered nurses
and physicians, established clinical practice guidelines,
community norms and other consensus guidelines or standards.

The Company manages the utilization of medical
services through a variety of programs including: referral
management, precertification management, concurrent review of
inpatient services, complex case management, physician
profiling, provider credentialing and privileging and
retrospective claim review. These programs are administered by
Oxford personnel and, in certain cases, by independent
administrative services or utilization review organizations.
When the Company delegates the responsibilities relating to
utilization management to a third party, it retains final
decision-making authority on coverage issues by retaining final
control over denials, limitations of coverage and appeals. The
Company also supervises program administration through oversight
and program audits.

The Companys claim review program
incorporates a process that compares services rendered by
participating physicians to independently developed patterns of
treatment standards to identify procedures that were not
consistent with a patients diagnoses, as well as other
billing irregularities. Separate claims auditing systems are
utilized for certain hospital DRG payments and other surgical
payments. Oxford also monitors hospital claims through pricing
reviews, medical chart audits and on-site hospital reviews.
Oxfords claim auditing programs seek to identify aberrant
physician billing practices. The Companys ability to apply
all available cost control measures is limited by regulatory
considerations, the threat of litigation or liability concerns,
operational and systems issues and relationships and
arrangements with hospitals, physicians and other providers.

To mitigate retrospective denial of inpatient
payments for health care services, improve communication and
enhance customer service and improve relationships with
hospitals, the Company maintains its Day of Service Decision
Making program. As a result of the Day of Service Decision
Making Program, the Companys use of retrospective denials
of hospital days has generally ceased except with respect to
weekends and holidays when hospital and Oxford utilization
management personnel do not review cases, or in unusual
circumstances.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Capitation, Risk Transfer, Insurance,
    Reinsurance and Other Arrangements

The Company has agreements with various entities
covering, among other things, laboratory, radiology, physical
therapy, orthopedic, chiropractic, post-acute care management,
rare disease management, congestive heart failure disease,
coronary artery disease and diabetes management services. These
agreements are structured to mitigate the Companys
exposure to medical cost trend while continuing to cover
medically necessary services. These agreements generally include
provisions intended to maintain or enhance the quality of care
delivered to the Companys members. The aggregate effect of
such agreements in 2003 was to reduce the Companys costs
for covered services that, in part, contribute to the
Companys ability to minimize the net increase in its total
medical costs. The Company believes such agreements will assist
it in minimizing 2004 medical cost increases, but there can be
no assurances that all of these arrangements will be successful
in containing medical costs or will continue throughout 2004.

The Companys agreement for the management
of orthopedic services covers fully insured commercial members
through November 2004. Pursuant to this agreement, the vendor
performs utilization management services and pays claims for
certain participating providers. The Company has been notified
by the two insurers that guaranteed certain savings targets
pursuant to a third-party agreement for utilization management,
claims payment and other services related to orthopedic
services, that the insurers will seek to rescind or terminate
the insurance agreements. The Companys claims under these
insurance agreements total $30 million for 2003, with a
possible claim of an additional $30 million for 2004. One
of the insurers has commenced

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an arbitration seeking to rescind or terminate
the insurance agreements claiming various misrepresentations and
material breaches of the agreements by the Company. The Company
believes the insurers claims are without merit and will
vigorously seek to enforce its rights. The Company has
established a receivable of $3.5 million as of
December 31, 2003, included in other receivables,
representing the premium for coverage to date under the policies.


In December 2002, the Company entered into a
five-year agreement under which an independent third party
vendor provides certain administrative services relating to the
provision, utilization review and processing of claims for
chiropractic services received by Tri-State Area commercial
members. The vendor assumes certain risk under the arrangement
for costs above a predetermined target. In addition, the Company
entered into an agreement in 2002 with a vendor for disease
management of members with congestive heart failure
(CHF). The arrangement includes monitoring of
high-risk members through electronic equipment in their homes,
coordination of care and member education. In October 2003, the
Company entered into a new five-year performance based, disease
management agreement with this vendor for certain of the
Companys members with CHF, coronary artery disease and
diabetes.

The Company also has agreements in place covering
laboratory and radiology services. Under these agreements, the
Companys exposure for specified procedures is generally at
a negotiated aggregate per member per month cost which is less
than the Companys anticipated costs for such services
based on historical cost and trend factors. The radiology
agreement has been extended through April 30, 2006, subject
to regulatory approval, and the laboratory agreement expires on
December 31, 2007.

The Company has a five-year pharmacy benefit
management agreement (the PBM Agreement) with Medco
Health Solutions, Inc. (Medco), effective
January 1, 2002, pursuant to which Medco provides pharmacy
benefit management services, including retail and mail-order
pharmacy services, to the Companys members. The Company
also has an alliance agreement with Medco (the Alliance
Agreement) under which the Company has furnished and will
continue to furnish de-identified claim information to the
vendor as well as strategic consultative and other services to
Medco over the term of the agreement. On December 9, 2003,
the United States Attorney for the Eastern District of
Pennsylvania (U.S. Attorney) filed an amended
complaint in an action pending in the United States District
Court for the Eastern District of Pennsylvania against Medco,
alleging that Medco sought to influence the awarding of the PBM
Agreement by the Company through the payment of approximately
$87 million pursuant to the Alliance Agreement. No action
has been filed or is pending against the Company. The Company
denies the allegations in the amended complaint against Medco.
The U.S. Attorney is conducting an investigation into this
matter and the Company is cooperating with the investigation.
The Company cannot predict whether the outcome of the complaint
against Medco or the U.S. Attorneys investigation
will have an adverse effect on the Company. The Company has also
responded to a request for information from the New York State
Insurance Department (NYSID) regarding the Alliance
Agreement.



| |                                     
| | ------------------------------------
| | Medicare Risk-Sharing
    Agreements

In an effort to control increasing medical costs
in its Medicare programs, the Company currently has certain
risk-sharing agreements in effect with two hospitals and with a
physician group, whereby the providers assume certain risks for
medical costs. Premium revenues for the Medicare members covered
under these agreements totaled approximately $205 million
in 2003 and $189 million in 2002 for approximately 22,300
members in 2003 and 22,650 members in 2002. The Company is
currently negotiating with one of these hospitals to renew an
agreement which expires in April 2004. The Company is continuing
to explore other risk-sharing or risk-transfer opportunities
relating to its Medicare members with providers and other
organizations.

Implementing Medicare risk-sharing contracts
involves various risks and operational challenges, and there can
be no assurance that these contracts will be successful in
controlling the Companys future costs. Moreover, cost
savings under these agreements are achieved in certain instances
through alternative physician arrangements and more targeted
utilization review programs, all of which may adversely affect
member and provider satisfaction with the Companys
Medicare plans. These arrangements are also subject to compliance

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with risk-sharing regulations adopted by CMS and
the States of New York and New Jersey that require disclosure
and reinsurance for specified levels of risk-sharing. See
Cautionary Statement Regarding Forward-Looking
Statements.


The agreements discussed in Managing Health
Care Costs all require the Company to undertake various
obligations, including changes to its medical management
policies and internal business procedures, some of which require
computer programming and alteration of existing referral
patterns, as well as regulatory approvals, among other items.
Because of the complexity of its medical delivery system,
disputes sometimes arise in the normal course of business over
the degree of the Companys satisfaction of its or the
other entities various obligations under these cost-containment
agreements. The Company also bears the risk of non-performance
or default by the parties to such cost-containment arrangements.

Government Regulation

The Company and its HMO and insurance
subsidiaries are subject to substantial federal and state laws
and regulations, including licensing and other requirements,
relating to the offering of the Companys existing products
in new markets and offerings of new products, which may restrict
the Companys ability to expand its business. The failure
of the Company or its subsidiaries to comply with existing or
future laws and regulations could materially and adversely
affect the operations, financial condition and prospects of the
Company. The description below of existing and proposed federal
and state laws and regulations that affect the Company and its
subsidiaries is only a summary of, and does not purport to be a
complete description of, all such laws and regulations.



| |                             
| | ----------------------------
| | State and Federal Regulation

Oxfords HMO and insurance subsidiaries are
licensed to operate by the insurance departments, and, in some
cases, health departments, in the states in which they operate.
Federal and state laws and regulations impose substantial
requirements on the Companys HMO and insurance
subsidiaries regarding such matters as licensure, provider
networks, medical care delivery and quality assurance programs,
provider contracts (including but not limited to contracts that
involve risk-sharing or risk-transfer), certain administrative
services contracts, approval of contracts with health care
providers and administrative services providers, claims payment
standards, minimum coverage obligations, including mandatory
benefits, policy language, mandatory product offerings,
utilization review standards and procedures, including internal
and external member and provider appeals and financial
condition, and disclosures to members and providers. In
addition, the Company and its HMO and insurance subsidiaries are
subject to state and, with respect to Medicare participation,
federal laws and regulations relating to financial requirements
and regulations relating to government contracts, premium rates,
loss ratios, cash reserves, minimum net worth, participation in
certain state-wide risk spreading pools among insurers, and
transactions between affiliated companies, including dividends.
Recently enacted state and federal laws and regulations impose
additional requirements on the Company and its HMO and insurance
subsidiaries relating to security and confidentiality of health
care information. As part of the regulatory process, the Company
and its HMO and insurance subsidiaries are required to file
periodic reports with the relevant state agencies and meet
certain requirements relating to, among other things,
operations, premium rates and covered benefits, financial
condition and marketing practices.

The Company and its HMO and insurance
subsidiaries are also subject to state laws regarding insurers
and HMOs that are subsidiaries of insurance holding companies.
Under such laws, certain dividends, distributions and other
transactions between an insurance or HMO subsidiary and the
holding company or its other subsidiaries require notification
to, or the approval of, one or more state insurance or health
departments. These laws also require prior regulatory approval
for any change of control of an HMO or insurance subsidiary. For
purposes of these laws, generally control means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of an entity.
Control is presumed to exist when a person, group of persons or
entity acquires the power to vote 10% or more of the voting
securities of another entity.

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The Companys HMO and insurance subsidiaries
are subject to periodic examination by the applicable state
regulatory authorities regarding, among other things, the
application of actuarial methodologies. From time to time, the
Company has routine discussions with such state regulatory
authorities. For a description of recent examinations, see
Legal Proceedings  State Insurance and Health
Departments.

The Company is also affected by certain state
regulated risk allocation pools and state health care public
policy initiatives. The risk allocation pools are designed
primarily to spread the claims risk among participating plans
under certain circumstances. New York, New Jersey and
Connecticut also impose assessments that are used to fund the
state health and insurance departments and other state
initiatives. Examples of these programs include, but are not
limited to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the New York Market Stabilization Pools requires
    insurers participating in the small group and individual
    insurance market in New York to contribute certain amounts to,
    or receive certain amounts from, the New York Stabilization
    Pools based upon certain paid claims criteria and other criteria
    outlined in the applicable regulations;                                                                                                                                                                     
|
| |  | the New York Stop Loss Pools provide insurers and
    HMOs participating in certain mandated health insurance programs
    in New York with a limited amount of stop loss insurance for
    claims paid under these programs;                                                                                                                                                                                                                                                                                                         
|
| |  | the Connecticut Small Employer Reinsurance Pool
    allows Connecticut health plans to purchase low deductible
    stop-loss coverage from the Reinsurance Pool for individuals
    and/or groups ceded by the plans to the Reinsurance Pool. Plans
    have also been assessed based on market share to cover
    Reinsurance Pool losses in years past. The Health Reinsurance
    Association provides for assessments of health plans to cover
    pool losses related to individual conversions from group
    coverage or plans;
|
| |  | the New Jersey Individual Health Coverage program
    assesses participating carriers in the individual market based
    on their market share of enrollment to cover certain program
    losses defined in the applicable regulations.                                                                                                                                                                                                                                                                                               

The state health care public policy initiatives
are designed to require health care payors to contribute to
funds that support public policy health care initiatives in
general, including defraying the costs of other health care
providers such as hospitals. Examples of these types of programs
include the health care financing policies established in New
York under the Health Care Reform Act (HCRA) which
includes the requirement that payors pay assessments to assist
in the funding of hospital Graduate Medical Education
(GME) and Bad Debt and Charity Care
(BDCC). HCRA and the GME and BDCC assessments were
re-authorized effective July 1, 2003 through June 30,
2005.

The state of the economy has negatively affected
state budgets, including tax collections, which has resulted in
states attempting to defray various programs costs through
increased taxes, new taxes, increased assessments and new
assessments on employers, including the Company, as well as on
insurers, HMOs and other health care payors for the specific
programs in which the Company participates such as the New York
GME and BDCC programs, the New York Market Stabilization Pools
and other programs or on the services of health care providers.
In New York, the State Legislature passed into law the New York
State 2003-2004 budget that includes, among other things, a 75%
increase in the premium tax on health insurers (partially offset
by the elimination of the franchise tax on health insurers), a
10% increase in the BDCC assessment, an increase in excess of 5%
in the GME assessment and an approximately 19% increase in the
assessment for the Department of Insurance and the Department of
Health budgets (to which the Company is required to contribute).
Although the Company could attempt to mitigate or cover the
effects of such increased costs through, among other things,
increases in premiums, there can be no assurance that the
Company will be able to mitigate or cover all of such costs
resulting from the provisions of the New York State budget.
Changes in the implementation, administration and regulation of
these programs could adversely affect the Companys medical
costs and results of operations. All of these programs, and the
Companys liabilities under or potential recoveries from
them, are continually subject to change.

The Companys ability to set or increase
premium rates, including commissions, on its products is subject
to state regulation and interpretation by regulators. Depending
on the state and the product, the Company is

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generally required either to file the rates with
and obtain approval from the applicable regulatory authority, or
file the rates with the applicable regulatory authority without
required approval. In certain limited situations, no filing is
required and premium rate changes can be implemented immediately.


During the past several years, New York, New
Jersey, Connecticut and other states where the Company does
business have enacted significant legislation relating to
managed care plans which contain provisions relating to, among
other things, consumer disclosure, utilization review, removal
of providers from the network, appeals processes for both
providers and members, mandatory benefits and products,
including infertility, mental health and clinical trials, state
funding pools, prompt payment and provider contract
requirements. These states also passed legislation governing the
prompt payment of claims that requires, among other things, that
health plans pay claims within certain prescribed time periods
or pay interest ranging from 10% to 15% per annum plus
penalties. The New York State Department of Insurance has
re-interpreted existing laws and regulations to limit the
ability to apply contract exclusions. The impact of this
re-interpretation is that additional claims will be reviewed for
a demonstration of medical necessity, and more appeals may be
submitted to external review. The Company has incurred interest
and penalties for late payment of claims in the past and may
incur additional prompt pay fines in the future. See Legal
Proceedings  State Insurance and Health
Departments.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Health Insurance Portability and
    Accountability Act of 1996 (HIPAA) was enacted to
    (i) ensure portability of health insurance to certain
    individuals, (ii) guarantee availability of health
    insurance to employees in the small group market,
    (iii) prevent exclusion of individuals from coverage under
    group plans based on health status and (iv) develop national
    standards for the electronic exchange of health information. In
    furtherance of the latter, the U.S. Department of Health &
    Human Services (DHHS) was directed to develop rules
    for standardizing electronic transmission of health care
    information and to protect its security and privacy. Under these
    rules, health plans, clearinghouses and providers are now
    required to (a) comply with a variety of requirements
    concerning their use and disclosure of individuals
    protected health information, (b) establish rigorous
    internal procedures to protect health information and
    (c) enter into business associate contracts with those
    companies to whom protected health information is disclosed.
    Violations of these rules will be subject to significant
    penalties. HIPAA privacy rules could expose the Company to
    additional liability for, among other things, violations by its
    business associates. HIPAAs requirements with regard to
    privacy and confidentiality became effective in April 2003.
    HIPAA requirements standardizing electronic transactions between
    health plans, providers and clearinghouses became effective in
    October 2003. The Company believes that it has met all
    applicable HIPAA deadlines. The Company currently estimates that
    it will incur additional HIPAA compliance costs in 2004 and
    beyond. However, the Company cannot predict the ultimate impact
    HIPAA will have on its business and results of operations in
    future periods.
|
| |  | The Mental Health Parity Act of 1996 prohibits
    group health plans and health insurance issuers providing mental
    health benefits from imposing lower aggregate annual or lifetime
    dollar-limits on mental health benefits than any such limits for
    medical or surgical benefits. These requirements do not apply to
    small employers who have not more than 50 employees or to any
    group health plan whose costs increase one percent or more due
    to the application of these requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Womens Health and Cancer Rights Act of
    1998 requires health insurance carriers of group and individual
    commercial policies that cover mastectomies to cover
    reconstructive surgery or related services following a
    mastectomy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Newborns and Mothers Health
    Protection Act of 1996 generally prohibits group health plans
    and health insurance issuers from restricting benefits for a
    mothers or newborn childs hospital stay in
    connection with childbirth to less than 48 hours for a vaginal
    delivery and to less than 96 hours for a cesarean section.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Employee Retirement Income Security Act of
    1974 (ERISA) governs employee welfare plans,
    including self-funded plans. There have been legislative
    attempts to limit ERISAs preemptive effect on state laws.
    If such limitations are enacted, they might increase the
    Companys exposure under state law claims that relate to
    self- funded plans administered by the Company and may permit
    greater state regulation of other aspects of those business
    operations.
|
| |  | The U.S. Department of Labor has adopted federal
    regulations that establish claims procedures for employee
    benefit plans governed by ERISA (insured and self-insured),
    effective for claims filed on the first day of the first ERISA
    plan year that began on or after July 1, 2002, but no later
    than January 1, 2003.                                                                                                                                                              

The Company is also subject to federal and state
laws, rules and regulations generally applicable to public
corporations, including, but not limited to, those administered
by the Securities and Exchange Commission, the Internal Revenue
Service and state corporate and taxation departments. The
Company is also subject to the listing standards of the New York
Stock Exchange, Inc. (NYSE). The federal government,
certain states and the NYSE and other self-regulatory
organizations have recently passed or proposed new laws, rules
or regulations generally applicable to corporations, including
the Sarbanes-Oxley Act of 2002, that affect or could affect the
Company. These changes will increase the Companys costs
and complexity of doing business and may expose the Company to
additional potential liability.



| |                    
| | -------------------
| | Medicare Regulation

In order to be eligible to enter into Medicare
contracts with CMS, an HMO must remain in compliance with
certain financial, reporting and organizational requirements
under applicable federal statutes and regulations in addition to
meeting the requirements established pursuant to applicable
state law. Oxford NY, Oxford NJ and Oxford CT currently meet
such requirements.

The Companys HMOs with Medicare contracts,
Oxford NY, Oxford NJ and Oxford CT, are subject to regulation by
CMS with respect to certain administrative matters and
operational aspects of their Medicare plans. CMS has the right,
directly and through peer review organizations, to audit the
Companys health plans operating under Medicare contracts
to determine each health plans compliance with the
contract and applicable laws and regulations. In addition, CMS
regulations prohibit HMOs with Medicare contracts from including
any direct or indirect payment to physicians or other providers
as an inducement to reduce or limit medically necessary services
to a Medicare beneficiary. These regulations impose certain
requirements relating to physician incentive plans such as
bonuses or withholds that place a physician at substantial
financial risk as defined in the Medicare regulations. The
Companys ability to maintain compliance with these rules
and regulations depends, in part, on its receipt of timely and
accurate information from its providers. CMS regulations also
generally prohibit payments as an inducement for referrals for
health care services. While the Company believes it is in
compliance with all of such Medicare regulations, it is subject
to future audit and review.

The Balanced Budget Act of 1997, which changed
the way health plans were compensated for Medicare members, had
the effect of reducing reimbursement in high cost metropolitan
areas with a large number of teaching hospitals, such as the
Companys service areas. As a result of the Balanced Budget
Act of 1997, over the last several years, the Company reduced
its Medicare membership by, among other things, reducing
benefits and withdrawing from certain counties. On
December 8, 2003, the Medicare Prescription Drug Act of
2003 (MDA) was signed into law. MDA will increase
the reimbursement rates to managed care plans offering Medicare
Advantage plans. The Company is currently considering the
potential effects that MDA will have on its Medicare business.
MDA will allow Oxford to provide its current and future Medicare
members richer benefits. The Company is also considering
re-entering counties in the Tri-State Area where it had
previously discontinued offering Medicare plans. The most
significant features of MDA include: (i) the creation of an
interim Medicare-endorsed prescription drug discount card in
2004 and 2005; (ii) expanded Medicare prescription drug
coverage effective in January 2006; (iii) the addition of
new health plan options as of January 2006 at the regional and
local levels; (iv) a change in the way participating health
plans are reimbursed for the services they provide under
Medicare; (v) modification of payments to many types of

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Medicare providers; and (vi) the
establishment as of January 2006 of a competitive bidding
mechanism for Medicare Advantage plans to replace the existing
adjusted community rating (ACR) proposals.


On January 16, 2004, CMS published new
Medicare Advantage rates for 2004. CMS increase in the
basic rates resulted in increased rates of reimbursement to
Oxford from current levels. Health plans have the option to use
the additional 2004 reimbursement for reducing enrollee premiums
or cost sharing mechanisms, enhancing benefits and/or
stabilizing beneficiary access to providers.

The Company cannot precisely estimate the effect
of MDA or other future Medicare regulations on its business or
results of operations in future periods.



| |                                     
| | ------------------------------------
| | Proposed Regulatory
    Developments

State and federal government authorities are
continually considering changes to laws and regulations
applicable to Oxfords HMO and insurance subsidiaries. Over
the past several years there has been significant controversy
over allegations that payment for care has been inappropriately
withheld or delayed by health care plans. This has led to
significant public and political support for reform of health
care regulation. The U.S. Congress and states in which
Oxford operates routinely consider regulation or legislation
relating to mandatory coverage of certain benefits (such as, but
not limited to, infertility and mental health benefits),
provider compensation arrangements, health plan liability in
cases when members do not receive appropriate or timely care,
disclosure and composition of physician networks, health plan
solvency standards and procedures dictating health plan
utilization management and claim payment standards, among other
matters. In recent years, bills have been introduced in the
legislatures in New York, New Jersey and Connecticut including
some form of the so-called Any Willing Provider
initiative which would require HMOs to allow any provider or
facility meeting their credentialing criteria and willing to
accept the HMOs reimbursement and conditions of participation to
join their network regardless of geographic need, hospital
admitting privileges and other important factors. Recently,
certain states have proposed requiring health plans to finance
subsidy mechanisms to assist certain physicians purchase
of medical malpractice insurance coverage. Certain of these
bills have also included provisions relating to mandatory
disclosure of medical management policies and physician
reimbursement methodologies. Numerous other health care
proposals have been introduced in the U.S. Congress and in
state legislatures. These include provisions which place
limitations on premium and profit levels, impose taxes on
employers and insurers to fund universal health care, impose
liability on health plans in cases when members do not receive
appropriate or timely care, increase minimum capital and
reserves and other financial viability requirements, prohibit or
limit capitated arrangements or provider financial incentives,
mandate benefits (including coverage of early intervention
services, mandatory length of stay with surgery or emergency
room coverage), define medical necessity and provide for an
antitrust exemption to permit competing health care
professionals to bargain collectively with health plans and
other entities. State regulators also may change their
interpretation of existing laws and regulations relating to the
issues described above, or other issues, and such changes could
have a material impact on the Company.

Congress is also considering proposals relating
to health care reform, including a comprehensive package of
requirements on managed care plans called the Patient Bill of
Rights (PBOR) legislation. These proposals seek to
hold health plans liable for claims regarding health care
delivery and accusations of improper denial of care, among other
items. In addition, on June 19, 2003, the United States
House of Representatives passed legislation permitting small
businesses to pool together as Association Health Plans
(AHPs) to purchase or self-fund health care
coverage. The legislation provides AHPs with significant
regulatory and rating advantages which would prevail over state
and federal law applicable to most insurers and HMOs, including
the Company. The United States Senate has not taken any action
on the legislation. In 2001, the State of New Jersey passed a
health plan liability law similar to certain portions of the
PBOR legislation being considered by Congress. Under the New
Jersey law generally, after exhausting an appeal through an
independent review board, a person covered under a health plan
is permitted to sue the carrier for economic and non-economic
losses, including pain and suffering, that occur as the result
of the carriers negligence with respect to the denial of,
or delay in, approving or providing medically necessary covered
services. The New Jersey legislation and the Federal PBOR
legislation, if enacted, could expose the Company to significant
litigation risk. Such litigation could be costly to the Company
and could have a significant effect on the

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Companys results of operations. Although
the Company could attempt to mitigate or cover the effects of
such costs through, among other things, increases in premiums,
there can be no assurance that the Company will be able to
mitigate or cover the costs stemming from such PBOR legislation
or the other costs incurred in connection with complying with
such PBOR legislation.


Recently enacted legislation and the proposed
regulatory and legislative changes described above, if enacted,
could increase health care costs and administrative expenses and
otherwise adversely affect the business, results of operations
and financial condition of the Company and its competitors.

Quality Management

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

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

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

In March 2002, NCQA completed its periodic review
of the Companys operations. NCQA rates companies according
to the following scale: excellent, commendable, accredited,
provisional and denied. In June 2002, NCQA upgraded the
Companys status to Excellent for Oxfords
New York HMO and Medicare operations, its New Jersey HMO
operations and its Connecticut HMO and Medicare operations.
Oxfords New Jersey Medicare operations achieved a
Commendable rating. There can be no assurance that
the Company will achieve the same level of accreditation in the
future.

Risk Management

The Company maintains general liability,
property, employee fidelity, directors and officers and
professional liability insurance coverage in amounts the Company
deems prudent. The Company generally requires contracting
physicians, physician groups and hospitals to maintain
professional liability and malpractice insurance in an amount
consistent with industry standards.

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Competition

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

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

Status of Information Systems

The Company continues to assess and make
improvements relating to additional integration and
functionality for its information technology and claims payment
systems. There can be no assurance that the Company will be
successful in preventing future system problems that could
result in payment delays and claims processing errors. Operating
and other issues can lead to data problems that affect
performance of important functions, including claims payment and
group and individual billing. Computer hardware is subject to
unplanned downtime, as well as natural disasters and other
catastrophic events, which could adversely affect the
Companys operations. The Company is continuously
endeavoring to improve its operating and information systems and
is currently engaged in testing and improving its disaster
recovery and business continuity plans.

Employees

At December 31, 2003, the Company had
approximately 3,200 employees, none of whom is represented by a
labor union. The Company considers its relations with its
employees to be good.

Cautionary Statement Regarding Forward-Looking
Statements

Certain statements contained in
Business, Legal Proceedings and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, including, but not
limited to, statements concerning future results of operations
or financial position, future liquidity, future ability to
receive cash from the Companys regulated subsidiaries,
future ability to pay dividends, future ability to retire debt
or purchase outstanding shares of the Companys common
stock, future deployment of excess cash, the likelihood of
realizing investment gains at comparable levels in the future,
future capital structure, future health care and administrative
costs, future premium rates and yields for commercial and
Medicare business, future average

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per member reimbursement for Medicare, future
membership levels and development of new lines of business,
future growth in contiguous geographic markets, future health
care benefits, future provider networks, future provider
utilization rates, future medical loss ratio levels, future
recoveries from state regulated risk allocation pools, future
claims payment, service performance and other operations
matters, future administrative loss ratio levels,
managements belief that the Company will obtain the full
benefit of the net deferred tax assets recorded at
December 31, 2003, the Companys information systems,
proposed efforts to control health care and administrative
costs, future impact of delegation, capitation, risk-transfer
and other cost-containment agreements with health care providers
and related organizations of providers, including insurance and
reinsurance coverage for risk-transfer arrangements, future
enrollment levels, government regulation such as the proposed
PBOR legislation, HIPAA and MDA, and the impact of new laws and
regulation, the future of the health care industry, and the
impact on the Company of threatened or pending legal proceedings
and regulatory investigations and examinations, and other
statements contained herein regarding matters that are not
historical facts, are forward-looking statements (as such term
is defined in the Securities Exchange Act of 1934, as amended).
Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by
such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to,
those discussed below.




| |                                                           
| | ----------------------------------------------------------
| | IBNR estimates; Inability to control health
    care costs

Medical costs payable in Oxfords financial
statements include reserves for incurred but not reported or
paid claims (IBNR) that are estimated by Oxford. The
Company estimates the provision for IBNR using standard
actuarial loss development methodologies applied to loss
development data summarized on the basis of the month services
are rendered and the month claims are paid, processed or
received, and considers other items including, without
limitation, historical levels of denied claims, medical cost
trends, seasonal patterns and changes in membership mix. The
estimates for submitted claims and IBNR are made on an accrual
basis and adjusted in future periods as necessary. The Company
believes that its reserves for IBNR are adequate to satisfy its
ultimate claim liability. However, there can be no assurances as
to the ultimate accuracy of such estimates. Any adjustments to
such estimates could benefit or adversely affect Oxfords
results of operations in future periods.

The Companys future results of operations
depend, in part, on its ability to predict and manage health
care costs (through, among other things, benefit design,
utilization review and case management programs, analytic tools,
delegation, capitation, risk-transfer, insurance, reinsurance
and other payment arrangements with providers or groups of
providers or other parties, including, without limitation,
arrangements with vendors related to certain types of diagnostic
testing, professional services and disease management and
arrangements with hospitals and physician groups) while
providing members with coverage for the health care benefits
provided under their contracts. However, Oxfords ability
to contain such costs may be adversely affected by various
factors, including, but not limited to: changes in payment
methodologies, changes in the historical patterns of health care
utilization and/or unit costs generally and directly or
indirectly related to the war on terrorism or the concerns of
members or providers due to the threat of terrorism, new
technologies and health care practices, changes in hospital
costs, nursing and drug shortages, changes in demographics and
trends, expansion into new markets, changes in laws or
regulations, changes in interpretation of existing laws and
regulations, mandated benefits or practices, selection biases,
increases in unit costs paid to providers, termination of
agreements with providers or groups of providers, termination
of, or disputes under, delegation, capitation, risk-transfer,
insurance, reinsurance and other payment arrangements with
providers or groups of providers or other insurance or
reinsurance arrangements, epidemics, acts of terrorism and
bioterrorism or other catastrophes, including war, inability to
establish or maintain acceptable compensation arrangements with
providers or groups of providers, operational and regulatory
issues which could delay, prevent or impede those arrangements,
and higher utilization of medical services, including, without
limitation, higher out-of-network utilization. There can be no
assurance that the Company will be successful in mitigating the
effect of any or all of the above-listed or other factors.

The Companys medical costs are also
affected by the implementation, administration and regulation of
certain state regulated risk allocation pools, such as the New
York Market Stabilization Pools, as well as

15



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certain state health care public policy
initiatives, such as the New York GME and BDCC programs.
Numerous factors, including, but not limited to, the
Companys membership mix and product allocation amongst the
health plans and carriers in a particular region or state, could
cause the Company to make payments to the state regulated risk
allocation pools or to the state health care public policy
initiatives or could allow it to receive funds from the risk
allocation pools. The administration and regulation of these
programs and specific financing formulas related to these
programs have been, and continue to be, subject to change. The
Company has learned that some of its competitors in New York who
may be required to pay substantial amounts into the New York
Stabilization Pool may seek to challenge the legality of the
NYSIDs regulations related to this pool or the manner in
which the regulations have been interpreted. It is also possible
that the NYSID could amend or interpret its regulations in
response to the objections raised by these competitors in a
manner that would materially affect what the Company may be
required to pay to, or receive from, the New York Stabilization
Pool. The manner in which the NYSID administers the Pools also
could have a material impact on the competitive conditions and
relative premium pricing of each competitor in the New York
individual and small group markets. HCRA and the GME and BDCC
assessments were re-authorized effective July 1, 2003
through June 30, 2005.


Changes in the implementation, administration and
regulation of these programs could adversely affect the
Companys medical costs and results of operations. All of
these programs, and the Companys liabilities or potential
recoveries under or from them, are continually subject to change.



| |                            
| | ---------------------------
| | General economic conditions

Changes in economic conditions could affect the
Companys business and results of operations. The state of
the economy could affect the Companys employer group
renewal prospects and its ability to collect or increase
premiums. The state of the economy has also negatively affected
state budgets, which has resulted in states increasing or
imposing new taxes and assessments on insurers, including the
Company, as discussed below under Changes in laws and
regulations. Although the Company has attempted to
diversify its product offerings to address the changing needs of
its membership, there can be no assurance that the effects of a
change in economic conditions will not cause its existing
membership to seek health coverage alternatives that the Company
does not offer or will not result in significant membership
loss, lower average premium yields or decreased margins on
continuing membership.



| |                     
| | --------------------
| | Effects of terrorism

There can be no assurance that the war on
terrorism, the threat of future acts of terrorism or the related
concerns of members or providers will not adversely affect the
Companys health care costs and its ability to predict and
control such costs. Future acts of terrorism and bio-terrorism
could adversely affect the Company through, among other things:
(i) increased utilization of health care services
including, without limitation, hospital and physician services,
ancillary testing and procedures, vaccinations, such as the
smallpox vaccine and potential associated side effects,
prescriptions for drugs, mental health services and other
services; (ii) loss of membership as the result of lay-offs
or other in force reductions of employment; (iii) adverse
effects upon the financial condition or business of employers
who sponsor health care coverage for their employees;
(iv) disruption of the Companys business or
operations; or (v) disruption of the financial and
insurance markets in general.



| |                                              
| | ---------------------------------------------
| | The effect of higher administrative
    costs

There can be no assurance that the Company will
be able to maintain administrative costs at current levels. The
increased administrative costs of new or proposed laws or
regulations, such as PBOR legislation, HIPAA or MDA could
adversely affect the Companys ability to maintain its
current levels of administrative expenses.

16



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##### Table of Contents





| |                                    
| | -----------------------------------
| | Changes in laws and
    regulations

The health care financing industry in general,
and HMOs and health insurance companies in particular, are
subject to substantial federal and state government laws and
regulations, including, but not limited to, laws and regulations
relating to cash reserves, minimum net worth, minimum medical
loss ratio, licensing, policy language, benefits and exclusions,
external review, payment practices, mandatory products and
benefits, provider compensation arrangements, approval
requirements for policy forms and provider contracts,
disclosures to members and providers, security and
confidentiality of health care information, premium and
reimbursement rates and periodic examinations by state and
federal agencies. State laws and regulations require the
Companys HMO and insurance subsidiaries to maintain
restricted cash or available cash reserves and restrict their
ability to make dividend payments, loans or other payments to
the Company.

State and federal government authorities are
continually considering changes to laws and regulations
applicable to the Company or to the interpretation of such laws
or regulations. Any such changes could have a material adverse
effect upon the Company and its results of operations. Such
state and federal government authorities are currently
considering or have, in some cases, adopted regulations relating
to, among other things, mandatory benefits such as infertility
treatment and products, early intervention services, policy
language, benefits and exclusions, ability to pay dividends,
parity of access to certain medical benefits such as mental
health and chiropractic services, defining medical necessity,
provider compensation, health plan liability to members who fail
to receive appropriate care, limits on premium rates and rate
approval, claims payment practices and prompt pay rules,
disclosure and composition of physician networks, and allowing
physicians to collectively negotiate contract terms with
carriers, including fees. These proposals could apply to the
Company and could have a material adverse effect upon the
Company and its results of operations. State regulators also may
change their interpretation of existing laws and regulations
relating to the issues described above, or other issues, and
such changes could have a material impact on the Company.
Congress is also considering proposals relating to health care
reform, including PBOR legislation. These proposals seek to hold
health plans liable for claims regarding health care delivery
and accusations of improper denial of care, among other items.
In addition, on June 19, 2003, the United States House of
Representatives passed legislation permitting small businesses
to pool together as Association Health Plans (AHPs)
to purchase or self-fund health care coverage. The legislation
provides AHPs with significant regulatory and rating advantages
which would prevail over state and federal law applicable to
most insurers and HMOs, including the Company. The United States
Senate has not taken any action on the legislation. In 2001, the
State of New Jersey passed a health plan liability law similar
to certain portions of the PBOR legislation being considered by
Congress. Under the New Jersey law generally, after exhausting
an appeal through an independent review board, a person covered
under a health plan is permitted to sue the carrier for economic
and non-economic losses, including pain and suffering, that
occur as the result of the carriers negligence with
respect to the denial of, or delay in, approving or providing
medically necessary covered services. The New Jersey legislation
and the Federal PBOR legislation, if enacted, could expose the
Company to significant litigation risk. Such litigation could be
costly to the Company and could have a significant effect on the
Companys results of operations. Although the Company could
attempt to mitigate or cover the effects of such costs through,
among other things, increases in premiums, there can be no
assurance that the Company will be able to mitigate or cover the
costs stemming from such PBOR legislation or the other costs
incurred in connection with complying with such PBOR legislation.

The Company is also affected by certain state
regulated risk allocation pools and state health care public
policy initiatives. The risk allocation pools are designed
primarily to spread claims risk. New York, New Jersey and
Connecticut also impose assessments that are used to fund the
state health and insurance departments and other state
initiatives. Examples of these programs include, but are not
limited to:



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the New York Market Stabilization Pools requires
    insurers participating in the small group and individual
    insurance market in New York to contribute certain amounts to,
    or receive certain amounts from, the New York Stabilization
    Pools based upon certain paid claims criteria and other criteria
    outlined in the applicable regulations;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the New York Stop Loss Pools provide insurers and
    HMOs participating in certain mandated health insurance programs
    in New York with a limited amount of stop loss insurance for
    claims paid under these programs;                                                                                                                                                                                                                                                                                                          
|
| |  | the Connecticut Small Employer Reinsurance Pool
    allows Connecticut health plans to purchase low deductible
    stop-loss coverage from the Reinsurance Pool for individuals
    and/or groups ceded by the plans to the Reinsurance Pool. Plans
    have also been assessed based on market share to cover
    Reinsurance Pool losses in years past. The Health Reinsurance
    Association provides for assessments of health plans to cover
    pool losses related to individual conversions from group
    coverage and plans;
|
| |  | The New Jersey Individual Health Coverage program
    assesses participating carriers in the individual market based
    on their market share of enrollment to cover certain program
    losses defined in the applicable regulations.                                                                                                                                                                                                                                                                                                

The state health care public policy initiatives
are designed to require health care payors to contribute to
funds that support public policy health care initiatives in
general, including defraying the costs of other health care
providers, such as hospitals. Examples of these types of
programs include the health care financing policies established
in New York under HCRA, including the requirement that payors
pay an assessment toward hospital GME and BDCC. HCRA and the GME
and BDCC assessments were re-authorized effective July 1,
2003 through June 30, 2005.

The state of the economy has negatively affected
state budgets, including tax collections, which has resulted in
states attempting to defray various programs costs through
increased taxes, new taxes, increased assessments and new
assessments on employers, including the Company, as well as on
insurers, HMOs and other health care payors for the specific
programs in which the Company participates such as the New York
GME and BDCC programs, the New York Market Stabilization Pools
and other programs or on the services of health care providers.
In New York, the State Legislature passed into law the New York
State 2003-2004 budget that includes, among other things, a 75%
increase in the premium tax on health insurers (partially offset
by the elimination of the franchise tax on health insurers), a
10% increase in the BDCC assessment, an increase in excess of 5%
in the GME assessment, and an approximately 19% increase in the
assessment for the Department of Insurance and Department of
Health budgets (to which the Company is required to contribute).
Although the Company could attempt to mitigate or cover the
effects of such increased costs through, among other things,
increases in premiums, there can be no assurance that the
Company will be able to mitigate or cover all of such costs
resulting from the provisions of the New York State budget.
Changes in the implementation, administration and regulation of
these programs could adversely affect the Companys medical
costs and results of operations. All of these programs, and the
Companys liabilities under or potential recoveries from
them, are continually subject to change.

Under the new HIPAA privacy rules, the Company is
required to (a) comply with a variety of requirements
concerning its use and disclosure of individuals protected
health information, (b) establish rigorous internal
procedures to protect health information and (c) enter into
business associate contracts with those companies to whom
protected health information is disclosed. Violations of these
rules will be subject to significant penalties. The final rules
do not provide for complete federal preemption of state laws,
but rather preempt all contrary state laws unless the state law
is more stringent. HIPAA exposes the Company to additional
liability for, among other things, violations by its business
associates. HIPAAs requirements with regard to privacy and
confidentiality became effective in April 2003. Also as part of
HIPAA, the U.S. Department of Health and Human Services issued
rules standardizing electronic transactions between health
plans, providers and clearinghouses which became effective in
October 2003. The Company believes that it has met all
applicable HIPAA deadlines. The Company currently estimates that
it will incur additional HIPAA compliance costs in 2004 and
beyond. However, the Company cannot predict the ultimate impact
HIPAA will have on its business and results of operations in
future periods.

The Company is also subject to federal and state
laws, rules and regulations generally applicable to public
corporations, including, but not limited to, those administered
by the Securities and Exchange Commission, the Internal Revenue
Service and state corporate and taxation departments. The
Company is also subject to the listing standards of the New York
Stock Exchange, Inc. (NYSE). The federal government,
certain

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states and the NYSE and other self-regulatory
organizations have recently passed or proposed new laws, rules
or regulations generally applicable to corporations, including
the Sarbanes-Oxley Act of 2002, that affect or could affect the
Company. These changes could increase the Companys costs
of doing business or could expose the Company to additional
potential liability.


The Company prepares its financial statements in
accordance with accounting principles generally accepted in the
United States (GAAP). Any changes to GAAP could
affect the Companys results of operations.



| |                              
| | -----------------------------
| | Regulatory audits and reviews

The Company is continually subject to review and
audit by various state and federal authorities, including but
not limited to, the New York State Insurance Department, the New
York Department of Health, the Attorney General offices of New
York and Connecticut, the New Jersey Department of Banking and
Insurance, the New Jersey Department of Health and Senior
Services, the Connecticut Insurance Department, the California
Department of Insurance, CMS, the United States Department of
Labor and other departments of labor in states where the Company
has employees. From time to time, the Company has issues pending
with, or has operating issues under review with and is the
subject of periodic audits by, such regulatory agencies. While
the Company believes its relations with such regulatory agencies
are good, the outcome of any examinations, inquiries and reviews
by such regulatory agencies cannot be predicted.



| |                                                                   
| | ------------------------------------------------------------------
| | National Committee on Quality Assurance
    (NCQA) accreditation

In March 2002, NCQA, an independent, non-profit
organization dedicated to improving managed care quality and
service, completed its periodic review of the Companys
operations. NCQA rates companies according to the following
scale: excellent, commendable, accredited, provisional and
denied. In June 2002, NCQA upgraded the Companys status to
Excellent for Oxfords New York HMO and
Medicare operations, its New Jersey HMO operations and its
Connecticut HMO and Medicare operations. Oxfords New
Jersey Medicare operations achieved a Commendable
rating. There can be no assurance that the Company will maintain
its NCQA accreditation, and the loss of this accreditation could
adversely affect the Company.



| |                                   
| | ----------------------------------
| | Doing business on the
    Internet

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



| |                                        
| | ---------------------------------------
| | Matters affecting Medicare
    business

Premiums for Oxfords Medicare plans are
determined through formulas established by CMS for Oxfords
Medicare contracts. Generally, since the Balanced Budget Act of
1997 went into effect, annual health care premium increases for
Medicare members have not kept up with the increases in health
care cost. Federal law provides for annual adjustments in
Medicare reimbursement by CMS that could reduce the
reimbursement received by the Company. Premium rate increases in
a particular region that are lower than the rate of increase in
health care services expense for Oxfords Medicare members
in such region, could adversely affect Oxfords results of
operations. However, MDA will increase reimbursement rates to
managed care plans offering Medicare Advantage plans. The
Company is currently considering the potential effects MDA will
have on its Medicare business. MDA will allow Oxford to provide
its current and future Medicare members richer benefits. The
Company is also considering re-entering counties in the Tri-

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State Area where it had previously discontinued
offering Medicare plans. The Company cannot precisely estimate
the effect of MDA or other future Medicare regulations on its
business or results of operations in future periods.


Contracts with providers and provider
organizations and other vendors entered into by Oxford with
respect to Medicare membership could pose operational and
financial challenges for the Company and could be adversely
affected by regulatory actions or by the failure of the Company
or the vendor to comply with the terms of such agreement, and
failure under any such agreement could have a material adverse
effect on the Companys cost of providing benefits to
Medicare members, Medicare membership, the Companys
Medicare results of operations and, ultimately, the
Companys ability to provide Medicare plans. Oxfords
Medicare plans are subject to certain additional risks compared
to commercial plans, such as substantially higher comparative
medical costs and higher levels of utilization.



| |                                               
| | ----------------------------------------------
| | Service and management information
    systems

The Companys claims and service systems
depend upon the smooth functioning of its computer systems.
These systems remain subject to unexpected interruptions
resulting from occurrences such as hardware failures or the
impact of ongoing program modifications. There can be no
assurance that such interruptions will not occur in the future,
and any such interruptions could adversely affect the
Companys business and results of operations. Moreover,
operating and other issues can lead to data problems that affect
the performance of important functions, including, but not
limited to, claims payment and group and individual billing.
There can also be no assurance that the Companys process
of improving existing systems, developing new systems to support
the Companys operations and improving service levels will
not be delayed or that additional systems issues will not arise
in the future.



| |                                                            
| | -----------------------------------------------------------
| | Health care provider networks/risk-sharing
    arrangements

The Company is subject to the risk of disruption
in its health care provider networks. Network physicians,
hospitals and other health care providers could terminate their
contracts with the Company. Most of the Companys contracts
with physicians can be terminated on 90 days notice. The
Companys contracts with hospitals that serve a significant
portion of its business are generally for multiple year periods,
but some hospital contracts can be terminated on 90 days
notice. The Company is routinely engaged in negotiations with
health care providers, including various hospitals and hospital
systems, involving payment arrangements, contract terms and
other matters. During such negotiations, hospitals, hospital
systems, physicians and other providers may threaten to or, in
fact, provide notice of termination of their agreement with the
Company as part of their negotiation strategy. Providers have
also threatened to terminate contracts when financial disputes
arise. These disputes could adversely affect the Company or
could expose the Company to regulatory or other liabilities.
Such events could have a material adverse effect on the
Companys ability to influence its medical costs.
Cost-containment and risk-sharing and risk-transfer arrangements
entered into by the Company could be adversely affected by
difficulties encountered in the implementation or administration
of such arrangements, regulatory actions, contractual disputes,
or the failure of the providers to comply with the terms of such
agreements. Furthermore, the effect of mergers and
consolidations of health care providers or potential
unionization of, or concerted action by, physicians, hospitals
or other providers in the Companys service areas, could
enhance the providers bargaining power with respect to
higher reimbursement levels and changes to the Companys
utilization review and administrative procedures.



| |                                                            
| | -----------------------------------------------------------
| | Pending litigation and other proceedings
    against Oxford

The Company is involved in certain legal
proceedings, including, among others, those related to
(i) a Connecticut action, brought by the Connecticut State
Medical Society, alleging breach of the Connecticut Unfair Trade
Practices Act, which case was dismissed and is now on appeal,
(ii) a New York action, brought by the Medical Society of
the State of New York on behalf of its members and itself,
alleging breach of contract and violations of the New York
General Business Practices Law, Public Health Law and Prompt
Payment Law, which case was dismissed and is now on appeal,
(iii) a related, purported class action by New York
physicians asserting similar claims, which case has been stayed
pending arbitration and is also on appeal,

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##### Table of Contents



(iv) a New Jersey action, brought by the
Medical Society of New Jersey on behalf of its members and
itself, alleging breach of contract and violations of New Jersey
Prompt Pay and Consumer Fraud Acts, which case has been
dismissed and is now on appeal, (v) an attempt to bring
class action arbitration by a purported class of New Jersey
physicians alleging breach of contract and violations of New
Jersey Prompt Pay and Consumer Fraud Acts, (vi) a purported
federal class action grounded in ERISA claims brought on behalf
of Oxford members who have coverage for chiropractic care, and
(vii) claims for rescission or termination of an insurance
agreement guaranteeing savings pursuant to a third-party
management agreement for orthopedic services. The Company is
also involved in other legal actions in the normal course of its
business, some of which seek monetary damages, including claims
for punitive damages. The Company is also the subject of
examinations, investigations and inquiries by Federal and state
governmental agencies. The results of these lawsuits,
examinations, investigations and inquiries could adversely
affect the Companys results of operations, financial
condition, membership growth and ability to retain members
through the imposition of sanctions, required changes in
operations and potential limitations on enrollment. In addition,
evidence obtained in governmental proceedings could be used
adversely against the Company in civil proceedings. The Company
cannot predict the outcomes of these lawsuits, examinations,
investigations and inquiries.




| |                                                                   
| | ------------------------------------------------------------------
| | Negative HMO publicity and potential for
    additional litigation

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



| |                                          
| | -----------------------------------------
| | Concentration of
    business/competition

The Companys commercial and Medicare
business is concentrated in New York, New Jersey and
Connecticut, with approximately 72% of its commercial premium
revenues received from New York business. In addition, the
Companys Medicare revenue represented approximately 12% of
premiums earned during 2003. As a result, changes in regulatory,
market, or health care provider conditions in any of these
states, particularly New York, and changes in the environment
for the Companys Medicare business, could have a material
adverse effect on the Companys business, financial
condition and results of operations.

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

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##### Table of Contents






Item 2.     Properties

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

|                 |  |          |                |                  |  |             |                |  |  |  |         | 
|---------------- |  | -------- | -------------- | ---------------- |  | ----------- | -------------- |  |  |  | ------- | 
|                 |  | Type     |                | Earliest         |  | Occupied   
|Location         |  | of Space |                | Termination Date |  | Square Feet
|                 |  |          |                |                  |  |            
|Trumbull, CT     |  |          | Administrative |                  |  |             | May 2006       |  |  |  | 238,000 | 
|Hooksett, NH     |  |          | Administrative |                  |  |             | November 2007  |  |  |  | 121,000 | 
|Trumbull, CT     |  |          | Administrative |                  |  |             | December 2011  |  |  |  | 115,000 | 
|Nashua, NH       |  |          | Administrative |                  |  |             | June 2008      |  |  |  | 70,000  | 
|White Plains, NY |  |          | Administrative |                  |  |             | May 2013       |  |  |  | 64,000  | 
|Hidden River, FL |  |          | Administrative |                  |  |             | December 2009  |  |  |  | 63,000  | 
|Trumbull, CT     |  |          | Administrative |                  |  |             | June 2012      |  |  |  | 29,000  | 
|New York, NY     |  |          | Sales/Admin    |                  |  |             | July 2005      |  |  |  | 27,000  | 
|Woodbridge, NJ   |  |          | Sales/Admin    |                  |  |             | November 2007  |  |  |  | 22,000  | 
|Melville, NY     |  |          | Sales/Admin    |                  |  |             | June 2011      |  |  |  | 18,000  | 
|New York, NY     |  |          | Sales/Admin    |                  |  |             | September 2007 |  |  |  | 13,000  | 
|Hartford, CT     |  |          | Sales/Admin    |                  |  |             | July 2009      |  |  |  | 10,000  | 
|Mt. Laurel, NJ   |  |          | Sales/Admin    |                  |  |             | March 2005     |  |  |  | 3,500   | 
|Queens, NY       |  |          | Sales/Admin    |                  |  |             | January 2005   |  |  |  | 3,000   | 




Item 3.Legal
Proceedings

Securities Class Action
Litigation

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 and a
related stockholder lawsuit commenced by the State Board of
Administration of Florida were filed against the Company,
certain of its officers and directors, and the Companys
former independent auditor, KPMG LLP, in the United States
District Courts for the Southern and Eastern Districts of New
York, the District of Connecticut and the District of Arkansas.
These lawsuits were consolidated before the Honorable Charles L.
Brieant, in the United States District Court for the Southern
District of New York (the Securities Class Action
Litigation).

In the fourth quarter of 1999, the Company
purchased insurance policies providing additional coverage of,
among other things, certain judgments and settlements, if any,
incurred by the Company and individual defendants in certain
pending lawsuits and investigations, including, among others,
the securities class actions pending against the Company and
certain of its former officers and directors and the pending
stockholder derivative actions (the Excess
Insurance).

On March 3, 2003, the Company agreed with
the plaintiffs to settle the Securities Class Action
Litigation for $225 million (the Settlement).
In connection with the Settlement, the Company incurred an
additional pretax charge of $45 million, net of insurance
recoverable, in the first quarter of 2003, which charge, along
with prior charges, fully covers all of the Companys
expenses relating to the Settlement and related legal fees and
expenses. The Court granted final approval to the Settlement on
June 11, 2003. The excess insurance carriers responsible
for the first $25 million under the Companys
$200 million Excess Insurance policies contributed
$25 million to the Settlement, but the other carriers under
the policies refused to contribute to the Settlement.
Accordingly, the Company paid $200 million of the
Settlement and paid the Excess Insurance carriers an additional
premium of $8 million. Also, in connection with the
Settlement, (i) plaintiffs settled the class claims
against KPMG LLP for $75 million and (ii) a derivative
shareholder action against KPMG LLP in the name of the Company
pending in state court was dismissed with prejudice.

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Subject to the terms of the Excess Insurance
policies, the Excess Insurers agreed to pay 90% of the amount,
if any, by which covered costs exceed a retention amount (the
Retention), provided that the aggregate amount of
insurance under these policies is limited to $200 million.
Under the insurance carriers interpretation of the Excess
Insurance policies, the Company was required to pay a
$161.3 million retention and the additional $8 million
premium, and, if the Excess Insurance carriers had fully
participated in the Settlement, the Company would have to pay
approximately $6.4 million in co-insurance. Under the
Companys interpretation of the Excess Insurance policies,
the Company was required to pay a $151.3 million retention,
the additional $8 million premium and approximately
$7.4 million in co-insurance if the insurance carriers had
fully participated in the Settlement. Accordingly, under the
insurance carriers interpretation, the Companys
payment of the Settlement without the full benefit of the Excess
Insurance coverage resulted in the Company paying an additional
approximately $32.3 million, and, under the Companys
interpretation, approximately $41.3 million. On
April 25, 2003, the Company filed suit in Delaware state
court against the Excess Insurance carriers that refused to
contribute to the settlement to recover at least $41.3 million
under the terms of the Excess Insurance policies. During the
third quarter of 2003, the Company agreed with certain of the
excess insurance carriers to settle approximately
$17.9 million of its claims for a total of approximately
$14.3 million which was reflected in income for the third
quarter ended September 30, 2003. The Company has a
remaining claim of approximately $23.4 million against one
excess insurance carrier. The Company intends to vigorously
pursue recovery of this outstanding amount. The Company has not
recorded any additional recoveries at December 31, 2003
related to a potential favorable outcome of this litigation.

New York State Attorney General

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

ERISA and Provider
Class Actions

On September 7, 2000, the Connecticut
Attorney General filed suit against four Health Maintenance
Organizations (HMOs), including the Company, in the
federal district court in Connecticut, on behalf of a putative
class consisting of all Connecticut members of the defendant
HMOs who were enrolled in plans governed by the Employee
Retirement Income Security Act (ERISA). The suit
alleged that the named HMOs breached their disclosure
obligations and fiduciary duties under ERISA by, among other
things: (i) failing to timely pay claims; (ii) the use
of inappropriate and arbitrary coverage guidelines as the basis
for denials; (iii) the inappropriate use of drug
formularies; (iv) failing to respond to member
communications and complaints; and (v) failing to disclose
essential coverage and appeal information. The suit sought
preliminary and permanent injunctions enjoining the defendants
from pursuing the complained of acts and practices. Also, on
September 7, 2000, a group of plaintiffs law firms
commenced an action in federal district court in Connecticut
against the Company and four other HMOs on behalf of a putative
national class consisting of all members of the defendant HMOs
who are or have been enrolled in plans governed by ERISA within
the past six years. The substantive allegations of this
complaint, which also claimed violations of ERISA, were nearly
identical to those filed by the Connecticut Attorney General.
The complaint demanded the restitution of premiums paid and/or
the disgorgement of profits, in addition to injunctive relief.
Although this complaint was dismissed without prejudice as to
the Oxford defendants, another identical complaint against the
Company was filed on December 28, 2000 in the federal
district court in Connecticut under the caption Patel v.
Oxford Health Plans of Connecticut, Inc.(the Patelaction). On November 30, 2000, the Judicial Panel
on Multidistrict Litigation (JPML) issued a
Conditional Transfer Order, directing that the Connecticut
Attorney General action be transferred to the Southern District
of Florida for consolidated pretrial proceedings along with
various other ERISA and Racketeering Influenced and Corrupt
Organizations (RICO) cases pending against other
HMOs, which order was confirmed on April 17, 2001. On

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November 13, 2001, the JPML issued a
Conditional Transfer Order, directing that the Patelaction also be transferred to the consolidated proceedings
in Florida, which order was confirmed on February 20, 2002.
By Order dated September 26, 2002, Judge Moreno of the
Southern District of Florida, denied the motion for class
certification made by plaintiffs in the member proceeding (the
Subscriber Track). The Company reached agreement to
settle the Patelaction by paying the individual
plaintiffs a total of $12,500, which case has now been
dismissed. By Orders dated September 18, 2003, Judge Moreno
granted the motion of Oxford and other defendants to dismiss the
Connecticut Attorney General action and ruled that the
Subscriber Track in this MDL was closed in light of the
dismissal of all cases in that track. The Connecticut Attorney
General has appealed the dismissal of this action.


On February 14, 2001, the Connecticut State
Medical Society (CSMS) filed a lawsuit against the
Companys Connecticut HMO subsidiary in Connecticut state
court on behalf of both itself and its members who had Oxford
contracts. The suit asserted claims for breach of contract,
breach of the implied duty of good faith and fair dealing,
violation of the Connecticut Unfair Trade Practices Act
(CUTPA) and negligent misrepresentation based on,
among other things, the Companys alleged: (i) failure
to timely pay claims or interest; (ii) refusal to pay all
or part of claims by improperly bundling or
downcoding claims, or by including unrelated claims
in global rates; (iii) use of inappropriate and
arbitrary coverage guidelines as the basis for denials; and
(iv) failure to provide adequate staffing to handle
physician inquiries. The Court ruled on December 13, 2001
that CSMS lacked standing to assert any claims on behalf of its
member physicians, and on October 25, 2002 granted the
Companys motion to strike the complaint for failure to
state a claim under CUTPA. On November 12, 2002, CSMS filed
a notice of appeal with respect to the Courts
October 25th decision. The appeal, which will be heard by
the Connecticut Supreme Court, is now fully briefed.

On August 15, 2001, the Medical Society of
the State of New York (MSSNY), and three individual
physicians, filed two separate but nearly identical lawsuits
against the Company and the Companys New York HMO
subsidiary in New York state court, on behalf of all members of
the MSSNY who provided health care services pursuant to
contracts with the Company during the period August 1995 through
the present. The suit filed by the individual physicians was
styled as a class action complaint. Both suits asserted claims
for breach of contract and violations of New York General
Business Law, Public Health Law and Prompt Payment Law, based
on, among other things, the Companys alleged:
(i) failure to timely pay claims or interest;
(ii) refusal to pay all or part of claims by improperly
bundling or downcoding claims, or by
including unrelated claims in global rates;
(iii) use of inappropriate and arbitrary coverage
guidelines as the basis for denials; and (iv) failure to
provide adequate staffing to handle physician inquiries. The
complaint filed by the MSSNY seeks a permanent injunction
enjoining the Company from pursuing the complained of acts and
practices, as well as attorneys fees and costs. By Order
dated January 23, 2003, the Court granted the
Companys motion to stay the purported class action case
and compel arbitration. The Court further dismissed the claims
under the Prompt Pay Law and the Public Health Law. By order
dated January 24, 2003, the Court granted the
Companys motion to dismiss the MSSNY complaint in its
entirety. On February 28, 2003, MSSNY and the individual
physicians filed notices of appeal regarding the
January 23, 2003 and January 24, 2003 orders.

On April 12, 2002, Dr. John Sutter, a
New Jersey physician, filed a purported class action complaint
against the Company in New Jersey state court, on behalf of all
New Jersey providers who provide or have provided health care
services to members of Oxfords health plans. The suit
asserts claims for breach of contract, breach of the implied
duty of good faith and fair dealing, and violations of the New
Jersey Prompt Pay Act and Consumer Fraud Act, and seeks
compensatory damages, treble damages on the Consumer Fraud Act
claim, punitive damages, reformation of the provider contracts,
and attorneys fees and costs. On October 25, 2002,
the Court dismissed the complaint and granted the Companys
motion to compel arbitration. On or about December 11,
2002, Dr. Sutter filed the same purported class action
complaint with the American Arbitration Association. The parties
are now engaged in discovery to determine whether the
arbitration may proceed as a class.

On or about May 8, 2002, the Medical Society
of New Jersey (MSNJ) filed separate lawsuits against
the Company and four other HMOs in New Jersey chancery court, on
behalf of itself and its members who have contracted with Oxford
and the other defendants. The suit against the Company asserted
several claims, including violations of the New Jersey Prompt
Pay Act and Consumer Fraud Act and tortious interference

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with prospective economic relations, based on,
among other things, the Companys alleged: (i) failure
to timely pay claims or interest; (ii) refusal to pay all
or part of claims by improperly bundling or
downcoding claims, or by including unrelated claims
in global rates; (iii) use of inappropriate and
arbitrary coverage guidelines as the basis for denials;
(iv) failure to provide adequate staffing to handle
physician inquiries; and (v) practice of forcing physicians
into unfair contracts that infringe on relationships with
patients. The complaint sought a permanent injunction enjoining
the Company from pursuing the complained of acts and practices,
as well as attorneys fees and costs. By order dated
September 22, 2003, the Court granted Oxfords motion
to dismiss the complaint in its entirety for lack of standing
and for failure to state an actionable claim. The MSNJ has
appealed the dismissal of this action.


On or about September 22, 2003, the Company
and Triad Healthcare, Inc. (Triad) were sued in
federal court in the Southern District of New York in a
purported class action on behalf of all Oxford members who are
or were Oxford policy holders with coverage for chiropractic
care. The suit alleges that Oxford and Triad, which Oxford has
engaged to assist in managing chiropractic services, have
breached their disclosure obligations and fiduciary duties under
ERISA by, among other things: (i) the use of inappropriate
and cost-based criteria as the basis for denials;
(ii) providing financial incentives to Triad to deny care;
(iii) failing to disclose such financial incentives and
misrepresenting that chiropractic coverage would be based on
medical necessity; and (iv) intentionally delaying the
payment of claims. The complaint demands the restitution of
premiums paid and/or the disgorgement of profits, in addition to
injunctive relief and attorneys fees. On January 14,
2004, the Company filed its motion to dismiss the complaint in
its entirety for failure to state a claim under ERISA.

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

Insurance and Health Departments

The Company is subject to regulation by various
state and federal regulatory agencies, including, among others,
NYSID, the New York Department of Health (NYDOH),
the New Jersey Department of Banking and Insurance
(NJDOBI), the New Jersey Department of Health and
Senior Services (NJDHSS), the Connecticut Insurance
Department (CTDOI), the California Department of
Insurance, CMS and the United States Department of Labor. All of
the state and federal agencies that directly regulate operation
of the Companys health plans are referred to in this
section as the Insurance Regulatory Agencies.

From time to time, the Company has issues pending
with or has operating issues under review with and is the
subject of periodic audits by the Insurance Regulatory Agencies.
The Company works with these Insurance Regulatory Agencies to
resolve all of these issues as they arise and considers its
relationship with such Insurance Regulatory Agencies to be good.
Examples of such recent regulatory issues, examinations and
audits in 2003 include, but are not limited to the following
matters: an annual on-site survey by the NYDOH, a financial
examination by the CTDOI, a financial examination by the NYSID
and a financial examination and a market conduct examination by
the NJDOBI. The Company, from time to time, is also subject to
inquiries from, and reviews by the Attorney General offices of
New York and Connecticut. The outcome of any such examinations,
inquiries and reviews cannot be predicted at this time.

Other Matters

On March 30, 2001, the Company and Express
Scripts, Inc. (ESI) executed a Settlement Agreement
and an Amendment to a 1998 Prescription Drug Program Agreement
(the Amended ESI Agreement), which agreements
resolved the Companys claims against ESI and ESIs
subsidiary, Diversified Pharmaceutical Services, Inc., under the
risk arrangement portions of the original 1998 Prescription Drug
Program Agreement with ESI in exchange for a payment to the
Company of $37 million. The Amended ESI Agreement further
provided that, among other things, (i) ESI would continue
to administer the Companys prescription drug benefits
until December 31, 2005 and (ii) in the event that the
Company terminated the agreement without cause prior to this
date, ESI would be entitled to certain annual payments through
2005 (the Termination Payments), which Termination
Payments would constitute ESIs sole remedy for such

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##### Table of Contents



early termination. In September 2001, the Company
formally notified ESI that it would terminate its agreement with
ESI on December 31, 2001 and recorded an estimated
liability for the Termination Payments plus estimated defense
costs. ESI subsequently notified the Company that it believes
the Companys termination constitutes a material breach of
the Amended ESI Agreement and, on March 6, 2002, commenced
an arbitration proceeding to enforce its rights and seek
remedies. On January 26, 2004, the Company and ESI settled
the arbitration. Pursuant to the settlement, the Company agreed
to pay the remaining Termination Payment amount of
$5 million along with an additional $500,000. The Company
had previously established liabilities for the Termination
Payment and anticipated legal costs.


The Company has been notified by two insurers
that guaranteed certain savings targets pursuant to a
third-party agreement for utilization management, claims payment
and other services related to orthopedic services, that the
insurers will seek to rescind or terminate the insurance
agreements. The Companys claims under these insurance
agreements total $30 million for 2003, with a possible
claim of an additional $30 million for 2004. One of the
insurers has commenced an arbitration seeking to rescind or
terminate the insurance agreements claiming various
misrepresentations and material breaches of the agreements by
the Company. The Company believes the insurers claims are
without merit and will vigorously seek to enforce its rights.
The Company has established a receivable of $3.5 million as
of December 31, 2003, included in other receivables,
representing the premium for coverage to date under the policies.

On May 23, 2003, the Company submitted to
the United States Patent and Trademark Office, a Notice of
Opposition to an application by Oxford Life Insurance Company
(OLIC), headquartered in Phoenix, Arizona, for
registration of a federal service mark
www.Oxfordlife.com. OLIC also is seeking
registration of the mark Oxford Life Insurance
Company. The Company currently has numerous marks,
including federal trademark and service mark registrations, that
include the terms Oxford and Oxford Health
Plans. On July 28, 2003, OLIC filed an answer to the
Companys Notice of Opposition and filed a counterclaim for
cancellation of all marks registered by the Company that include
the word Oxford. Also, on July 28, 2003, OLIC
filed suit in the Federal District Court for the District of
Arizona seeking to cancel the Companys federal trademark
and service mark registrations that include the word
Oxford, seeking preliminary and permanent
injunctions against the Company from continuing to use
trademarks and service marks that include the word
Oxford and seeking damages against the Company. On
January 14, 2004, the Company and OLIC entered into a
settlement agreement to resolve this dispute. Pursuant to the
settlement agreement, OLIC has the right to use and register the
marks Oxford Life Insurance Company and
www.Oxfordlife.com in connection with life
insurance, disability insurance, long term care insurance,
administration of employee benefit plans, annuity products,
financial planning and certain related products, and the Company
has the right to register or maintain the registration of, and
use the marks Oxford and any variant thereof
including but not limited to Oxford Health Plans for
pre-paid health care plans, health care insurance, HMO services,
managed care plans, administration and promotion of ancillary
and specialty health benefit products and services in the field
of health insurance, health maintenance organizations and
self-funded benefit plans, insurance agency and brokerage
services, health care benefit administration services and
benefits administration, generally excluding those services
authorized to be federally registered by OLIC. The settlement
will permit the Company to maintain all of its trademark and
service mark registrations and to register any new
Oxford trademarks and service marks in the fields
described above.

The Company has a five-year pharmacy benefit
management agreement (the PBM Agreement) with Medco,
effective January 1, 2002, pursuant to which Medco provides
pharmacy benefit management services, including retail and
mail-order pharmacy services, to the Companys members. The
Company also has an alliance agreement with Medco (the
Alliance Agreement) under which the Company has
furnished and will continue to furnish de-identified claim
information to the vendor as well as strategic consultative and
other services to Medco over the term of the agreement. On
December 9, 2003, the United States Attorney for the
Eastern District of Pennsylvania (U.S. Attorney)
filed an amended complaint in an action pending in the United
States District Court for the Eastern District of Pennsylvania
against Medco, alleging that Medco sought to influence the
awarding of the PBM Agreement by the Company through the payment
of approximately $87 million pursuant to the Alliance
Agreement. No action has been filed or is pending against the
Company. The Company denies the allegations in the amended
compliant against Medco. The U.S.

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##### Table of Contents



Attorney is conducting an investigation into this
matter and the Company is cooperating with the investigation.
The Company cannot predict whether the outcome of the complaint
against Medco or the U.S. Attorneys investigation will
have an adverse effect on the Company. The Company has also
responded to a request for information from the New York State
Insurance Department regarding the Alliance Agreement.


The Company is also subject to examinations and
investigations by various state and federal agencies from time
to time with respect to its business and operations. The outcome
of any such examinations and investigations, if commenced,
cannot be predicted at this time.

The Company is involved in other legal actions in
the normal course of its business, some of which seek monetary
damages, including claims for punitive damages, which may not be
covered by insurance. Some of these actions involve claims by
the Companys members in connection with benefit coverage
determinations and alleged acts by network providers. The
Company is also routinely engaged in disputes and negotiations
with health care providers and other parties, including various
hospitals, hospital systems and insurers, involving payment
arrangements, contract terms and other matters. During such
disputes and negotiations, hospitals, hospital systems and other
providers and reinsurers may threaten to or, in fact, provide
notice of termination of their agreement with the Company as
part of their negotiation strategy. The result of these legal
actions, disputes and negotiations could adversely affect the
Company through termination of existing contracts, involvement
in litigation or arbitration, adverse judgments or other
results, or could expose the Company to other liabilities. The
Company believes any ultimate liability associated with these
legal actions, disputes and negotiations would not have a
material adverse effect on the Companys consolidated
financial position.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

No matters were submitted to a vote of security
holders, through the solicitation of proxies or otherwise,
during the quarter ended December 31, 2003.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

The Companys common stock is traded on the
New York Stock Exchange under the symbol OHP. The
following table sets forth the range of high and low sale prices
for the common stock for the periods indicated as reported on
the New York Stock Exchange in 2003 and 2002.

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2003 |       | 2002
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 39.25 |      |  | $    | 26.32 |     |  | $ | 42.75 |  |  | $ | 28.64 | 
|Second Quarter |  |      | 44.60 |      |  |      | 27.34 |     |  |   | 51.94 |  |  |   | 40.46 | 
|Third Quarter  |  |      | 46.67 |      |  |      | 35.38 |     |  |   | 46.70 |  |  |   | 34.81 | 
|Fourth Quarter |  |      | 46.60 |      |  |      | 39.67 |     |  |   | 44.82 |  |  |   | 32.86 | 

As of January 30, 2004, there were 841
shareholders of record of the Companys common stock.

The Company has not paid any cash dividends on
its common stock since its formation through December 31,
2003. On October 28, 2003, the Companys Board of
Directors declared an initial quarterly cash dividend of $0.10
per share payable to shareholders of record on January 12,
2004. The Company paid the quarterly dividend of approximately
$8.1 million on January 27, 2004. On January 30,
2004, the Companys Board of Directors declared a quarterly
cash dividend of $0.10 per share payable April 27, 2004 to
shareholders of record on April 12, 2004. The
Companys ability to declare and pay dividends to its
shareholders may be dependent on its ability to obtain cash
distributions from its operating subsidiaries. The
Companys ability to pay dividends is limited by insurance
and health regulations applicable to its subsidiaries
ability to make dividend payments or other transfers to the
parent company. See Business  Government
Regulation.

27



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##### Table of Contents



The Companys Board of Directors has
approved a share repurchase program for up to $1 billion of
the Companys outstanding common stock through December
2004. The program authorizes the Company to purchase shares on
the open market and in privately negotiated transactions from
time to time depending on general market conditions. Through
December 31, 2003, the Company had repurchased
approximately 23.8 million of its common shares under this
program at an aggregate cost of approximately
$757.2 million. At December 31, 2003, the Company had
remaining repurchase authority of approximately
$242.8 million.






|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

Revenues and Earnings, Financial Position and per
common share information set forth below for each year in the
five-year period ended December 31, 2003, has 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.

|                                                             |                                                           |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |            |        | 
|------------------------------------------------------------ | --------------------------------------------------------- | ----------------------------------------------------------------- | - | ---------- | ------ | ---- | - | ---------- | ------ | ---- | - | ---------- | ------- |  | - | ---------- | ------ |  | - | ---------- | ------ | 
|                                                             |                                                           | 2003                                                              |   | 2002       |        | 2001 |   | 2000       |        | 1999
|                                                             |                                                           |                                                                   |   |            |        |      |   |            |        |     
|                                                             |                                                           |                                                                  
|                                                             |                                                           | (In thousands, except per share amounts and operating statistics)
|Revenues and Earnings:                                       |                                                           |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |           
|                                                             | Operating revenues                                        |                                                                   | $ | 5,351,611  |        |      | $ | 4,868,708  |        |      | $ | 4,326,182  |         |  | $ | 4,038,787  |        |  | $ | 4,115,134  |       
|                                                             | Investment and other income, net                          |                                                                   |   | 100,833    |        |      |   | 94,686     |        |      |   | 95,046     |         |  |   | 73,015     |        |  |   | 82,632     |       
|                                                             | Net earnings before extraordinary item                    |                                                                   |   | 351,853    |        |      |   | 221,965    |        |      |   | 322,421    |         |  |   | 285,419    |        |  |   | 319,940    |       
|                                                             | Net earnings                                              |                                                                   |   | 351,853    |        |      |   | 221,965    |        |      |   | 322,421    |         |  |   | 265,094    |        |  |   | 319,940    |       
|                                                             | Net earnings for common shares(1)                         |                                                                   |   | 351,853    |        |      |   | 221,965    |        |      |   | 322,421    |         |  |   | 191,303    |        |  |   | 274,440    |       
|Financial Position:                                          |                                                           |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |           
|                                                             | Working capital                                           |                                                                   | $ | 991,187    |        |      | $ | 465,279    |        |      | $ | 468,924    |         |  | $ | 298,175    |        |  | $ | 442,693    |       
|                                                             | Total assets                                              |                                                                   |   | 2,160,201  |        |      |   | 1,753,516  |        |      |   | 1,576,725  |         |  |   | 1,444,610  |        |  |   | 1,686,888  |       
|                                                             | Long-term debt, less current maturities                   |                                                                   |   | 394,000    |        |      |   | 96,250     |        |      |   | 126,876    |         |  |   | 28,000     |        |  |   | 350,000    |       
|                                                             | Redeemable preferred stock                                |                                                                   |   |           |        |      |   |           |        |      |   |           |         |  |   |           |        |  |   | 344,316    |       
|                                                             | Common shareholders equity                               |                                                                   |   | 727,264    |        |      |   | 496,917    |        |      |   | 462,920    |         |  |   | 459,222    |        |  |   | 98,755     |       
|Net earnings per common share before
    extraordinary item: |                                                           |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |           
|                                                             | Basic                                                     |                                                                   | $ | 4.26       |        |      | $ | 2.55       |        |      | $ | 3.35       |         |  | $ | 2.50       |        |  | $ | 3.38       |       
|                                                             | Diluted                                                   |                                                                   | $ | 4.15       |        |      | $ | 2.45       |        |      | $ | 3.21       |         |  | $ | 2.24       |        |  | $ | 3.26       |       
|Net earnings per common share:                               |                                                           |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |           
|                                                             | Basic                                                     |                                                                   | $ | 4.26       |        |      | $ | 2.55       |        |      | $ | 3.35       |         |  | $ | 2.26       |        |  | $ | 3.38       |       
|                                                             | Diluted                                                   |                                                                   | $ | 4.15       |        |      | $ | 2.45       |        |      | $ | 3.21       |         |  | $ | 2.02       |        |  | $ | 3.26       |       
|                                                             | Dividends per common share                                |                                                                   | $ | 0.10       |        |      | $ |           |        |      | $ |           |         |  | $ |           |        |  | $ |           |       
|                                                             | Weighted-average number of common shares
    outstanding: |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |            |       
|                                                             |                                                           | Basic                                                             |   |            | 82,546 |      |   |            | 87,145 |      |   |            | 96,269  |  |   |            | 84,728 |  |   |            | 81,273 | 
|                                                             |                                                           | Diluted                                                           |   |            | 84,754 |      |   |            | 90,744 |      |   |            | 100,543 |  |   |            | 94,573 |  |   |            | 84,231 | 
|Operating Statistics:                                        |                                                           |                                                                   |   |            |        |      |   |            |        |      |   |            |         |  |   |            |        |  |   |           
|                                                             | Enrollment                                                |                                                                   |   | 1,539,200  |        |      |   | 1,601,500  |        |      |   | 1,510,100  |         |  |   | 1,491,400  |        |  |   | 1,593,700  |       
|                                                             | Fully insured member months                               |                                                                   |   | 18,307,400 |        |      |   | 18,298,800 |        |      |   | 17,402,400 |         |  |   | 17,345,500 |        |  |   | 19,326,700 |       
|                                                             | Self-funded member months                                 |                                                                   |   | 481,100    |        |      |   | 689,300    |        |      |   | 704,500    |         |  |   | 708,400    |        |  |   | 625,600    |       
|                                                             | Medical loss ratio(2)                                     |                                                                   |   | 79.5       | %      |      |   | 79.3       | %      |      |   | 78.9       | %       |  |   | 77.5       | %      |  |   | 82.1       | %     
|                                                             | Administrative loss ratio(3)                              |                                                                   |   | 10.7       | %      |      |   | 11.8       | %      |      |   | 11.3       | %       |  |   | 11.8       | %      |  |   | 14.6       | %     



---



|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings for common shares in 2000 includes
    $41.1 million of costs associated with the redemption of
    preferred stock.
|   
|(2) | Defined as health care services expense as a
    percentage of premiums earned.                                                  

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|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Defined as marketing, general and administrative
    expense as a percentage of operating revenues. Excludes
    litigation charge for settlement, net, of $30.7 million and
    $151.3 million in 2003 and 2002, respectively.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Overview

The Companys revenues consist primarily of
commercial premiums derived from its HMO, EPO, POS, PPO and
indemnity plans. Revenues also include reimbursements under
government contracts relating to its Medicare+Choice
(Medicare) plans, third-party administration fee
revenue for self-funded plans (which is stated net of direct
expenses such as third-party reinsurance premiums) and
investment and other income. Since the Company provides coverage
under its insured and managed care products on a prepaid basis,
with premium levels fixed for one-year periods, unexpected cost
increases during the annual contract period cannot be passed on
to employer groups or members.

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

The Companys results of operations are
dependent, in part, on its ability to predict and manage health
care costs (through, among other things, benefit design,
utilization review and case management programs, analytic tools,
delegation, capitation, risk-share, risk-transfer, insurance,
reinsurance and other payment arrangements with providers or
groups of providers or other parties including, without
limitation, arrangements with vendors related to certain types
of diagnostic testing, professional services and disease
management and arrangements with hospitals and physician groups)
while providing members with coverage for the health care
benefits provided under their contracts. However, the
Companys ability to contain such costs may be adversely
affected by various factors, including, but not limited to:
changes in payment methodologies, changes in the historical
patterns of health care utilization and/or unit costs generally
and directly or indirectly related to the war on terrorism or
the concerns of members or providers due to the threat of
terrorism, new technologies and health care practices, changes
in hospital costs, nursing and drug shortages, changes in
demographics and trends, expansion into new markets, changes in
laws and regulations, changes in interpretation of existing laws
and regulations, mandated benefits or practices, selection
biases, increases in unit costs paid to providers, termination
of provider arrangements, termination of, or disputes under,
delegation, capitation, risk-transfer, insurance, reinsurance or
other payment arrangements, epidemics, catastrophes, acts of
terrorism or war, inability to establish or maintain acceptable
compensation agreements with providers or groups of providers,
operational and regulatory issues which could delay, prevent or
impede those arrangements and higher utilization of medical
services, including, without limitation, higher out-of-network
utilization. The Company attempts to use its medical
cost-containment capabilities, such as claim auditing systems,
with a view to reducing the rate of increase in health care
service expense.

Results for 2003 include a net charge of
$30.7 million, or $0.22 per diluted share, related to the
final settlement of securities class action lawsuits brought in
1997 following the October 27, 1997 decline in the price of
the Companys stock. Included in the net charge is the
recovery of approximately $14.3 million, or $0.10 per
diluted share, received during the third quarter of 2003 of a
claim against certain excess insurance carriers who provided
insurance for the securities class action lawsuits. In addition,
the 2003 period includes approximately $33.8 million, or
$0.24 per diluted share, related to favorable changes in
estimates of prior period medical cost reserves, primarily
resulting from ongoing incremental improvements in processes
such that the level of completion of claims was, in retrospect,
slightly higher than estimated in 2002.

Results for 2002 included a pretax charge of
$151.3 million, net, or $0.98 per diluted share, related to
the Companys offer to settle the securities class action
lawsuits brought in 1997 and a pretax charge of
$20 million, or $0.13 per diluted share, for additional
estimated legal expenses associated with such litigation.

29



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##### Table of Contents



Also included in pretax earnings for 2002 were
charges related to the conclusion of the Companys
information technology outsource arrangement with Computer
Sciences Corporation (CSC) and the other than
temporary impairment charge related to the Companys prior
investment in MedUnite totaling approximately
$26.5 million, or $0.17 per diluted share. In addition, the
2002 period includes a reduction in estimated liabilities for
New York State Market Stabilization Pools (the Pools
or New York Stabilization Pools) of approximately
$20.8 million for 2001 and prior years, and an increase of
approximately $1.2 million in estimated recoveries for 2001
stop-loss pools for New York Mandated Plans, or a total of $0.14
per diluted share, and approximately $33.3 million, or
$0.22 per diluted share, related to favorable changes in
estimates of prior period medical cost reserves.


On March 1, 2002, the Company acquired all
of the outstanding stock of MedSpan, Inc., the parent company of
a Connecticut managed health care organization, for cash of
approximately $17.3 million. Effective January 2003, most
of the assets and liabilities of MedSpan, Inc. were transferred
to and assumed by Oxford Health Plans (CT), Inc., pursuant to an
assumption reinsurance agreement.

Results for 2001 were positively impacted by
approximately $15 million of favorable development of prior
period estimates of medical costs and recoveries from the New
York Stabilization Pools.

Results of Operations



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    with Year Ended December 31, 2002

Total revenues for the year ended
December 31, 2003 were $5.45 billion, up 9.9% from
$4.96 billion in the prior year. Net income attributable to
common stock in 2003 totaled $351.9 million, or $4.15 per
diluted common share, compared with $222 million, or $2.45
per diluted common share in 2002. Results for 2003 and 2002 were
positively impacted by approximately $33.8 million and
$55.3 million, respectively, of favorable development of
prior period estimates of medical costs and New York
Stabilization Pool recoveries. See Liquidity and Capital
Resources and Overview.

The following tables show plan revenues earned,
membership by product and certain other selected information:

|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |       |   
|--------- | ------------------------------- | ---------------------- | - | ------------------- |  | ------ | - | --------- |  |  | - | ------- | - |  |  | ----- | --
|          |                                 |                        |   |                     |  |       
|          |                                 | For the Years Ended    |   |                    
|          |                                 | December 31,           |   | Increase (Decrease)
|          |                                 |                        |   |                    
|          |                                 | 2003                   |   | 2002                |  | Amount |   | %        
|          |                                 |                        |   |                     |  |        |   |          
|          |                                 |                       
|          |                                 | (Dollars in thousands)
|Revenues: |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | POS, PPO and Other Plans        |                        | $ | 4,125,424           |  |        | $ | 3,689,110 |  |  | $ | 436,314 |   |  |  | 11.8  | % 
|          | HMOs                            |                        |   | 581,369             |  |        |   | 576,635   |  |  |   | 4,734   |   |  |  | 0.8   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total Fully Insured Commercial  |                        |   | 4,706,793           |  |        |   | 4,265,745 |  |  |   | 441,048 |   |  |  | 10.3  | % 
|          | Medicare                        |                        |   | 632,534             |  |        |   | 585,219   |  |  |   | 47,315  |   |  |  | 8.1   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total premium revenues          |                        |   | 5,339,327           |  |        |   | 4,850,964 |  |  |   | 488,363 |   |  |  | 10.1  | % 
|          | Third-party administration, net |                        |   | 12,284              |  |        |   | 17,744    |  |  |   | (5,460  | ) |  |  | (30.8 | )%
|          | Investment and other income     |                        |   | 100,833             |  |        |   | 94,686    |  |  |   | 6,147   |   |  |  | 6.5   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total revenues                  |                        | $ | 5,452,444           |  |        | $ | 4,963,394 |  |  | $ | 489,050 |   |  |  | 9.9   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      

30



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##### Table of Contents



|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |         |   |  |       |      |   
|----------- | ------------------------------ | ------------------ |  | ------------------- | --------- | ------ |  | --------- | --------- |  |  | ------- | ------- | - |  | ----- | ---- | --
|            |                                |                    |  |                    
|            |                                | As of December 31, |  | Increase (Decrease)
|            |                                |                    |  |                    
|            |                                | 2003               |  | 2002                |           | Amount |  | %        
|            |                                |                    |  |                     |           |        |  |          
|Membership: |                                |                    |  |                     |           |        |  |           |           |  |  |         |         |   |  |      
|            | POS, PPO and Other Plans       |                    |  | 1,239,400           |           |        |  | 1,252,900 |           |  |  | (13,500 | )       |   |  | (1.1  | )%  
|            | HMOs                           |                    |  | 190,500             |           |        |  | 226,600   |           |  |  | (36,100 | )       |   |  | (15.9 | )%  
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |         |   |  |      
|            | Total Fully Insured Commercial |                    |  | 1,429,900           |           |        |  | 1,479,500 |           |  |  | (49,600 | )       |   |  | (3.4  | )%  
|            | Medicare                       |                    |  | 70,800              |           |        |  | 70,100    |           |  |  | 700     |         |   |  | 1.0   | %   
|            | Third-party administration     |                    |  | 38,500              |           |        |  | 51,900    |           |  |  | (13,400 | )       |   |  | (25.8 | )%  
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |         |   |  |      
|            |                                | Total membership   |  |                     | 1,539,200 |        |  |           | 1,601,500 |  |  |         | (62,300 | ) |  |       | (3.9 | )%
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |         |   |  |      

|                      |                                      |                     |   |            |   |  |   |            |  
|--------------------- | ------------------------------------ | ------------------- | - | ---------- | - |  | - | ---------- | -
|                      |                                      |                    
|                      |                                      | For the Years Ended
|                      |                                      | December 31,       
|                      |                                      |                    
|                      |                                      | 2003                |   | 2002      
|                      |                                      |                     |   |           
|Selected Information: |                                      |                     |   |            |   |  |   |           
|                      | Medical loss ratio                   |                     |   | 79.5       | % |  |   | 79.3       | %
|                      | Administrative loss ratio            |                     |   | 10.7       | % |  |   | 11.8       | %
|                      | Per member per month premium revenue |                     | $ | 291.65     |   |  | $ | 265.10     |  
|                      | Per member per month medical expense |                     | $ | 231.73     |   |  | $ | 210.33     |  
|                      | Fully insured member months          |                     |   | 18,307,400 |   |  |   | 18,298,800 |  

Total commercial premiums earned for the year
ended December 31, 2003 was $4.71 billion, compared
with $4.27 billion in the prior year. The year over year
increase in premiums earned is attributable to an increase in
weighted average commercial premium yields of approximately
10.4% offset partially by a decrease in member months of 0.1%
for commercial products during 2003, including the effect of
reductions in benefit coverage and changes in product mix.
Overall commercial membership decreased by 3.4% at
December 31, 2003 compared with the prior year primarily
due to rationalization of the acquired MedSpan business,
competitive pricing in the Companys markets and the loss
of several large groups to self-funded carriers.

Premiums earned from the Companys Medicare
programs increased 8.1% to $632.5 million in 2003 compared
with $585.2 million in 2002. The overall increase was
attributable to a 3.2% increase in member months of Medicare
plans and a 4.7% increase in premium yields as a result of
annual rates of increase from CMS and the county-specific mix of
membership, among other factors. In December 2003, the Medicare
Prescription Drug Act of 2003 (MDA) was signed into
law. MDA will increase the reimbursement rates to managed care
plans offering Medicare Advantage plans. MDA will allow Oxford
to provide its current and future Medicare members richer
benefits. The Company is also considering re-entering counties
in the Tri-State Area where it had previously discontinued
offering Medicare plans. The Company cannot precisely estimate
the effect of MDA or other future Medicare regulations on its
business or results of operations in future periods. See
Business-Government Regulation  Medicare
Regulation.

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Investment and other income, net, increased 6.5%
for the year ended December 31, 2003 compared with 2002 as
follows:

|                                                           |                        |                |         |        |  |   |         |        | 
|---------------------------------------------------------- | ---------------------- | -------------- | ------- | ------ |  | - | ------- | ------ | 
|                                                           |                        | 2003           |         | 2002  
|                                                           |                        |                |         |       
|                                                           |                        |               
|                                                           |                        | (In thousands)
|Investment income, net of fees                             |                        | $              | 54,734  |        |  | $ | 64,497  |       
|Net realized gains on sales of marketable
    securities   |                        |                | 30,849  |        |  |   | 26,883  |       
|                                                           |                        |                |         |        |  |   |         |       
|                                                           | Investment income, net |                |         | 85,583 |  |   |         | 91,380 | 
|Pharmacy alliance agreement amortization                   |                        |                | 15,200  |        |  |   | 15,200  |       
|Other income (expense), net                                |                        |                | 50      |        |  |   | (11,894 | )     
|                                                           |                        |                |         |        |  |   |         |       
|Investment and other income, net                           |                        | $              | 100,833 |        |  | $ | 94,686  |       
|                                                           |                        |                |         |        |  |   |         |       
|Weighted-average pre-tax yield on investment
    portfolio |                        |                | 3.2     | %      |  |   | 4.5     | %     
|                                                           |                        |                |         |        |  |   |         |       

The decrease in investment income, net of fees,
was due to lower investment yields partially offset by higher
invested balances. Due to interest rate and bond market dynamics
during the past year, the overall pre-tax yield on the portfolio
declined to 3.2% for 2003 compared with 4.5% in the prior year.
Realized gains increased 14.8% in 2003 compared with 2002. The
decision to harvest gains in the investment portfolio is based
upon, among other things, the Companys investment
policies, market conditions, including the ability of the
Company to re-invest gains in suitable investments, where
applicable, and the Companys cash flow and tax strategies.
Given the portfolios low current yield, the Company
believes that it is unlikely to recognize comparable levels of
realized gains in 2004. The increase in other income (expense),
net, in 2003 compared with 2002 was due primarily to the other
than temporary impairment charge related to the Companys
prior investment in MedUnite of approximately $11 million
during 2002. See Liquidity and Capital Resources.

Health care service expense stated as a
percentage of premium revenues (the medical loss
ratio) was 79.5% for 2003 compared with 79.3% for 2002.
Health care services expense benefited from initiatives to
improve health care utilization and reduce costs. Overall per
member per month revenue in 2003 increased 10% to $291.65 from
$265.10 in 2002 due primarily to an approximate 10.4% increase
in premium yields for the Companys commercial products and
lesser increases for the Companys Medicare programs.
Overall per member per month health care services expenses
increased 10.2% to $231.73 in 2003 from $210.33 in 2002
(inclusive of prior period estimate changes of costs and
reserves). Included in health care services expense for the year
ended December 31, 2003 are net favorable development of
prior period medical cost estimates of approximately
$33.8 million, primarily resulting from ongoing incremental
improvements in processes such that the level of completion of
claims was, in retrospect, slightly higher than estimated in
2002 and the settlement of several liabilities aged more than
one year for amounts less than previously estimated. Included in
health care services expense for the year ended
December 31, 2002 are a reduction to estimated reserves for
New York Stabilization Pools of approximately $20.8 million
for 2001 and prior years, an increase of approximately
$1.2 million in estimated recoveries for 2001 New York Stop
Loss Pools and net favorable development of prior period medical
cost estimates of approximately $33.3 million. For the
years ended December 31, 2003 and 2002, pursuant to the
Health Care Reform Act in New York (HCRA), the
Company expensed $56.8 million and $57.1 million,
respectively, for Graduate Medical Education (GME)
and $50.2 million and $51.9 million, respectively, for
hospital Bad Debt and Charity Care (BDCC). Included
in the 2003 expense for BDCC are credits of approximately
$8.6 million representing surcharges recoverable from the
pool for prior overpayments. The Company believes it has made
adequate provision for incurred medical costs as of
December 31, 2003. Changes to estimates of incurred medical
costs are recorded in the period they arise. See Liquidity
and Capital Resources.

Marketing, general and administrative expenses
decreased $0.3 million, or 0.1%, to $575.1 million for
2003 compared with $575.4 million for 2002, excluding the
net litigation charges of approximately $30.7 million in
2003 and $151.3 million in 2002. Included in administrative
expenses for the year ended December 31, 2002 are
termination fees and a non-cash asset impairment charge
attributable to the termination of the CSC agreement of
approximately $15.5 million and additional estimated legal
expenses related to the securities

32



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##### Table of Contents



class action litigation of $20 million.
Marketing, general and administrative expenses as a percent of
operating revenue was 10.7% in 2003, compared with 11.8% in
2002, including the CSC charge and excluding the net litigation
charges for estimated settlement. Excluding the charges for
termination fees and asset impairments in 2002, administrative
spending increased in 2003 when compared with the prior year
primarily due to increased broker commissions and premium taxes,
as a result of higher premium revenue, and increased payroll,
benefit and corporate insurance costs. Broker commissions and
premium taxes were approximately 33% of marketing, general and
administrative expenses in 2003, compared with approximately
28.4% in 2002, excluding the net litigation charges for
estimated settlement. Administrative costs in future periods may
also be adversely affected by costs associated with responding
to regulatory inquiries, investigations and other litigation,
including fees and disbursements of counsel and other experts to
the extent such costs are not reimbursed under existing policies
of insurance. See Legal Proceedings.


The Company incurred interest and other financing
charges of $20.8 million and $11 million in 2003 and
2002, respectively. Effective December 3, 2003, the Company
re-priced its New Term Loan, reducing the applicable margins for
both LIBOR and New Base Rate Borrowings. In connection with the
re-pricing, the Company expensed approximately $1.1 million
of costs as a component of interest and other financing costs in
December 2003. In addition, 2003 results include the write-off
of approximately $3.4 million of unamortized costs
associated with the former Term Loan. The Company made
$2 million of scheduled repayments of its New Term Loan
during the year ended December 31, 2003. The Companys
weighted average interest rate on bank debt was 4.1% in 2003
compared with 5.4% in 2002. Interest expense on delayed claims
declined in 2003, reflecting more timely payment of claims and
lower levels of older claims outstanding. See Liquidity
and Capital Resources.

The income tax expense recorded for the year
ended December 31, 2003 was $231.6 million compared
with $154.9 million for the year ended December 31,
2002. The effective tax rate for 2003 was 39.7% compared with
41.1% for 2002. The effective tax rate decreased in 2003
compared with 2002 as a result of changes to certain state taxes
enacted by the New York State legislature retroactive to
January 1, 2003. The impact of this change was to reduce
the rate on certain income taxes while increasing the tax rate
on premium revenue, which taxes are included in marketing,
general and administrative expenses. The effective tax rate was
also impacted by the composition of the Companys business
in various state taxing jurisdictions. Valuation allowances at
December 31, 2003 and 2002 of approximately
$3.1 million relate primarily to the recognition of certain
restructuring related and property and equipment deferred tax
assets. Management believes that the Company will obtain the
full benefit of the net deferred tax assets recorded at
December 31, 2003.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    with Year Ended December 31, 2001

Total revenues for the year ended
December 31, 2002 was $4.96 billion, up 12.3% from
$4.42 billion in the prior year. Net income attributable to
common stock in 2002 totaled $222 million, or $2.45 per
diluted common share, compared with $322.4 million, or
$3.21 per diluted common share in 2001. Results for 2002 and
2001 were positively impacted by approximately
$55.3 million and $15 million, respectively, of
favorable development of prior period estimates of medical costs
and New York Stabilization Pool recoveries. See Liquidity
and Capital Resources and Overview.

33



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##### Table of Contents



The following tables show plan revenues earned,
membership by product and certain other selected information:

|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |       |   
|--------- | ------------------------------- | ---------------------- | - | ------------------- |  | ------ | - | --------- |  |  | - | ------- | - |  |  | ----- | --
|          |                                 |                        |   |                     |  |       
|          |                                 | For the Years Ended    |   |                    
|          |                                 | December 31,           |   | Increase (Decrease)
|          |                                 |                        |   |                    
|          |                                 | 2002                   |   | 2001                |  | Amount |   | %        
|          |                                 |                        |   |                     |  |        |   |          
|          |                                 |                       
|          |                                 | (Dollars in thousands)
|Revenues: |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | POS, PPO and Other Plans        |                        | $ | 3,689,110           |  |        | $ | 3,114,138 |  |  | $ | 574,972 |   |  |  | 18.5  | % 
|          | HMOs                            |                        |   | 576,635             |  |        |   | 538,958   |  |  |   | 37,677  |   |  |  | 7.0   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total Fully Insured Commercial  |                        |   | 4,265,745           |  |        |   | 3,653,096 |  |  |   | 612,649 |   |  |  | 16.8  | % 
|          | Medicare                        |                        |   | 585,219             |  |        |   | 659,295   |  |  |   | (74,076 | ) |  |  | (11.2 | )%
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total premium revenues          |                        |   | 4,850,964           |  |        |   | 4,312,391 |  |  |   | 538,573 |   |  |  | 12.5  | % 
|          | Third-party administration, net |                        |   | 17,744              |  |        |   | 13,791    |  |  |   | 3,953   |   |  |  | 28.7  | % 
|          | Investment and other income     |                        |   | 94,686              |  |        |   | 95,046    |  |  |   | (360    | ) |  |  | (0.4  | )%
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total revenues                  |                        | $ | 4,963,394           |  |        | $ | 4,421,228 |  |  | $ | 542,166 |   |  |  | 12.3  | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      

|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |       |     |  
|----------- | ------------------------------ | ------------------ |  | ------------------- | --------- | ------ |  | --------- | --------- |  |  | ------- | ------ |  |  | ----- | --- | -
|            |                                |                    |  |                    
|            |                                | As of December 31, |  | Increase (Decrease)
|            |                                |                    |  |                    
|            |                                | 2002               |  | 2001                |           | Amount |  | %        
|            |                                |                    |  |                     |           |        |  |          
|Membership: |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      
|            | POS, PPO and Other Plans       |                    |  | 1,252,900           |           |        |  | 1,154,100 |           |  |  | 98,800  |        |  |  | 8.6   | %  
|            | HMOs                           |                    |  | 226,600             |           |        |  | 218,200   |           |  |  | 8,400   |        |  |  | 3.8   | %  
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      
|            | Total Fully Insured Commercial |                    |  | 1,479,500           |           |        |  | 1,372,300 |           |  |  | 107,200 |        |  |  | 7.8   | %  
|            | Medicare                       |                    |  | 70,100              |           |        |  | 77,800    |           |  |  | (7,700  | )      |  |  | (9.9  | )% 
|            | Third-party administration     |                    |  | 51,900              |           |        |  | 60,000    |           |  |  | (8,100  | )      |  |  | (13.5 | )% 
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      
|            |                                | Total membership   |  |                     | 1,601,500 |        |  |           | 1,510,100 |  |  |         | 91,400 |  |  |       | 6.1 | %
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      

|                      |                                      |                     |   |            |   |  |   |            |  
|--------------------- | ------------------------------------ | ------------------- | - | ---------- | - |  | - | ---------- | -
|                      |                                      |                    
|                      |                                      | For the Years Ended
|                      |                                      | December 31,       
|                      |                                      |                    
|                      |                                      | 2002                |   | 2001      
|                      |                                      |                     |   |           
|Selected Information: |                                      |                     |   |            |   |  |   |           
|                      | Medical loss ratio                   |                     |   | 79.3       | % |  |   | 78.9       | %
|                      | Administrative loss ratio            |                     |   | 11.8       | % |  |   | 11.3       | %
|                      | Per member per month premium revenue |                     | $ | 265.10     |   |  | $ | 247.80     |  
|                      | Per member per month medical expense |                     | $ | 210.33     |   |  | $ | 195.45     |  
|                      | Fully insured member months          |                     |   | 18,298,800 |   |  |   | 17,402,400 |  

Total commercial premiums earned for the year
ended December 31, 2002 was $4.27 billion, compared
with $3.65 billion in the prior year. The year over year
increase in premiums earned is attributable to an increase in
weighted average commercial premium yields of approximately 10%
(excluding the impact of MedSpan) and an increase in member
months of 4.1% for commercial products during 2002, excluding
MedSpan and including the effect of reductions in benefit
coverage and changes in product mix, and approximately
$87.7 million related to MedSpan. Overall commercial
membership increased by 7.8% at December 31, 2002 compared
with the prior year primarily due to growth in the
Companys POS group of products and the acquisition of
MedSpan.

Premiums earned from the Companys Medicare
programs decreased 11.2% to $585.2 million in 2002 compared
with $659.3 million in 2001. The overall decrease was
attributable to a 17.8% decrease in member months of Medicare
plans, primarily due to the January 2002 exit from all Medicare
programs in New Jersey but Hudson County and from Nassau County,
New York. The member month decline was partially offset by a

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7.9% increase in premium yields as a result of
annual rates of increase from CMS and the county-specific mix of
membership, among other factors.


Investment and other income, net, decreased 0.4%
for the year ended December 31, 2002 compared with 2001 as
follows:

|                                                           |                        |                |         |        |  |   |        |        | 
|---------------------------------------------------------- | ---------------------- | -------------- | ------- | ------ |  | - | ------ | ------ | 
|                                                           |                        | 2002           |         | 2001  
|                                                           |                        |                |         |       
|                                                           |                        |               
|                                                           |                        | (In thousands)
|Investment income, net of fees                             |                        | $              | 64,497  |        |  | $ | 72,789 |       
|Net realized gains on sales of marketable
    securities   |                        |                | 26,883  |        |  |   | 20,764 |       
|                                                           |                        |                |         |        |  |   |        |       
|                                                           | Investment income, net |                |         | 91,380 |  |   |        | 93,553 | 
|Pharmacy alliance agreement amortization                   |                        |                | 15,200  |        |  |   |       |       
|Other (expense) income, net                                |                        |                | (11,894 | )      |  |   | 1,493  |       
|                                                           |                        |                |         |        |  |   |        |       
|Investment and other income, net                           |                        | $              | 94,686  |        |  | $ | 95,046 |       
|                                                           |                        |                |         |        |  |   |        |       
|Weighted-average pre-tax yield on investment
    portfolio |                        |                | 4.5     | %      |  |   | 5.3    | %     
|                                                           |                        |                |         |        |  |   |        |       

The decrease in investment income, net of fees,
was primarily due to lower investment yields. The overall
pre-tax yield on the portfolio declined to 4.5% for 2002
compared with 5.3% in the prior year due to interest rate and
bond market dynamics. Partially offsetting this decline was an
increase in capital gains realized. Realized gains increased
29.5% in 2002 compared with 2001. The decision to harvest gains
in the investment portfolio is based upon, among other things,
the Companys investment policies, market conditions,
including the ability of the Company to re-invest gains in
suitable investments, where applicable, and the Companys
cash flow and tax strategies. During 2002, the Company
recognized $15.2 million of previously unearned revenue
from the Companys pharmacy alliance agreement and recorded
the other than temporary impairment charge of approximately
$11 million related to the Companys investment in
MedUnite. See Liquidity and Capital Resources.

Health care service expense stated as a
percentage of premium revenues (the medical loss
ratio) was 79.3% for 2002 compared with 78.9% for 2001.
Health care services expense benefited from initiatives to
improve health care utilization and reduce costs as well as a
change in membership mix. Overall per member per month revenue
in 2002 increased 7% to $265.10 from $247.80 in 2001 due
primarily to an approximate 10% increase in premium yields
(excluding the impact of MedSpan) for the Companys
commercial products and lesser increases for the Companys
Medicare programs. Overall per member per month health care
services expenses increased 7.6% to $210.33 in 2002 from $195.45
in 2001 (inclusive of prior period estimate changes of costs and
reserves). Included in health care services expense for the year
ended December 31, 2002 are a reduction to estimated
reserves for New York Stabilization Pools of approximately
$20.8 million for 2001 and prior years, an increase of
approximately $1.2 million in estimated recoveries for 2001
New York Stop Loss Pools and net favorable development of prior
period medical cost estimates of approximately
$33.3 million, primarily resulting from ongoing incremental
improvements in processes such that the level of completion of
claims was, in retrospect, slightly higher than assumed in 2001.
For the year ended December 31, 2001, net favorable
development of prior period medical cost estimates, other
reserve adjustments and recoveries from the New York
Stabilization Pools approximated $15 million. For the years
ended December 31, 2002 and 2001, pursuant to the Health
Care Reform Act in New York (HCRA), the Company
expensed $57.1 million and $59 million, respectively,
for Graduate Medical Education and $51.9 million and
$43.3 million, respectively, for hospital Bad Debt and
Charity Care. The Company believes it has made adequate
provision for incurred medical costs as of December 31,
2002. Changes to estimates of incurred medical costs are
recorded in the period they arise. See Liquidity and
Capital Resources.

Marketing, general and administrative expenses
increased $86.3 million, or 17.6%, to $575.4 million
for 2002, excluding the $151.3 million net litigation
charge for the offer to settle, compared with
$489.1 million for 2001. Included in administrative
expenses for the year ended December 31, 2002 are
termination fees and a non-cash asset impairment charge
attributable to the termination of the CSC agreement of
approximately

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$15.5 million and additional estimated legal
expenses related to the securities class action litigation of
$20 million. Marketing, general and administrative expenses
as a percent of operating revenue was 11.8% in 2002, including
the CSC charge and excluding the net litigation charge for
estimated settlement, compared with 11.3% in 2001. The increase
in dollars spent in 2002 when compared with the prior year is
primarily due to increased broker commissions, as a result of
higher premium revenue, and increased payroll, benefit and
corporate insurance costs. Broker commissions and premium taxes
were approximately 28.4% of marketing, general and
administrative expenses in 2002, excluding the net litigation
charge for estimated settlement, compared with approximately
26.3% in 2001. During 2001, the Company recorded a charge of
$10 million for estimated legal expenses related to the
securities class action pending against the Company that may not
be recoverable from one of the Companys primary
directors and officers insurance carriers due to its
insolvency. Administrative costs in future periods may also be
adversely affected by costs associated with responding to
regulatory inquiries, investigations and defending pending
securities class actions and other litigation, including fees
and disbursements of counsel and other experts to the extent
such costs are not reimbursed under existing policies of
insurance. See Legal Proceedings.


The Company incurred interest and other financing
charges of $11 million and $19 million in 2002 and
2001, respectively, including $9.5 million related to its
outstanding debt obligations and $1.3 million of interest
on delayed claims for the year ended December 31, 2002,
compared with $15.6 million related to outstanding debt
obligations and $3.4 million related to delayed claims in
2001. The Companys weighted average interest rate on bank
debt was 5.43% in 2002 compared with 8% in 2001. Interest
expense on delayed claims declined in 2002, reflecting more
timely payment of claims and lower levels of older claims
outstanding. The Company made approximately $26.3 million
of scheduled repayments of its New Term Loan and approximately
$0.9 million of other notes during the year ended
December 31, 2002. See Liquidity and Capital
Resources.

The income tax expense recorded for the year
ended December 31, 2001 includes the reversal of
$21 million of deferred tax valuation allowances
established during 1998 when the Company incurred substantial
net losses. The remaining valuation allowance at
December 31, 2002 of approximately $3.1 million relates
primarily to the recognition of certain restructuring related
and property and equipment deferred tax assets. Management
believes that the Company will obtain the full benefit of the
net deferred tax assets recorded at December 31, 2002.

Inflation

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

Liquidity and Capital Resources

Cash provided by operations was
$343.2 million in 2003 compared with $344.5 million in
2002. The change in cash flow between 2003 and 2002 was
primarily the result of higher levels of net income, a reduction
in income tax payments due to the timing of certain deductions
for tax purposes, principally the net litigation settlement,
certain risk contract recoveries and other changes in medical
payables. These increases were offset in part by the net
litigation settlement payment related to the 1997 securities
class action litigation. As of December 31, 2003, the
Company had approximately $1.9 billion in cash and
marketable securities, including approximately
$369.5 million at the parent company. Parent company cash
is used for, among other things, capital expenditures,
acquisitions, interest on debt and debt principal repayment,
dividends to shareholders, stock repurchases, costs of
litigation and other general corporate purposes. A significant
portion of parent company cash is directly dependent upon
operating profits generated by the Companys regulated
operating subsidiaries and the ability to receive dividends from
those subsidiaries beyond amounts that would be payable

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without prior regulatory approval. There is no
assurance that the Company will receive regulatory approval for
future dividend payments.


During 2003, the Company received distributions
for the 2001 New York Stop Loss Pool of approximately
$11.1 million. During 2002, the Company received
distributions from the 2000 New York Stop Loss Pool and the 1998
Market Stabilization Pool of approximately $12.2 million
and $3.6 million, respectively.

Capital expenditures totaled approximately
$14.7 million during 2003 compared with $19 million in
2002. This amount was used primarily for computer equipment and
software. The Company currently anticipates that capital
expenditures in 2004 will be within a range of approximately
$20 million to $30 million, a significant portion of
which will be devoted to management information systems. In
March 2002, the Company acquired MedSpan, Inc., the parent
company of a Connecticut health maintenance organization, for
cash of approximately $17.3 million. Effective January
2003, the assets and liabilities of MedSpan were transferred and
assumed by Oxford CT pursuant to an assumption reinsurance
agreement. In May 2001, the Company purchased all of the
outstanding shares of Investors Guaranty Life Insurance Company
(IGL), a California insurance company, for
approximately $11.8 million, net of cash acquired. In the
fourth quarter of 2002, the Company sold its investment in
MedUnite, a company originally founded by certain healthcare
payors to create an Internet-based health care transaction
system, in exchange for nominal consideration. The Company had
made investments in MedUnite of approximately
$11.4 million, which investment was fully reserved prior to
sale.

Cash provided by financing activities totaled
$149.9 million for the year ended December 31, 2003,
compared with cash used of $273.7 million in 2002. During
2003, the Company repaid its former term loan and entered into
the New Credit Facilities, receiving net proceeds of
approximately $262.5 million. Also during 2003, the Company
repurchased four million shares of its common stock in open
market transactions at a cost of approximately
$139.9 million. Partially offsetting these amounts were
proceeds received from option exercises of approximately
$32.7 million. Proceeds from the exercise of stock options
were approximately $31.5 million during 2002 and
$29.5 million in 2001. In October 2003, the Companys
Board of Directors authorized an additional $250 million in
repurchase authority through December 2004 under the existing
share repurchase program. The program authorizes the Company to
purchase shares on the open market and in privately negotiated
transactions from time to time depending on general market
conditions. Through December 31, 2003, the Company has
repurchased approximately 23.8 million of its common shares
at an aggregate cost of approximately $757.2 million under
this program, which was initiated in 2001. The Company had
remaining repurchase authority of approximately
$242.8 million as of December 31, 2003. Also in
October 2003, the Companys Board of Directors declared an
initial quarterly cash dividend of $0.10 per share payable
January 27, 2004 to shareholders of record on
January 12, 2004. On January 30, 2004, the
Companys Board of Directors declared a quarterly cash
dividend of $0.10 per share payable April 27, 2004 to
shareholders of record on April 12, 2004. The Company
intends to fund dividends and the continuation of the share
repurchase program from its free cash flow.

On April 25, 2003, the Company entered into
the New Credit Facilities. Net proceeds of the New Term Loan
were used to fund the settlement of the Companys 1997
securities class action litigation, to refinance existing debt,
to finance capital improvements and the Companys share
repurchase program and for working capital purposes. Borrowings
under the New Term Loan initially bear interest, subject to
periodic resets, at either a base rate (New Base Rate
Borrowings), or LIBOR plus an applicable margin based on
the Companys credit ratings. Interest on New Base Rate
Borrowings is calculated as the higher of (a) the prime
rate or (b) the federal funds effective rate, as defined,
plus an applicable margin based on the Companys credit
ratings. Effective December 2, 2003, the Company re-priced
its New Term Loan, reducing the applicable margins for both
LIBOR and New Base Rate Borrowings. In connection with the
re-pricing, the Company expensed approximately $1.1 million
of costs as a component of interest and other financing costs in
December 2003. Commitment fees of 0.5% per annum are payable on
the unused portion of the Revolver, currently $50 million.
The New Term Loan has mandatory principal payments of 1% of the
outstanding principal per year, payable quarterly, for the first
five years with the balance due in the sixth year and provides
for voluntary prepayments of principal without penalty of a
minimum amount of $5 million. In order to make restricted
payments, as defined, including share repurchases and dividends
to shareholders, the Company is

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required to maintain parent company cash and
investment balances at a minimum of $75 million plus the
next four quarters scheduled principal payments (totaling
$4 million at December 31, 2003) under the loan.
Parent company cash and investments above these minimum
requirements are available for restricted payments, as defined,
including share repurchases and dividends. As of
December 31, 2003, the parent company had cash and
investments in excess of these requirements of approximately
$290.5 million. In connection with the repayment of the
former Term Loan, in April 2003, the Company wrote off
approximately $3.4 million of unamortized debt costs as a
component of interest and other financing costs.


In connection with the New Term Loan, the Company
entered into interest rate swap agreements to manage its
exposure to interest rate movements by effectively converting a
portion of its debt from variable to fixed rates. These
agreements, which have terms of up to three years, involve the
exchange of variable rate payments for fixed rate payments for a
notional principal amount totaling $250 million at the
outset. The effective annual interest rate on the New Term Loan,
including the effect of the interest rate swap, is currently
approximately 3.8%.

Cash and investments aggregating
$59.7 million at December 31, 2003 have been
segregated as restricted investments to comply with state
regulatory requirements. With respect to the Companys HMO
and insurance subsidiaries, the minimum amount of surplus
required is based on formulas established by the state insurance
departments. At December 31, 2003 and 2002, the
Companys HMO and insurance subsidiaries had statutory
surplus of approximately $698 million and
$551 million, respectively, or approximately
$480 million and $338 million, respectively, in excess
of current regulatory requirements. The Company manages its
statutory surplus primarily against National Association of
Insurance Commissioners (NAIC) Company Action Level
(CAL) Risk Based Capital (RBC), although
RBC standards are not yet applicable to all of the
Companys operating subsidiaries. At December 31,
2003, the Companys statutory surplus was approximately
236% of CAL RBC. The Companys subsidiaries are subject to
certain restrictions on their ability to make dividend payments,
loans or other transfers of cash to the parent company. These
restrictions limit the ability of the Company to use cash
generated by subsidiary operations to pay the obligations of the
parent, including debt service and other financing costs. During
2003 and 2002, the Companys subsidiaries paid dividends to
the parent company of approximately $208 million and
$235 million, respectively. In addition, dividends of
approximately $21 million and $87.3 million were
approved and paid in 2003 and 2002, respectively, from the
Companys insurance company, OHI, to its parent company,
Oxford NY. In January 2004, the Company received regulatory
approval for a dividend of $45 million from Oxford NY to
the parent company. The Company intends to continue to seek
additional dividends from most of its regulated subsidiaries
during 2004. Although the Company received dividends from its
subsidiaries in 2003 and 2002, there can be no assurances that
such dividend payments or dividend payments between subsidiaries
will be made in future periods. With regard to MedSpan, the
Company contributed $24 million in April 2002, increasing
statutory surplus in that subsidiary to approximately 165% of
CAL RBC at that time.

The Companys medical costs payable was
$671.5 million as of December 31, 2003, compared with
$618.6 million as of December 31, 2002. The increase
primarily reflects general medical inflation and increased
physician claims during the fourth quarter of 2003. The Company
estimates the provision for IBNR using standard actuarial loss
development methodologies applied to loss development data
summarized on the basis of the month services are rendered and
the month claims are paid, processed or received, and considers
other items including, without limitation, historical levels of
denied claims, medical cost trends, seasonal patterns and
changes in membership mix. During the past four years, there has
been no significant adverse development of prior years
actual claims history when compared with recorded reserves at
each annual balance sheet date. Due to the nature of health care
services, claims submission methods and processing, and payment
practices utilized by the Company, there is a relatively short
time lag between service provided and claim payment. During the
past three years, approximately 96% of claims have been paid
within six months of being incurred. The Company revises its
estimates for IBNR in future periods based upon continued
actuarial analysis of claim payments, receipts and other items
subsequent to the period during which the claims were incurred.
Revisions to estimates, where material, have been disclosed and
are recorded in the period they arise.

The liability for medical costs payable is also
affected by delegation, capitation, risk transfer and insurance
and reinsurance arrangements, including, without limitation,
arrangements related to certain

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diagnostic testing, disease management and
ancillary services, agreements with physician and other health
care groups, payment methodologies and the Companys
Medicare business generally associated with specific hospitals.
In determining the liability for medical costs payable, the
Company accounts for the financial impact of the transfer of
risk for certain Medicare members and the experience of
risk-transfer providers (who may be entitled to credits from the
Company for favorable experience or subject to deductions for
accrued deficits) and potential claims under insurance and
reinsurance agreements. From time to time, the Company may
explore other delegation, capitation, risk-transfer and
insurance and reinsurance arrangements with providers and other
organizations. The Company believes that its reserves for
medical costs payable are adequate to satisfy its ultimate claim
liabilities.


The Company has been notified by two insurers
that guaranteed certain savings targets pursuant to a
third-party agreement for utilization management, claims payment
and other services related to orthopedic services, that the
insurers will seek to rescind or terminate the insurance
agreements. The Companys claims under these insurance
agreements total $30 million for 2003, with a possible
claim of an additional $30 million for 2004. One of the
insurers has commenced an arbitration seeking to rescind or
terminate the insurance agreements claiming various
misrepresentations and material breaches of the agreements by
the Company. The Company believes the insurers claims are
without merit and will vigorously seek to enforce its rights.
The Company has established a receivable of $3.5 million as
of December 31, 2003, included in other receivables,
representing the premium for coverage to date under the policies.

In July 2003, the Company agreed with the vendor
of disease management services for the Companys members
with congestive heart failure (CHF) to terminate an
existing performance-based agreement for CHF disease management
services, effective August 31, 2003. The CHF vendor agreed
to continue to render services at least until December 31,
2003. The CHF agreement provided for monitoring of the
Companys high-risk CHF members through electronic
equipment in their homes, coordination of care and member
education. Pursuant to the CHF agreement, the CHF vendor was
required to refund administrative fees and pay additional
amounts if predetermined health care cost savings for the
Companys CHF members were not achieved. As part of the
termination of the agreement, the CHF vendor refunded to the
Company $14 million in administrative fees. Since the
inception of the agreement, in anticipation of the return of
these fees, the Company had recorded such amounts in other
receivables. In October 2003, the Company entered into a new
five-year performance based agreement with this vendor for the
Companys members with CHF, coronary artery disease
(CAD) or diabetes. Pursuant to the new agreement,
the vendor will seek to enroll the highest medical risk members
of the Company with CHF, CAD or diabetes, into the voluntary
care enhancement program, which will seek to engage members to
take a more active role in managing their health by providing
education to members and by coordinating care between such
members and their physicians. The Company will continue to
support its other members with CHF, CAD or diabetes through its
internal disease management initiatives. The vendor will be paid
a fixed administrative fee for the program, as well as a
potential share in certain medical cost savings attributable to
the Companys members with CHF, CAD or diabetes, subject to
a contractual maximum.

The Company has risk-share agreements with two
hospitals and a physician group covering approximately 22,300
and 22,650 Medicare members at December 31, 2003 and 2002,
respectively. Premium revenues for the Medicare members covered
under these agreements totaled approximately $205 million
and $189 million in 2003 and 2002, respectively. The
Company is currently negotiating with one of these hospitals to
renew an agreement which expires in April 2004. The increase in
premium revenue under these agreements for 2003 compared with
2002 is the result of increased CMS funding per member.

The New York State Insurance Department
(NYSID) has created Market Stabilization Pools (the
New York Stabilization Pool) for the small group and
individual insurance markets. This pool operates on a calendar
year basis. According to state regulations, certain insurers
participating in the small group and/or individual markets will
be required to make payments to the New York Stabilization Pool,
and other insurers will receive payments from the New York
Stabilization Pool. For the years 1999 and prior, two separate
pools operated. Demographic data submitted by insurers was used
to determine payments to and payments from one pool. Data
related to the incidence of certain specified medical conditions
were used to determine payments to and/or from another pool. For
the years subsequent to 1999, a single pool operates based on
the experience of

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each insurer with respect to specified medical
conditions. At December 31, 2003, the Company has
established reserves of approximately $5.3 million,
$15.3 million and $6 million related to the 1999, 2000
and 2002 pool years, respectively, and receivables of
approximately $10.2 million and $10.5 million related
to the 2003 and 2001 pool years, respectively.


The Company has also established receivables of
approximately $11.5 million and $12.1 million at
December 31, 2003 for the 2002 and 2003 pool years,
respectively, related to certain stop loss pools established by
the State of New York under the Health Care Reform Act of New
York (the Stop Loss Pools, together with the New
York Stabilization Pool, the Pools), which provides
a limited amount of stop loss insurance funds to cover 90% of
certain paid claims for the New York Mandated Plans and for the
Healthy New York Plan. In January 2003, the Company received a
distribution from the 2001 New York Stop Loss Pool of
approximately $11.1 million. In the first quarter of 2002,
the Company received distributions from the 2000 Stop Loss Pool
of approximately $12.2 million, which was included in
income for the year ended December 31, 2001. The NYSID has
promulgated regulations that, in addition to requiring HMOs to
also offer a Healthy New York product without drug benefits,
change the Healthy New York programs stop loss
reinsurance, among other things. Effective January 1, 2003,
90% of paid claims between $5,000 and $75,000, on an annual
basis, will be eligible for reimbursement rather than between
$30,000 and $100,000, as originally implemented.

While the Company has established its liabilities
and recoveries under the Pools based on its interpretations of
the regulations, the amounts recorded related to the 1999
through 2003 Pool years may differ, perhaps materially, from
amounts that will ultimately be paid or received from the Pools
based on final reconciliations. The Company has learned that
some of its competitors in New York who may be required to pay
substantial amounts into the New York Stabilization Pool may
seek to challenge the legality of the NYSIDs regulations
related to this pool or the manner in which the regulations have
been interpreted. It is also possible that the NYSID could amend
or interpret its regulations in response to the objections
raised by these competitors in a manner that would materially
affect what the Company may be required to pay to, or receive
from, the New York Stabilization Pool. There can be no assurance
that the Company will receive additional funds in the future
related to the Pools. HCRA, which governs, among other things,
the Stop Loss Pools, expires on June 30, 2005, unless
reauthorized by the New York State legislature. The manner in
which the NYSID administers the Pools also could have a material
impact on the competitive conditions and relative premium
pricing of each competitor in the New York individual and small
group markets. The impact of the ultimate resolution of these
issues on the amounts recorded by the Company is unknown at this
time.

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 and a
related stockholder lawsuit commenced by the State Board of
Administration of Florida were filed against the Company,
certain of its officers and directors, and the Companys
former independent auditor, KPMG LLP, in the United States
District Courts for the Southern and Eastern Districts of New
York, the District of Connecticut and the District of Arkansas.
These lawsuits were consolidated before the Honorable Charles L.
Brieant, in the United States District Court for the Southern
District of New York (the Securities Class Action
Litigation).

On March 3, 2003, the Company agreed with
the plaintiffs to settle the Securities Class Action
Litigation for $225 million (the Settlement).
The Court granted final approval to the Settlement on
June 11, 2003. The excess insurance carriers responsible
for the first $25 million under the Companys
$200 million Excess Insurance policies contributed
$25 million to the Settlement, but the other carriers under
the policies refused to contribute to the Settlement.
Accordingly, the Company paid $200 million of the
Settlement and paid the Excess Insurance carriers an additional
premium of $8 million. Also, in connection with the
Settlement: (i) plaintiffs settled the class claims
against KPMG LLP for $75 million and (ii) a derivative
shareholder action against KPMG LLP in the name of the Company
pending in state court was dismissed with prejudice. In
connection with the Settlement, the Company incurred an
additional pretax charge of $45 million, net of insurance
recoverable, in the first quarter of 2003, which charge, along
with prior charges, fully covers all of the Companys
expenses relating to the Settlement, and related legal fees and
expenses. In April 2003, the Company filed suit against certain
excess insurance carriers on an excess insurance policy covering
the securities class action seeking to recover approximately
$41.3 million. During the third quarter of 2003, the

40



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Company agreed with certain of the excess
insurance carriers to settle approximately $17.9 million of
its claims for a total of approximately $14.3 million,
which was reflected in income for the year ended
December 31, 2003. The Company has a remaining claim of
approximately $23.4 million against one excess insurance
carrier. The Company intends to vigorously pursue recovery of
this outstanding amount.




| |                        
| | -----------------------
| | Contractual Obligations

The Company is contractually obligated to make
payments as follows:

|                                          |  |                        |         |        |  |           |        |           |  |               |        |  |  |   |         |  |  |   |         | 
|----------------------------------------- |  | ---------------------- | ------- | ------ |  | --------- | ------ | --------- |  | ------------- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                          |  |                       
|                                          |  | Payments Due by Period
|                                          |  |                       
|Contractual Obligations                   |  | Total                  |         | 1 Year |  | 2-3 Years |        | 4-5 Years |  | After 5 Years
|                                          |  |                        |         |        |  |           |        |           |  |              
|                                          |  |                       
|                                          |  | (Amounts in thousands)
|Long term debt                            |  | $                      | 398,000 |        |  | $         | 4,000  |           |  | $             | 8,000  |  |  | $ | 196,000 |  |  | $ | 190,000 | 
|Operating leases                          |  |                        | 66,700  |        |  |           | 13,200 |           |  |               | 22,300 |  |  |   | 15,300  |  |  |   | 15,900  | 
|Obligations under capital lease agreement |  |                        | 6,216   |        |  |           | 5,749  |           |  |               | 467    |  |  |   |        |  |  |   |        | 
|                                          |  |                        |         |        |  |           |        |           |  |               |        |  |  |   |         |  |  |   |         | 
|Total                                     |  | $                      | 470,916 |        |  | $         | 22,949 |           |  | $             | 30,767 |  |  | $ | 211,300 |  |  | $ | 205,900 | 
|                                          |  |                        |         |        |  |           |        |           |  |               |        |  |  |   |         |  |  |   |         | 

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

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

Critical Accounting Policies

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires the Companys management to make a
variety of estimates and assumptions. These estimates and
assumptions affect, among other things, the reported amounts of
assets and liabilities, the disclosure of contingent liabilities
and the reported amounts of revenues and expenses. Actual
results can differ from the amounts previously estimated, which
were based on the information available at the time the
estimates were made.

The critical accounting policies described below
are those that the Company believes are important to the
portrayal of the Companys financial condition and results,
and which require management to make subjective and/or complex
judgments. Critical accounting policies cover matters that are
inherently uncertain because the future resolution of such
matters is unknown. The Company has discussed the development
and selection of the critical accounting estimates and related
disclosures with the audit committee of the board of directors.
The Company believes that its critical accounting policies
include revenue recognition (including the estimation of bad
debt and retroactivity reserves), medical costs payable
(including reserves for incurred but not reported or paid
claims), the carrying value of investments and accounting for
contingent liabilities.



| |                    
| | -------------------
| | Revenue Recognition

Commercial membership contracts are generally
established on a yearly basis subject to cancellation by the
employer group, individual or the Company upon 30 days
written notice. Premiums, including premiums from both
commercial and governmental programs, are due monthly and are
recognized as revenue during the month in which the Company is
obligated to provide services to members, and are net of
estimated terminations of members and groups. Premiums collected
in advance of the coverage period are recorded as unearned
revenue. Premiums receivable are presented net of valuation
allowances for estimated uncollectable amounts, including
retroactive membership adjustments, based on known activities
and balances and on historical trends. The Company receives
premium payments from CMS on a monthly basis for its Medicare

41



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##### Table of Contents



membership. Membership and category eligibility
are periodically reconciled with CMS and could result in revenue
adjustments. All other material revenue is generated from
investments.


The Company evaluates the collectability of its
premiums receivable based on a combination of factors. These
estimates are based on the Companys assessment of the
collectability of specific accounts, the aging of premiums
receivable, historical retroactivity trends, bad-debt write-offs
and other known factors. If economic or industry trends change
beyond the Companys estimates or if there is a
deterioration in financial condition of a major group or
account, increases in the reserve for uncollectable accounts may
result.

At December 31, 2003, the Company maintained
reserves for billing adjustments and doubtful accounts of
$11.9 million compared with $13.5 million at
December 31, 2002.



| |                      
| | ---------------------
| | Medical Costs Payable

The Company contracts with various health care
providers for the provision of covered medical care services to
its members and primarily compensates those providers on a
fee-for-service basis and makes other payments pursuant to
certain risk-sharing arrangements. The Company also bears the
risk of health care expenses for covered services provided by
non-contracted providers to members. Costs of health care and
medical costs payable for health care services provided to
members are estimated by management based on evaluations of
providers claims submitted and provisions for IBNR. The
Companys liability for medical costs payable is also
affected by delegation, capitation, risk transfer, insurance and
reinsurance arrangements, including, without limitation, certain
diagnostic testing, disease management and ancillary services,
physician and other health care groups, payment methodologies
and arrangements relating to the Companys Medicare
business generally associated with specific hospitals. In
determining the liability for medical costs payable, the Company
accounts for the financial impact of the transfer of risk for
certain members and the experience of risk-sharing providers
(who may be entitled to credits from Oxford for favorable
experience or subject to deductions for accrued deficits) as
well as the impact of incentive arrangements and reserves for
estimated settlements. Levels of unpaid claims may also vary
based in part on working capital management.

The Company estimates the provision for IBNR
using standard actuarial loss development methodologies applied
to loss development data summarized on the basis of the month
services are rendered and the month claims are paid, processed
or received, and considers other items including, without
limitation, historical levels of denied claims, medical cost
trends, seasonal patterns and changes in membership mix. These
estimates are reviewed by state regulatory authorities on a
periodic basis. The estimates for submitted claims and IBNR are
made on an accrual basis and adjusted in future periods as
necessary. Adjustments to prior period estimates, if any, are
included in current period results.

Medical costs payable also reflects payments
required by or anticipated benefits from certain state regulated
risk allocation pools and state health care public policy
initiatives. The risk allocation pools include the New York
Market Stabilization Pool affecting small employer group and
individual products, the New York Stop Loss Pools, the
Connecticut Small Employer Reinsurance Pool and New Jersey
assessments related to the individual product market. Certain of
the risk allocation pools have, and in the future may be,
amended in ways more or less favorable to the Company and may be
the target of legal challenges by insurers or other parties.
HCRA, which governs, among other things, the Stop Loss Pools,
expires on June 30, 2005, unless reauthorized by the New
York State legislature.

The financial impact to the Company of the New
York Market Stabilization Pool is a function of how the Company
compares to the entire market relative to the factors defined in
the regulations. In this case, the Company considers a range of
possible outcomes and establishes its liability or receivable
from the pools based on its consideration of the overall health
insurance market in New York and certain other factors that may
ultimately impact current estimates. Key data considered in
developing the Companys range of outcomes includes the
small group and individual enrollment of its competitors by
product type and the risk profile of the Companys
membership by product. The range of outcomes also considers the
likely differences between the risk profile of small group HMO
and small group POS and PPO membership. Management believes this
may ultimately be the key determinant of results. The dominant
position of the Company in the New York City area with respect
to the small group market and the relative attractiveness of the
Companys provider networks

42



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##### Table of Contents



are also key considerations. Final results for
any given year cannot be known with certainty until data
submissions by all HMOs and insurers have been audited by the
state or its designee. As a result, it is not possible to
precisely forecast this outcome in advance of actual results.
Final results related to the New York Market Stabilization Pools
for the period 1999 to 2003 may differ significantly from
current estimates. Considering the major factors that affect the
outcome of the pooling mechanism as described above, and
particularly the Companys position in the New York City
area, results for each year may vary from having a liability to
the pool of approximately $15 million to having a
receivable from the pool of approximately $15 million. At
December 31, 2003, the Company has established reserves of
approximately $5.3 million, $15.3 million and
$6 million related to the 1999, 2000 and 2002 pool years,
respectively, and receivables of approximately
$10.2 million and $10.5 million related to the 2003
and 2001 pool years, respectively, from the New York
Stabilization Pools. The Company has also established
receivables of approximately $11.5 million and
$12.1 million at December 31, 2003 for the 2002 and
2003 pool years, respectively, related to the New York Stop Loss
Pools. Management believes that the current net receivable
established as of December 31, 2003, related to the pool
years 1999 through 2003 represents its best estimate in light of
the limited current information available.


Also included in medical costs payable are:
(i) estimated liabilities for New Yorks Graduate
Medical Education (GME) and hospital Bad Debt and
Charity Care (BDCC) programs, which are state health
care public policy initiatives aimed at defraying the costs of
other health care providers, such as hospitals;
(ii) amounts due to the Companys pharmacy benefit
manager (PBM); and (iii) estimated liabilities
for various medical contracts between the Company and certain
current and former providers, some of which are currently in
dispute. For a further description of the risk allocation pools
and the state health care public policy initiatives referenced
above, see Business  Cautionary Statement
Regarding Forward-Looking Statements.

Management believes that the amount of medical
costs payable is adequate to cover the Companys ultimate
liability for unpaid claims as of December 31, 2003;
however, actual claim payments and other items may differ from
established estimates. Assuming a hypothetical 1% difference
between the Companys December 31, 2003 estimates of
medical costs payable and actual costs payable, net earnings for
the year ended December 31, 2003 would increase or decrease
by approximately $4.1 million and diluted earnings per
share would increase or decrease by approximately $0.05 per
share.

43



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##### Table of Contents



The following table shows the components of the
change in medical costs payable for the years ended
December 31, 2003, 2002 and 2001 (in millions):

|                                              |                          |      |          |          |   |      |          |          |   |   |          |          |  
|--------------------------------------------- | ------------------------ | ---- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                              |                          | 2003 |          | 2002     |   | 2001
|                                              |                          |      |          |          |   |     
|Balances as of January 1,                     |                          | $    | 618.6    |          |   | $    | 595.1    |          |   | $ | 612.9    |         
|Business purchases                            |                          |      |         |          |   |      | 25.7     |          |   |   |         |         
|Components of health care services expense:   |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Estimated costs incurred |      |          | 4,276.2  |   |      |          | 3,904.1  |   |   |          | 3,416.3  |  
|                                              | Estimate changes         |      |          | (33.8    | ) |      |          | (55.3    | ) |   |          | (15.0    | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Health care services expense                  |                          |      | 4,242.4  |          |   |      | 3,848.8  |          |   |   | 3,401.3  |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Payments for health care services related to: |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      |          | (3,644.0 | ) |      |          | (3,347.1 | ) |   |          | (2,911.3 | )
|                                              | Prior year               |      |          | (545.5   | ) |      |          | (503.9   | ) |   |          | (507.8   | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total paid                                    |                          |      | (4,189.5 | )        |   |      | (3,851.0 | )        |   |   | (3,419.1 | )       
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balances as of December 31,                   |                          | $    | 671.5    |          |   | $    | 618.6    |          |   | $ | 595.1    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balances as of December 31 related to:        |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      | $        | 632.2    |   |      | $        | 557.0    |   |   | $        | 505.0    |  
|                                              | Prior years              |      |          | 39.3     |   |      |          | 61.6     |   |   |          | 90.1     |  
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total                                         |                          | $    | 671.5    |          |   | $    | 618.6    |          |   | $ | 595.1    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         

Included in estimate changes are favorable
development of prior years estimated medical costs of
approximately $33.8 million, $33.3 million and
$8.4 million for 2003, 2002 and 2001, respectively, and
estimate changes in New York market stabilization pool reserves
and stop loss pool recoveries of approximately $22 million
and $6.6 million for 2002 and 2001, respectively.

The components of medical costs payable were as
follows at December 31, 2003 and 2002 (in millions):

|                                                                  |  |       |       |                        |  |                |       |   |  |   |      | 
|----------------------------------------------------------------- |  | ----- | ----- | ---------------------- |  | -------------- | ----- | - |  | - | ---- | 
|                                                                  |  |       |       |                       
|                                                                  |  |       |       | Amounts Relating to   
|                                                                  |  |       |       | Claims Incurred During
|                                                                  |  |       |       |                       
|As of December 31, 2003                                           |  | Total |       | 2003                   |  | 2002 and Prior
|                                                                  |  |       |       |                        |  |               
|IBNR and medical claims reserves                                  |  | $     | 641.5 |                        |  | $              | 615.7 |   |  | $ | 25.8 | 
|Pharmacy PBM payable                                              |  |       | 27.8  |                        |  |                | 27.8  |   |  |   |     | 
|Stabilization and stop-loss pools, BDCC and GME
    reserves, net |  |       | (4.9  | )                      |  |                | (11.3 | ) |  |   | 6.4  | 
|Other reserves                                                    |  |       | 7.1   |                        |  |                |      |   |  |   | 7.1  | 
|                                                                  |  |       |       |                        |  |                |       |   |  |   |      | 
|                                                                  |  | $     | 671.5 |                        |  | $              | 632.2 |   |  | $ | 39.3 | 
|                                                                  |  |       |       |                        |  |                |       |   |  |   |      | 

|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 
|----------------------------------------------------------------- |  | ----- | ----- | ---------------------- |  | -------------- | ----- |  |  | - | ---- | 
|                                                                  |  |       |       |                       
|                                                                  |  |       |       | Amounts Relating to   
|                                                                  |  |       |       | Claims Incurred During
|                                                                  |  |       |       |                       
|As of December 31, 2002                                           |  | Total |       | 2002                   |  | 2001 and Prior
|                                                                  |  |       |       |                        |  |               
|IBNR and medical claims reserves                                  |  | $     | 555.7 |                        |  | $              | 521.8 |  |  | $ | 33.9 | 
|Pharmacy PBM payable                                              |  |       | 26.7  |                        |  |                | 26.7  |  |  |   |     | 
|Stabilization and stop-loss pools, BDCC and GME
    reserves, net |  |       | 13.9  |                        |  |                | 8.5   |  |  |   | 5.4  | 
|Other reserves                                                    |  |       | 22.3  |                        |  |                |      |  |  |   | 22.3 | 
|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 
|                                                                  |  | $     | 618.6 |                        |  | $              | 557.0 |  |  | $ | 61.6 | 
|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 

The increase in medical costs payable in 2003
compared with 2002 was due to an increase in current year IBNR
and unpaid claims reserves. During 2003, other medical reserves
were reduced as a result of settlements

44



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##### Table of Contents



of certain former medical contractual disputes
during the year. Changes in net stabilization and stop-loss
pools and BDCC and GME reserves resulted from the timing of
payments to the Company under stop-loss programs and the
establishment of receivables for BDCC surcharges recoverable
from prior year overpayments.


Investments

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

Contingent Liabilities

The Company is subject to the litigation
described in the footnotes to the consolidated financial
statements and in Legal Proceedings. Because of the
nature of the Companys business, the Company is routinely
involved in various disputes, legal proceedings and governmental
audits and investigations. Liabilities are recorded for
estimates of probable costs resulting from these matters. These
estimates are developed in consultation with outside counsel and
are based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies and
considering the Companys insurance coverage for such
matters. Management does not believe that any of such matters
currently threatened or pending will have a material adverse
effect on the Companys consolidated financial position. It
is possible, however, that future results of operations for any
particular quarterly or annual period could be materially
affected by changes in the Companys assumptions or the
effectiveness of the Companys strategies related to these
proceedings.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The Companys consolidated balance sheet as
of December 31, 2003, includes a significant amount of
assets whose fair values are subject to market risk. Since a
substantial portion of the Companys investments are in
fixed income securities, interest rate fluctuations represent
the largest market risk factor affecting the Companys
consolidated financial position. Interest rates are managed
within a tight duration band, generally averaging 3.5 to
4.5 years, and credit risk is managed by investing in
U.S. government obligations, corporate debt and asset and
mortgage backed securities with high quality ratings and
maintaining a diversified sector exposure within the debt
securities portfolio. The Companys investment policies are
subject to revision based upon market conditions and the
Companys cash flow and tax strategies, among other
factors. The Company continues to require a high credit rating,
A or higher, and maintains an average rating of AA+ on the
overall portfolio.

In order to determine the sensitivity of the
Companys investment portfolio to changes in interest
rates, valuation estimates were made on each security in the
portfolio using a duration model. Duration models measure the
expected change in security market prices arising from
hypothetical movements in market interest rates. Convexity
further adjusts the estimated price change by mathematically
correcting the changes in duration as market
interest rates shift. The model used industry standard
calculations of security duration and convexity as provided by
third party vendors such as Bloomberg and Yield Book. For
certain structured notes, callable corporate notes, and callable
agency bonds, the duration calculation utilized an
option-adjusted approach, which helps to ensure that
hypothetical interest rate movements are applied in a consistent
way to securities that have embedded call and put features. The
model assumed that changes in interest rates were the result of
parallel shifts in the yield curve. Therefore, the same basis
point change was applied to all maturities in the portfolio. The
change in valuation was calculated using positive and negative
adjustments in yield of 100 and 200 basis points. Hypothetical
immediate increases of 100 and 200 basis points

45



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##### Table of Contents



in market interest rates would decrease the fair
value of the Companys investments in debt securities as of
December 31, 2003 by approximately $57.1 million and
$113 million, respectively (compared to $40.5 million
and $83.2 million as of December 31, 2002,
respectively). Hypothetical immediate decreases of 100 and 200
basis points in market interest rates would increase the fair
value of the Companys investment in debt securities as of
December 31, 2003 by approximately $55.4 million and
$108.5 million, respectively (compared to
$41.1 million and $82.1 million as of
December 31, 2002, respectively). Because duration and
convexity are estimated rather than known quantities for certain
securities, there can be no assurance that the Companys
portfolio would perform in-line with the estimated values. The
year over year variation in the portfolios sensitivity to
changes in interest rates is a function of increased investment
balances and an increase in the average duration of the
portfolio.







|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

See Index to Consolidated Financial Statements
and Schedule on page 49.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Based on the evaluation by the Chief Executive
Officer and Chief Financial Officer of the Company as of the end
of the period covered by this annual report, the Companys
disclosure controls and procedures are adequately designed to
ensure that the information required to be included in this
report has been recorded, processed, summarized and reported on
a timely basis. There have not been any significant changes in
the Companys internal controls or in other factors that
could significantly affect these controls and there have been no
corrective actions taken with regard to significant deficiencies
and material weaknesses subsequent to the date of such
officers evaluation.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The information required by Items 10 through
14 is incorporated by reference to Registrants definitive
proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, within
120 days after December 31, 2003.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | 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 49.         
|
| | 2. | Financial statement schedules  see
    Index to Consolidated Financial Statements and Schedules on
    page 49.



| |                                                              
| | -------------------------------------------------------------
| | 3.     Exhibits 
    see Exhibit Index beginning on page 82.

46



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(b) Reports on Form 8-K

In a report on Form 8-K dated and filed on
October 28, 2003, the Company reported, under Item 5.
Other Events, the increase of its share repurchase
authority and the declaration of a quarterly cash dividend. The
Company also reported, under Item 12. Results of
Operations and Financial Condition, its third quarter 2003
financial results.

(c) Availability of Additional
Information

The Company will provide, without charge, to its
shareholders, upon the written request of any such person, a
copy of its Annual Report on Form 10-K (without exhibits)
for the fiscal year ended December 31, 2003, as filed with
the Securities and Exchange Commission. The Company will also
provide to any person without charge, upon request, a copy of
its Code of Business Conduct & Ethics. Any such requests
should be made in writing to the Investor Relations Department,
Oxford Health Plans, Inc., 48 Monroe Turnpike, Trumbull,
Connecticut 06611. The Companys 2003 Annual Report, 2003
Annual Report on Form 10-K and Code of Business Conduct
& Ethics (without exhibits) and other Securities and
Exchange Commission filings are also available on the Internet
at www.oxfordhealth.com. The Company intends to disclose
future amendments to the provisions of the Code of Business
Conduct & Ethics and waivers from the Code of Business
Conduct & Ethics, if any, made with respect to any of our
directors and executive officers, on its Internet site.

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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 4th day of
February, 2004.



| |                          
| | -------------------------
| | OXFORD HEALTH PLANS, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ CHARLES G. BERG

| |                                          
| | -----------------------------------------
| |                                          
| | Charles G. Berg                          
| | President and Chief Executive
    Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed by the
following persons on behalf of the Registrant on
February 4, 2004 in the capacities indicated.

|                                                             |  |                                                         |  | 
|------------------------------------------------------------ |  | ------------------------------------------------------- |  | 
|                                                             |  |                                                        
|Signature                                                    |  | Title                                                  
|                                                             |  |                                                        
|                                                            
|/s/ CHARLES G. BERGCharles G. Berg                           |  | Principal Executive Officer, President and
    Director
|                                                            
|/s/ KENT J. THIRYKent J. Thiry                               |  | Director
    Non-Executive Chairman of the Board       
|                                                            
|/s/ KURT B. THOMPSONKurt B. Thompson                         |  | Principal Financial Officer                            
|                                                            
|/s/ MARC M. KOLEMarc M. Kole                                 |  | Principal Accounting Officer                           
|                                                            
|/s/ RICHARD C. VAUGHANRichard C. Vaughan                     |  | Director                                               
|                                                            
|/s/ JONATHAN J. COSLETJonathan J. Coslet                     |  | Director                                               
|                                                            
|/s/ ROBERT B. MILLIGAN, JR.Robert B. Milligan, Jr.           |  | Director                                               
|                                                            
|/s/ BENJAMIN H. SAFIRSTEIN, M.D.Benjamin H. Safirstein, M.D. |  | Director                                               
|                                                            
|/s/ JOSEPH W. BROWNJoseph W. Brown                           |  | Director                                               
|                                                            
|/s/ ELLEN A. RUDNICKEllen A. Rudnick                         |  | Director                                               

48



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULES

|                                                                                                                                        |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                        |  | Page
|                                                                                                                                        |  |     
|Independent Auditors Report                                                                                                            |  |      | 50 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                                        |  |      | 51 | 
|Consolidated Statements of Income for the years
    ended December 31, 2003, 2002 and 2001                                              |  |      | 52 | 
|Consolidated Statements of Shareholders
    Equity and Comprehensive Earnings for the years ended
    December 31, 2003, 2002 and 2001 |  |      | 53 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                                          |  |      | 54 | 
|Notes to Consolidated Financial Statements                                                                                              |  |      | 55 | 
|Financial Statement Schedules:                                                                                                          |  |      |    | 
|I  Condensed Financial Information of
    Registrant                                                                                    |  |      | 78 | 
|II Valuation and Qualifying Accounts                                                                                                    |  |      | 81 | 

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

49



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Shareholders

Oxford Health Plans, Inc.:


We have audited the accompanying consolidated
balance sheets of Oxford Health Plans, Inc. and subsidiaries
(the Company) as of December 31, 2003 and 2002,
and the related consolidated statements of income,
shareholders equity and comprehensive income and cash
flows for each of the three years in the period ended
December 31, 2003. Our audits also included the financial
statement schedules listed in the Index at Item 15(a).
These consolidated financial statements and schedules are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Oxford Health
Plans, Inc. and subsidiaries as of December 31, 2003 and
2002, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set
forth therein.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

New York, New York

January 30, 2004


50



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |           |           | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --------- | --------- |  | ------ | --------- | --------- | 
|                                                                          |                                                                                                                                       | 2003                                       |         | 2002     
|                                                                          |                                                                                                                                       |                                            |         |          
|                                                                          |                                                                                                                                       |                                           
|                                                                          |                                                                                                                                       | (In thousands,                            
|                                                                          |                                                                                                                                       | except share amounts)                     
|ASSETS                                                                   
|Current assets:                                                           |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          | Cash and cash equivalents                                                                                                             |                                            | $       | 536,510   |           |  | $      | 321,627   |          
|                                                                          | Investments  available-for-sale, at
    fair value                                                                                   |                                            |         | 1,370,535 |           |  |        | 1,102,664 |          
|                                                                          | Premiums receivable, net                                                                                                              |                                            |         | 30,505    |           |  |        | 29,803    |          
|                                                                          | Other receivables                                                                                                                     |                                            |         | 30,082    |           |  |        | 43,919    |          
|                                                                          | Prepaid expenses and other current assets                                                                                             |                                            |         | 16,785    |           |  |        | 10,214    |          
|                                                                          | Deferred income taxes                                                                                                                 |                                            |         | 45,240    |           |  |        | 111,652   |          
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          |                                                                                                                                       | Total current assets                       |         |           | 2,029,657 |  |        |           | 1,619,879 | 
|Property and equipment, net                                               |                                                                                                                                       |                                            | 31,638  |           |           |  | 34,445 |          
|Deferred income taxes                                                     |                                                                                                                                       |                                            | 9,572   |           |           |  | 9,173  |          
|Restricted cash and investments 
    held-to-maturity, at amortized cost |                                                                                                                                       |                                            | 59,738  |           |           |  | 56,421 |          
|Goodwill and other intangible assets, net                                 |                                                                                                                                       |                                            | 21,785  |           |           |  | 24,691 |          
|Other noncurrent assets                                                   |                                                                                                                                       |                                            | 7,811   |           |           |  | 8,907  |          
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          |                                                                                                                                       | Total assets                               |         | $         | 2,160,201 |  |        | $         | 1,753,516 | 
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                 
|Current liabilities:                                                      |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          | Medical costs payable                                                                                                                 |                                            | $       | 671,515   |           |  | $      | 618,618   |          
|                                                                          | Current portion of long-term debt                                                                                                     |                                            |         | 4,000     |           |  |        | 30,625    |          
|                                                                          | Trade accounts payable and accrued expenses                                                                                           |                                            |         | 138,925   |           |  |        | 135,124   |          
|                                                                          | Reserve for litigation settlement                                                                                                     |                                            |         |          |           |  |        | 161,300   |          
|                                                                          | Unearned revenue                                                                                                                      |                                            |         | 187,751   |           |  |        | 201,045   |          
|                                                                          | Income taxes payable                                                                                                                  |                                            |         | 30,530    |           |  |        | 2,418     |          
|                                                                          | Current portion of capital lease obligations                                                                                          |                                            |         | 5,749     |           |  |        | 5,470     |          
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          |                                                                                                                                       | Total current liabilities                  |         |           | 1,038,470 |  |        |           | 1,154,600 | 
|Obligations under capital lease                                           |                                                                                                                                       |                                            | 467     |           |           |  | 5,749  |          
|Long-term debt                                                            |                                                                                                                                       |                                            | 394,000 |           |           |  | 96,250 |          
|Shareholders equity:                                                     |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          | Preferred stock, $.01 par value, authorized
    2,000,000 shares; none issued and outstanding                                         |                                            |         |          |           |  |        |          |          
|                                                                          | Common stock, $.01 par value, authorized
    400,000,000 shares; issued 106,612,822 shares in 2003 and
    105,075,889 shares in 2002 |                                            |         | 1,066     |           |  |        | 1,051     |          
|                                                                          | Additional paid-in capital                                                                                                            |                                            |         | 750,919   |           |  |        | 709,258   |          
|                                                                          | Retained earnings                                                                                                                     |                                            |         | 780,856   |           |  |        | 437,130   |          
|                                                                          | Accumulated other comprehensive income                                                                                                |                                            |         | 10,622    |           |  |        | 25,038    |          
|                                                                          | Treasury stock, at cost                                                                                                               |                                            |         | (816,199  | )         |  |        | (675,560  | )        
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          |                                                                                                                                       | Total shareholders equity                 |         |           | 727,264   |  |        |           | 496,917   | 
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          
|                                                                          |                                                                                                                                       | Total liabilities and shareholders equity |         | $         | 2,160,201 |  |        | $         | 1,753,516 | 
|                                                                          |                                                                                                                                       |                                            |         |           |           |  |        |          

See accompanying notes to consolidated financial
statements.

51



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2003, 2002 and
2001


|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |           |           | 
|--------------------------------------------------------------------------- | ------------------------------------- | ---------------------------------------- | ------- | --------- | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                            |                                       | 2003                                     |         | 2002      |           | 2001
|                                                                            |                                       |                                          |         |           |           |     
|                                                                            |                                       |                                         
|                                                                            |                                       | (In thousands, except per share amounts)
|Revenues:                                                                   |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                            | Premiums earned                       |                                          | $       | 5,339,327 |           |      | $       | 4,850,964 |           |   | $       | 4,312,391 |          
|                                                                            | Third-party administration, net       |                                          |         | 12,284    |           |      |         | 17,744    |           |   |         | 13,791    |          
|                                                                            | Investment and other income, net      |                                          |         | 100,833   |           |      |         | 94,686    |           |   |         | 95,046    |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                            |                                       | Total revenues                           |         |           | 5,452,444 |      |         |           | 4,963,394 |   |         |           | 4,421,228 | 
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Expenses:                                                                   |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                            | Health care services                  |                                          |         | 4,242,394 |           |      |         | 3,848,803 |           |   |         | 3,401,331 |          
|                                                                            | Marketing, general and administrative |                                          |         | 575,128   |           |      |         | 575,433   |           |   |         | 489,143   |          
|                                                                            | Litigation charge for settlement, net |                                          |         | 30,675    |           |      |         | 151,300   |           |   |         |          |          
|                                                                            | Interest and other financing charges  |                                          |         | 20,758    |           |      |         | 11,041    |           |   |         | 19,003    |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                            |                                       | Total expenses                           |         |           | 4,868,955 |      |         |           | 4,586,577 |   |         |           | 3,909,477 | 
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Earnings before income taxes                                                |                                       |                                          | 583,489 |           |           |      | 376,817 |           |           |   | 511,751 |          
|Income tax expense                                                          |                                       |                                          | 231,636 |           |           |      | 154,852 |           |           |   | 189,330 |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Net earnings                                                                |                                       | $                                        | 351,853 |           |           | $    | 221,965 |           |           | $ | 322,421 |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Net earnings per common share  basic                                       |                                       | $                                        | 4.26    |           |           | $    | 2.55    |           |           | $ | 3.35    |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Net earnings per common share  diluted                                     |                                       | $                                        | 4.15    |           |           | $    | 2.45    |           |           | $ | 3.21    |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Dividends per common share                                                  |                                       | $                                        | 0.10    |           |           | $    |        |           |           | $ |        |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|Weighted-average common stock and common stock
    equivalents outstanding: |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                            | Basic                                 |                                          |         | 82,546    |           |      |         | 87,145    |           |   |         | 96,269    |          
|                                                                            | Effect of dilutive securities:        |                                          |         |           |           |      |         |           |           |   |         |           |          
|                                                                            | Stock options                         |                                          |         | 2,208     |           |      |         | 3,599     |           |   |         | 4,274     |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                            | Diluted                               |                                          |         | 84,754    |           |      |         | 90,744    |           |   |         | 100,543   |          
|                                                                            |                                       |                                          |         |           |           |      |         |           |           |   |         |          

See accompanying notes to consolidated financial
statements.

52



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND

COMPREHENSIVE INCOME


Years Ended December 31, 2003, 2002 and
2001


|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | -------------- | ------- | ----- |  | ---------- | ----- | --------- |  | ------------- | -------- | ------------- |  | -------- | -------- | - |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |              
|                                                                                  |  | Common Stock   |         |       |  |            |       |           |  | Accumulated   |          |              
|                                                                                  |  |                |         |       |  |            |       |           |  | Other         |          |              
|                                                                                  |  | Number         |         |       |  | Additional |       | Retained  |  |               |          | Comprehensive |  |         
|                                                                                  |  | of             |         | Par   |  | Paid-In    |       | Earnings  |  | Comprehensive |          | Income        |  | Treasury
|                                                                                  |  | Shares         |         | Value |  | Capital    |       | (Deficit) |  | Income        |          | (Loss)        |  | Stock   
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |         
|                                                                                  |  |               
|                                                                                  |  | (In thousands)
|Balance at January 1, 2001                                                        |  |                | 98,304  |       |  | $          | 983   |           |  | $             | 561,857  |               |  | $        | (107,256 | ) |  |   |         |   |  | $ | 3,638   |   |  | $ |         |  
|Exercise of stock options                                                         |  |                | 2,049   |       |  |            | 21    |           |  |               | 29,473   |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                                 |  |                |        |       |  |            |      |           |  |               | 12,411   |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Repurchase of warrants                                                            |  |                |        |       |  |            |      |           |  |               | (141,408 | )             |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Compensatory stock grants                                                         |  |                |        |       |  |            |      |           |  |               | 1,920    |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Purchase of treasury stock                                                        |  |                |        |       |  |            |      |           |  |               |         |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   | (366,497 | )
|Net earnings                                                                      |  |                |        |       |  |            |      |           |  |               |         |               |  |          | 322,421  |   |  | $ | 322,421 |   |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
    securities, net of deferred taxes |  |                |        |       |  |            |      |           |  |               |         |               |  |          |         |   |  |   | 3,949   |   |  |   | 3,949   |   |  |   |         |  
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Comprehensive income                                                              |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  | $ | 326,370 |   |  |   |         |   |  |   |          |  
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2001                                                      |  |                | 100,353 |       |  |            | 1,004 |           |  |               | 605,661  |               |  |          | 215,165  |   |  |   |         |   |  |   | 7,587   |   |  |   | (366,497 | )
|Exercise of stock options                                                         |  |                | 4,723   |       |  |            | 47    |           |  |               | 64,999   |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                                 |  |                |        |       |  |            |      |           |  |               | 38,278   |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Compensatory stock grants                                                         |  |                |        |       |  |            |      |           |  |               | 320      |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Purchase of treasury stock                                                        |  |                |        |       |  |            |      |           |  |               |         |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   | (309,063 | )
|Net earnings                                                                      |  |                |        |       |  |            |      |           |  |               |         |               |  |          | 221,965  |   |  | $ | 221,965 |   |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
    securities, net of deferred taxes |  |                |        |       |  |            |      |           |  |               |         |               |  |          |         |   |  |   | 17,451  |   |  |   | 17,451  |   |  |   |         |  
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Comprehensive income                                                              |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  | $ | 239,416 |   |  |   |         |   |  |   |          |  
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2002                                                      |  |                | 105,076 |       |  |            | 1,051 |           |  |               | 709,258  |               |  |          | 437,130  |   |  |   |         |   |  |   | 25,038  |   |  |   | (675,560 | )
|Exercise of stock options                                                         |  |                | 1,537   |       |  |            | 15    |           |  |               | 33,031   |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                                 |  |                |        |       |  |            |      |           |  |               | 8,188    |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   |         |  
|Compensatory stock grants                                                         |  |                |        |       |  |            |      |           |  |               | 442      |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Purchase of treasury stock                                                        |  |                |        |       |  |            |      |           |  |               |         |               |  |          |         |   |  |   |        |   |  |   |        |   |  |   | (140,639 | )
|Net earnings                                                                      |  |                |        |       |  |            |      |           |  |               |         |               |  |          | 351,853  |   |  | $ | 351,853 |   |  |   |        |   |  |   |         |  
|Dividends declared on common shares                                               |  |                |        |       |  |            |      |           |  |               |         |               |  |          | (8,127   | ) |  |   |        |   |  |   |        |   |  |   |         |  
|Other comprehensive income (loss)                                                 |  |                |        |       |  |            |      |           |  |               |         |               |  |          |         |   |  |   | (14,416 | ) |  |   | (14,416 | ) |  |   |         |  
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Comprehensive income                                                              |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  | $ | 337,437 |   |  |   |         |   |  |   |          |  
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2003                                                      |  |                | 106,613 |       |  | $          | 1,066 |           |  | $             | 750,919  |               |  | $        | 780,856  |   |  |   |         |   |  | $ | 10,622  |   |  | $ | (816,199 | )
|                                                                                  |  |                |         |       |  |            |       |           |  |               |          |               |  |          |          |   |  |   |         |   |  |   |         |   |  |   |          |  

See accompanying notes to consolidated financial
statements.

53



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years Ended December 31, 2003, 2002 and
2001


|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |            |         |         |          |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------ | ------- | -------- | -------- | ---------- | ------- | ------ | -------- | ---------- | ------- | ------- | -------- | -
|                                                                          |                                                                                         | 2003                                                             |                                             | 2002                                             |         | 2001    
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |         
|                                                                          |                                                                                         |                                                                 
|                                                                          |                                                                                         | (In thousands)                                                  
|Cash flows from operating activities:                                     |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          | Net earnings                                                                            |                                                                  | $                                           | 351,853                                          |         |          | $        | 221,965    |         |        | $        | 322,421    |        
|                                                                          | Adjustments to reconcile net earnings to net cash
    provided by operating activities: |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |            |        
|                                                                          |                                                                                         | Depreciation and amortization                                    |                                             |                                                  | 28,530  |          |          |            | 22,928  |        |          |            | 21,417  |        
|                                                                          |                                                                                         | Noncash income                                                   |                                             |                                                  | (16,584 | )        |          |            | (17,519 | )      |          |            |        |        
|                                                                          |                                                                                         | Litigation and other noncash charges                             |                                             |                                                  | 3,535   |          |          |            | 177,832 |        |          |            |        |        
|                                                                          |                                                                                         | Deferred income taxes                                            |                                             |                                                  | 75,775  |          |          |            | (36,432 | )      |          |            | 66,127  |        
|                                                                          |                                                                                         | Realized gain on sale of investments                             |                                             |                                                  | (30,849 | )        |          |            | (26,883 | )      |          |            | (20,787 | )      
|                                                                          |                                                                                         | Changes in assets and liabilities, net of
    balances acquired: |                                             |                                                  |         |          |          |            |         |        |          |            |         |        
|                                                                          |                                                                                         |                                                                  | Premiums receivable                         |                                                  |         | 86       |          |            |         | 11,039 |          |            |         | 19,567  |         
|                                                                          |                                                                                         |                                                                  | Other receivables                           |                                                  |         | 14,749   |          |            |         | (9,241 | )        |            |         | 56,316  |         
|                                                                          |                                                                                         |                                                                  | Prepaid expenses and other current assets   |                                                  |         | (1,571   | )        |            |         | (4,416 | )        |            |         | 1,684   |         
|                                                                          |                                                                                         |                                                                  | Medical costs payable                       |                                                  |         | 53,623   |          |            |         | 323    |          |            |         | (17,866 | )       
|                                                                          |                                                                                         |                                                                  | Trade accounts payable and accrued expenses |                                                  |         | (14,683  | )        |            |         | 232    |          |            |         | 2,295   |         
|                                                                          |                                                                                         |                                                                  | Reserve for litigation settlement           |                                                  |         | (161,300 | )        |            |         |       |          |            |         |        |         
|                                                                          |                                                                                         |                                                                  | Income taxes payable                        |                                                  |         | 36,301   |          |            |         | (7,090 | )        |            |         | 47,789  |         
|                                                                          |                                                                                         |                                                                  | Unearned revenue                            |                                                  |         | 3,290    |          |            |         | 14,836 |          |            |         | 112,926 |         
|                                                                          |                                                                                         |                                                                  | Other, net                                  |                                                  |         | 442      |          |            |         | (3,105 | )        |            |         | 1,920   |         
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          |                                                                                         |                                                                  |                                             | Net cash provided by operating activities        |         |          | 343,197  |            |         |        | 344,469  |            |         |         | 613,809  |  
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|Cash flows from investing activities:                                     |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          | Capital expenditures                                                                    |                                                                  |                                             | (14,683                                          | )       |          |          | (18,981    | )       |        |          | (21,386    | )      
|                                                                          | Purchases of investments                                                                |                                                                  |                                             | (1,613,040                                       | )       |          |          | (1,460,763 | )       |        |          | (1,193,074 | )      
|                                                                          | Sales and maturities of investments                                                     |                                                                  |                                             | 1,349,719                                        |         |          |          | 1,386,443  |         |        |          | 1,130,811  |        
|                                                                          | Acquisitions, net of cash acquired                                                      |                                                                  |                                             |                                                 |         |          |          | (1,288     | )       |        |          | (19,483    | )      
|                                                                          | Other, net                                                                              |                                                                  |                                             | (210                                             | )       |          |          | (75        | )       |        |          | 798        |        
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          |                                                                                         |                                                                  |                                             | Net cash used by investing activities            |         |          | (278,214 | )          |         |        | (94,664  | )          |         |         | (102,334 | )
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|Cash flows from financing activities:                                     |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          | Proceeds from exercise of stock options                                                 |                                                                  |                                             | 32,738                                           |         |          |          | 31,545     |         |        |          | 29,494     |        
|                                                                          | Proceeds from borrowings, net                                                           |                                                                  |                                             | 391,371                                          |         |          |          |           |         |        |          |           |        
|                                                                          | Payments under capital leases                                                           |                                                                  |                                             | (5,003                                           | )       |          |          | (2,552     | )       |        |          | (5,700     | )      
|                                                                          | Redemption of notes payable                                                             |                                                                  |                                             | (128,875                                         | )       |          |          | (27,136    | )       |        |          | (21,874    | )      
|                                                                          | Purchase of treasury shares                                                             |                                                                  |                                             | (139,871                                         | )       |          |          | (251,509   | )       |        |          | (366,497   | )      
|                                                                          | Payment of withholding tax on option exercises                                          |                                                                  |                                             | (460                                             | )       |          |          | (24,056    | )       |        |          |           |        
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          |                                                                                         |                                                                  |                                             | Net cash provided (used) by financing activities |         |          | 149,900  |            |         |        | (273,708 | )          |         |         | (364,577 | )
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|Net increase (decrease) in cash and cash
    equivalents                  |                                                                                         |                                                                  | 214,883                                     |                                                  |         |          | (23,903  | )          |         |        | 146,898  |           
|Cash and cash equivalents at beginning of year                            |                                                                                         |                                                                  | 321,627                                     |                                                  |         |          | 345,530  |            |         |        | 198,632  |           
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|Cash and cash equivalents at end of year                                  |                                                                                         | $                                                                | 536,510                                     |                                                  |         | $        | 321,627  |            |         | $      | 345,530  |           
|                                                                          |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|Supplemental schedule of non-cash investing and
    financing activities: |                                                                                         |                                                                  |                                             |                                                  |         |          |          |            |         |        |          |           
|                                                                          | Unrealized (depreciation) appreciation of
    investments                               |                                                                  | $                                           | (24,011                                          | )       |          | $        | 31,102     |         |        | $        | 4,920      |        
|                                                                          | Tax benefit realized on exercise of stock options                                       |                                                                  |                                             | 8,188                                            |         |          |          | 38,278     |         |        |          | 12,411     |        
|                                                                          | Dividend declared on common shares                                                      |                                                                  |                                             | 8,127                                            |         |          |          |           |         |        |          |           |        
|                                                                          | Fair value of treasury shares associated with
    option exercise                       |                                                                  |                                             | 308                                              |         |          |          | 57,554     |         |        |          |           |        
|                                                                          | Obligation under capital lease                                                          |                                                                  |                                             |                                                 |         |          |          | 13,771     |         |        |          |           |        
|                                                                          | Obligation under outsource agreement                                                    |                                                                  |                                             |                                                 |         |          |          |           |         |        |          | 13,603     |        

See accompanying notes to consolidated financial
statements.

54



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(1) Organization

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

Oxfords HMOs, Oxford Health Plans (NY),
Inc. (Oxford NY), Oxford Health Plans (NJ), Inc.
(Oxford NJ), Oxford Health Plans (CT), Inc.
(Oxford CT), have each been granted a certificate of
authority to operate as a health maintenance organization by the
appropriate regulatory agency of the state in which it operates.
Oxford Health Insurance, Inc. (OHI), a wholly-owned
subsidiary of Oxford NY, currently does business under accident
and health insurance licenses granted by the Department of
Insurance in the states of New York and Connecticut, the
Department of Banking and Insurance of New Jersey and the
Commonwealth of Pennsylvania. The Companys ancillary and
specialty benefit plans are offered primarily through Oxford
Benefit Management, Inc. (OBM). Investors Guaranty
Life Insurance Company (IGL) is a California
insurance company licensed to issue individual and group
annuity, life and health insurance policies in most states. OBM
and IGL are wholly owned subsidiaries of the Company. In March
2002, the Company acquired MedSpan, Inc. and its subsidiary,
MedSpan Health Options, Inc. (together, MedSpan), a
Connecticut managed healthcare organization. Effective January
2003, the assets and liabilities of MedSpan were transferred to
and assumed by Oxford CT pursuant to an assumption reinsurance
agreement.

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

(2) Summary of Significant Accounting
Policies

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

(b) Premium
revenue.Membership contracts are
generally established on a yearly basis subject to cancellation
by the individual, 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 month in which Oxford is
obligated to provide services to members, and are net of
estimated terminations of members and groups. The Company
receives premium payments from the federal Centers for Medicare
and Medicaid Services (CMS) on a monthly basis for
its Medicare membership. In 2003, premiums received from CMS
represented approximately 11.9% of the Companys total
premium revenue earned. Membership and category eligibility are
periodically reconciled with CMS and could result in revenue
adjustments. The Company is not aware of any material claims,
disputes or settlements relating to revenues it has received
from CMS. Premiums receivable are presented net of valuation
allowances for estimated uncollectable amounts and retroactive
billing adjustments of approximately $11.9 million and
$13.5 million in 2003 and 2002, respectively. Premium
revenues are net of write-offs and other premium
adjustments of approximately $6.1 million,
$4.1 million and $7 million in 2003, 2002 and 2001,
respectively. A component of unearned revenue represents the
portion of premiums received for which Oxford is not obligated
to provide services until a future date.

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

55



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for health care services provided to enrollees
are estimated by management based on evaluations of
providers claims submitted and provisions for incurred but
not reported or paid claims (IBNR). The Company
estimates the provision for IBNR using standard actuarial loss
development methodologies applied to loss development data
summarized on the basis of the month services are rendered and
the month claims are paid, processed or received, and considers
other items including, without limitation, historical levels of
denied claims, medical cost trends, seasonal patterns and
changes in membership mix. These estimates are reviewed by state
regulatory authorities on a periodic basis. The estimates for
submitted claims and IBNR are made on an accrual basis and
adjusted in future periods as necessary. Adjustments to prior
period estimates, if any, are included in current period
results. Favorable development of prior years estimated medical
costs is primarily the result of ongoing incremental
improvements in processes such that the level of completion of
claims was, in retrospect, slightly higher than estimated in the
prior periods. Medical costs payable also reflects payments
required by or anticipated benefits from rebates, reinsurance,
cost sharing arrangements and public policy initiatives,
including the New York Market Stabilization Pools (the
Pools). While the Company has established its
liabilities and recoveries under the Pools based on its
interpretations of the regulations, the amounts recorded related
to the 1999 through 2003 Pool years may differ, perhaps
materially, from amounts that will ultimately be paid or
received from the Pools based on final reconciliations.
Management believes that the Companys reserves for medical
costs payable are adequate to satisfy its ultimate unpaid claim
liabilities.

Losses, if any, are recognized when it is
probable that the expected future health care cost of a group of
existing contracts (and the costs necessary to maintain those
contracts) will exceed the anticipated future premiums,
investment income and reinsurance recoveries on those contracts.
Groups of contracts are defined as commercial, individual and
government contracts consistent with the method of establishing
premium rates. The Company recognizes premium deficiency
reserves based upon expected premium revenue, medical expense
and administrative expense levels and remaining contractual
obligations using the Companys historical experience.
Anticipated investment income is not included in the
determination of premium deficiency reserves since its effect is
deemed to be immaterial. The Company evaluates the need for
premium deficiency reserves on a quarterly basis. As of December
31, 2003, there were no premium deficiency reserves required.

56



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table shows the components of the
change in medical costs payable for the years ended
December 31, 2003, 2002 and 2001 (in millions):

|                                              |                          |      |          |          |   |      |          |          |   |   |          |          |  
|--------------------------------------------- | ------------------------ | ---- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                              |                          | 2003 |          | 2002     |   | 2001
|                                              |                          |      |          |          |   |     
|Balances as of January 1,                     |                          | $    | 618.6    |          |   | $    | 595.1    |          |   | $ | 612.9    |         
|Business purchases                            |                          |      |         |          |   |      | 25.7     |          |   |   |         |         
|Components of health care services expense:   |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Estimated costs incurred |      |          | 4,276.2  |   |      |          | 3,904.1  |   |   |          | 3,416.3  |  
|                                              | Estimate changes         |      |          | (33.8    | ) |      |          | (55.3    | ) |   |          | (15.0    | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Health care services expense                  |                          |      | 4,242.4  |          |   |      | 3,848.8  |          |   |   | 3,401.3  |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Payments for health care services related to: |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      |          | (3,644.0 | ) |      |          | (3,347.1 | ) |   |          | (2,911.3 | )
|                                              | Prior year               |      |          | (545.5   | ) |      |          | (503.9   | ) |   |          | (507.8   | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total paid                                    |                          |      | (4,189.5 | )        |   |      | (3,851.0 | )        |   |   | (3,419.1 | )       
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balances as of December 31,                   |                          | $    | 671.5    |          |   | $    | 618.6    |          |   | $ | 595.1    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balances as of December 31 related to:        |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      | $        | 632.2    |   |      | $        | 557.0    |   |   | $        | 505.0    |  
|                                              | Prior years              |      |          | 39.3     |   |      |          | 61.6     |   |   |          | 90.1     |  
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total                                         |                          | $    | 671.5    |          |   | $    | 618.6    |          |   | $ | 595.1    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         

Included in estimate changes are favorable
development of prior years estimated medical costs of
approximately $33.8 million, $33.3 million and
$8.4 million for 2003, 2002 and 2001, respectively, and
estimate changes in New York market stabilization pool reserves
and stop loss pool recoveries of approximately $22 million
and $6.6 million for 2002 and 2001, respectively.

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

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

(f) 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.

(g) Computer software
costs.Internal and external direct
and incremental costs of $3.8 million and $3.6 million
incurred in developing or obtaining computer software for
internal use were capitalized for the

57



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

years ended December 31, 2003 and 2002,
respectively. These costs are presented in property and
equipment and are being amortized using the straight-line method
over their estimated useful lives, generally two years.

(h) 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 assets and
liabilities are determined based on the temporary differences
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The Company
provides a valuation reserve against the estimated amounts of
deferred taxes that it believes do not meet the more likely than
not recognition criteria.

(i) Goodwill and other intangible
assets.Statement of Financial
Accounting Standards No. 141, Business
Combinations(SFAS 141) requires that
the purchase accounting method of accounting be used for all
business combinations initiated after June 30, 2001, and
that certain intangible assets acquired in a business
combination be recognized as assets apart from goodwill.
SFAS No. 142, Goodwill and Other Intangible
Assets(SFAS 142) requires goodwill
and other indefinite-lived assets to be tested for impairment
under certain circumstances, but at least annually and written
down when impaired, rather than being amortized as previous
standards required. Furthermore, SFAS 142 requires intangible
assets other than goodwill to be amortized over their useful
lives unless these lives are determined to be indefinite. Other
intangible assets with finite lives are carried at cost less
accumulated amortization. Amortization is computed over the
useful lives of the respective assets, generally four to five
years.

(j) Impairment of long-lived
assets.The Company reviews long-lived
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.

(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 outstanding.

58



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(l) Stock option
plans.At December 31, 2003, the
Company has three primary stock-based employee compensation
plans, which are described more fully in Note 8. The Company
accounts for these plans under the recognition and measurement
principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net earnings to the
extent options granted under these plans had an exercise price
equal to the market value of the underlying common stock on the
date of the grant. The Company recorded stock-based compensation
expense in net earnings of approximately $0.4 million,
$0.3 million and $1.9 million in 2003, 2002 and 2001,
respectively, related to the modification of option terms that
resulted in new measurement dates and the grant of options at
other than fair market value on the date of the grant. The
following table illustrates the effect on net earnings and
earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to
stock-based employee compensation for the years ended
December 31.

|                                                                                                                                                    |             |                                          |         |      |  |      |         |      |  |   |         |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                                                                                                                    |             | 2003                                     |         | 2002 |  | 2001
|                                                                                                                                                    |             |                                          |         |      |  |     
|                                                                                                                                                    |             |                                         
|                                                                                                                                                    |             | (In thousands, except per share amounts)
|Net earnings, as reported                                                                                                                           |             | $                                        | 351,853 |      |  | $    | 221,965 |      |  | $ | 322,421 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |             |                                          | (10,460 | )    |  |      | (17,641 | )    |  |   | (25,892 | )   
|                                                                                                                                                    |             |                                          |         |      |  |      |         |      |  |   |         |     
|Pro forma net earnings                                                                                                                              |             | $                                        | 341,393 |      |  | $    | 204,324 |      |  | $ | 296,529 |     
|                                                                                                                                                    |             |                                          |         |      |  |      |         |      |  |   |         |     
|Basic earnings per share                                                                                                                            |             |                                          |         |      |  |      |         |      |  |   |         |     
|                                                                                                                                                    | As reported |                                          | $       | 4.26 |  |      | $       | 2.55 |  |   | $       | 3.35 | 
|                                                                                                                                                    | Pro forma   |                                          | $       | 4.14 |  |      | $       | 2.34 |  |   | $       | 3.08 | 
|Diluted earnings per share                                                                                                                          |             |                                          |         |      |  |      |         |      |  |   |         |     
|                                                                                                                                                    | As reported |                                          | $       | 4.15 |  |      | $       | 2.45 |  |   | $       | 3.21 | 
|                                                                                                                                                    | Pro forma   |                                          | $       | 4.03 |  |      | $       | 2.25 |  |   | $       | 2.95 | 

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

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

(o) Business segment
information.The Company operates in
one principal business segment, offering commercial (large
group, small group, individual and HMO) and Medicare products to
a diverse group of customers primarily in New York, New Jersey
and Connecticut. All products entitle an insured to obtain
services from a specified subset of the Companys provider
network. Substantially all of these products are supported by
the same executive management team and share common underwriting
and claim functions. The Company does not allocate indirect
expenses to any product lines. Assets are not separately
identified by product. Accordingly, the Company does not
maintain separate comprehensive profit and loss accounts for
these product lines, other than tracking membership, premium
revenue and medical expense. In the opinion of the
Companys management, these product lines possess similar
economic characteristics and meet the aggregation criteria
described in SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information.

59



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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Membership data (as of December 31) and
premium revenue and medical loss ratios (for the years ended
December 31), were as follows for the Companys
commercial and Medicare plans:

|                                |            |      |   |           |  |      |   |           |  |  |   |           | 
|------------------------------- | ---------- | ---- | - | --------- |  | ---- | - | --------- |  |  | - | --------- | 
|                                |            | 2003 |   | 2002      |  | 2001
|                                |            |      |   |           |  |     
|Membership:                     |            |      |   |           |  |      |   |           |  |  |   |          
|                                | Commercial |      |   | 1,429,900 |  |      |   | 1,479,500 |  |  |   | 1,372,300 | 
|                                | Medicare   |      |   | 70,800    |  |      |   | 70,100    |  |  |   | 77,800    | 
|Premium revenue (in thousands): |            |      |   |           |  |      |   |           |  |  |   |          
|                                | Commercial |      | $ | 4,706,793 |  |      | $ | 4,265,745 |  |  | $ | 3,653,096 | 
|                                | Medicare   |      | $ | 632,534   |  |      | $ | 585,219   |  |  | $ | 659,295   | 
|Medical loss ratio:             |            |      |   |           |  |      |   |           |  |  |   |          
|                                | Commercial |      |   | 78.8%     |  |      |   | 79.1%     |  |  |   | 78.4%     | 
|                                | Medicare   |      |   | 84.0%     |  |      |   | 81.0%     |  |  |   | 81.2%     | 

The medical loss ratio, including the effect of
prior year medical cost development, if any, for the
Companys commercial and Medicare plans, is defined as the
ratio of health care services expense to premium revenue.

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

(3) Investments

The following is a summary of marketable
securities as of December 31, 2003 and 2002:

|                       |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |         |           | 
|---------------------- | ------------------------------------ | ----------------- | ------ | ---------- | --------- | ---------- | ----- | ------ | ------ | - | ---- | ------ | ------ | - | ------ | ------- | --------- | 
|                       |                                      |                   |        | Gross      |           | Gross      |       |       
|                       |                                      | Amortized         |        | Unrealized |           | Unrealized |       | Fair  
|December 31, 2003:     |                                      | Cost              |        | Gains      |           | Losses     |       | Value 
|                       |                                      |                   |        |            |           |            |       |       
|                       |                                      |                  
|                       |                                      | (In thousands)   
|Available-for-sale:    |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |        
|                       | U.S. government obligations          |                   | $      | 507,079    |           |            | $     | 2,922  |        |   | $    | (1,070 | )      |   | $      | 508,931 |          
|                       | Corporate obligations                |                   |        | 388,627    |           |            |       | 13,272 |        |   |      | (2,233 | )      |   |        | 399,666 |          
|                       | Municipal bonds                      |                   |        | 132,128    |           |            |       | 2,850  |        |   |      | (361   | )      |   |        | 134,617 |          
|                       | Mortgage and asset backed securities |                   |        | 324,524    |           |            |       | 4,292  |        |   |      | (1,495 | )      |   |        | 327,321 |          
|                       |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |        
|                       |                                      | Total investments |        | $          | 1,352,358 |            |       | $      | 23,336 |   |      | $      | (5,159 | ) |        | $       | 1,370,535 | 
|                       |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |        
|Held-to-maturity:      |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |        
|                       | U.S. government obligations          |                   | $      | 55,026     |           |            | $     | 1,328  |        |   | $    | (359   | )      |   | $      | 55,995  |          
|                       | Municipal bonds                      |                   |        | 4,712      |           |            |       | 188    |        |   |      |       |        |   |        | 4,900   |          
|                       |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |        
|Total held-to-maturity |                                      | $                 | 59,738 |            |           | $          | 1,516 |        |        | $ | (359 | )      |        | $ | 60,895 |        
|                       |                                      |                   |        |            |           |            |       |        |        |   |      |        |        |   |        |        

60



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                       |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |         |           | 
|---------------------- | ------------------------------------ | ----------------- | ------ | ---------- | --------- | ---------- | ----- | ------ | ------ | - | - | ---- | ------ | - | ------ | ------- | --------- | 
|                       |                                      |                   |        | Gross      |           | Gross      |       |       
|                       |                                      | Amortized         |        | Unrealized |           | Unrealized |       | Fair  
|December 31, 2002:     |                                      | Cost              |        | Gains      |           | Losses     |       | Value 
|                       |                                      |                   |        |            |           |            |       |       
|                       |                                      |                  
|                       |                                      | (In thousands)   
|Available-for-sale:    |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |        
|                       | U.S. government obligations          |                   | $      | 374,949    |           |            | $     | 15,193 |        |   | $ |     |        |   | $      | 390,142 |          
|                       | Corporate obligations                |                   |        | 339,341    |           |            |       | 14,815 |        |   |   | (669 | )      |   |        | 353,487 |          
|                       | Municipal bonds                      |                   |        | 104,969    |           |            |       | 3,305  |        |   |   | (170 | )      |   |        | 108,104 |          
|                       | Mortgage and asset backed securities |                   |        | 241,217    |           |            |       | 10,234 |        |   |   | (520 | )      |   |        | 250,931 |          
|                       |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |        
|                       |                                      | Total investments |        | $          | 1,060,476 |            |       | $      | 43,547 |   |   | $    | (1,359 | ) |        | $       | 1,102,664 | 
|                       |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |        
|Held-to-maturity:      |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |        
|                       | U.S. government obligations          |                   | $      | 47,642     |           |            | $     | 2,679  |        |   | $ |     |        |   | $      | 50,321  |          
|                       | Municipal bonds                      |                   |        | 4,758      |           |            |       | 153    |        |   |   |     |        |   |        | 4,911   |          
|                       | Cash and short-term investments      |                   |        | 4,021      |           |            |       |       |        |   |   |     |        |   |        | 4,021   |          
|                       |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |        
|Total held-to-maturity |                                      | $                 | 56,421 |            |           | $          | 2,832 |        |        | $ |  |      |        | $ | 59,253 |        
|                       |                                      |                   |        |            |           |            |       |        |        |   |   |      |        |   |        |        

The amortized cost and estimated fair value of
marketable debt securities at December 31, 2003, by
contractual maturity, are shown below. Actual maturities may
differ from contractual maturities because the issuers of
securities may have the right to prepay such obligations without
prepayment penalties.

|                                       |       |                    |         |                  |  |           |         |           |  |   |        |        |  |   |        |        | 
|-------------------------------------- | ----- | ------------------ | ------- | ---------------- |  | --------- | ------- | --------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                       |       |                    |         |                 
|                                       |       | Available-for-Sale |         | Held-to-Maturity
|                                       |       |                    |         |                 
|                                       |       | Amortized          |         | Fair             |  | Amortized |         | Fair     
|                                       |       | Cost               |         | Value            |  | Cost      |         | Value    
|                                       |       |                    |         |                  |  |           |         |          
|                                       |       |                   
|                                       |       | (In thousands)    
|Due in one year or less                |       | $                  | 52,418  |                  |  | $         | 52,827  |           |  | $ | 6,450  |        |  | $ | 6,643  |       
|Due after one year through five years  |       |                    | 505,732 |                  |  |           | 511,546 |           |  |   | 43,496 |        |  |   | 44,415 |       
|Due after five years through ten years |       |                    | 275,079 |                  |  |           | 281,926 |           |  |   | 8,195  |        |  |   | 8,163  |       
|Due after ten years                    |       |                    | 519,129 |                  |  |           | 524,236 |           |  |   | 1,597  |        |  |   | 1,674  |       
|                                       |       |                    |         |                  |  |           |         |           |  |   |        |        |  |   |        |       
|                                       | Total |                    | $       | 1,352,358        |  |           | $       | 1,370,535 |  |   | $      | 59,738 |  |   | $      | 60,895 | 
|                                       |       |                    |         |                  |  |           |         |           |  |   |        |        |  |   |        |       

Certain information related to marketable
securities is as follows:

|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  
|------------------------------------------------------------------------------------------------ |  | -------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                                                 |  | 2003           |           | 2002 |  | 2001
|                                                                                                 |  |                |           |      |  |     
|                                                                                                 |  |               
|                                                                                                 |  | (In thousands)
|Proceeds from sale or maturity of
    available-for-sale securities                              |  | $              | 1,318,374 |      |  | $    | 1,380,307 |   |  | $ | 1,111,138 |  
|Proceeds from maturity of held-to-maturity
    securities                                        |  |                | 31,345    |      |  |      | 6,136     |   |  |   | 19,673    |  
|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  
|Total proceeds from sale or maturity of
    marketable securities                                |  | $              | 1,349,719 |      |  | $    | 1,386,443 |   |  | $ | 1,130,811 |  
|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  
|Gross realized gains on sale of
    available-for-sale securities                                |  | $              | 32,553    |      |  | $    | 30,947    |   |  | $ | 21,923    |  
|Gross realized losses on sale of
    available-for-sale securities                               |  |                | (1,704    | )    |  |      | (4,064    | ) |  |   | (1,136    | )
|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  
|Net realized gains on sale of marketable
    securities                                          |  | $              | 30,849    |      |  | $    | 26,883    |   |  | $ | 20,787    |  
|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  
|Net unrealized (loss) gain on
    available-for-sale securities included in comprehensive income |  | $              | (24,011   | )    |  | $    | 31,102    |   |  | $ | 4,920     |  
|Deferred income tax benefit (expense)                                                            |  |                | 9,513     |      |  |      | (13,651   | ) |  |   | (971      | )
|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  
|Other comprehensive (loss) income                                                                |  | $              | (14,498   | )    |  | $    | 17,451    |   |  | $ | 3,949     |  
|                                                                                                 |  |                |           |      |  |      |           |   |  |   |           |  

61



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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Net investment income, including net realized
gains in 2003, 2002 and 2001 was $85.6 million,
$91.4 million and $93.6 million, respectively. Other
income in 2003 and 2002 includes approximately
$15.2 million related to the Companys pharmacy
benefit agreement. In addition, 2002 results include investment
valuation losses of approximately $13.7 million.

(4) Income Taxes

Income tax expense (benefit) consists of:

|                             |                 |                |   |          |         |       |   |         |         |   |   |         |         | 
|---------------------------- | --------------- | -------------- | - | -------- | ------- | ----- | - | ------- | ------- | - | - | ------- | ------- | 
|                             |                 | Current        |   | Deferred |         | Total
|                             |                 |                |   |          |         |      
|                             |                 |               
|                             |                 | (In thousands)
|Year ended December 31, 2003 |                 |                |   |          |         |       |   |         |         |   |   |        
|                             | Federal         |                | $ | 132,357  |         |       | $ | 64,372  |         |   | $ | 196,729 |        
|                             | State and local |                |   | 23,243   |         |       |   | 11,664  |         |   |   | 34,907  |        
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|                             |                 | Total          |   | $        | 155,600 |       |   | $       | 76,036  |   |   | $       | 231,636 | 
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|Year ended December 31, 2002 |                 |                |   |          |         |       |   |         |         |   |   |        
|                             | Federal         |                | $ | 155,850  |         |       | $ | (35,707 | )       |   | $ | 120,143 |        
|                             | State and local |                |   | 40,464   |         |       |   | (5,755  | )       |   |   | 34,709  |        
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|                             |                 | Total          |   | $        | 196,314 |       |   | $       | (41,462 | ) |   | $       | 154,852 | 
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|Year ended December 31, 2001 |                 |                |   |          |         |       |   |         |         |   |   |        
|                             | Federal         |                | $ | 119,076  |         |       | $ | 30,625  |         |   | $ | 149,701 |        
|                             | State and local |                |   | 14,754   |         |       |   | 24,875  |         |   |   | 39,629  |        
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|                             |                 | Total          |   | $        | 133,830 |       |   | $       | 55,500  |   |   | $       | 189,330 | 
|                             |                 |                |   |          |         |       |   |         |         |   |   |        

Cash paid for income taxes was approximately
$119.6 million, $197.3 million and $75.9 million
during 2003, 2002 and 2001, respectively.

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

|                                                                    |                    |                |         |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------------------------- | ------------------ | -------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                    |                    | 2003           |         | 2002    |  | 2001
|                                                                    |                    |                |         |         |  |     
|                                                                    |                    |               
|                                                                    |                    | (In thousands)
|Income tax expense at statutory tax rate                            |                    | $              | 204,221 |         |  | $    | 131,886 |         |  | $ | 179,113 |        
|State and local income taxes, net of federal
    income tax benefit |                    |                | 22,690  |         |  |      | 22,561  |         |  |   | 31,217  |        
|Change in valuation allowance                                       |                    |                |        |         |  |      |        |         |  |   | (21,000 | )      
|Other, net                                                          |                    |                | 4,725   |         |  |      | 405     |         |  |   |        |        
|                                                                    |                    |                |         |         |  |      |         |         |  |   |         |        
|                                                                    | Income tax expense |                | $       | 231,636 |  |      | $       | 154,852 |  |   | $       | 189,330 | 
|                                                                    |                    |                |         |         |  |      |         |         |  |   |         |        

62



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to significant portions of the net deferred tax assets
at December 31, 2003 and 2002 are as follows:

|                                   |                                                                        |                             |   |        |        |   |   |         |         |  
|---------------------------------- | ---------------------------------------------------------------------- | --------------------------- | - | ------ | ------ | - | - | ------- | ------- | -
|                                   |                                                                        | 2003                        |   | 2002  
|                                   |                                                                        |                             |   |       
|                                   |                                                                        |                            
|                                   |                                                                        | (In thousands)             
|Deferred tax assets (liabilities): |                                                                        |                             |   |        |        |   |   |        
|                                   | Unearned revenue                                                       |                             | $ | 29,810 |        |   | $ | 36,458  |        
|                                   | Trade accounts payable and accrued expenses                            |                             |   | 8,299  |        |   |   | 13,727  |        
|                                   | Medical costs payable                                                  |                             |   | 7,910  |        |   |   | 8,350   |        
|                                   | Property and equipment                                                 |                             |   | 8,413  |        |   |   | 10,502  |        
|                                   | Allowance for doubtful accounts                                        |                             |   | 6,514  |        |   |   | 6,836   |        
|                                   | Net operating loss carryforwards                                       |                             |   | 7,997  |        |   |   | 6,355   |        
|                                   | Restructuring related                                                  |                             |   | 1,283  |        |   |   | 1,864   |        
|                                   | Unrealized appreciation in value of available for
    sale investments |                             |   | (7,637 | )      |   |   | (17,150 | )      
|                                   | Intangible assets                                                      |                             |   | (3,704 | )      |   |   | (4,550  | )      
|                                   | Litigation settlement reserve                                          |                             |   |       |        |   |   | 59,016  |        
|                                   | Other                                                                  |                             |   | (939   | )      |   |   | 2,551   |        
|                                   |                                                                        |                             |   |        |        |   |   |        
|                                   |                                                                        | Total gross deferred assets |   |        | 57,946 |   |   |         | 123,959 |  
|                                   |                                                                        | Less valuation allowances   |   |        | (3,134 | ) |   |         | (3,134  | )
|                                   |                                                                        |                             |   |        |        |   |   |        
|                                   |                                                                        | Net deferred tax assets     |   | $      | 54,812 |   |   | $       | 120,825 |  
|                                   |                                                                        |                             |   |        |        |   |   |        

The remaining valuation allowance at
December 31, 2003 of $3.1 million relates primarily to
the recognition of certain restructuring related and property
and equipment deferred tax assets. Management believes that the
Company will obtain the full benefit of the net deferred tax
assets recorded at December 31, 2003.

In light of the Companys progress from 1999
through 2001, its estimates of future earnings and the expected
timing of the reversal of other net tax deductible temporary
differences, management concluded that a valuation allowance was
no longer necessary for its federal and state net operating loss
carryforwards and certain other temporary differences. In
addition, in 2001, based on the recognition of realized gains,
the valuation allowance related to capital loss carryforwards
was reversed. The income tax expense recorded for the year ended
December 31, 2001 included the reversal of $21 million
of deferred tax valuation allowances.

(5) Property and Equipment

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

|                                          |                               |                    |         |         |  |   |         |         | 
|----------------------------------------- | ----------------------------- | ------------------ | ------- | ------- |  | - | ------- | ------- | 
|                                          |                               |                   
|                                          |                               | As of December 31,
|                                          |                               |                   
|                                          |                               | 2003               |         | 2002   
|                                          |                               |                    |         |        
|                                          |                               |                   
|                                          |                               | (In thousands)    
|Land and buildings                        |                               | $                  | 40      |         |  | $ | 40      |        
|Furniture and fixtures                    |                               |                    | 12,221  |         |  |   | 10,627  |        
|Equipment                                 |                               |                    | 76,175  |         |  |   | 65,597  |        
|Leasehold improvements                    |                               |                    | 31,587  |         |  |   | 29,316  |        
|                                          |                               |                    |         |         |  |   |         |        
|                                          | Property and equipment, gross |                    |         | 120,023 |  |   |         | 105,580 | 
|Accumulated depreciation and amortization |                               |                    | (88,385 | )       |  |   | (71,135 | )      
|                                          |                               |                    |         |         |  |   |         |        
|                                          | Property and equipment, net   |                    | $       | 31,638  |  |   | $       | 34,445  | 
|                                          |                               |                    |         |         |  |   |         |        

63



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Depreciation and amortization of property and
equipment aggregated $17.4 million, $15.6 million and
$16.3 million during the years ended December 31,
2003, 2002 and 2001, respectively.

(6) Debt

Debt consists of the following:

|                                                      |  |                |         |      |  |   |         |  
|----------------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                      |  |               
|                                                      |  | December 31,  
|                                                      |  |               
|                                                      |  | 2003           |         | 2002
|                                                      |  |                |         |     
|                                                      |  |               
|                                                      |  | (In thousands)
|Senior Secured Term Loan, dated April 25,
    2003    |  | $              | 398,000 |      |  | $ |        |  
|Senior Secured Term Loan, dated December 31,
    2000 |  |                |        |      |  |   | 126,875 |  
|                                                      |  |                |         |      |  |   |         |  
|Total                                                 |  |                | 398,000 |      |  |   | 126,875 |  
|Less current portion                                  |  |                | (4,000  | )    |  |   | (30,625 | )
|                                                      |  |                |         |      |  |   |         |  
|Long-term debt                                        |  | $              | 394,000 |      |  | $ | 96,250  |  
|                                                      |  |                |         |      |  |   |         |  

On April 25, 2003, the Company entered into
new financing arrangements consisting of a new 6-year
$400 million term loan (the New Term Loan) and
a 5-year $50 million revolving credit facility (the
Revolver, together with the New Term Loan, the
New Credit Facilities). Borrowings under the New
Term Loan initially bear interest, subject to periodic resets,
at either a base rate (New Base Rate Borrowings), or
LIBOR plus an applicable margin based on the Companys
credit ratings. Interest on New Base Rate Borrowings is
calculated as the higher of (a) the prime rate or
(b) the federal funds effective rate, as defined, plus an
applicable margin based on the Companys credit ratings.
Commitment fees of 0.5% per annum are payable on the unused
portion of the Revolver. The New Term Loan has mandatory
principal payments of 1% of the outstanding principal per year,
payable quarterly, for the first five years with the balance due
in the sixth year and provides for voluntary prepayments of
principal without penalty of a minimum amount of
$5 million. In order to make restricted payments, as
defined, including share repurchases and dividends, the Company
is required to maintain parent company cash and investment
balances at a minimum of $75 million plus the next four
quarters scheduled principal payments under the loan. Parent
company cash and investments above these minimum requirements
are available for restricted payments, as defined, including
share repurchases and shareholder dividends. A portion of the
proceeds of the New Term Loan were used to retire the senior
secured term loan outstanding (the Term Loan). In
connection with the New Credit Facilities and repayment of the
former Term Loan, in April 2003, the Company incurred costs,
capitalized as part of other noncurrent assets, of approximately
$8.6 million and wrote off approximately $3.4 million
of unamortized debt costs associated with the former Term Loan
as a component of interest and other financing costs in the
second quarter of 2003. The costs related to the New Credit
Facilities are being written off ratably to income over periods
of 5 to 6 years. Effective December 2, 2003, the
Company re-priced its New Term Loan, reducing the applicable
margins for both LIBOR and New Base Rate Borrowings. In
connection with the re-pricing, the Company expensed
approximately $1.1 million as a component of interest and
other financing costs in the fourth quarter of 2003.

In connection with the New Term Loan and in order
to reduce the variability of cash flows with respect to interest
payments, the Company entered into interest rate swap agreements
(Swap Agreements) during 2003 to manage its exposure
to variable rate debt. The Swap Agreements effectively convert a
portion of the Companys variable-rate debt to a fixed rate
basis. The Swap Agreements are classified as cash flow hedges
and have terms of up to three years, maturing from May 2004
through May 2006. The Company records the Swap Agreements on its
consolidated balance sheet as an offset to other non-current
assets at their then fair value and adjusts the Swap Agreements
to current market value through other comprehensive income. The
Company anticipates that the Swap Agreements will continue to be
effective, but it will recognize all or a

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

portion of any unrealized gain or loss related to
these contracts directly to income to the extent they are deemed
to no longer be effective.

The notional amount of the Swap Agreements was
$250 million and the estimated unrealized gain on the Swap
Agreements was approximately $0.1 million at
December 31, 2003. The effective annual interest rate on
the New Term Loan, including the effect of the Swap Agreements,
is currently approximately 3.8%.

The Company made cash payments for interest
expense on indebtedness and delayed claims of approximately
$13.3 million, $10.5 million and $16.1 million in
2003, 2002 and 2001, respectively.

(7) Share Repurchase Program

The Companys Board of Directors has
approved a share repurchase program for up to $1 billion of
the Companys outstanding common stock through December
2004. The program authorizes the Company to purchase shares on
the open market and in privately negotiated transactions from
time to time depending on general market conditions. Under this
program, during the three years ended December 31, 2001, 2002
and 2003, the Company repurchased 12,961,000 shares, 6,833,700
shares and 4,036,700 shares, respectively, of its common stock
at a cost of approximately $366.1 million,
$251.3 million and $139.8 million, respectively. As of
December 31, 2003, the Company had repurchased a total of
23,831,400 shares of its common stock under this program at a
total cost of approximately $757.2 million. The Company had
remaining share repurchase authority of approximately
$242.8 million at December 31, 2003.

(8) Stock Option Plans

The Company grants fixed stock options under its
1991 Stock Option Plan, as amended (the 1991 Plan),
to certain directors, 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 2002 Nonemployee Director Stock Option Plan (the
2002 Director Plan) to outside directors to purchase
common stock at a price not less than 100% of quoted market
value at date of grant. Prior to 2002, stock options were
granted to nonemployee directors under a predecessor 1991
Nonemployee Director Plan (the 1991 Director Plan),
which expired by its terms in 2001 except as to options
outstanding. In 2002, the Company obtained Board and shareholder
approval of a new 2002 Equity Incentive Compensation Plan (the
2002 Plan) pursuant to which the Company can issue
stock options, restricted stock, stock appreciation rights and
other forms of equity compensation to certain directors,
employees and consultants. To date, the Company has not issued
any awards under the 2002 Plan.

The 1991 Plan and the 2002 Plan provide for
granting of nonqualified stock options and incentive stock
options which vest as determined by the Board of Directors and
expire over varying terms, but not more than seven years from
date of grant. As stated above, the 2002 Plan also provides for
awards of restricted stock, stock appreciation rights and other
equity-based awards. The Independent Contractor Plan provides
for granting of nonqualified stock options that vest as
determined by the Company and expire over varying terms, but not
more than seven years from the date of the grant. The 1991 Plan,
the 2002 Plan and the Independent Contractor Plan are
administered by a compensation committee currently comprised of
three members of the Board of Directors as selected by the
Board. The committee determines the individuals to whom awards
shall be granted as well as the terms and conditions of each
award, the grant date and the duration of each award. All
options are initially granted at fair market value on the date
of grant.

The 2002 Director Plan provides for granting of
nonqualified stock options to 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, re-elected or continuing as a
nonemployee director automatically receives a nonqualified stock
option for 10,000 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

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

on each of the date of grant and the following
three anniversaries of the date of grant. The 1991 Director Plan
had comparable provisions except that the annual option grant
was for 5,000 shares.

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

|                                 |  |        |            |                  |  |   |       | 
|-------------------------------- |  | ------ | ---------- | ---------------- |  | - | ----- | 
|                                 |  |        |            | Weighted-Average
|                                 |  | Shares |            | Exercise Prices 
|                                 |  |        |            |                 
|Outstanding at January 1, 2001   |  |        | 10,393,999 |                  |  | $ | 16.03 | 
|Granted                          |  |        | 6,835,575  |                  |  |   | 31.00 | 
|Exercised                        |  |        | (2,051,109 | )                |  |   | 14.40 | 
|Cancelled                        |  |        | (1,716,678 | )                |  |   | 27.06 | 
|                                 |  |        |            |                  |  |   |       | 
|Outstanding at December 31, 2001 |  |        | 13,461,787 |                  |  |   | 22.47 | 
|Granted                          |  |        | 384,000    |                  |  |   | 38.47 | 
|Exercised                        |  |        | (4,729,771 | )                |  |   | 13.75 | 
|Cancelled                        |  |        | (1,722,627 | )                |  |   | 30.29 | 
|                                 |  |        |            |                  |  |   |       | 
|Outstanding at December 31, 2002 |  |        | 7,393,389  |                  |  |   | 27.06 | 
|Granted                          |  |        | 2,473,300  |                  |  |   | 27.53 | 
|Exercised                        |  |        | (1,536,933 | )                |  |   | 21.50 | 
|Cancelled                        |  |        | (452,300   | )                |  |   | 31.54 | 
|                                 |  |        |            |                  |  |   |       | 
|Outstanding at December 31, 2003 |  |        | 7,877,456  |                  |  |   | 28.03 | 
|                                 |  |        |            |                  |  |   |       | 
|Exercisable at December 31, 2003 |  |        | 3,010,981  |                  |  | $ | 25.97 | 
|                                 |  |        |            |                  |  |   |       | 

As of December 31, 2003, there were
17,282,559 shares of common stock reserved for issuance under
the plans, including 9,405,103 shares reserved for future grant.

Information about fixed stock options outstanding
at December 31, 2003, is summarized as follows:

|                         |  |             |           |                |  |                  |       |  |  |  |            | 
|------------------------ |  | ----------- | --------- | -------------- |  | ---------------- | ----- |  |  |  | ---------- | 
|                         |  |             |           |                |  | Weighted-       
|                         |  |             |           | Weighted-      |  | Average         
|                         |  | Number      |           | Average        |  | Remaining       
|Range of Exercise Prices |  | Outstanding |           | Exercise Price |  | Contractual Life
|                         |  |             |           |                |  |                 
|$ 5.01-$15.00            |  |             | 92,675    |                |  | $                | 12.04 |  |  |  | 3.24 Years | 
|15.01- 20.00             |  |             | 1,000,025 |                |  |                  | 16.13 |  |  |  | 3.87 Years | 
|20.01- 25.00             |  |             | 73,875    |                |  |                  | 22.85 |  |  |  | 5.01 Years | 
|25.01- 30.00             |  |             | 4,530,745 |                |  |                  | 26.44 |  |  |  | 5.58 Years | 
|30.01- 50.00             |  |             | 2,170,136 |                |  |                  | 37.54 |  |  |  | 4.45 Years | 
|50.01- 74.00             |  |             | 10,000    |                |  |                  | 59.38 |  |  |  | 3.36 Years | 
|                         |  |             |           |                |  |                  |       |  |  |  |            | 
|5.01- 74.00              |  |             | 7,877,456 |                |  |                  | 28.03 |  |  |  | 5.02 Years | 
|                         |  |             |           |                |  |                  |       |  |  |  |            | 

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Information about fixed stock options exercisable
at December 31, 2003, is summarized as follows:

|                |  |             |           |                |  |   |       | 
|--------------- |  | ----------- | --------- | -------------- |  | - | ----- | 
|                |  |             |           | Weighted-     
|Range of        |  | Number      |           | Average       
|Exercise Prices |  | Exercisable |           | Exercise Price
|                |  |             |           |               
|$ 5.01-$15.00   |  |             | 92,675    |                |  | $ | 12.04 | 
|15.01- 20.00    |  |             | 1,000,025 |                |  |   | 16.13 | 
|20.01- 25.00    |  |             | 49,875    |                |  |   | 22.13 | 
|25.01- 30.00    |  |             | 926,645   |                |  |   | 26.02 | 
|30.01- 50.00    |  |             | 931,761   |                |  |   | 37.72 | 
|50.01- 74.00    |  |             | 10,000    |                |  |   | 59.38 | 
|                |  |             |           |                |  |   |       | 
|5.01- 74.00     |  |             | 3,010,981 |                |  |   | 25.97 | 
|                |  |             |           |                |  |   |       | 

The Company applies APB Opinion No. 25 and
related interpretations in accounting for the plans.
Accordingly, no compensation cost has been recognized for its
fixed stock option plans other than for modifications of option
terms that result in new measurement dates.

The per share weighted-average fair value of
stock options granted was $10.82, $19.52 and $15.25 during 2003,
2002 and 2001, respectively, estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants: dividend yield of
approximately 1% for 2003, expected volatility of 55.6%, 68.09%
and 70.71% during 2003, 2002 and 2001, respectively, risk-free
interest rates of 1.86%, 2.17% and 3.70% in 2003, 2002 and 2001,
respectively, and expected lives of four years.

(9) Comprehensive Income

The following table summarizes comprehensive
income adjustments for the three years ended December 31,
2003, 2002 and 2001 (in thousands):

|                                                                |  |      |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                |  | 2003 |         | 2002 |  | 2001
|                                                                |  |      |         |      |  |     
|Investment Securities:                                          |  |      |         |      |  |      |         |   |  |   |         |  
|Net unrealized gain on available-for-sale
    securities        |  | $    | 6,838   |      |  | $    | 58,290  |   |  | $ | 25,707  |  
|Income tax expense on above                                     |  |      | (2,701  | )    |  |      | (23,226 | ) |  |   | (9,514  | )
|Reclassification adjustments for gains recognized
    in income |  |      | (30,849 | )    |  |      | (26,883 | ) |  |   | (20,787 | )
|Income tax benefit on above                                     |  |      | 12,214  |      |  |      | 9,270   |   |  |   | 8,543   |  
|                                                                |  |      |         |      |  |      |         |   |  |   |         |  
|                                                                |  |      | (14,498 | )    |  |      | 17,451  |   |  |   | 3,949   |  
|                                                                |  |      |         |      |  |      |         |   |  |   |         |  
|Cash Flow Hedges:                                               |  |      |         |      |  |      |         |   |  |   |         |  
|Holding gain related to interest rate swaps                     |  |      | 136     |      |  |      |        |   |  |   |        |  
|Income tax expense on above                                     |  |      | (54     | )    |  |      |        |   |  |   |        |  
|                                                                |  |      |         |      |  |      |         |   |  |   |         |  
|                                                                |  |      | 82      |      |  |      |        |   |  |   |        |  
|                                                                |  |      |         |      |  |      |         |   |  |   |         |  
|Net (loss) gain recognized in other
    comprehensive income    |  | $    | (14,416 | )    |  | $    | 17,451  |   |  | $ | 3,949   |  
|                                                                |  |      |         |      |  |      |         |   |  |   |         |  

(10) Leases

Oxford leases office space and equipment under
operating leases. Rent expense under operating leases for the
years ended December 31, 2003, 2002, and 2001 was
approximately $10.9 million, $12.2 million and
$11.2 million, respectively. The Companys lease terms
range from one to ten years with certain options to renew.
Certain lease agreements provide for escalation of payments
based on fluctuations in certain published cost-of-living
indices.

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                              |                          |                |        |        |  |   |        |        | 
|----------------------------- | ------------------------ | -------------- | ------ | ------ |  | - | ------ | ------ | 
|                              |                          | 2003           |        | 2002  
|                              |                          |                |        |       
|                              |                          |               
|                              |                          | (In thousands)
|Computer equipment            |                          | $              | 13,608 |        |  | $ | 13,608 |       
|Other equipment               |                          |                | 163    |        |  |   | 163    |       
|                              |                          |                |        |        |  |   |        |       
|                              | Gross                    |                |        | 13,771 |  |   |        | 13,771 | 
|Less accumulated amortization |                          |                | (8,263 | )      |  |   | (2,754 | )     
|                              |                          |                |        |        |  |   |        |       
|                              | Net capital lease assets |                | $      | 5,508  |  |   | $      | 11,017 | 
|                              |                          |                |        |        |  |   |        |       

Future minimum lease payments required under
operating leases that have initial or remaining non-cancelable
lease terms in excess of one year at December 31, 2003, are
as follows:

|                                     |  |                |        | 
|------------------------------------ |  | -------------- | ------ | 
|                                     |  | Operating     
|                                     |  | Leases        
|                                     |  |               
|                                     |  | (In thousands)
|2004                                 |  | $              | 13,200 | 
|2005                                 |  |                | 12,300 | 
|2006                                 |  |                | 10,000 | 
|2007                                 |  |                | 9,000  | 
|2008                                 |  |                | 6,300  | 
|Thereafter                           |  |                | 15,900 | 
|                                     |  |                |        | 
|Total minimum future rental payments |  | $              | 66,700 | 
|                                     |  |                |        | 

The above amounts for operating leases are net of
estimated future minimum subrentals aggregating approximately
$5.2 million.

(11) Outsourcing Agreement

In December 2000, the Company entered into a
five-year agreement with Computer Sciences Corporation
(CSC) to outsource certain of its information
technology operations, including data center, help desk
services, desktop systems and network operations.

CSC was expected to invoice the Company for base
operating and capital costs under the original agreement
totaling approximately $195 million over the agreement
term. Costs for CSC services and equipment utilization
fluctuated based on the Companys actual usage and were
billed by CSC at rates established in the agreement. Costs for
equipment purchased by CSC that was used for the Companys
operations were capitalized as leased assets and amortized over
periods ranging from three to five years based on estimated
useful lives, providing that all such equipment was to be fully
amortized by the end of the agreement. For the year ended
December 31, 2001, the Company capitalized equipment
purchases by CSC of approximately $28 million and expensed
approximately $31.6 million for operating costs provided by
CSC under the original agreement.

In April 2002, the Company agreed with CSC to
conclude its information technology outsourcing arrangement. As
part of the conclusion of the original agreement, the Company
recorded a charge of $15.5 million during the second
quarter of 2002, which is included in marketing, general and
administrative expenses. The Company entered into a new
agreement with CSC effective July 15, 2002, whereby the
Company, among other things, leases certain information
technology equipment with a fair value of approximately
$14 million from CSC over a term of thirty months. The
Company capitalized this equipment as leased assets.

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(12) Pharmacy Benefit Manager
Agreement

In September 2001, the Company entered into a
five-year agreement with Medco, effective beginning
January 1, 2002, pursuant to which Medco provides pharmacy
benefit management services, including retail and mail-order
pharmacy services, to the Companys members. If the Company
terminates the pharmacy services agreement during 2004, the
Company must pay a termination payment of $5 million. This
agreement provided for a payment of $4.5 million to Oxford
to offset systems and other costs associated with implementation
of designated services. In addition to the pharmacy services
agreement, the Company also entered into an alliance agreement
with Medco under which the Company has furnished and will
continue to furnish de-identified claim information and furnish
strategic consultative and other services to Medco over a
five-year period in return for a total payment of approximately
$82.9 million. The Company received a total of
$87.4 million in the third and fourth quarters of 2001.
Substantially all such amounts are being amortized on a
straight-line basis to income over a period of 60 months
beginning January 1, 2002. The amount recognized in income
included approximately $15.2 million in other income for
2003 and 2002 and approximately $1.4 million and
$2.3 million, respectively, as an offset to administrative
expense.

In connection with its new pharmacy benefits
agreement, the Company provided for costs related to the
settlement of its prior pharmacy benefits arrangements. Pursuant
to the settlement reached on January 26, 2004, the Company
agreed to pay $5.5 million. The Company had established a
liability for this amount as of December 31, 2003.

(13) Acquisitions

In May 2001, the Company acquired all of the
outstanding stock of Investors Guaranty Life Insurance Company
(IGL) for a purchase price of approximately
$11.8 million, net of cash acquired. The acquisition has
been accounted for as a purchase business combination.

On March 1, 2002, the Company acquired all
of the outstanding common stock of MedSpan, Inc. and its
subsidiary, MedSpan Health Options, Inc. (together,
MedSpan), a Connecticut managed healthcare
organization, for cash of approximately $17.3 million.
Effective January 2003, most of the assets and liabilities of
MedSpan were transferred to and assumed by Oxford Health Plans
(CT), Inc., pursuant to an assumption reinsurance agreement.

In December 2002, the Company sold its investment
in MedUnite Inc. (MedUnite), an independent,
development stage company initially conceived and financed by a
number of the nations largest health care payors, in
exchange for nominal consideration. The Company had made
investments totaling approximately $11.4 million in
MedUnite. This investment was fully reserved prior to sale.

(14) Employee Benefit and Incentive
Plans

The Company has a qualified defined contribution
401(k) savings plan (the Savings Plan) that covers
all employees with six months of service and at least a
part-time employment status as defined. Employees may contribute
up to a maximum of 30% of compensation, as defined, up to a
maximum annual contribution of $12,000 in 2003. Employee
participants are not permitted to invest their contributions in
the Companys common stock. The Savings Plan also provides
that the Company make matching contributions, currently 4% up to
certain limits, of the salary contributions made by the
participants. Of this matching contribution, 1% is in Company
stock and 3% may be directed by the participant into several
investment choices, including Company stock. The Companys
contributions to the Savings Plan were approximately
$3.6 million, $3.2 million and $1.4 million in
2003, 2002 and 2001, respectively.

The Company has a program that provides eligible
employees with an annual cash bonus if the Company achieves
certain pre-established financial and operating goals. The
Company recorded expense under this bonus program of
approximately $10.3 million, $12.1 million and
$11 million during 2003, 2002 and 2001,

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

respectively. Bonuses to be paid in 2004 related
to 2003 are recorded in accounts payable and accrued expenses as
of December 31, 2003.

The Company has a Long-Term Incentive Plan
(LTIP) for members of senior management. The LTIP
links cash awards to earnings per share (EPS)
performance over a two or three year program period. The first
payment under the LTIP will be made in early 2004 based upon EPS
performance of the Company for the performance period 2001-2003.
Additional cash awards are anticipated to be paid during 2005
and 2006 for LTIP performance periods that were in place as of
December 31, 2003. Individual participants may elect to
receive a portion of their LTIP payments in 2005 and beyond in
restricted stock units based on their ownership of Oxford stock.
The Company has total LTIP accruals recorded of
$11.2 million in trade accounts payable and accrued
expenses as of December 31, 2003. LTIP expense recorded was
approximately $6.2 million, $3.2 million and
$1.8 million during 2003, 2002 and 2001, respectively.

Beginning in 2004, the Company began offering a
nonqualified deferred compensation plan to members of senior
management, other key executives and the Companys board of
directors that provides the opportunity to defer a specified
percentage of their applicable compensation, including, among
other things, salary, annual bonus, LTIP awards or
directors fees, if applicable. The obligations under this
plan will be unfunded and unsecured general obligations of the
Company.

(15) Regulatory and Contractual Capital
Requirements

Certain restricted cash and investments at
December 31, 2003 and 2002, are held on deposit with
various financial institutions to comply with state regulatory
capital requirements. As of December 31, 2003,
approximately $59.7 million was so restricted and is shown as
restricted cash and investments in the accompanying consolidated
balance sheet. With respect to the Companys HMO
subsidiaries, the minimum amount of surplus required is based on
formulas established by the state insurance departments. At
December 31, 2003 and 2002, the Companys HMO and
insurance subsidiaries had statutory surplus of approximately
$698 million and $551 million, respectively, or
approximately $480 million and $338 million,
respectively, in excess of current regulatory requirements. The
Company currently manages its statutory surplus primarily
against National Association of Insurance Commissioners Company
Action Level (CAL) Risk Based Capital
(RBC), although RBC standards are not yet applicable
to all of the Companys operating subsidiaries. At
December 31, 2003, the Companys statutory surplus was
approximately 236% of CAL RBC, compared with approximately 200%
at December 31, 2002.

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. These
restrictions limit the ability of the Company to use cash
generated by the subsidiary operations to pay obligations of
Oxford, including principal debt service and other financing
costs, and limit the Companys ability to declare and pay
shareholder dividends.

During 2003 and 2002, the Companys
subsidiaries paid dividends to the parent company of
approximately $208 million and $235 million,
respectively, and the Company made cash contributions to its
MedSpan HMO subsidiary of $24 million during 2002. The
capital contribution was made to ensure that the subsidiary had
sufficient surplus under applicable regulations after giving
effect to operating results and reductions to surplus resulting
from the non-admissibility of certain assets. In addition,
dividends of $21 million and $87.3 million were
approved and paid in 2003 and 2002, respectively, from the
Companys insurance company, OHI, to its parent company,
Oxford NY. In January 2004, the Company received regulatory
approval for a dividend of $45 million from Oxford NY to
the parent company.

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(16) 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, 2003 and 2002, the Company had no
significant concentrations of such credit risk. Financial
instruments that potentially subject the Company to
concentrations of credit risk consist primarily of obligations
of the United States government, certain state governmental
entities and high-grade corporate bonds and notes and mortgage
and asset backed securities. These investments are managed by
professional investment managers within the guidelines
established by the Board of Directors, which, as a matter of
policy, limit the amounts which may be invested in any one
issuer and prescribe certain minimum investee company criteria.

The Companys commercial and Medicare
business is concentrated in New York, New Jersey and
Connecticut, with approximately 72% of its commercial premium
revenues received from New York business for the year ended
December 31, 2003. 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 CMS represented approximately 12% of
its premium revenue earned during 2003.

(17) 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 and a
related stockholder lawsuit commenced by the State Board of
Administration of Florida were filed against the Company,
certain of its officers and directors, and the Companys
former independent auditor, KPMG LLP, in the United States
District Courts for the Southern and Eastern Districts of New
York, the District of Connecticut and the District of Arkansas.
These lawsuits were consolidated before the Honorable Charles L.
Brieant, in the United States District Court for the Southern
District of New York (the Securities Class Action
Litigation).

In the fourth quarter of 1999, the Company
purchased insurance policies providing additional coverage of,
among other things, certain judgments and settlements, if any,
incurred by the Company and individual defendants in certain
pending lawsuits and investigations, including, among others,
the securities class actions pending against the Company and
certain of its former officers and directors and the pending
stockholder derivative actions (the Excess
Insurance).

On March 3, 2003, the Company agreed with
the plaintiffs to settle the Securities Class Action
Litigation for $225 million (the Settlement).
In connection with the Settlement, the Company incurred an
additional pretax charge of $45 million, net of insurance
recoverable, in the first quarter of 2003, which charge, along
with prior charges, fully covers all of the Companys
expenses relating to the Settlement and related legal fees and
expenses. The Court granted final approval to the Settlement on
June 11, 2003. The excess insurance carriers responsible
for the first $25 million under the Companys
$200 million Excess Insurance policies contributed
$25 million to the Settlement, but the other carriers under
the policies refused to contribute to the Settlement.
Accordingly, the Company paid $200 million of the
Settlement and paid the Excess Insurance carriers an additional
premium of $8 million. Also, in connection with the
Settlement, (i) plaintiffs settled the class claims
against KPMG LLP for $75 million and (ii) a derivative
shareholder action against KPMG LLP in the name of the Company
pending in state court was dismissed with prejudice.

Subject to the terms of the Excess Insurance
policies, the Excess Insurance carriers agreed to pay 90% of the
amount, if any, by which covered costs exceed a retention amount
(the Retention), provided that the aggregate amount
of insurance under these policies is limited to
$200 million. Under the insurance carriers
interpretation of the Excess Insurance policies, the Company was
required to pay a $161.3 million retention and the
additional $8 million premium, and, if the Excess Insurance
carriers had fully participated in the Settlement, the Company
would have to pay approximately $6.4 million in
co-insurance. Under the

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys interpretation of the Excess
Insurance policies, the Company was required to pay a
$151.3 million retention, the additional $8 million
premium and approximately $7.4 million in co-insurance if
the insurance carriers had fully participated in the Settlement.
Accordingly, under the insurance carriers interpretation,
the Companys payment of the Settlement without the full
benefit of the Excess Insurance coverage resulted in the Company
paying an additional approximately $32.3 million, and,
under the Companys interpretation, approximately
$41.3 million. On April 25, 2003, the Company filed
suit in Delaware state court against the Excess Insurance
carriers that refused to contribute to the settlement to recover
at least $41.3 million under the terms of the Excess
Insurance policies. During the third quarter of 2003, the
Company agreed with certain of the Excess Insurance carriers to
settle approximately $17.9 million of its claims for a
total of approximately $14.3 million which was reflected in
income for the third quarter ended September 30, 2003. The
Company has a remaining claim of approximately
$23.4 million against one Excess Insurance carrier. The
Company intends to vigorously pursue recovery of this
outstanding amount. The Company has not recorded any additional
recoveries at December 31, 2003 related to a potential
favorable outcome of this litigation.

On September 7, 2000, the Connecticut
Attorney General filed suit against four Health Maintenance
Organizations (HMOs), including the Company, in the
federal district court in Connecticut, on behalf of a putative
class consisting of all Connecticut members of the defendant
HMOs who were enrolled in plans governed by the Employee
Retirement Income Security Act (ERISA). The suit
alleged that the named HMOs breached their disclosure
obligations and fiduciary duties under ERISA by, among other
things: (i) failing to timely pay claims; (ii) the use
of inappropriate and arbitrary coverage guidelines as the basis
for denials; (iii) the inappropriate use of drug
formularies; (iv) failing to respond to member
communications and complaints; and (v) failing to disclose
essential coverage and appeal information. The suit sought
preliminary and permanent injunctions enjoining the defendants
from pursuing the complained of acts and practices. Also, on
September 7, 2000, a group of plaintiffs law firms
commenced an action in federal district court in Connecticut
against the Company and four other HMOs on behalf of a putative
national class consisting of all members of the defendant HMOs
who are or have been enrolled in plans governed by ERISA within
the past six years. The substantive allegations of this
complaint, which also claimed violations of ERISA, were nearly
identical to that filed by the Connecticut Attorney General. The
complaint demanded the restitution of premiums paid and/or the
disgorgement of profits, in addition to injunctive relief.
Although this complaint was dismissed without prejudice as to
the Oxford defendants, another identical complaint against the
Company was filed on December 28, 2000 in the federal
district court in Connecticut under the caption Patel v.
Oxford Health Plans of Connecticut, Inc.(the Patelaction). On November 30, 2000, the Judicial Panel
on Multidistrict Litigation (JPML) issued a
Conditional Transfer Order, directing that the Connecticut
Attorney General action be transferred to the Southern District
of Florida for consolidated pretrial proceedings along with
various other ERISA and Racketeering Influenced and Corrupt
Organizations (RICO) cases pending against other
HMOs, which order was confirmed on April 17, 2001. On
November 13, 2001, the JPML issued a Conditional Transfer
Order, directing that the Patelaction also be
transferred to the consolidated proceedings in Florida, which
order was confirmed on February 20, 2002. By Order dated
September 26, 2002, Judge Moreno of the Southern District
of Florida, denied the motion for class certification made by
plaintiffs in the member proceeding (the Subscriber
Track). The Company reached agreement to settle the
Patelaction by paying the individual plaintiffs a total
of $12,500, which case has now been dismissed. By Orders dated
September 18, 2003, Judge Moreno granted the motion of
Oxford and other defendants to dismiss the Connecticut Attorney
General action and ruled that the Subscriber Track in this MDL
was closed in light of the dismissal of all cases in that track.
The Connecticut Attorney General has appealed the dismissal of
this action.

On February 14, 2001, the Connecticut State
Medical Society (CSMS) filed a lawsuit against the
Companys Connecticut HMO subsidiary in Connecticut state
court on behalf of both itself and its members who had Oxford
contracts. The suit asserted claims for breach of contract,
breach of the implied duty of good faith and fair dealing,
violation of the Connecticut Unfair Trade Practices Act
(CUTPA) and negligent

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

misrepresentation based on, among other things,
the Companys alleged: (i) failure to timely pay
claims or interest; (ii) refusal to pay all or part of
claims by improperly bundling or
downcoding claims, or by including unrelated claims
in global rates; (iii) use of inappropriate and
arbitrary coverage guidelines as the basis for denials; and
(iv) failure to provide adequate staffing to handle
physician inquiries. The Court ruled on December 13, 2001
that CSMS lacked standing to assert any claims on behalf of its
member physicians, and on October 25, 2002 granted the
Companys motion to strike the complaint for failure to
state a claim under CUTPA. On November 12, 2002, CSMS filed
a notice of appeal with respect to the Courts
October 25th decision. The appeal is now fully briefed.

On August 15, 2001, the Medical Society of
the State of New York (MSSNY), and three individual
physicians, filed two separate but nearly identical lawsuits
against the Company and the Companys New York HMO
subsidiary in New York state court, on behalf of all members of
the MSSNY who provided health care services pursuant to
contracts with the Company during the period August 1995 through
the present. The suit filed by the individual physicians was
styled as a class action complaint. Both suits asserted claims
for breach of contract and violations of New York General
Business Law, Public Health Law and Prompt Payment Law, based
on, among other things, the Companys alleged:
(i) failure to timely pay claims or interest;
(ii) refusal to pay all or part of claims by improperly
bundling or downcoding claims, or by
including unrelated claims in global rates;
(iii) use of inappropriate and arbitrary coverage
guidelines as the basis for denials; and (iv) failure to
provide adequate staffing to handle physician inquiries. The
complaint filed by the MSSNY seeks a permanent injunction
enjoining the Company from pursuing the complained of acts and
practices, as well as attorneys fees and costs. By Order
dated January 23, 2003, the Court granted the
Companys motion to stay the purported class action case
and compel arbitration. The Court further dismissed the claims
under the Prompt Pay Law and the Public Health Law. By order
dated January 24, 2003, the Court granted the
Companys motion to dismiss the MSSNY complaint in its
entirety. On February 28, 2003, MSSNY and the individual
physicians filed notices of appeal regarding the
January 23, 2003 and January 24, 2003 orders.

On April 12, 2002, Dr. John Sutter, a
New Jersey physician, filed a purported class action complaint
against the Company in New Jersey state court, on behalf of all
New Jersey providers who provide or have provided health care
services to members of Oxfords health plans. The suit
asserts claims for breach of contract, breach of the implied
duty of good faith and fair dealing, and violations of the New
Jersey Prompt Pay Act and Consumer Fraud Act, and seeks
compensatory damages, treble damages on the Consumer Fraud Act
claim, punitive damages, reformation of the provider contracts,
and attorneys fees and costs. On October 25, 2002,
the Court dismissed the complaint and granted the Companys
motion to compel arbitration. On or about December 11,
2002, Dr. Sutter filed the same purported class action
complaint with the American Arbitration Association. The parties
are now engaged in discovery to determine whether the
arbitration may proceed as a class.

On or about May 8, 2002, the Medical Society
of New Jersey (MSNJ) filed separate lawsuits against
the Company and four other HMOs in New Jersey chancery court, on
behalf of itself and its members who have contracted with Oxford
and the other defendants. The suit against the Company asserted
several claims, including violations of the New Jersey Prompt
Pay Act and Consumer Fraud Act and tortious interference with
prospective economic relations, based on, among other things,
the Companys alleged: (i) failure to timely pay
claims or interest; (ii) refusal to pay all or part of
claims by improperly bundling or
downcoding claims, or by including unrelated claims
in global rates; (iii) use of inappropriate and
arbitrary coverage guidelines as the basis for denials;
(iv) failure to provide adequate staffing to handle
physician inquiries; and (v) practice of forcing physicians
into unfair contracts that infringe on relationships with
patients. The complaint sought a permanent injunction enjoining
the Company from pursuing the complained of acts and practices,
as well as attorneys fees and costs. By order dated
September 22, 2003, the Court granted Oxfords motion
to dismiss the complaint in its entirety for lack of standing
and for failure to state an actionable claim. The MSNJ has
appealed the dismissal of this action.

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On or about September 22, 2003, the Company
and Triad Healthcare, Inc. (Triad) were sued in
federal court in the Southern District of New York in a
purported class action on behalf of all Oxford members who are
or were Oxford policy holders with coverage for chiropractic
care. The suit alleges that Oxford and Triad, which Oxford has
engaged to assist in managing chiropractic services, have
breached their disclosure obligations and fiduciary duties under
ERISA by, among other things: (i) the use of inappropriate
and cost-based criteria as the basis for denials;
(ii) providing financial incentives to Triad to deny care;
(iii) failing to disclose such financial incentives and
misrepresenting that chiropractic coverage would be based on
medical necessity; and (iv) intentionally delaying the
payment of claims. The complaint demands the restitution of
premiums paid and/or the disgorgement of profits, in addition to
injunctive relief and attorneys fees. On January 14,
2004, the Company filed its motion to dismiss the complaint in
its entirety for failure to state a claim under ERISA.

On March 30, 2001, the Company and Express
Scripts, Inc. (ESI) executed a Settlement Agreement
and an Amendment to a 1998 Prescription Drug Program Agreement
(the Amended ESI Agreement), which agreements
resolved the Companys claims against ESI and ESIs
subsidiary, Diversified Pharmaceutical Services, Inc., under the
risk arrangement portions of the original 1998 Prescription Drug
Program Agreement with ESI in exchange for a payment to the
Company of $37 million. The Amended ESI Agreement further
provided that, among other things, (i) ESI would continue
to administer the Companys prescription drug benefits
until December 31, 2005; and (ii) in the event that
the Company terminated the agreement without cause prior to this
date, ESI would be entitled to certain annual payments through
2005 (the Termination Payments), which Termination
Payments would constitute ESIs sole remedy for such early
termination. In September 2001, the Company formally notified
ESI that it would terminate its agreement with ESI on
December 31, 2001 and recorded an estimated liability for
the Termination Payments plus estimated defense costs. ESI
subsequently notified the Company that it believed the
Companys termination constitutes a material breach of the
Amended ESI Agreement and, on March 6, 2002 commenced an
arbitration proceeding to enforce its rights and seek remedies.
On January 26, 2004, the Company and ESI settled the
arbitration. Pursuant to the settlement, the Company agreed to
pay the remaining Termination Payment amount of $5 million
along with an additional $500,000.

On May 23, 2003, the Company submitted to
the United States Patent and Trademark Office, a Notice of
Opposition to an application by Oxford Life Insurance Company
(OLIC), headquartered in Phoenix, Arizona, for
registration of a federal service mark
www.Oxfordlife.com. OLIC also is seeking
registration of the mark Oxford Life Insurance
Company. The Company currently has numerous marks,
including federal trademark and service mark registrations, that
include the terms Oxford and Oxford Health
Plans. On July 28, 2003, OLIC filed an answer to the
Companys Notice of Opposition and filed a counterclaim for
cancellation of all marks registered by the Company that include
the word Oxford. Also, on July 28, 2003, OLIC
filed suit in the Federal District Court for the District of
Arizona seeking to cancel the Companys federal trademark
and service mark registrations that include the word
Oxford, seeking preliminary and permanent
injunctions against the Company from continuing to use
trademarks and service marks that include the word
Oxford and seeking damages against the Company. On
January 14, 2004, the Company and OLIC entered into a
settlement agreement to resolve this dispute. Pursuant to the
settlement agreement, OLIC has the right to use and register the
marks Oxford Life Insurance Company and
www.Oxfordlife.com in connection with life
insurance, disability insurance, long term care insurance,
administration of employee benefit plans, annuity products,
financial planning and certain related products, and the Company
has the right to register or maintain the registration of, and
use the marks Oxford and any variant thereof
including but not limited to Oxford Health Plans for
pre-paid health care plans, health care insurance, HMO services,
managed care plans, administration and promotion of ancillary
and specialty health benefit products and services in the field
of health insurance, health maintenance organizations and
self-funded benefit programs, insurance agency and brokerage
services, health care benefit administration services and
benefits administration, generally excluding those services
authorized to be federally registered by OLIC. The settlement
will

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

permit the Company to maintain all of its
trademark and service mark registrations and to register any new
Oxford trademarks and service marks in the fields
described above.

The Company is also subject to examinations and
investigations by various state and federal agencies from time
to time with respect to its business and operations. The outcome
of any such examinations and investigations, if commenced,
cannot be predicted at this time.

The Company is involved in other legal actions in
the normal course of its business, some of which seek monetary
damages, including claims for punitive damages, which may not be
covered by insurance. Some of these actions involve claims by
the Companys members in connection with benefit coverage
determinations and alleged acts by network providers. The
Company is also routinely engaged in disputes and negotiations
with health care providers, including various hospitals and
hospital systems, involving payment arrangements, contract terms
and other matters. During such disputes and negotiations,
hospitals, hospital systems and other providers may threaten to
or, in fact, provide notice of termination of their agreement
with the Company as part of their negotiation strategy. The
result of these legal actions, disputes and negotiations could
adversely affect the Company through termination of existing
contracts, involvement in litigation, adverse judgments or other
results or could expose the Company to other liabilities. The
Company believes any ultimate liability associated with these
legal actions, disputes and negotiations would not have a
material adverse effect on the Companys consolidated
financial position.

(18) 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.                                                                                                                             
|
| | Premiums receivable:The carrying amount approximates fair
    value based on the relatively short duration of outstanding
    amounts.                                                                                                                         
|
| | Investments:Fair
    values for fixed maturity securities are based on quoted market
    prices, where available. For fixed maturity securities not
    actively traded, fair values are estimated using values obtained
    from independent pricing services.
|
| | Long-term debt:The
    carrying amount of long-term debt, including the current
    portion, approximates fair value as the interest rates of
    outstanding debt are similar to like borrowing arrangements at
    December 31, 2003.                        
|
| | Interest rate swap agreements:Fair values are estimated using values
    obtained from independent pricing services.                                                                                                                                           

(19) Government Programs

During 2003, 2002 and 2001, the Company earned
premiums of $632.5 million, $585.2 million and
$659.3 million, respectively, associated with Medicare.

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

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(20) Quarterly Information
(Unaudited)

Tabulated below are certain data for each quarter
of 2003 and 2002.

|                              |                                         |                                  |   |           |      |              |   |             |      |  |   |           |      |  |   |           |      | 
|----------------------------- | --------------------------------------- | -------------------------------- | - | --------- | ---- | ------------ | - | ----------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                              |                                         |                                 
|                              |                                         | Quarter Ended                   
|                              |                                         |                                 
|                              |                                         | March 31                         |   | June 30   |      | September 30 |   | December 31
|                              |                                         |                                  |   |           |      |              |   |            
|                              |                                         |                                 
|                              |                                         | (In thousands, except membership
|                              |                                         | and per share amounts)          
|Year ended December 31, 2003: |                                         |                                  |   |           |      |              |   |             |      |  |   |           |      |  |   |          
|                              | Net operating revenues                  |                                  | $ | 1,313,577 |      |              | $ | 1,334,325   |      |  | $ | 1,349,074 |      |  | $ | 1,354,635 |     
|                              | Operating expenses                      |                                  |   | 1,176,359 |      |              |   | 1,233,012   |      |  |   | 1,197,207 |      |  |   | 1,210,944 |     
|                              | Net earnings                            |                                  | $ | 72,925    |      |              | $ | 72,476      |      |  | $ | 111,000   |      |  | $ | 95,452    |     
|                              | Per common and common equivalent share: |                                  |   |           |      |              |   |             |      |  |   |           |      |  |   |           |     
|                              |                                         | Basic                            |   | $         | 0.87 |              |   | $           | 0.87 |  |   | $         | 1.35 |  |   | $         | 1.18 | 
|                              |                                         | Diluted                          |   | $         | 0.86 |              |   | $           | 0.85 |  |   | $         | 1.31 |  |   | $         | 1.14 | 
|                              | Membership at quarter-end               |                                  |   | 1,592,600 |      |              |   | 1,568,200   |      |  |   | 1,554,300 |      |  |   | 1,539,200 |     
|Year ended December 31, 2002: |                                         |                                  |   |           |      |              |   |             |      |  |   |           |      |  |   |          
|                              | Net operating revenues                  |                                  | $ | 1,147,968 |      |              | $ | 1,207,253   |      |  | $ | 1,246,364 |      |  | $ | 1,267,123 |     
|                              | Operating expenses                      |                                  |   | 1,044,629 |      |              |   | 1,128,743   |      |  |   | 1,079,996 |      |  |   | 1,170,868 |     
|                              | Net earnings                            |                                  |   | 71,443    |      |              |   | 52,873      |      |  |   | 23,808    |      |  |   | 73,841    |     
|                              | Per common and common equivalent share: |                                  |   |           |      |              |   |             |      |  |   |           |      |  |   |           |     
|                              |                                         | Basic                            |   | $         | 0.82 |              |   | $           | 0.60 |  |   | $         | 0.27 |  |   | $         | 0.86 | 
|                              |                                         | Diluted                          |   | $         | 0.78 |              |   | $           | 0.58 |  |   | $         | 0.26 |  |   | $         | 0.84 | 
|                              | Membership at quarter-end               |                                  |   | 1,574,500 |      |              |   | 1,601,800   |      |  |   | 1,611,100 |      |  |   | 1,601,500 |     

Net operating revenues include premiums earned
and third-party administration fees, net. Operating expenses
include health care services and marketing, general and
administrative expenses and exclude the net litigation charge
for settlement. Net earnings per common and common equivalent
share is computed independently for each of the quarters
presented in accordance with SFAS 128. Therefore, the sum of the
quarterly net earnings per common and common equivalent share
may not equal the total computed for the year or any cumulative
interim period.

For the three months ended March 31, 2003,
the Company recorded a net charge of $45.0 million, or
$0.32 per diluted share, related to the final settlement of the
securities class action lawsuits brought in 1997 following the
October 27, 1997 decline in the price of the Companys
stock.

For the three months ended September 30,
2003, the Company settled a claim against certain excess
insurance carriers related to securities class action lawsuits
brought in 1997 and received a payment of approximately
$14.3 million, or $0.10 per diluted share.

In April 2002, the Company agreed with CSC to
conclude its information technology outsourcing arrangement and
entered into a new agreement with CSC effective July 15,
2002. As a result of the conclusion of the original agreement,
the Company recorded a charge of $15.5 million, which was
included in marketing, general and administrative expenses,
during the second quarter of 2002.

In September 2002, the Company recorded a net
charge of $151.3 million, or $0.98 per diluted share,
related to securities class action lawsuits following the
October 27, 1997 decline in the price of the Companys
stock. In addition, during the third quarter of 2002, the
Company recorded reductions to estimated reserves for New York
State Market Stabilization Pools of approximately
$20.8 million for 2001 and prior years, an

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OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

increase of approximately $1.2 million in
estimated recoveries for 2001 New York Stop Loss Pools and net
favorable development of prior period medical cost estimates of
approximately $9.5 million ($0.20 per diluted share).

In December 2002, the Company recorded a reserve
of $20 million, or $0.13 per diluted share, for
estimated legal defense costs related to the securities class
action lawsuits filed following the October 27, 1997
decline in the price of the Companys stock.

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OXFORD HEALTH PLANS, INC.

SCHEDULE I  CONDENSED
FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

December 31, 2003 and 2002


|                                                 |                                                                   |                                            |         |          |           |  |         |          |         | 
|------------------------------------------------ | ----------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | --------- |  | ------- | -------- | ------- | 
|                                                 |                                                                   | 2003                                       |         | 2002    
|                                                 |                                                                   |                                            |         |         
|                                                 |                                                                   |                                           
|                                                 |                                                                   | (In thousands)                            
|Current assets:                                  |                                                                   |                                            |         |          |           |  |         |         
|                                                 | Cash and cash equivalents                                         |                                            | $       | 179,276  |           |  | $       | 42,260   |        
|                                                 | Investments  available-for-sale                                  |                                            |         | 190,228  |           |  |         | 82,085   |        
|                                                 | Receivables, net                                                  |                                            |         | 6,060    |           |  |         | 14,049   |        
|                                                 | Deferred income taxes                                             |                                            |         | 30,512   |           |  |         | 105,392  |        
|                                                 | Other current assets                                              |                                            |         | 11,523   |           |  |         | 9,773    |        
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|                                                 |                                                                   | Total current assets                       |         |          | 417,599   |  |         |          | 253,559 | 
|Property and equipment, net                      |                                                                   |                                            | 31,638  |          |           |  | 34,157  |         
|Investments in and advances to subsidiaries, net |                                                                   |                                            | 717,505 |          |           |  | 599,295 |         
|Goodwill and other intangible assets, net        |                                                                   |                                            | 19,207  |          |           |  |        |         
|Deferred income taxes                            |                                                                   |                                            | 9,572   |          |           |  | 7,368   |         
|Other assets                                     |                                                                   |                                            | 7,761   |          |           |  | 3,858   |         
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|                                                 |                                                                   | Total assets                               |         | $        | 1,203,282 |  |         | $        | 898,237 | 
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|Current liabilities:                             |                                                                   |                                            |         |          |           |  |         |         
|                                                 | Accounts payable, accrued expenses and medical
    claims payable |                                            | $       | 21,959   |           |  | $       | 35,345   |        
|                                                 | Current portion of long-term debt                                 |                                            |         | 4,000    |           |  |         | 30,625   |        
|                                                 | Unearned revenue                                                  |                                            |         | 49,843   |           |  |         | 66,581   |        
|                                                 | Reserve for litigation settlement                                 |                                            |         |         |           |  |         | 161,300  |        
|                                                 | Current portion of capital lease obligations                      |                                            |         | 5,749    |           |  |         | 5,470    |        
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|                                                 |                                                                   | Total current liabilities                  |         |          | 81,551    |  |         |          | 299,321 | 
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|Capital lease obligation                         |                                                                   |                                            | 467     |          |           |  | 5,749   |         
|Long-term debt                                   |                                                                   |                                            | 394,000 |          |           |  | 96,250  |         
|Shareholders equity:                            |                                                                   |                                            |         |          |           |  |         |         
|                                                 | Common stock                                                      |                                            |         | 1,066    |           |  |         | 1,051    |        
|                                                 | Additional paid-in capital                                        |                                            |         | 750,919  |           |  |         | 709,258  |        
|                                                 | Retained earnings                                                 |                                            |         | 780,856  |           |  |         | 437,130  |        
|                                                 | Accumulated other comprehensive earnings                          |                                            |         | 10,622   |           |  |         | 25,038   |        
|                                                 | Treasury stock                                                    |                                            |         | (816,199 | )         |  |         | (675,560 | )      
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|                                                 |                                                                   | Total shareholders equity                 |         |          | 727,264   |  |         |          | 496,917 | 
|                                                 |                                                                   |                                            |         |          |           |  |         |         
|                                                 |                                                                   | Total liabilities and shareholders equity |         | $        | 1,203,282 |  |         | $        | 898,237 | 
|                                                 |                                                                   |                                            |         |          |           |  |         |         

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OXFORD HEALTH PLANS, INC.

CONDENSED STATEMENTS OF INCOME

Years Ended December 31, 2003, 2002 and
2001


|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |         |         | 
|----------------------------------------------------------------- | ----------------------------------------------- | -------------- | ------- | ------- | ------- | ---- | -------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                  |                                                 | 2003           |         | 2002    |         | 2001
|                                                                  |                                                 |                |         |         |         |     
|                                                                  |                                                 |               
|                                                                  |                                                 | (In thousands)
|Revenues-management fees and investment and other
    income, net |                                                 | $              | 421,015 |         |         | $    | 403,551  |         |         | $ | 368,615 |        
|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |        
|Expenses:                                                         |                                                 |                |         |         |         |      |          |         |         |   |         |        
|                                                                  | Health care services                            |                |         | (5,440  | )       |      |          | (3,342  | )       |   |         | (1,488  | )      
|                                                                  | Marketing, general and administrative           |                |         | 376,831 |         |      |          | 406,044 |         |   |         | 364,987 |        
|                                                                  | Interest and other financing charges            |                |         | 20,654  |         |      |          | 9,745   |         |   |         | 15,602  |        
|                                                                  | Litigation charge for estimated settlement, net |                |         | 30,675  |         |      |          | 151,300 |         |   |         |        |        
|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |        
|                                                                  |                                                 | Total expenses |         |         | 422,720 |      |          |         | 563,747 |   |         |         | 379,101 | 
|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |        
|Operating loss                                                    |                                                 |                | (1,705  | )       |         |      | (160,196 | )       |         |   | (10,486 | )      
|Equity in net earnings of subsidiaries                            |                                                 |                | 351,910 |         |         |      | 314,307  |         |         |   | 287,874 |        
|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |        
|Earnings before income taxes                                      |                                                 |                | 350,205 |         |         |      | 154,111  |         |         |   | 277,388 |        
|Income tax benefit(1)                                             |                                                 |                | (1,648  | )       |         |      | (67,854  | )       |         |   | (45,033 | )      
|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |        
|Net earnings                                                      |                                                 | $              | 351,853 |         |         | $    | 221,965  |         |         | $ | 322,421 |        
|                                                                  |                                                 |                |         |         |         |      |          |         |         |   |         |        



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



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2003, 2002 and 2001, the Registrant
    received cash dividends from its consolidated subsidiaries
    aggregating $208 million, $235 million and
    $328.4 million, respectively.

79



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##### Table of Contents



OXFORD HEALTH PLANS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS

Years Ended December 31, 2003, 2002 and
2001


|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |          |          |  
|-------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------------------- | ------- | -------- | -------- | ---- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                         |                                                  | 2003                                                 |         | 2002     |          | 2001
|                                                         |                                                  |                                                      |         |          |          |     
|                                                         |                                                  |                                                     
|                                                         |                                                  | (In thousands)                                      
|Net cash provided by operating activities(1)             |                                                  | $                                                    | 111,583 |          |          | $    | 245,622 |          |          | $ | 492,450 |         
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|Cash flows from investing activities:                    |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|                                                         | Capital expenditures                             |                                                      |         | (14,683  | )        |      |         | (18,981  | )        |   |         | (21,386  | )       
|                                                         | Sale or maturity of investments                  |                                                      |         | 144,484  |          |      |         | 314,567  |          |   |         | 39,061   |         
|                                                         | Purchase of investments                          |                                                      |         | (253,171 | )        |      |         | (334,683 | )        |   |         | (95,260  | )       
|                                                         | Acquisitions and other investments               |                                                      |         |         |          |      |         |         |          |   |         | (7,667   | )       
|                                                         | Other, net                                       |                                                      |         | (1,097   | )        |      |         | 28,141   |          |   |         | 4,836    |         
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|                                                         |                                                  | Net cash used by investing activities                |         |          | (124,467 | )    |         |          | (10,956  | ) |         |          | (80,416  | )
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|Cash flow from financing activities:                     |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|                                                         | Proceeds from exercise of stock options          |                                                      |         | 32,738   |          |      |         | 31,545   |          |   |         | 29,494   |         
|                                                         | Proceeds from borrowings, net                    |                                                      |         | 391,371  |          |      |         |         |          |   |         |         |         
|                                                         | Redemption of notes payable                      |                                                      |         | (128,875 | )        |      |         | (26,251  | )        |   |         | (21,874  | )       
|                                                         | Payment of withholding tax on option exercises   |                                                      |         | (460     | )        |      |         | (24,056  | )        |   |         |         |         
|                                                         | Investments in and advances to subsidiaries, net |                                                      |         |         |          |      |         | (42,182  | )        |   |         | (12,760  | )       
|                                                         | Payments under capital lease obligations         |                                                      |         | (5,003   | )        |      |         | (2,552   | )        |   |         | (5,700   | )       
|                                                         | Purchase of treasury stock                       |                                                      |         | (139,871 | )        |      |         | (251,509 | )        |   |         | (366,497 | )       
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|                                                         |                                                  | Net cash provided (used) by financing
    activities |         |          | 149,900  |      |         |          | (315,005 | ) |         |          | (377,337 | )
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|Net increase (decrease) in cash and cash
    equivalents |                                                  |                                                      | 137,016 |          |          |      | (80,339 | )        |          |   | 34,697  |         
|Cash and cash equivalents at beginning of year           |                                                  |                                                      | 42,260  |          |          |      | 122,599 |          |          |   | 87,902  |         
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         
|Cash and cash equivalents at end of year                 |                                                  | $                                                    | 179,276 |          |          | $    | 42,260  |          |          | $ | 122,599 |         
|                                                         |                                                  |                                                      |         |          |          |      |         |          |          |   |         |         



---



|    |                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes cash dividends received from
    consolidated subsidiaries of $208 million, $235 million and
    $328.4 million, respectively, in 2003, 2002 and 2001. Also
    included in 2003 are net litigation payments of approximately
    $200 million related to the settlement of the 1997
    securities class action litigation.

80



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##### Table of Contents



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

Years Ended December 31, 2003, 2002 and
2001


|                             |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |   |        | 
|---------------------------- | ---------------------------------- | ----------------------------------------------------------- |  | ------------- | ------ | ----------- |  | ---------- | ------ | - |  | - | ----- |  |  | - | ------ | 
|                             |                                    |                                                             |  | Charged       |        |             |  |           
|                             |                                    | Balance at                                                  |  | (Credited) to |        | Deductions/ |  | Balance at
|                             |                                    | Beginning of                                                |  | Costs and     |        | Write-offs  |  | End of    
|                             |                                    | Period                                                      |  | Expenses      |        | (1)         |  | Period    
|                             |                                    |                                                             |  |               |        |             |  |           
|                             |                                    |                                                            
|                             |                                    | (In thousands)                                             
|Year ended December 31, 2003 |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |  
|                             | Deducted from Accounts Receivable: |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |   |       
|                             |                                    | Allowance for doubtful accounts and billing
    adjustments |  | $             | 13,526 |             |  | $          | (453   | ) |  | $ | 1,167 |  |  | $ | 11,906 | 
|                             |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |  
|Year ended December 31, 2002 |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |  
|                             | Deducted from Accounts Receivable: |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |   |       
|                             |                                    | Allowance for doubtful accounts and billing
    adjustments |  | $             | 19,785 |             |  | $          | (3,500 | ) |  | $ | 2,759 |  |  | $ | 13,526 | 
|                             |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |  
|Year ended December 31, 2001 |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |  
|                             | Deducted from Accounts Receivable: |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |   |       
|                             |                                    | Allowance for doubtful accounts and billing
    adjustments |  | $             | 28,620 |             |  | $          | (7,674 | ) |  | $ | 1,161 |  |  | $ | 19,785 | 
|                             |                                    |                                                             |  |               |        |             |  |            |        |   |  |   |       |  |  |  



---



|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes write-offs and other premium adjustments
    recorded in 2003, 2002 and 2001 of approximately
    $6.1 million, $4.1 million and $7 million,
    respectively, as reductions to premium revenue.

81



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##### Table of Contents



EXHIBIT INDEX

|            |    |     |  |                         |  |                                                                                                                                                                                                                                                                                                            
|----------- | -- | --- |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |     |  | Description of Document
|            |    |     |  |                        
|            | 3  | (a) |  |                        |  | Second Amended and Restated Certificate of
    Incorporation, as amended, of the Registrant, previously filed
    with and incorporated by reference to the Registrants
    Form 10-Q/ A for the quarterly period ended
    September 30, 2000 (File No. 0-19442)                                         
|            | 3  | (b) |  |                        |  | Amended and Restated By-laws of the Registrant,
    incorporated by reference to Exhibit 3(b) of the
    Registrants Form 10-Q for the quarterly period ended
    March 31, 2003 (File No. 001-16437)                                                                                                     
|            | 4  | (a) |  |                        |  | Form of Stock Certificate, incorporated by
    reference to Exhibit 4 of the Registrants
    Registration Statement on Form S-1 (File No. 33-40539)                                                                                                                                                       
|            | 10 | (a) |  |                        |  | Employment Agreement, dated as of
    September 30, 2002, between the Registrant and Charles G.
    Berg, incorporated by reference to Exhibit 10(a) of the
    Registrants Form 10-Q for the quarterly period ended
    September 30, 2002 (File No. 001-16437)                                          
|            | 10 | (b) |  |                        |  | Employment Agreement, dated as of
    October 14, 2002, between the Registrant and Steven H.
    Black, incorporated by reference to Exhibit 10(b) of the
    Registrants Form 10-Q for the quarterly period ended
    March 31, 2003 (File No. 001-16437)                                                
|            | 10 | (c) |  |                        |  | Employment Agreement, dated as of July 1,
    1998, between the Registrant and Kevin R. Hill, incorporated by
    reference to Exhibit 10(a) of the Registrants
    Form 10-Q for the quarterly period ended March 31,
    2003 (File No. 001-16437)                                                      
|            | 10 | (d) |  |                        |  | 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 | (e) |  |                        |  | Employment Agreement, dated as of
    September 1, 2000, as amended, by and between the
    Registrant and Daniel N. Gregoire, incorporated by reference to
    Exhibit 10(p) of the Registrants Annual Report on
    Form 10-K for the year ended December 31, 2001 (File
    No. 0-19442)               
|            | 10 | (f) |  |                        |  | Oxford Health Plans, Inc. Stock Option Agreement,
    dated as of December 1, 2000, by and between the Registrant
    and Daniel N. Gregoire, incorporated by reference to
    Exhibit 10(q) of the Registrants Annual Report on
    Form 10-K for the year ended December 31, 2001 (File
    No. 0-19442)
|            | 10 | (g) |  |                        |  | Letter Agreement, dated as of July 22, 1998,
    by and between the Registrant and Kurt B. Thompson, incorporated
    by reference to the Exhibit 10(y) of the Registrants
    Annual Report on Form 10-K for the year ended
    December 31, 1999 (File No. 0-19442)                                     
|            | 10 | (h) |  |                        |  | Employment Agreement, dated March 15, 2000,
    by and between the Registrant and Kurt B. Thompson, incorporated
    by reference to Exhibit 10(z) of the Registrants
    Annual Report on Form 10-K for the year ended
    December 31, 1999 (File No. 0-19442)                                          
|            | 10 | (i) |  |                        |  | 1991 Stock Option Plan, as amended, incorporated
    by reference to Exhibit 10(t) of the Registrants
    Annual report on Form 10-K for the year ended
    December 31, 2000 (File No. 0-19442)                                                                                                          
|            | 10 | (j) |  |                        |  | 1997 Independent Contractor Stock Option Plan,
    incorporated by reference to the Registrants Form S-8
    filed on September 16, 1997 (File No. 0-19442)                                                                                                                                               
|            | 10 | (k) |  |                        |  | Oxford Health Plans, Inc. 401(k) Plan, as
    amended, incorporated by reference to Exhibit 10(v) of the
    Registrants Annual report on Form 10-K for the year
    ended December 31, 2000 (File No. 0-19442)                                                                                           
|            | 10 | (l) |  |                        |  | 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 | (m) |  |                        |  | Oxford Health Plans, Inc. 2002 Equity Incentive
    Compensation Plan, incorporated by reference to the
    Registrants Form S-8 filed on September 30, 2002
    (File No. 333-100206)                                                                                                                    
|            | 10 | (n) |  |                        |  | Oxford Health Plans, Inc. 2002 Non-Employee
    Director Stock Option Plan, incorporated by reference to the
    Registrants Form S-8 filed on September 30, 2002
    (File No. 333-100202)                                                                                                               

82



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##### Table of Contents



|            |    |     |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                
|----------- | -- | --- |  | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |     |  | Description of Document
|            |    |     |  |                        
|            | 10 | (o) |  |                        |  | Oxford Health Plans, Inc. Special Salary
    Continuation Plan, as amended*                                                                                                                                                                                                                                                                                    
|            | 10 | (p) |  |                        |  | Oxford Health Plans, Inc. Deferred Compensation
    Plan*                                                                                                                                                                                                                                                                                                      
|            | 10 | (q) |  |                        |  | Oxford Health Plans, Inc. 2001 Management
    Incentive Compensation Plan, incorporated by reference to
    Exhibit 10(b) of the Registrants report on
    Form 10-Q for the quarterly period ended March 31,
    2001 (File No. 0-19442)                                                                                                                     
|            | 10 | (r) |  |                        |  | Credit Agreement, dated as of April 25,
    2003, among the Registrant, the financial institutions listed
    therein as Lenders, Credit Suisse First Boston, as
    Administrative Agent, and the other parties thereto,
    incorporated by reference to the Registrants
    Form 10-Q for the quarterly period ended March 31,
    2003 (File No. 33-40539)
|            | 10 | (s) |  |                        |  | First Amendment to Credit Agreement, dated as of
    December 2, 2003, among the Registrant, the financial
    institutions listed therein as Lenders, Credit Suisse First
    Boston, as Administrative Agent and the other parties thereto*                                                                                                                  
|            | 21 |     |  |                        |  | Subsidiaries of the Registrant*                                                                                                                                                                                                                                                                                                                                
|            | 23 | (a) |  |                        |  | Consent of Ernst & Young LLP*                                                                                                                                                                                                                                                                                                                                  
|            | 31 | (a) |  |                        |  | Chief Executive Officer
    Rule 13a-14(a)/15d-14(a) Certification*                                                                                                                                                                                                                                                                                            
|            | 31 | (b) |  |                        |  | Chief Financial Officer
    Rule 13a-14(a)/15d-14(a) Certification*                                                                                                                                                                                                                                                                                            
|            | 32 | (a) |  |                        |  | Chief Executive Officer Section 1350
    Certification*                                                                                                                                                                                                                                                                                                       
|            | 32 | (b) |  |                        |  | Chief Financial Officer Section 1350
    Certification*                                                                                                                                                                                                                                                                                                       



---



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



|  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These certifications are not deemed
    filedfor purposes of Section 18 of the Exchange
    Act (15 U.S.C. 78r), or otherwise subject to the
    liability of that section. Such certifications are not deemed to
    be incorporated by reference into any filing under the
    Securities Act or the Exchange Act, except to the extent that
    the Registrant specifically incorporates them by reference.

83