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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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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,
    2002                                             
|          
|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



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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

As of February 4, 2003, there were
83,876,553 shares of common stock issued and outstanding.
The aggregate market value of such stock held by nonaffiliates,
as of that date, was approximately $2,683,700,000.

DOCUMENTS INCORPORATED BY REFERENCE

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



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PART I



|        |         
|------- | --------
|Item 1. | Business

General

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

The Company offers its products through its HMO
subsidiaries, Oxford Health Plans (NY), Inc. (Oxford
NY), Oxford Health Plans (NJ), Inc. (Oxford
NJ), Oxford Health Plans (CT), Inc. (Oxford
CT) and MedSpan Health Options, Inc. (MSHO),
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. In May 2001, the Company acquired all of the
outstanding stock of IGL, a domestic California insurance
company licensed to write annuity, life and health insurance
policies in many states. In March 2002, the Company acquired
MedSpan, Inc. (MedSpan), the parent company of MSHO.

The Company is not dependent on any single
employer or group of employers, as the largest employer group
contributed less than 1% of total premiums earned during 2002
and the ten largest employer groups contributed approximately 4%
of total premiums earned during 2002. The Companys
Medicare revenue under its contracts with the federal Centers
for Medicare and Medicaid Services (CMS) represented
approximately 12.1% of its premium revenue earned during 2002.

Companys Future Strategy

The Companys strategy for the year 2003 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 product lines include HMO,
POS, and PPO indemnity and self funded health plans with a
full-spectrum of cost-share options and plan designs to meet the
diverse needs of its group, individual and Medicare 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 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
has two commercial networks of participating providers both of
which include physicians, hospitals and ancillary health care
providers that serve New York, New Jersey and Connecticut (the
Tri-State Area) employers. The first is the Freedom
network, which is Oxfords largest network of providers.
The Company believes that the size and quality of the providers
in the

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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 not offered in
Connecticut. 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. The network for Medicare is smaller because some providers
that participate in the Freedom and Liberty networks do not
participate in Medicare. 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 a network 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 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 only available through participating providers.

Certain factors, such as choosing the Freedom
network rather than the Liberty network, the members need
to obtain referrals from their 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 226,600 at December 31, 2002, compared with
218,200 members at December 31, 2001. The Companys
POS, PPO and other commercial membership was approximately
1,252,900 at December 31, 2002, compared with 1,154,100 at
December 31, 2001. The Companys Medicare membership
was approximately 70,100 at December 31, 2002, compared
with 77,800 at December 31, 2001. Lastly, the
Companys self-funded membership was approximately 51,900
at December 31, 2002, compared with 60,000 at
December 31, 2001.

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
such 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.



| |          
| | ---------
| | POS Plans

Oxfords POS plans, primarily marketed under
the names Freedom Plan® and Liberty
Plansm, combine the benefits of Oxfords
HMOs with certain of the benefits of Oxfords indemnity
health insurance by covering

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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, in PPO plans services rendered by
participating providers are subject to lower member cost-sharing
than benefits obtained from non-participating providers.



| |            
| | -----------
| | Other 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 therefore, 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, POS and PPO health care
products to individuals in New York and 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. 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 plans, marketed
primarily as Oxford Medicare Advantagesm, to
Medicare eligible individuals through its New York, New Jersey
and Connecticut HMO subsidiaries.

Given current public policy and the fact that
Medicare premiums are not forecasted to keep up with the cost of
health care, the Company offers Medicare plans only in those
counties within the Tri-State Area where it can do so profitably
while offering viable Medicare plans to its members. For 2003,
the Company has committed to offering such Medicare plans in New
York, Kings, Richmond, Queens and Bronx Counties in New York,
Hudson County in New Jersey and New Haven County in Connecticut.
Depending on future funding of Medicare, it is possible that the
Company may decrease its Medicare membership by, among other
things, reducing benefits and exiting additional counties.

Self-Funded
Health Plans

Oxford offers self-funded health plans to
employers who wish to retain insurance 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.

Marketing and Sales

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

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| |                         
| | ------------------------
| | Internal Representatives

Direct sales representatives sell the
Companys HMO, POS, PPO and self-funded plans directly to
employers. The direct sales force is organized into units in
each of the Companys regions with sales executives
responsible for each direct sales unit. There is also a direct
telemarketing unit. 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, as well as direct mail
programs and marketing collateral materials for use by the
direct sales force, Medicare sales force and independent
brokers, agents and consultants.

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



| |                                             
| | --------------------------------------------
| | Independent Insurance Agents and
    Brokers

The primary distribution system for the group
health insurance industry in the Companys service areas
has been independent insurance agents and brokers. Oxford
markets its commercial products through approximately 11,500
independent insurance agents and brokers as of December 31,
2002, 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. However, no assurance can be
given that the Company will continue to be able to maintain as
large a distribution system of independent insurance agents and
brokers as it has in the past.



| |                 
| | ----------------
| | Oxfordhealth.com

The Companys website,
www.oxfordhealth.com, provides on-line access to the
Company for members, brokers, employer groups and providers.
During 2002, 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 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.

Provider Arrangements



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

Oxfords Freedom network of participating
providers consists of approximately 53,000 independently
contracted physicians and other providers (compared with
approximately 49,600 in 2001), of which approximately 30,200 are
in New York, 14,500 are in New Jersey and 8,300 are in
Connecticut. These participating providers maintain
approximately 72,000 office locations, of which 40,000 are in
New York, 20,000 are in New Jersey and 12,000 are in
Connecticut. 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
(IPAs) and physician medical groups.

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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 utilization management
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.



| |          
| | ---------
| | Hospitals

The Company has contracts with approximately 240
hospitals in its New York, New Jersey and Connecticut 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 21% of contracted hospital spending will require
renegotiation during 2003. In addition, there has been
significant consolidation among hospitals in the Companys
service area, which tends to enhance the combined entitys
bargaining power with managed care payors. As a result, the
Company has the risk that certain hospitals may seek higher
rates or seek to impose limitations on the Companys
utilization management efforts. The Company is routinely engaged
in negotiations with various hospitals and hospital systems and,
in connection therewith, such hospitals and hospital systems may
threaten to or, in fact, provide notice of termination of their
agreements with the Company as part of their negotiation
strategy. The Company 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 the members of its subsidiary
health plans.

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

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management to a third party, it retains final
decision-making authority on coverage issues by retaining
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 (the DOS Program). The DOS Program
involves the Company in making payment certification decisions
about continued hospital stays generally at least a day in
advance so the hospital is advised if additional hospital days
will likely be authorized and can, therefore, more appropriately
manage post-hospital care programs. As a result of the DOS
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. The Company believes that its DOS program has
generally led to better relationships with hospitals. The
Companys DOS Program is primarily focused on coverage when
hospitals are compensated on a per diem basis. There can be no
assurance that the DOS Program will be applied to contracting
hospitals that are compensated on the basis of case rates and
DRGs; or that, even if applied, there would be no modifications
to the DOS Program for these hospitals.



| |                                              
| | ---------------------------------------------
| | Capitation and Risk Transfer
    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 and congestive heart failure disease
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 2002 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 2003 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 2003.

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 arrangement is secured by a
reinsurance agreement. 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. The
arrangement includes monitoring of high risk members through
electronic equipment in their homes, coordination of care and
member education. The Company also has in place agreements
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

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through April 30, 2006, subject to
regulatory approval, and the laboratory agreement expires on
December 31, 2004.


The Company has a five-year agreement with
Merck-Medco, effective January 1, 2002, pursuant to which
Merck-Medco and certain of its subsidiaries 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 Merck-Medco under which the
Company has furnished and will continue to furnish de-identified
claim information to the vendor as well as strategic
consultative services to Merck-Medco over the term of the
agreement.



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

In an effort to control increasing medical costs
in its Medicare programs, the Company currently has certain
risk-share agreements in effect with two hospitals and with a
physician group, whereby the hospitals and physician group
assume certain risks for medical costs. Premium revenues for the
Medicare members covered under these agreements totaled
approximately $189 million in 2002 and $149 million in
2001 for approximately 22,650 members in 2002 and 21,100 members
in 2001. The Company is continuing to explore other risk-sharing
or risk-transfer opportunities relating to its remaining
Medicare members with providers and other organizations.

Implementing Medicare risk-sharing contracts
involves various risks and operational challenges, and there can
be no assurance that these contracts will be successful in
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 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, 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 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.

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| |                             
| | ----------------------------
| | 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 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 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 contain
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.

The Companys HMO and insurance subsidiaries
are subject to periodic examination by the applicable state
regulatory authorities. From time to time, the Company has
routine discussions with such state regulatory authorities
regarding, among other things, the application of actuarial
methodologies. 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 and, in New Jersey, the
costs associated with the insolvencies of two health care
payors. 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 which
    require 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 criteria outlined in the applicable
    regulations;                                                                                                                                                                                                                       
|
| |  | the New York Stop Loss Pools provide insurers
    participating in certain mandated 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
    are also assessed based on market share to cover Reinsurance
    Pool losses, which have commonly occurred 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;

8



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##### 





| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the New Jersey Individual Insolvent HMO
    Assistance Fund Act of 2000 required all New Jersey HMOs to
    contribute, collectively in proportion to market share, over a
    three-year period beginning in 2000, up to $50 million to a
    limited purpose trust fund to help cover the costs associated
    with the insolvencies of two HMOs; and
|
| |  | the New Jersey Individual Health Coverage
    program, which 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),
including 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 must
be re-authorized by July 1, 2003. The state of the economy
has affected the states budgets, which could result in the
states attempting to defray these costs through increased taxes,
new taxes, increased assessments and new assessments on the
programs in which the Company participates such as the New York
GME and BDCC programs, the New York Market Stabilization Pools
and other programs. In New York, the Governors proposed
2003-2004 fiscal budget proposes, among other things, a doubling
of the premium tax, a 10% increase in the BDCC assessment,
an approximate 5% increase in the GME assessment, and an
approximate 30% 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 its exposure from
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
proposed New York State budget, when enacted.

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 constantly 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 generally required
to either 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 pieces of legislation relating
to managed care plans which contain provisions relating to,
among other things, consumer disclosure, utilization review,
removal of providers from the network, appeals processes for
both providers and members, mandatory benefits and products,
including infertility 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 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.

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

9



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In January 2002, New Jersey passed a law that
gives the New Jersey Attorney General the authority to regulate
the process by which physicians may jointly negotiate with
health plans over fees and other contractual provisions. This
law expires in April 2008. The Company cannot predict the
ultimate impact of this law on its business and results of
operations in future periods. Other states, as well as the
federal government (as described below), are considering passing
similar laws.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The federal Health Insurance Portability and
    Accountability Act of 1996 (HIPAA) was promulgated
    to (i) ensure portability of health insurance to certain
    individuals, (ii) guarantee availability of health
    insurance to employees in the small group market
    (iii) prevent exclusion of individuals from coverage under
    group plans based on health status, and (iv) develop
    national standards for the electronic exchange of health
    information. In furtherance of the latter, the 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 will now be required to
    (a) comply with a variety of requirements concerning their
    use and disclosure of individuals protected health
    information, (b) establish rigorous internal procedures to
    protect health information and (c) enter into business
    associate contracts with those companies to whom protected
    health information is disclosed. Violations of these rules will
    be subject to significant penalties. The final privacy rules do
    not provide for complete federal preemption of state laws, but
    rather preempt all contrary state laws unless the state law is
    more stringent. HIPAA privacy rules could expose the Company to
    additional liability for, among other things, violations by its
    business associates. HIPAAs requirements with regard to
    privacy and confidentiality will become effective in April 2003.
    Also as part of HIPAA, DHHS has issued final rules standardizing
    electronic transactions between health plans, providers and
    clearinghouses. Health plans, providers and clearinghouses,
    including the Company, are required to conform their electronic
    and data processing systems with HIPAAs electronic
    transaction requirements. The effective date of these rules has
    been delayed until October 2003 for those health plans,
    including the Company, that filed an application by October
    2002. The Company believes that it will meet all applicable
    HIPAA deadlines. The Company currently estimates its incremental
    costs for HIPAA compliance to be less than $5 million in
    2003 but believes that it will incur additional 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
    (MHPA) prohibits group health plans and health
    insurance issuers providing mental health benefits from imposing
    lower aggregate annual or lifetime dollar-limits on mental
    health benefits than any such limits for medical or surgical
    benefits. MHPAs requirements do not apply to small
    employers who have between 2 and 50 employees or to any group
    health plan whose costs increase one percent or more due to the
    application of these requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Womens Health and Cancer Rights Act of
    1998 requires health insurance carriers of group and individual
    commercial policies that cover mastectomies to cover
    reconstructive surgery or related services following a
    mastectomy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Newborns and Mothers Health
    Protection Act of 1996 generally prohibits group health plans
    and health insurance issuers from restricting benefits for a
    mothers or newborn childs hospital stay in
    connection with childbirth to less than 48 hours for a vaginal
    delivery and to less than 96 hours for a cesarean section.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Employee Retirement Income Security Act of
    1974 (ERISA) governs employee welfare plans,
    including self-funded plans. There have been recent legislative
    attempts to limit ERISAs preemptive effect on state laws.
    If such limitations are enacted, they might increase the
    Companys exposure under state law claims that relate to
    self-funded plans administered by the Company and may permit
    greater state regulation of other aspects of those business
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

10



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| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The US 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 begins 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 governed 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 (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 operational matters and 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 disclosure and other
requirements relating to physician incentive plans such as
bonuses or withholds that could result in a physician being 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 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 (the 1997
Act) changed the way health plans are compensated for
Medicare members by eliminating amounts paid for graduate
medical education over five years, increasing the blend of
national cost factors applied in determining local reimbursement
rates over a six-year phase-in period and directing CMS to
implement a risk adjusted mechanism on its monthly member
payment to Medicare plans over the same period. These changes
have had the effect of reducing reimbursement in high cost
metropolitan areas with a large number of teaching hospitals,
such as the Companys service areas. Congress has
subsequently lengthened this timetable to allow the
risk-adjusted mechanism to be fully implemented by 2007. The
Company cannot predict the effect of future Medicare premiums on
its business and results of operations in future periods.

Proposed
Regulatory Developments

Congress periodically considers significant
changes to the Medicare program, including changes to
reimbursement of HMOs. In addition, long-term structural changes
to the Medicare program, including the addition of a
prescription drug benefit, have been and are expected to be
considered by Congress and the Administration.

State and federal government authorities are
continually considering changes to laws and regulations
applicable to Oxfords HMO and insurance subsidiaries. Over
the past several years there has been significant controversy
over allegations that payment for care has been inappropriately
withheld or delayed by health care

11



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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 infertility 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 levels,
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 an antitrust
exemption to permit competing health care professionals to
bargain collectively with health plans and other entities.


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

Recently enacted legislation and the proposed
regulatory and legislative changes described above, if enacted,
could increase health care costs and administrative expenses,
reduce Medicare reimbursement rates and otherwise adversely
affect the 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. 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.
Beginning in May 2002, the re-credentialing cycle is every three
years which is consistent with NCQA guidelines. Previously,
Oxford re-credentialed all Oxford network physicians every two
years. The re-credentialing review consists of repeating select
components of the initial credentialing process (as required by
NCQA) and a review of the physicians practice history with
Oxford. This process also includes evaluating the results of

12



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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, 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 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 requires contracting physicians,
physician groups and hospitals to maintain professional
liability and malpractice insurance in an amount consistent with
industry standards.

The Company and certain of its former Officers
and Directors are currently defendants in certain securities
class actions. 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 present and former Directors and the
pending stockholder derivative actions (the Excess
Insurance). Subject to the terms of the policies, the
excess insurers have 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.
The Excess Insurance carriers have advised the Company that the
Retention is currently $161.3 million. The Company believes
that, under the terms of the policies, the Retention is
currently $155 million, but the Excess Insurance carriers
have not accepted this interpretation. The policies do not cover
taxes, fines or penalties imposed by law or the cost to comply
with any injunctive or other non-monetary relief or any
agreement to provide any such relief. The coverage under the
policies is in addition to approximately $25 million of
coverage remaining under preexisting primary insurance that is
not subject to the Retention applicable to the Excess Insurance
policies. Of the remaining $25 million in primary insurance
coverage, collectibility of some portion of $15 million is
in doubt because one of the Companys Directors and
Officers insurance carriers, Reliance Insurance Company
(Reliance), was placed in liquidation in October
2001 by the Commonwealth Court of Pennsylvania. Accordingly,
during the third quarter of 2001, the Company recorded a charge
of $10 million related to a provision for estimated
insurance recoveries related to anticipated legal expenses that
may not be recoverable from Reliance. Reliance also insured
$20 million of the $200 million Excess Insurance. Due
to the liquidation of Reliance, collectibility of some portion
of $20 million of the Excess Insurance would also be in
doubt if the Company makes a claim on that coverage.

13



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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 and Blue Cross/ Blue Shield
affiliated companies. These competitors have large enrollment in
the Companys service areas and, in some cases, greater
financial resources than the Company. Additional competitors,
including emerging competitors in e-commerce insurance or
benefit programs, may enter the Companys markets in the
future. The Company believes that the network of providers under
contract with Oxford is an important competitive factor.
However, the cost of providing benefits is, in many instances,
the controlling factor in obtaining and retaining employer
groups, and certain of Oxfords competitors have set
premium rates at levels below Oxfords rates for comparable
products. Oxford anticipates that premium pricing will continue
to be highly competitive.

To address rising health care costs, some large
employer groups have consolidated their health benefits programs
and are offering fewer options to their employees. Other
employer groups have considered a variety of health care options
to encourage employees to use the most cost-effective form of
health care services. These options, which include indemnity
insurance plans, HMO plans, POS plans and PPO plans, may be
provided by third parties or may be self-funded by the employer.
The Company believes that employers will seek to offer health
plans 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

In April 2002, the Company agreed with Computer
Sciences Corporation (CSC) to conclude its five-year
technology outsourcing arrangement, originally entered into in
December 2000. The original agreement included data center
operations, help desk services, desktop systems and network
operations. The Company and CSC have transitioned services and
functions to the Company, including employment of personnel,
utilization of equipment and assumption of third-party service
contracts. 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. The Company believes that total administrative
expenses for services transitioned to the Company, including
equipment leases under the new agreement with CSC, will be less
than those under the original agreement

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 developing and improving its disaster
recovery and business continuity plans.

Employees

At December 31, 2002, the Company had
approximately 3,500 employees, none of whom is represented by a
labor union. The Company considers its relations with its
employees to be good.

14



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Cautionary Statement Regarding Forward-Looking
Statements

Certain statements contained in
Business, Legal Proceedings and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, including, but not
limited to, statements concerning future results of operations
or financial position, future liquidity, future ability to
receive cash from the Companys regulated subsidiaries,
future ability to pay dividends, future ability to retire debt
or purchase outstanding shares of the Companys common
stock, future deployment of excess cash, future capital
structure, future health care and administrative costs, future
premium rates and yields for commercial and Medicare business,
future average per member reimbursement for Medicare, future
growth and retention of membership and development of new lines
of business, future growth in contiguous geographic markets,
future health care benefits, future provider networks, future
provider utilization rates, future medical loss ratio levels,
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, 2002, the Companys information systems,
proposed efforts to control health care and administrative
costs, future impact of capitation, risk-transfer and other
cost-containment agreements with health care providers and
related organizations of providers, future reinsurance coverage
for risk-transfer arrangements, future enrollment levels,
government regulation such as the proposed PBOR legislation and
HIPAA, 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 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 the historical patterns of health care
utilization and/or unit costs generally and directly or
indirectly related to the war on terrorism or the concerns of
members or providers due to the threat of terrorism, new
technologies and health care practices, hospital costs, changes
in demographics and trends, expansion into new markets, changes
in laws or 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 and other payment arrangements with providers or
groups of providers 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,

15



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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 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 continues to be, subject to change. HCRA
and the GME and BDCC assessments must be re-authorized by
July 1, 2003. The state of the economy could affect the
states budgets, which could result in the states attempting to
defray these costs through increased taxes, new taxes and
increased assessments on the programs in which the Company
participates such as the New York GME and BDCC programs, the New
York Market Stabilization Pools and other programs.

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 constantly 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 affected the
states budgets, which could result in the states
attempting to defray their costs through increased taxes, new
taxes, increased assessments and new assessments on the 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 services of health care providers. In New York,
the Governors proposed 2003-2004 fiscal budget proposes,
among other things, a doubling of the premium tax, a 10%
increase in the BDCC assessment, an approximate 5% increase in
the GME assessment, and an approximate 30% 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 its
exposure from 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 proposed New York State budget, when enacted.
Although the Company has attempted to diversify its product
offerings to address the changing needs of its membership, there
can be no assurance that the effects of the current downturn in
economic conditions will not cause its existing membership to
seek health coverage alternatives that the Company does not
offer or will not result in significant membership loss, 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 such as Ciprofloxacin
Hydrochloride, mental health services and other services;
(ii) loss of membership as the result of lay-offs or other
in force reductions of employment; (iii) adverse effects
upon the financial condition or business of employers who
sponsor health

16



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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 laws or regulations, such
as HIPAA or PBOR legislation, could adversely affect the
Companys ability to maintain its current levels of
administrative expenses.

Changes in
laws and regulations

The health care financing industry in general,
and HMOs in particular, are subject to substantial federal and
state government laws and regulations, including, but not
limited to, laws and regulations relating to cash reserves,
minimum net worth, licensing, policy language and benefits,
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 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. 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. For example, New Jersey recently
passed a law allowing physicians to collectively negotiate with
insurance companies under certain circumstances when approved by
the State Attorney General. Recently, certain states have
proposed requiring health plans to finance subsidy mechanisms to
assist certain physicians purchase of medical malpractice
insurance coverage. These proposals could apply to the Company
and could have a material adverse effect upon the Company and
its results of operations. Congress is also considering
significant changes to Medicare, including a pharmacy benefit
requirement and changes to payment of Medicare plans, as well as
proposals relating to health care reform, including PBOR
legislation, a comprehensive package of requirements on managed
care plans. In 2001, the United States Senate and the House of
Representatives passed separate versions of the PBOR. Although
the Senate and House 2001 versions of the PBOR legislation have
significant differences, both seek to hold health plans liable
for claims regarding health care delivery and accusations of
improper denial of care, among other items. 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
will, and the Federal PBOR legislation if passed could, expose
the Company to significant litigation risk. Such litigation
could be costly to the Company and could have a significant
effect on the Companys results of operations. Although the
Company could attempt to mitigate or cover its exposure from
such costs through, among other things, increases in premiums,
there can be no assurance that the Company will be able to
mitigate or cover the costs stemming from such PBOR legislation
or the other costs incurred in connection with complying with
such PBOR legislation.

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 and, in New Jersey, the cost
of insolvencies of two health care payors. New York, New Jersey
and Connecticut also impose

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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 which
    require 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 criteria outlined in the applicable
    regulations;                                                                                                                                                                                                                        
|
| |  | the New York Stop Loss Pools provide insurers
    participating in certain mandated 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
    are also assessed based on market share to cover Reinsurance
    Pool losses, which have commonly occurred 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 Insolvent HMO
    Assistance Fund Act of 2000 required all New Jersey HMOs to
    contribute, collectively in proportion to market share, over a
    three-year period beginning in 2000, up to $50 million to a
    limited purpose trust fund to help cover the insolvencies of two
    HMOs; and                                                                                                                                                                                                                                  
|
| |  | The New Jersey Individual Health Coverage program
    which 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 must be re-authorized by July 1, 2003.
The state of the economy has affected the states budgets,
which could result in the states attempting to defray these
costs through increased taxes, new taxes, increased assessments
and new assessments on the programs in which the Company
participates such as the New York GME and BDCC programs, the New
York Market Stabilization Pools and other programs. In New York,
the Governors proposed 2003-2004 fiscal budget proposes,
among other things, a doubling of the premium tax, a 10%
increase in the BDCC assessment, an approximate 5% increase in
the GME assessment, and an approximate 30% 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 its
exposure from 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 proposed New York State budget, when enacted.

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 constantly subject to change.

Under the new HIPAA privacy rules, the Company
will now be 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 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 will become effective in April 2003. Also as
part of HIPAA, the U.S. Department of Health and Human
Services has issued final rules standardizing electronic
transactions between health plans, providers and clearinghouses.
Health plans, providers and clearinghouses, including the

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Company, are required to conform their electronic
and data processing systems with HIPAAs electronic
transaction requirements. The effective date of these rules has
been delayed until October 2003 for those health plans,
including the Company, that filed an application by October
2002. The Company believes that it will meet all applicable
HIPAA deadlines. The Company currently estimates its incremental
costs for HIPAA compliance to be less than $5 million in
2003, but believes that it will incur additional 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 governed 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 (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 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, CMS, and the
United States Department of Labor. 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.

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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. Given the current public policy and the fact that
Medicare premiums are not scheduled to keep up with the cost of
health care, it is possible that the Company may decrease its
Medicare membership by, among other things, reducing benefits
and exiting additional counties. For example, the Company
withdrew from the Medicare market in Nassau County in New York
and from all but one New Jersey county effective January 1,
2002. 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

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 subject to multiple year
contracts, 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. These disputes could adversely affect the Company or
could expose the Company to regulatory or other liabilities.
Such events, coupled with new legislation in New Jersey and
proposed legislation in other states that provide or may provide
physicians and other providers with collective bargaining power,
could have a material adverse effect on the Companys
ability to influence its medical costs. Cost-containment and
risk-sharing arrangements entered into by the Company could be
adversely affected by difficulties encountered in the
implementation or administration of such agreements, 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,

20



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could enhance the providers bargaining
power with respect to higher reimbursement levels and changes to
the Companys utilization review and administrative
procedures.


Pending
litigation and other proceedings against Oxford

The Company is a defendant in a number of
purported securities class action lawsuits that were filed after
a substantial decline in the price of the Companys common
stock in October 1997. The Company is also involved in other
legal proceedings, including, among others, those related to
(i) a purported federal class action grounded in ERISA
claims, (ii) an action brought by the Connecticut Attorney
Generals office on similar claims, (iii) 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,
(iv) 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, and (v) a class action in New Jersey brought on
behalf of Oxford members seeking recovery of subrogation
payments recovered by Oxford alleged to have been collected in
violation of New Jersey insurance laws. The Company is also
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 recently against the
Company, has resulted in additional negative publicity for the
managed care industry and creates the potential for similar
additional litigation against the Company. See Legal
Proceedings. These factors may adversely affect the
Companys ability to market its products and services, may
require changes to its products and services and may increase
the regulatory burdens under which the Company operates, further
increasing the costs of doing business and adversely affecting
the Companys results of operations.

Concentration
of business

The Companys commercial and Medicare
business is concentrated in New York, New Jersey and
Connecticut, with approximately 75% of its commercial premium
revenues received from New York business. In addition, the
Companys Medicare revenue represented approximately 12.1%
of premiums earned during 2002. 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.



|        |           
|------- | ----------
|Item 2. | Properties

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

|             |  |                |  |                      |               |             |  |  |         | 
|------------ |  | -------------- |  | -------------------- | ------------- | ----------- |  |  | ------- | 
|             |  | Type           |  | Earliest Termination |               | Occupied   
|Location     |  | of Space       |  | Date                 |               | Square Feet
|             |  |                |  |                      |               |            
|Trumbull, CT |  | Administrative |  |                      | December-2003 |             |  |  | 238,000 | 
|Hooksett, NH |  | Administrative |  |                      | November-2007 |             |  |  | 121,000 | 

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|                 |  |                |  |                      |                |             |  |  |         | 
|---------------- |  | -------------- |  | -------------------- | -------------- | ----------- |  |  | ------- | 
|                 |  | Type           |  | Earliest Termination |                | Occupied   
|Location         |  | of Space       |  | Date                 |                | Square Feet
|                 |  |                |  |                      |                |            
|Trumbull, CT     |  | Administrative |  |                      | December-2011  |             |  |  | 115,000 | 
|Nashua, NH       |  | Administrative |  |                      | June-2008      |             |  |  | 70,000  | 
|White Plains, NY |  | Administrative |  |                      | November-2005  |             |  |  | 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   |  |                      | August-2011    |             |  |  | 18,000  | 
|New York, NY     |  | Sales/ Admin   |  |                      | September-2007 |             |  |  | 13,000  | 
|Hartford, CT     |  | Sales/ Admin   |  |                      | July-2004      |             |  |  | 10,000  | 
|Queens, NY       |  | Sales/ Admin   |  |                      | January-2005   |             |  |  | 3,000   | 



|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Securities Class Action Litigation

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

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

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

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On February 28, 2000 and February 9,
2001, the Court issued decisions granting plaintiffs
motion to certify a class action on behalf of purchasers of
Oxford common stock and call options, and sellers of Oxford put
options, during the Class Period and named five class
representatives.

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). Subject
to the terms of the policies, the Excess Insurance carriers have
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. The Excess Insurance carriers have
advised the Company that the Retention is currently
$161.3 million. The Company believes that, under the terms
of the policies, the Retention is currently $155 million,
but the Excess Insurance carriers have not accepted this
interpretation. The policies do not cover taxes, fines or
penalties imposed by law or the cost to comply with any
injunctive or other non-monetary relief or any agreement to
provide any such relief. The coverage under the policies
described above is in addition to approximately $25 million
of coverage remaining under preexisting primary insurance that
is not subject to the Retention applicable to the Excess
Insurance policies. Of the remaining $25 million in primary
insurance coverage, collectibility of some portion of
$15 million is in doubt because one of the Companys
Directors and Officers insurance carriers, Reliance Insurance
Company (Reliance), was placed in liquidation in
October 2001 by the Commonwealth Court of Pennsylvania.
Accordingly, during the third quarter of 2001, the Company
recorded a charge of $10 million related to a provision for
estimated insurance recoveries related to anticipated legal
expenses that may not be recoverable from Reliance. Reliance
also insured $20 million of the $200 million Excess
Insurance. Due to the liquidation of Reliance, collectibility of
some portion of $20 million of the Excess Insurance would
also be in doubt if the Company makes a claim on that coverage.

The Company, in the opinion of management with
the advice of external counsel, has substantial defenses to the
plaintiffs claims in the securities class actions and may
ultimately prevail if these matters are brought to trial. There
can be no assurance, however, as to the ultimate result in this
litigation. In the event the Company ultimately suffers an
adverse judgment, or settles such actions prior to trial:
(i) the Company would be liable to fund the entire amount
of such judgment or settlement up to $161.3 million, less
any amount then remaining available and collectible under the
Companys primary Directors and Officers insurance,
(ii) to the extent that the amount of such judgment or
settlement is more than $161.3 million and less than $383.5
million, the Company would, in addition, be liable to fund 10%
of the excess over $161.3 million (90% of such amount being
covered by the Companys Excess Insurance), plus all of any
amount up to $20 million not collected from Reliance, and
(iii) the Company would be liable to fund the entire amount
of any excess over $383.5 million. Each of the amounts of
$161.3 million and $383.5 million in the preceding
sentence reflects the insurance carriers position
regarding the current Retention under the Excess Insurance.
Under the Companys interpretation of the policies, these
amounts would be $155 million and $377.2 million,
respectively. In the event that the Excess Insurance carriers
become liable to pay any losses under the policies, the Company
would be obligated to pay the carriers an additional premium of
$8 million.

On September 30, 2002, Judge Brieant agreed
to hold a settlement conference on November 6, 2002 with
parties to the securities class actions and the Excess Insurance
carriers. In view of the inherent risks and uncertainties of
litigation and the related time and expense, and in anticipation
of the settlement conference, the Company communicated to the
plaintiffs and the insurance carriers the Companys
willingness to pay $161.3 million. This offer reflects the
full amount of the current Retention under the insurance
carriers interpretation of the Excess Insurance policies.
As a result, the Company has recorded a net liability and
pre-tax charge of $151.3 million against earnings in the
third quarter of 2002. This $151.3 million charge
represents the Companys settlement offer less
$10 million, classified as other current receivables in the
Companys consolidated balance sheet, that the Company
estimates would be available and collectible under its primary
Directors and Officers insurance. If a settlement is reached and
the total settlement amount

23



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##### 



exceeds $161.3 million, the amount of
co-payments by the Company required under the Excess Insurance
policies and the amount, if any, not collected from Reliance
under the Excess Insurance would depend on the terms and total
amount of any settlement. At the present time, no total
settlement amount beyond $161.3 million can be reasonably
estimated. Accordingly, the Company has not recorded a liability
for any co-payments required by the Excess Insurance or any
amount not collected from Reliance. Also, in the event the
Excess Insurance carriers contribute any amount to a settlement,
the Company would be obligated to pay the $8 million
additional premium referred to above. At this time, there is no
assurance that a settlement will be reached. Accordingly, the
Company has not recorded a liability for the additional premium
payment. There can be no assurance as to the terms of any
settlement, or that the Court would approve any such settlement.
If no settlement is reached and approved, the securities class
actions would proceed to trial, and, at the present time, no
amount or range of loss can be reasonably estimated.
Accordingly, the Company has not recorded a net liability for a
potential unfavorable judgment or settlement costs in excess of
$151.3 million. There can be no assurance as to the
ultimate result in this litigation.


The Company, its Excess Insurance carriers and
the plaintiffs have not been able to reach a settlement of the
securities class actions. On December 19, 2002, Judge
Brieant scheduled a trial to begin on March 10, 2003. If
the securities class actions are not settled, the class actions
will go to trial. In anticipation of additional legal fees and
other expenses related to the trial, the Company has recorded
additional reserves and a pretax charge of $20 million in
the fourth quarter of 2002.

Stockholder Derivative Litigation

As previously reported by the Company, in the
months following the October 27, 1997 decline in the price
per share of the Companys common stock, ten purported
stockholder derivative actions were commenced on behalf of the
Company in Connecticut Superior Court (the Connecticut
derivative actions) and in the United States District
Courts for the Southern District of New York and the District of
Connecticut (the federal derivative actions).

On June 13, 2001, the Company and the
plaintiffs in the federal and Connecticut derivative actions
entered into an agreement providing for the settlement of these
actions. This stipulation provides for, among other things, the
payment by the Companys directors and officers
(D&O) insurance carriers of $13.7 million
to the Company, with not more than $3.7 million of that
amount for legal fees and expenses of the plaintiffs
attorneys. Although the Court preliminarily approved this
settlement on June 20, 2001, the implementation and funding
of the settlement were delayed because one of the Companys
D&O insurers, Reliance Insurance Company
(Reliance), was placed in liquidation on
October 3, 2001 by the Commonwealth Court of Pennsylvania.
As a result of the Reliance liquidation, the parties negotiated
an amendment to the derivative settlement, which amendment was
approved by the Court on December 7, 2001. Pursuant to the
terms of the amended stipulation of settlement, (i) the
carrier responsible for the Companys current layer of
D&O insurance agreed to pay approximately $7.5 million
to the Company, which is the amount such carrier represented to
be the remaining amount of its coverage obligations and
(ii) the Company agreed to deposit approximately
$2 million of this sum into an account maintained for the
payment of the attorneys fees and costs for plaintiffs
counsel. The remaining $5.5 million was applied to the
payment of legal fees. The amended settlement further provides
that the Company and the derivative plaintiffs will cooperate to
seek to recover from the liquidator of Reliance or alternative
insurance the remaining portion of the $13.7 million
settlement amount, with the Company retaining control and final
authority in connection with all claims related to Reliance. On
February 14, 2002, the Court approved the settlement of the
federal derivative actions. On April 25, 2002, the
Connecticut derivative actions were withdrawn with prejudice.

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

24



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present and former directors and officers have
provided testimony to the Attorney Generals staff. The
Company has cooperated fully with the Attorney General.


ERISA and Provider Class Actions

On September 7, 2000, the Connecticut
Attorney General filed suit against four HMOs, including the
Company and the Companys Connecticut HMO subsidiary, in
the United States District Court for the District of
Connecticut, on behalf of a putative class consisting of all
Connecticut members of the defendant HMOs who are enrolled in
plans governed by ERISA (the Connecticut Attorney General
action). The suit alleges that the named HMOs breached
their disclosure obligations and fiduciary duties under ERISA
by, among other things, (i) failing to timely pay claims;
(ii) the use of inappropriate and arbitrary coverage
guidelines as the basis for denials; (iii) the
inappropriate use of drug formularies; (iv) failing to
respond to member communications and complaints; and
(v) failing to disclose essential coverage and appeal
information. The suit seeks preliminary and permanent
injunctions enjoining the defendants from pursuing the
complained of acts and practices. Also, on September 7,
2000, a group of plaintiffs law firms commenced an action
in federal district court in Connecticut against the Company and
four other HMOs on behalf of a putative national class
consisting of all members of the defendant HMOs who are or have
been enrolled in plans governed by ERISA within the past six
years. The substantive allegations of this complaint, which also
claims violations of ERISA, are nearly identical to that filed
by the Connecticut Attorney General. The complaint seeks the
restitution of premiums paid and/or the disgorgement of profits,
in addition to injunctive relief. Although this complaint was
dismissed without prejudice as to the Oxford defendants, another
identical complaint against the Company was filed on
December 28, 2000 in the federal district court in
Connecticut, under the caption Patel v. Oxford Health Plans
of Connecticut, Inc.(the Patel action). On
April 27, 2001, the Company filed a motion to dismiss the
Patelaction in its entirety. That motion has been fully
briefed, and oral argument was held on October 29, 2001. On
November 30, 2000, the JPML issued a Conditional Transfer
Order, directing that the Connecticut Attorney General action be
transferred to the Southern District of Florida for consolidated
pretrial proceedings along with various other ERISA and RICO
cases pending against other HMOs, which order was confirmed on
April 17, 2001. On November 13, 2001, the JPML issued
a Conditional Transfer Order, directing that the Patelaction also be transferred to the consolidated proceedings
in Florida, which order was confirmed on February 20, 2002.
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. There
has been no discovery involving Oxford in the Florida
proceedings.

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.

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

25



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##### 



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 Statute 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 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
AAA). The Company has objected to this filing on the
basis that neither its arbitration agreement with
Dr. Sutter, nor the AAA rules, permit or provide for
consolidated or class action arbitration.

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 asserts
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
seeks a permanent injunction enjoining the Company from pursuing
the complained of acts and practices, as well as attorneys
fees and costs. The Company moved to dismiss the complaint, and
to consolidate this action with the Sutter action described
above. On October 25, 2002, the Court denied the
Companys motion to consolidate the actions because it
dismissed the Sutter action.

Although the outcome of these ERISA actions, the
CSMS and 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.

New Jersey Subrogation
Class Action

In October 2001, the Company was sued in a New
Jersey state court in a purported class action on behalf of all
the Companys members in New Jersey between 1993 and the
present who were injured by the actions of third parties and
with respect to whom the Company recovered reimbursement for
medical expenses pursuant to the subrogation provision in the
Companys member certificates. The Complaint alleges that
any subrogation payments collected by the Company have been in
violation of New Jersey insurance regulations and state law, and
seeks monetary damages and injunctive relief. The action is
based upon a decision of the New Jersey Supreme Court holding
that subrogation by health insurers in certain circumstances is
prohibited under New Jersey laws and regulations. The Company
has removed the complaint to federal court, where it has been
consolidated with other, similar complaints against other HMOs.
Plaintiffs in all of these complaints have filed motions to
remand the complaints back to state court, which motions were
denied. The Company and the other defendants have moved to
dismiss the complaint under both federal and state law. The
Company believes it has substantial defenses under federal and
state law to this case, and intends to defend the action
vigorously.

26



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##### 



State Insurance and Health
Departments

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

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

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

Other Matters

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

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

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

27



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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. In the ordinary course of its business,
the Company also is subject to claims and legal actions by
members in connection with benefit coverage determinations and
alleged acts by network providers and by health care providers
and others. 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, 2002.

PART II



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

The Companys common stock is traded on the
New York Stock Exchange under the symbol OHP. Prior
to April 18, 2001, the Company traded under the symbol
OXHP on NASDAQ. The following table sets forth the
range of high and low sale prices for the common stock for the
periods indicated as reported on the New York Stock Exchange in
2002.

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2002 |       | 2001
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 42.75 |      |  | $    | 28.64 |     |  | $ | 37.06 |  |  | $ | 24.42 | 
|Second Quarter |  |      | 51.94 |      |  |      | 40.46 |     |  |   | 31.50 |  |  |   | 24.13 | 
|Third Quarter  |  |      | 46.70 |      |  |      | 34.81 |     |  |   | 30.50 |  |  |   | 25.65 | 
|Fourth Quarter |  |      | 44.82 |      |  |      | 32.86 |     |  |   | 31.27 |  |  |   | 23.05 | 

As of February 4, 2003, there were 895
shareholders of record of the Companys common stock.

The Company has not paid any cash dividends on
its common stock since its formation and, based upon current tax
law, does not intend to pay any cash dividends on common stock
in the foreseeable future. However, the Company may reevaluate
this policy in the event that any currently proposed laws
regarding the taxation of dividends are enacted. Additionally,
the Companys ability to declare and pay dividends to its
shareholders may be dependent on its ability to obtain cash
distributions from its operating subsidiaries. The
Companys ability to pay dividends is also restricted by
insurance and health regulations applicable to its subsidiaries.
See Business  Government Regulation.

In July and November 2001, the Companys
Board of Directors approved a share repurchase program for up to
$500 million of the Companys outstanding common stock
through September 2003. In September 2002, the Companys
Board of Directors approved an increase of $250 million to
its existing share repurchase program and extended the program
through December 2003. The program authorizes the Company to
purchase shares on the open market and in privately negotiated
transactions from time to time depending on general market
conditions. Through December 31, 2002, the Company had
repurchased approximately 19.8 million of its common shares
at an aggregate cost of approximately $617.4 million. At
December 31, 2002, the Company had remaining repurchase
authority of approximately $132.6 million.

28



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|        |                                         
|------- | ----------------------------------------
|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, 2002, 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.

|                                                                     |                                                           |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |            |        | 
|-------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------------------------------- | - | ---------- | ------ | ---- | - | ---------- | ------- | ---- | - | ---------- | ------ |  | - | ---------- | ------ |  | - | ---------- | ------ | 
|                                                                     |                                                           | 2002                                                              |   | 2001       |        | 2000 |   | 1999       |         | 1998
|                                                                     |                                                           |                                                                   |   |            |        |      |   |            |         |     
|                                                                     |                                                           |                                                                  
|                                                                     |                                                           | (In thousands, except per share amounts and operating statistics)
|Revenues and Earnings:                                               |                                                           |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |           
|                                                                     | Operating revenues                                        |                                                                   | $ | 4,868,708  |        |      | $ | 4,326,182  |         |      | $ | 4,038,787  |        |  | $ | 4,115,134  |        |  | $ | 4,630,166  |       
|                                                                     | Investment and other income, net                          |                                                                   |   | 94,686     |        |      |   | 95,046     |         |      |   | 73,015     |        |  |   | 82,632     |        |  |   | 89,245     |       
|                                                                     | Net earnings (loss) before extraordinary
    items        |                                                                   |   | 221,965    |        |      |   | 322,421    |         |      |   | 285,419    |        |  |   | 319,940    |        |  |   | (596,792   | )     
|                                                                     | Net earnings (loss)                                       |                                                                   |   | 221,965    |        |      |   | 322,421    |         |      |   | 265,094    |        |  |   | 319,940    |        |  |   | (596,792   | )     
|                                                                     | Net earnings (loss)  common shares(1)                    |                                                                   |   | 221,965    |        |      |   | 322,421    |         |      |   | 191,303    |        |  |   | 274,440    |        |  |   | (624,460   | )     
|Financial Position:                                                  |                                                           |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |           
|                                                                     | Working capital                                           |                                                                   | $ | 465,279    |        |      | $ | 468,924    |         |      | $ | 298,175    |        |  | $ | 442,693    |        |  | $ | 209,443    |       
|                                                                     | Total assets                                              |                                                                   |   | 1,753,516  |        |      |   | 1,576,725  |         |      |   | 1,444,610  |        |  |   | 1,686,888  |        |  |   | 1,637,750  |       
|                                                                     | Long-term debt, less current maturities                   |                                                                   |   | 96,250     |        |      |   | 126,876    |         |      |   | 28,000     |        |  |   | 350,000    |        |  |   | 350,000    |       
|                                                                     | Redeemable preferred stock                                |                                                                   |   |           |        |      |   |           |         |      |   |           |        |  |   | 344,316    |        |  |   | 298,816    |       
|                                                                     | Common shareholders equity (deficit)                     |                                                                   |   | 496,917    |        |      |   | 462,920    |         |      |   | 459,222    |        |  |   | 98,755     |        |  |   | (181,105   | )     
|Net earnings (loss) per common share
    before extraordinary items: |                                                           |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |           
|                                                                     | Basic                                                     |                                                                   | $ | 2.55       |        |      | $ | 3.35       |         |      | $ | 2.50       |        |  | $ | 3.38       |        |  | $ | (7.79      | )     
|                                                                     | Diluted                                                   |                                                                   | $ | 2.45       |        |      | $ | 3.21       |         |      | $ | 2.24       |        |  | $ | 3.26       |        |  | $ | (7.79      | )     
|Net earnings (loss) per common
    share:                            |                                                           |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |           
|                                                                     | Basic                                                     |                                                                   | $ | 2.55       |        |      | $ | 3.35       |         |      | $ | 2.26       |        |  | $ | 3.38       |        |  | $ | (7.79      | )     
|                                                                     | Diluted                                                   |                                                                   | $ | 2.45       |        |      | $ | 3.21       |         |      | $ | 2.02       |        |  | $ | 3.26       |        |  | $ | (7.79      | )     
|                                                                     | Weighted-average number of common shares
    outstanding: |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |            |       
|                                                                     |                                                           | Basic                                                             |   |            | 87,145 |      |   |            | 96,269  |      |   |            | 84,728 |  |   |            | 81,273 |  |   |            | 80,120 | 
|                                                                     |                                                           | Diluted                                                           |   |            | 90,744 |      |   |            | 100,543 |      |   |            | 94,573 |  |   |            | 84,231 |  |   |            | 80,120 | 
|Operating Statistics:                                                |                                                           |                                                                   |   |            |        |      |   |            |         |      |   |            |        |  |   |            |        |  |   |           
|                                                                     | Enrollment                                                |                                                                   |   | 1,601,500  |        |      |   | 1,510,100  |         |      |   | 1,491,400  |        |  |   | 1,593,700  |        |  |   | 1,881,400  |       
|                                                                     | Fully insured member months                               |                                                                   |   | 18,298,800 |        |      |   | 17,402,400 |         |      |   | 17,345,500 |        |  |   | 19,326,700 |        |  |   | 23,081,900 |       
|                                                                     | Self-funded member months                                 |                                                                   |   | 689,300    |        |      |   | 704,500    |         |      |   | 708,400    |        |  |   | 625,600    |        |  |   | 765,500    |       
|                                                                     | Medical loss ratio(2)                                     |                                                                   |   | 79.3       | %      |      |   | 78.9       | %       |      |   | 77.5       | %      |  |   | 82.1       | %      |  |   | 94.4       | %     
|                                                                     | Administrative loss ratio(3)                              |                                                                   |   | 11.8       | %      |      |   | 11.3       | %       |      |   | 11.8       | %      |  |   | 14.6       | %      |  |   | 16.7       | %     



---



|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings for common shares in 2000 includes
    $41,085 of costs associated with the redemption of preferred
    stock.                                                                     
|   
|(2) | Defined as health care services expense as a
    percentage of premiums earned.                                                                                                                 
|   
|(3) | Defined as marketing, general and administrative
    expense as a percentage of operating revenues. Excludes
    litigation charge for estimated settlement, net, of
    $151.3 million in 2002.

29



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##### 





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

Overview

The Companys revenues consist primarily of
commercial premiums derived from its HMO, POS and PPO 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-transfer 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 the historical patterns of health care
utilization and/or unit costs generally and directly or
indirectly related to the war on terrorism or the concerns of
members or providers due to the threat of terrorism, new
technologies and health care practices, hospital costs, changes
in demographics and trends, expansion into new markets, changes
in laws and regulations, mandated benefits or practices,
selection biases, increases in unit costs paid to providers,
termination of provider arrangements, termination of, or
disputes under, delegation, capitation, or risk-transfer
arrangements, major 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, higher utilization of medical
services, including, without limitation, higher out-of-network
utilization, operational and regulatory issues and numerous
other factors may affect the Companys ability to control
such costs. The Company attempts to use its medical
cost-containment capabilities, such as claim auditing systems,
with a view to reducing the rate of increase in health care
service expense.

Results for 2002 include 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 following the October 27, 1997
decline in the price of the Companys stock and a pretax
charge of $20 million, or $0.13 per diluted share, for
additional estimated legal expenses associated with such
litigation. Also included in pretax earnings for 2002 were
charges related to the conclusion of the Companys
outsource arrangement with CSC and the other than temporary
impairment charge related to the Companys 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 changes in estimates of prior period medical cost
reserves, resulting primarily from ongoing incremental
improvements in processes such that the level of completion of
claims was, in retrospect, slightly higher than assumed for
2001. 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 for 2000 were adversely affected by
charges related to recapitalization transactions. An
extraordinary charge of $20.3 million, net of income tax
benefits of $13.9 million, was recorded in 2000 in
connection with the prepayment of the

30



---



##### 



Term Loan Agreement, dated as of May 13,
1998 (the Term Loan) and the repurchase or tender of
$200 million of its 11% Senior Notes due 2005 (the
Senior Notes). The extraordinary charges include
premiums paid, transaction costs and the write-off of
unamortized original issuance debt costs. In addition, in 2000,
the Company completed an exchange and repurchase agreement for
all of its outstanding Series D Cumulative Preferred Stock,
par value $0.01 per share, and Series E Cumulative
Preferred Stock, par value $0.01 per share (together, the
Preferred Stock) and incurred costs of approximately
$41.1 million related to the write-off of unamortized
Preferred Stock discount and costs from the original issuance in
1998 and related transaction fees. Results for 2000 were
positively impacted by approximately $86 million of
favorable development of prior period estimates of medical
costs, claims recoveries and Pool recoveries. Net income for
2001 and 2000 was favorably affected by the reversal of
$21 million and $10 million, respectively, of deferred
tax valuation allowances.


On March 1, 2002, the Company acquired all
of the outstanding stock of MedSpan, a Connecticut managed
health care organization, for cash of approximately
$18.2 million, subject to adjustment for certain items. Net
earnings attributable to MedSpan were not material for the year
ended December 31, 2002.

Results of Operations



| |                                                                            
| | ---------------------------------------------------------------------------
| | 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
claims recoveries 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)
|          |                                 |                        |   |                    
|          |                                 | 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 | %
|          |                                 |                        |   |                     |           |        |   |           |           |  |   |         |         |  |  |      

31



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##### 



|            |                                |                    |  |            |           |        |  |           |           |  |  |         |        |  |  |       |      | 
|----------- | ------------------------------ | ------------------ |  | ---------- | --------- | ------ |  | --------- | --------- |  |  | ------- | ------ |  |  | ----- | ---- | 
|            |                                |                    |  |            |           |       
|            |                                |                    |  | Increase  
|            |                                | As of December 31, |  | (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. The Company believes that the acquired MedSpan
membership will likely be reduced further as the Company
corrects for prior inadequate premium pricing for certain
MedSpan accounts upon their annual renewal.

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
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. The Company believes its Medicare
membership will be about 1% to 3% higher in 2003 compared with
2002. The Company believes that reimbursement levels for its
2003 Medicare business will be approximately 2% higher than 2002
on a county-specific basis due to minimum CMS mandated
increases. The average per member reimbursement will likely be
higher due to a change in the Companys county-specific mix
of business. Given current public policy and the fact that
Medicare premiums are not forecasted to keep up with the cost of
health care, it is possible that the Company may decrease its
Medicare membership further by, among other things, reducing
benefits and exiting additional counties. See
Business  Medicare.

Net investment and other income for the year
ended December 31, 2002 decreased 0.4% to
$94.7 million from $95 million in the prior year. Net
investment income decreased $2.2 million or 2.3% to
$91.4 million in 2002 compared with $93.6 million in
2001. The decrease was primarily due to the other than temporary
impairment charge related to the Companys investment in
MedUnite of $11 million during the second quarter of 2002
and lower investment income, the result of lower investment
yields. Partially offsetting this

32



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##### 



decline was an increase in capital gains realized
($26.9 million for 2002 compared with $20.8 million
for 2001) and the recognition of previously unearned revenue
from the Companys pharmacy benefit agreement of
approximately $15.2 million. Due to interest rate and bond
market dynamics during the past year, the overall pre-tax yield
on the portfolio declined to 4.01% for 2002 compared with 4.47%
in the prior year. 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, resulting primarily from ongoing incremental
improvements in processes such that the level of completion of
claims was, in retrospect, slightly higher than assumed for
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 $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

33



---



##### 



$0.9 million of other notes during the year
ended December 31, 2002. See Liquidity and Capital
Resources  Financing.


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.

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

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

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

|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |       |   
|--------- | ------------------------------- | ---------------------- | - | ------------------- |  | ------ | - | --------- |  |  | - | ------- | - |  |  | ----- | --
|          |                                 |                        |   |                     |  |       
|          |                                 | For the Years Ended    |   |                    
|          |                                 | December 31,           |   | Increase (Decrease)
|          |                                 |                        |   |                    
|          |                                 | 2001                   |   | 2000                |  | Amount |   | %        
|          |                                 |                        |   |                     |  |        |   |          
|          |                                 |                       
|          |                                 | (Dollars in thousands)
|Revenues: |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | POS, PPO and Other Plans        |                        | $ | 3,114,138           |  |        | $ | 2,839,999 |  |  | $ | 274,139 |   |  |  | 9.7   | % 
|          | HMOs                            |                        |   | 538,958             |  |        |   | 505,946   |  |  |   | 33,012  |   |  |  | 6.5   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total Fully Insured Commercial  |                        |   | 3,653,096           |  |        |   | 3,345,945 |  |  |   | 307,151 |   |  |  | 9.2   | % 
|          | Medicare                        |                        |   | 659,295             |  |        |   | 677,452   |  |  |   | (18,157 | ) |  |  | (2.7  | )%
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total premium revenues          |                        |   | 4,312,391           |  |        |   | 4,023,397 |  |  |   | 288,994 |   |  |  | 7.2   | % 
|          | Third-party administration, net |                        |   | 13,791              |  |        |   | 15,390    |  |  |   | (1,599  | ) |  |  | (10.4 | )%
|          | Investment and other income     |                        |   | 95,046              |  |        |   | 73,015    |  |  |   | 22,031  |   |  |  | 30.2  | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      
|          | Total revenues                  |                        | $ | 4,421,228           |  |        | $ | 4,111,802 |  |  | $ | 309,426 |   |  |  | 7.5   | % 
|          |                                 |                        |   |                     |  |        |   |           |  |  |   |         |   |  |  |      

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|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |       |     |  
|----------- | ------------------------------ | ------------------ |  | ------------------- | --------- | ------ |  | --------- | --------- |  |  | ------- | ------ |  |  | ----- | --- | -
|            |                                |                    |  |                    
|            |                                | As of December 31, |  | Increase (Decrease)
|            |                                |                    |  |                    
|            |                                | 2001               |  | 2000                |           | Amount |  | %        
|            |                                |                    |  |                     |           |        |  |          
|Membership: |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      
|            | POS, PPO and Other Plans       |                    |  | 1,154,100           |           |        |  | 1,115,400 |           |  |  | 38,700  |        |  |  | 3.5   | %  
|            | HMOs                           |                    |  | 218,200             |           |        |  | 221,600   |           |  |  | (3,400  | )      |  |  | (1.5  | )% 
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      
|            | Total Fully Insured Commercial |                    |  | 1,372,300           |           |        |  | 1,337,000 |           |  |  | 35,300  |        |  |  | 2.6   | %  
|            | Medicare                       |                    |  | 77,800              |           |        |  | 92,000    |           |  |  | (14,200 | )      |  |  | (15.4 | )% 
|            | Third-party administration     |                    |  | 60,000              |           |        |  | 62,400    |           |  |  | (2,400  | )      |  |  | (3.8  | )% 
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      
|            |                                | Total membership   |  |                     | 1,510,100 |        |  |           | 1,491,400 |  |  |         | 18,700 |  |  |       | 1.3 | %
|            |                                |                    |  |                     |           |        |  |           |           |  |  |         |        |  |  |      

|                      |                                      |                     |   |            |   |  |   |            |  
|--------------------- | ------------------------------------ | ------------------- | - | ---------- | - |  | - | ---------- | -
|                      |                                      |                    
|                      |                                      | For the Years Ended
|                      |                                      | December 31,       
|                      |                                      |                    
|                      |                                      | 2001                |   | 2000      
|                      |                                      |                     |   |           
|Selected Information: |                                      |                     |   |            |   |  |   |           
|                      | Medical loss ratio                   |                     |   | 78.9       | % |  |   | 77.5       | %
|                      | Administrative loss ratio            |                     |   | 11.3       | % |  |   | 11.8       | %
|                      | Per member per month premium revenue |                     | $ | 247.80     |   |  | $ | 231.96     |  
|                      | Per member per month medical expense |                     | $ | 195.45     |   |  | $ | 179.67     |  
|                      | Fully insured member months          |                     |   | 17,402,400 |   |  |   | 17,345,500 |  

Total commercial premiums earned for the year
ended December 31, 2001 were $3.65 billion, compared
with $3.35 billion in the prior year. Average premium yield
increases were 8.3% and member months increased 0.9% for
commercial products during 2001. Overall commercial membership
increased by 2.6% at December 31, 2001 compared with the
prior year primarily due to growth in the Companys Freedom
Plan group of products.

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

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

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

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

Marketing, general and administrative expenses
increased $12.7 million, or 2.7%, to $489.1 million
for 2001 compared with $476.4 million for 2000. Marketing,
general and administrative expenses as a percent of operating
revenue improved to 11.3% in 2001 compared with 11.8% in 2000.
The increase in dollars spent in 2001 when compared with the
prior year is primarily due to increased information technology
spending and broker commissions. Broker commissions and premium
taxes were approximately 26.3% of marketing, general and
administrative expenses in 2001 compared with approximately
23.6% in 2000. Partially offsetting these increases were lower
payroll, benefits and occupancy costs, the result of reduced
staffing levels, and lower depreciation charges. During 2001,
the Company recorded a charge of $10 million for estimated
legal expenses related to the securities class action pending
against the Company that may not be recoverable from one of the
Companys primary directors and officers
insurance carriers due to its insolvency. Included in marketing,
general and administrative expenses for 2001 and 2000 are
severance charges of approximately $6.4 million and
$7.5 million, respectively.

The Company incurred interest and other financing
charges of $15.6 million and $29.4 million in 2001 and
2000, respectively, related to bank debt. Interest on bank debt
decreased in part during 2001 due to the repayment in full of
the Term Loan during the second quarter of 2000. During December
2000, the Company completed a capital restructuring whereby all
outstanding Senior Notes were repurchased or tendered and
replaced with new senior bank facilities totaling
$250 million, $175 million of which is a
5 1/2 year term loan (the New Term Loan)
and $75 million of which is a 5 year revolving credit
facility (the Revolver, together with the New Term
Loan, the Senior Credit Facilities). In addition,
the Company repaid approximately $21.9 million of its New
Term Loan during the year ended December 31, 2001. See
Liquidity and Capital Resources 
Financing. The Companys average interest rate on
bank debt was 8% in 2001 compared with 12.1% in 2000. Interest
expense on capital leases approximated $0.9 million in
2000. Interest expense on delayed claims totaled
$3.4 million in 2001 compared with $4 million in 2000,
reflecting more timely payment of claims and lower levels of
older claims outstanding.

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

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

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 and risk
transfer arrangements with various health care providers may

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mitigate the effects of inflation on its
operations. There is no assurance that the Companys
efforts to reduce the impact of inflation will be successful or
that the Company will be able to increase premiums to offset
cost increases associated with providing health care.


Liquidity and Capital Resources

As of December 31, 2002, the Company had
approximately $1.4 billion in current cash and marketable
securities, including approximately $124 million at the
parent company. Parent company cash is used for, among other
things, capital expenditures, acquisitions, debt repayment,
stock repurchases, costs of litigation and other general
corporate purposes. A significant portion of parent company cash
is directly dependent upon operating profits generated by the
Companys regulated operating subsidiaries and the ability
to receive dividends from those subsidiaries beyond amounts that
would be payable without prior regulatory approval. There is no
assurance that the Company will receive regulatory approval for
future dividend payments. Cash provided by operations was
$344.5 million in 2002 compared with $613.8 million in
2001. The change in cash flow between 2002 and 2001 was
primarily the result of the receipt of approximately
$87.4 million from the Companys pharmacy benefit
manager in 2001, a decrease in other receivables collected
related to New York State Market Stabilization and Stop Loss
Pools and risk contract recoveries of approximately
$31.3 million and an increase in income tax payments of
approximately $121.4 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. During 2001, the Company
received distributions from the 1997 and 1998 New York
Stabilization Pools of approximately $25.1 million and
collected receivables of approximately $22 million from a
health care risk contract for fiscal 1999 and 2000. In September
2001, the Company entered into a five-year agreement with
Merck-Medco, effective beginning January 1, 2002, pursuant
to which Merck-Medco and certain of its subsidiaries provide
pharmacy benefit management services, including retail and
mail-order pharmacy services, to the Companys members.
This agreement provided for a payment of $4.5 million to
Oxford to offset systems and other costs associated with
implementation of designated services. In addition to the
pharmacy services agreement, the Company also entered into an
alliance agreement with Merck-Medco under which the Company
develops and provides certain historic and current information
and furnishes strategic consultative and other services to
Merck-Medco over a five-year period in return for a total
payment of approximately $82.9 million. The Company
received these amounts, which were included in unearned revenue
at December 31, 2001, during the third and fourth quarters
of 2001. Effective January 1, 2002, substantially all of
these amounts are being amortized to income on a straight-line
basis over the life of the agreement.

Capital expenditures totaled approximately
$19 million during 2002 compared with $21.4 million in
2001. This amount was used primarily for computer equipment and
software. The Company currently anticipates that capital
expenditures in 2003 will be within a range of approximately
$25 million to $30 million, a significant portion of
which will be devoted to management information systems. In
March 2002, the Company acquired MedSpan, the parent company of
a Connecticut health maintenance organization, for cash of
approximately $18.2 million, subject to certain
adjustments. MedSpans network serves approximately 32,700
commercial members and 10,800 self-funded members in Connecticut
at December 31, 2002, and had total commercial HMO revenues
of approximately $87.7 million in 2002. 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. The
acquisition is intended to allow the Company to, among other
things, expand offerings of its various health plans to New
York, New Jersey and Connecticut based employers with employees
outside the tri-state area. 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, including $1.4 million in
2002, which investment was fully reserved prior to sale.

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Cash used by financing activities totaled
$273.7 million for the year ended December 31, 2002,
compared with $364.6 million in 2001. During 2002, the
Company repurchased 6.8 million shares of its common stock
in open market transactions at a cost of approximately
$251.5 million, repaid approximately $27.1 million of
its New Term Loan (as defined in Financing below)
and other notes and paid approximately $24.1 million
related to minimum tax withholdings on option exercises.
Partially offsetting these amounts were proceeds received from
option exercises of approximately $31.5 million. Proceeds
from the exercise of stock options were approximately
$29.5 million during 2001 and $64.6 million in 2000.
In 2001, the Companys Board of Directors approved a share
repurchase program for up to $500 million of the
Companys outstanding common stock through September 2003.
In September 2002, the Companys Board of Directors
approved an increase of $250 million to its existing share
repurchase program and extended the program through December
2003. The program authorizes the Company to purchase shares on
the open market and in privately negotiated transactions from
time to time depending on general market conditions. Through
December 31, 2002, the Company has repurchased
approximately 19.8 million of its common shares at an
aggregate cost of approximately $617.4 million. The Company
has remaining repurchase authority of approximately
$132.6 million as of December 31, 2002. The Company
paid cash dividends on the then outstanding Preferred Stock of
approximately $13.8 million during 2000.

The Company has senior credit facilities that
include a term loan of $175 million, of which approximately
$126.9 million was outstanding at December 31, 2002,
and a revolving credit facility of $75 million, which has
not been drawn. Under the terms of the senior credit facilities,
the Company must make scheduled payments and reductions in the
revolving credit facility and must prepay the term loan or
reduce the revolving credit facility upon the occurrence of
certain events, as defined. See Liquidity and Capital
Resources  Financing.

Cash and investments aggregating
$56.4 million at December 31, 2002 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, 2002, the Companys HMO
and insurance subsidiaries had statutory surplus of
approximately $551 million, as compared with approximately
$448.3 million at December 31, 2001, or approximately
$338 million 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, 2002, the Companys
statutory surplus was approximately 200% 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 2002
and 2001, the Companys HMO subsidiaries paid dividends to
the parent company of approximately $235 million and
$328.4 million, respectively. In addition, a dividend of
approximately $87.3 million was approved and paid in the
first quarter of 2002 from the Companys indemnity
insurance company to its parent company, Oxfords New York
HMO. The Company intends to continue to seek additional
dividends from most of its regulated subsidiaries during 2003,
and currently estimates that such amounts will be in excess of
$250 million. Although the Company received dividends from
its HMO subsidiaries in 2002 and 2001, there can be no
assurances that such dividend payments 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
$618.6 million as of December 31, 2002 compared with
$595.1 million as of December 31, 2001. The increase
primarily reflects higher levels of membership, per member per
month increases in medical costs and improved working capital
management of claims. 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 three years, there has been no significant
adverse development of prior years actual claims history
when compared

38



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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 two
years, approximately 95% of claims have been paid within six
months of incurral. The Company revises its estimates for IBNR
in future periods based upon continued actuarial analysis of
claims payments, receipts and other items subsequent to the
incurral period. Revisions to estimates, where material, have
been disclosed and are recorded in the period they arise.


The liability for medical costs payable is also
affected by delegation, capitation and risk transfer
arrangements, including, without limitation, arrangements
related to certain diagnostic testing, disease management and
ancillary services, agreements with physician and other health
care groups 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). From time to
time, the Company may explore other delegation, capitation and
risk transfer 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 risk-share agreements with two
hospitals and a physician group covering approximately 22,650
and 21,100 Medicare members at December 31, 2002 and 2001,
respectively. One such agreement was expanded in August 2001.
Premium revenues for the Medicare members covered under these
agreements totaled approximately $189 million and
$149 million in 2002 and 2001, respectively. The increase
in premium revenue under these agreements for the 2002 period
compared with the 2001 period is the result of an increase in
member months. Prior to January 1, 2002, the Company had
transferred the medical cost risk for its Medicare members in
certain New York counties to North Shore Long Island Jewish
Health System (North Shore). The premium revenues
recognized by the Company during the year ended
December 31, 2001 for the approximately 16,600 Medicare
members covered at that time pursuant to this agreement
approximated $167 million. However, as of January 1,
2002, the Company exited the Medicare line of business in Long
Island and discontinued the risk transfer agreement with North
Shore in other counties. Although North Shore is obligated under
the contract to pay all claims for dates of service through
December 31, 2001, the Company is ultimately responsible
for any claims not paid by North Shore.

The 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
was 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 each insurer with respect to specified medical
conditions. In January 2001, the Company received distributions
from the 1997 and 1998 New York Stabilization Pools of
approximately $4 million and $21.1 million,
respectively, which were included in income for the year ended
December 31, 2000. In January 2002, the Company received an
additional distribution from the 1998 New York Stabilization
Pool of approximately $3.6 million that was included in income
for the year ended December 31, 2001. The Company
contributed approximately $7 million to the New York
Stabilization Pools in 1999 and, at December 31, 2002, 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 a receivable of
approximately $10.8 million related to 2001 from the New
York Stabilization Pools.

The Company has also established receivables of
approximately $10.8 million and $10.1 million at
December 31, 2002 for the 2001 and 2002 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

39



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##### 



funds to cover 90% of certain of the paid claims
for the New York Mandated Plans and for the Healthy New York
Plan. 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.


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 2002 Pool years may differ materially from amounts that
will ultimately be paid or received from the Pools based on
final reconciliations. There can be no assurance that the
Company will receive additional funds in the future related to
the Pools. Additionally, the regulations governing the Stop Loss
Pools are set to expire on or about June 30, 2003, unless
extended or revised by the New York State legislature. The
impact of the ultimate resolution of this legislation on the
amounts recorded by the Company is unknown at this time.

The Company and certain of its former Officers
and Directors are currently defendants in certain securities
class actions. In the fourth quarter of 1999, the Company
purchased Excess 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.
Subject to the terms of the policies, the excess insurers have
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. The Excess Insurance carriers have
advised the Company that the Retention is currently
$161.3 million. The Company believes that, under the terms
of the policies, the Retention is currently $155 million,
but the Excess Insurance carriers have not accepted this
interpretation. The policies do not cover taxes, fines or
penalties imposed by law or the cost to comply with any
injunctive or other non-monetary relief or any agreement to
provide any such relief. The coverage under the policies is in
addition to approximately $25 million of coverage remaining
under preexisting primary insurance that is not subject to the
Retention applicable to the Excess Insurance policies. Of the
remaining $25 million in primary insurance coverage,
collectibility of some portion of $15 million is in doubt
because one of the Companys Directors and Officers
insurance carriers, Reliance Insurance Company
(Reliance), was placed in liquidation in October
2001 by the Commonwealth Court of Pennsylvania. Accordingly,
during the third quarter of 2001, the Company recorded a charge
of $10 million related to a provision for estimated
insurance recoveries related to anticipated legal expenses that
may not be recoverable from Reliance. Reliance also insured
$20 million of the $200 million Excess Insurance. Due
to the liquidation of Reliance, collectibility of some portion
of $20 million of the Excess Insurance would also be in
doubt if the Company makes a claim on that coverage.

The Company, in the opinion of management with
the advice of external counsel, has substantial defenses to the
plaintiffs claims in the securities class actions and may
ultimately prevail if these matters are brought to trial. There
can be no assurance, however, as to the ultimate result in this
litigation. In the event the Company ultimately suffers an
adverse judgment, or settles such actions prior to trial:
(i) the Company would be liable to fund the entire amount
of such judgment or settlement up to $161.3 million, less
any amount then remaining available and collectible under the
Companys primary Directors and Officers insurance,
(ii) to the extent that the amount of such judgment or
settlement is more than $161.3 million and less than
$383.5 million, the Company would, in addition, be liable
to fund 10% of the excess over $161.3 million (90% of such
excess being covered by the Companys Excess Insurance),
plus all of any amount up to $20 million not collected from
Reliance, and (iii) the Company would be liable to fund the
entire amount of any excess over $383.5 million. Each of
the amounts of $161.3 million and $383.5 million in
the preceding sentence reflects the insurance carriers
position regarding the current Retention under the Excess
Insurance. Under the Companys interpretation of the
policies, these amounts would be $155 million and
$377.2 million, respectively. In the event that the Excess
Insurance carriers become liable to pay any losses under the
policies, the Company would be obligated to pay the carriers an
additional premium of $8 million.

On September 30, 2002, Judge Brieant agreed
to hold a settlement conference on November 6, 2002 with
parties to the securities class actions and the Excess Insurance
carriers. In view of the inherent risks and uncertainties of
litigation and the related time and expense, and in anticipation
of the settlement conference,

40



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the Company communicated to the plaintiffs and
the insurance carriers the Companys willingness to pay
$161.3 million. This offer reflects the full amount of the
current Retention under the insurance carriers
interpretation of the Excess Insurance policies. As a result,
the Company has recorded a net liability and pre-tax charge of
$151.3 million against earnings in the third quarter of
2002. This $151.3 million charge represents the
Companys settlement offer, less $10 million that the
Company estimates would be available and collectible under its
primary Directors and Officers insurance. If a settlement is
reached and the total settlement amount exceeds
$161.3 million, the amount of co-payments by the Company
required under the Excess Insurance policies and the amount, if
any, not collected from Reliance under the Excess Insurance
would depend on the terms and total amount of any settlement. At
the present time, no total settlement amount beyond
$161.3 million can be reasonably estimated. Accordingly,
the Company has not recorded a liability for any co-payments
required by the Excess Insurance or any amount not collected
from Reliance. Also, in the event the Excess Insurance carriers
contribute any amount to a settlement, the Company would be
obligated to pay the $8 million additional premium referred
to above. At this time, there is no assurance that a settlement
will be reached. Accordingly, the Company has not recorded a
liability for the additional premium payment. There can be no
assurance as to the terms of any settlement, or that the Court
would approve any such settlement. If no settlement is reached
and approved, the securities class actions would proceed to
trial, and, at the present time, no amount or range of loss can
be reasonably estimated. Accordingly, the Company has not
recorded a net liability for a potential unfavorable judgment or
settlement costs in excess of $151.3 million. There can be
no assurance as to the ultimate result in this litigation. The
Company does not believe that future funding of the
Companys current settlement offer would have a significant
impact on its capital needs or its existing share repurchase
program.


The Company, its Excess Insurance carriers and
the plaintiffs have not been able to reach a settlement in the
securities class actions. On December 19, 2002, Judge
Brieant scheduled a trial to begin on March 10, 2003. If
the securities class actions are not settled, the class actions
will go to trial. In anticipation of legal defense costs and
other expenses related to trial, the Company recorded an
additional liability and pretax charge of $20 million in
the fourth quarter of 2002. In the event of a settlement or
unfavorable trial outcome not covered by existing insurance
policies, the Company would utilize some combination of parent
company cash plus available credit facilities to finance such
settlement or unfavorable outcome. The Company currently has in
place a revolving credit facility, subject to certain
restrictions and limitations, of $75 million and the
availability to borrow an additional $300 million under
existing credit facilities. In the event of a settlement or
unfavorable outcome in excess of existing credit facilities, the
Company would consider, among other things, seeking additional
credit facilities.

In April 2002, the Company agreed with CSC to
conclude its technology outsourcing arrangement. The Company
entered into a new agreement with CSC effective July 15,
2002, whereby the Company, among other things, leased certain
information technology equipment, with a fair value of
approximately $14 million, from CSC over a term of
30 months. As part 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. Included in this
charge was $7.8 million of negotiated termination fees,
payable to CSC over a 30-month period, and an asset impairment
charge of approximately $7.7 million recognized primarily
for computer systems that are no longer used in the operations.
The Company believes that total administrative expenses for
services transitioned to the Company, including equipment leases
under the new agreement, will be less than those under the
previous CSC agreement.

Financing

During 2000, the Company repurchased its
remaining outstanding Preferred Stock, repurchased the remaining
balance outstanding on its Term Loan and repurchased or tendered
for all of its outstanding Senior Notes. The Company recorded an
extraordinary charge of $20.3 million, net of income tax
benefits of $13.9 million, in connection with the
prepayment of the Term Loan and the repurchase or tender of the
Senior Notes. The extraordinary charges include premiums paid,
transaction costs and the write-off of unamortized original
issuance debt costs. Simultaneously with these transactions, the
Company entered into new senior bank facilities, totaling
$250 million, comprised of a $175 million 5 1/2
year term loan (the Term Loan) and a

41



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$75 million 5 year revolving credit
facility (the Revolver, together with the New Term
Loan, the Senior Credit Facilities). The proceeds of
the New Term Loan were used, along with available Company cash,
to fund the recapitalization. The Company has not drawn on the
Revolver.


The agreement governing the Senior Credit
Facilities (the Credit Agreement), provides for
scheduled quarterly repayments of principal of the New Term Loan
with a final maturity of June 2006. The Credit Agreement
provides for voluntary prepayments of principal and voluntary
reductions in commitments under the Revolver without penalty of
a minimum amount of $5 million and mandatory prepayments of
principal from proceeds upon the occurrence of certain events.
Mandatory prepayments of principal and/or reductions in the
Revolver are required from (1) the net proceeds from the
sale of assets, subject to certain exceptions; (2) 50% of
the net proceeds from certain equity issuances; and (3) the
net proceeds from the issuance of debt securities. The Credit
Agreement also provides for mandatory prepayment of the entire
amount outstanding under the Senior Credit Facilities at a 1%
premium upon the occurrence of a change in control (as defined).
The Credit Agreement (i) allows the Company to use
unrestricted Parent Company cash to repurchase common stock and
make other payments as defined in the Credit Agreement, subject
to a minimum of $150 million of liquidity, (ii) allows
the Company, subject to certain restrictions, to borrow an
additional $300 million and (iii) allows the Company
to pay up to $150 million related to a settlement or
adverse judgment in the securities litigation in excess of
insurance payments received by the Company.

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

Borrowings under the Senior Credit Facilities
bear interest, subject to periodic resets, at either a base rate
(Base Rate Borrowings) or LIBOR plus an applicable
margin based on the Companys credit ratings. Interest on
Base Rate Borrowings is calculated as the higher of (a) the
prime rate or (b) the federal funds effective rate, 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 weighted average
interest rate for the years ended December 31, 2002 and
2001 was 5.43% and 8%, respectively. At December 31, 2002,
interest expense is based on a $62.8 million tranche at a
rate of approximately 4.99% through February 13, 2003 and a
$64 million tranche at a rate of 5.19% through
January 16, 2003. On January 16, 2003, the rate with
respect to the $64 million tranche was reset at 4.64% to
expire on July 16, 2003.

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

Contractual
Obligations

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

|                                          |  |                        |         |                        |  |           |        |           |  |       |         |  |  |   |        |  |  |   |        | 
|----------------------------------------- |  | ---------------------- | ------- | ---------------------- |  | --------- | ------ | --------- |  | ----- | ------- |  |  | - | ------ |  |  | - | ------ | 
|                                          |  |                        |         |                       
|                                          |  |                        |         | Payments Due by Period
|                                          |  |                        |         |                       
|                                          |  |                        |         |                        |  | After 5  
|Contractual Obligations                   |  | Total                  |         | 1 Year                 |  | 2-3 Years |        | 4-5 Years |  | Years
|                                          |  |                        |         |                        |  |           |        |           |  |      
|                                          |  |                       
|                                          |  | (Amounts in thousands)
|Long term debt                            |  | $                      | 126,875 |                        |  | $         | 30,625 |           |  | $     | 74,375  |  |  | $ | 21,875 |  |  | $ |       | 
|Operating leases                          |  |                        | 67,100  |                        |  |           | 12,900 |           |  |       | 24,700  |  |  |   | 16,300 |  |  |   | 13,200 | 
|Obligations under capital lease agreement |  |                        | 11,219  |                        |  |           | 5,470  |           |  |       | 5,749   |  |  |   |       |  |  |   |       | 
|                                          |  |                        |         |                        |  |           |        |           |  |       |         |  |  |   |        |  |  |   |        | 
|Total                                     |  | $                      | 205,194 |                        |  | $         | 48,995 |           |  | $     | 104,824 |  |  | $ | 38,175 |  |  | $ | 13,200 | 
|                                          |  |                        |         |                        |  |           |        |           |  |       |         |  |  |   |        |  |  |   |        | 

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

42



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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 uncollectible 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
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 collectibility of its
premiums receivable based on a combination of factors. These
estimates are based on the Companys assessment of the
collectibility 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 uncollectible accounts may
result.

At December 31, 2002, the Company maintained
reserves for billing adjustments of $3.5 million compared
with $9.8 million at December 31, 2001, and reserves
for doubtful accounts of $10 million at December 31,
2002 and 2001. The reserve for billing adjustments was reduced
during 2002 based on reduced levels of net retroactivity
experienced over the last two years as a result of the Company
receiving billing and member change information on a more timely
basis.

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 and risk transfer
arrangements, including, without limitation, certain diagnostic
testing, disease management and ancillary services, physician
and other health care groups

43



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##### 



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 the Companys external auditors
and state regulatory authorities on a periodic basis. The
estimates for submitted claims and IBNR are made on an accrual
basis and adjusted in future periods as necessary. Adjustments
to prior period estimates, if any, are included in the current
period.

Medical costs payable also reflects payments
required by or anticipated benefits from 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.

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 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 2002 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 dominance
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, 2002, 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 a receivable of
approximately $10.8 million related to 2001 from the New
York Stabilization Pools. The Company has also established
receivables of approximately $10.8 million and
$10.1 million at December 31, 2002 for the 2001 and
2002 pool years, respectively, related to the New York Stop Loss
Pools. Management believes that the current net receivable
established as of December 31, 2002, related to the pool
years 1999 through 2002 represent 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

44



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currently in dispute. For a further description
of the risk allocation pools and the state health care public
policy initiatives referenced above, see 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, 2002;
however, actual claim payments and other items may differ from
established estimates. Assuming a hypothetical 1% difference
between the Companys December 31, 2002 estimates of
medical costs payable and actual costs payable, net earnings for
the year ended December 31, 2002 would increase or decrease
by approximately $3.6 million and diluted earnings per
share would increase or decrease by approximately $0.04 per
share.

The following table shows the components of the
change in medical costs payable for the years ended
December 31, 2002, 2001 and 2000 (in millions):

|                                              |                          |      |          |          |   |      |          |          |   |   |          |          |  
|--------------------------------------------- | ------------------------ | ---- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                              |                          | 2002 |          | 2001     |   | 2000
|                                              |                          |      |          |          |   |     
|Balances as of January 1,                     |                          | $    | 595.1    |          |   | $    | 612.9    |          |   | $ | 656.1    |         
|Business purchases                            |                          |      | 25.7     |          |   |      |         |          |   |   |         |         
|Components of health care services expense:   |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Estimated costs incurred |      |          | 3,904.1  |   |      |          | 3,416.3  |   |   |          | 3,202.5  |  
|                                              | Estimate changes         |      |          | (55.3    | ) |      |          | (15.0    | ) |   |          | (86.0    | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Health care services expense                  |                          |      | 3,848.8  |          |   |      | 3,401.3  |          |   |   | 3,116.5  |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Payments for health care services related to: |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      |          | (3,347.1 | ) |      |          | (2,911.3 | ) |   |          | (2,656.8 | )
|                                              | Prior year               |      |          | (503.9   | ) |      |          | (507.8   | ) |   |          | (502.9   | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total paid                                    |                          |      | (3,851.0 | )        |   |      | (3,419.1 | )        |   |   | (3,159.7 | )       
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balances as of December 31,                   |                          | $    | 618.6    |          |   | $    | 595.1    |          |   | $ | 612.9    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balance at December 31 related to:            |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      | $        | 557.0    |   |      | $        | 505.0    |   |   | $        | 545.7    |  
|                                              | Prior years              |      |          | 61.6     |   |      |          | 90.1     |   |   |          | 67.2     |  
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total                                         |                          | $    | 618.6    |          |   | $    | 595.1    |          |   | $ | 612.9    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         

Included in estimate changes are favorable
development of prior years estimated medical costs of
approximately $33.3 million, $8.4 million and
$47.7 million for 2002, 2001 and 2000, respectively,
estimate changes in New York market stabilization pool reserves
and stop loss pool recoveries of approximately $22 million,
$6.6 million and $25.1 million for 2002, 2001 and
2000, respectively, and claim recoveries of approximately
$13.2 million in 2000.

The components of medical costs payable were as
follows at December 31, 2002 and 2001 (in millions):

|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 
|----------------------------------------------------------------- |  | ----- | ----- | ---------------------- |  | -------------- | ----- |  |  | - | ---- | 
|                                                                  |  |       |       |                       
|                                                                  |  |       |       | 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 | 
|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 

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|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 
|----------------------------------------------------------------- |  | ----- | ----- | ---------------------- |  | -------------- | ----- |  |  | - | ---- | 
|                                                                  |  |       |       |                       
|                                                                  |  |       |       | Amounts Relating to   
|                                                                  |  |       |       | Claims Incurred During
|                                                                  |  |       |       |                       
|As of December 31, 2001                                           |  | Total |       | 2001                   |  | 2000 and Prior
|                                                                  |  |       |       |                        |  |               
|IBNR and medical claims reserves                                  |  | $     | 517.9 |                        |  | $              | 472.5 |  |  | $ | 45.4 | 
|Pharmacy PBM payable                                              |  |       | 19.9  |                        |  |                | 19.9  |  |  |   |     | 
|Stabilization and stop-loss pools, BDCC and GME
    reserves, net |  |       | 26.4  |                        |  |                | 3.4   |  |  |   | 23.0 | 
|Other reserves                                                    |  |       | 30.9  |                        |  |                | 9.2   |  |  |   | 21.7 | 
|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 
|                                                                  |  | $     | 595.1 |                        |  | $              | 505.0 |  |  | $ | 90.1 | 
|                                                                  |  |       |       |                        |  |                |       |  |  |   |      | 



| |            
| | -----------
| | 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 and certain of its former officers
and present and former directors are currently defendants in
certain securities class actions. The Company, in the opinion of
management with the advice of external counsel, has substantial
defenses to the plaintiffs claims and may ultimately
prevail if these matters are brought to trial. In view of the
inherent risks and uncertainties of litigation, however, and in
anticipation of a settlement conference held in November 2002,
the Company communicated to the plaintiffs and the insurance
carriers the Companys willingness to pay
$161.3 million. This offer reflects the full amount of the
current Retention under the insurance carriers
interpretation of the Excess Insurance policies. As a result,
the Company recorded a net liability and pre-tax charge of
$151.3 million against earnings in the third quarter of 2002.
This $151.3 million charge represents the Companys
settlement offer less $10 million, classified as other
current receivables in the Companys consolidated balance
sheet, that the Company estimates would be available and
collectible under its primary Directors and Officers insurance.

The Company, its Excess Insurance carriers and
the plaintiffs have not been able to reach a settlement in the
securities class actions. On December 19, 2002, Judge
Brieant scheduled a trial to begin on March 10, 2003. If
the securities class actions are not settled, the class actions
will go to trial. In anticipation of additional legal fees and
other expenses related to trial, the Company recorded an
additional net liability and pretax charge of $20 million in the
fourth quarter of 2002. At the present time, no total settlement
amount beyond $161.3 million can be reasonably estimated.
If a settlement is not reached, or if the Court does not approve
any such settlement, the securities class actions would proceed
to trial, and, at the present time, no amount or range of loss
can be reasonably estimated. Accordingly, the Company has not
recorded a net liability for a potential unfavorable judgment or
settlement costs in excess of $151.3 million. There can be
no assurance as to the ultimate result in this litigation. The
Company is also 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 other
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 coverages for such matters. Management
does not believe that any of such other matters currently
threatened or pending will have a material adverse effect

46



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##### 



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, 2002, includes a significant amount of
assets whose fair values are subject to market risk. Since a
substantial portion of the Companys investments are in
fixed income securities, interest rate fluctuations represent
the largest market risk factor affecting the Companys
consolidated financial position. Interest rates are managed
within a tight duration band, generally averaging 3.5 to
4.5 years, and credit risk is managed by investing in U.S.
government obligations, corporate debt and asset and mortgage
backed securities with high average quality ratings and
maintaining a diversified sector exposure within the debt
securities portfolio. The Companys investment policies are
subject to revision based upon market conditions and the
Companys cash flow and tax strategies, among other
factors. The Company continues to require a high credit rating,
A or higher, and maintains an average rating of AA+ on the
overall portfolio.

In order to determine the sensitivity of the
Companys investment portfolio to changes in market risk,
valuation estimates were made on each security in the portfolio
using a duration model. Duration models measure the expected
change in security market prices arising from hypothetical
movements in market interest rates. Convexity further adjusts
the estimated price change by mathematically
correcting the changes in duration as market
interest rates shift. The model used industry standard
calculations of security duration and convexity as provided by
third party vendors such as Bloomberg and Yield Book. For
certain structured notes, callable corporate notes, and callable
agency bonds, the duration calculation utilized an
option-adjusted approach, which helps to ensure that
hypothetical interest rate movements are applied in a consistent
way to securities that have embedded call and put features. The
model assumed that changes in interest rates were the result of
parallel shifts in the yield curve. Therefore, the same basis
point change was applied to all maturities in the portfolio. The
change in valuation was tested using positive and negative
adjustments in yield of 100 and 200 basis points. Hypothetical
immediate increases of 100 and 200 basis points in market
interest rates would decrease the fair value of the
Companys investments in debt securities as of
December 31, 2002 by approximately $40.5 million and
$83.2 million, respectively (compared to $42.7 million
and $83.7 million as of December 31, 2001,
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, 2002 by approximately $41.1 million and
$82.1 million, respectively (compared to $41.5 million
and $81.8 million as of December 31, 2001,
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.

47



---



##### 





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

See Index to Consolidated Financial Statements
and Schedule on page 52.

PART III



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



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



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



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

The information required by Items 10 through
13 is incorporated by reference to Registrants definitive
proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, within
120 days after December 31, 2002.



|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Based on the evaluation by the Chief Executive
Officer and Chief Financial Officer of the Company as of a date
within 90 days of the filing date of 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 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 52.     
|
| | 2.     Financial
    statement schedules  see Index to Consolidated
    Financial Statements and Schedules on page 52.
|
| | 3.     Exhibits 
    see Exhibit Index beginning on page 86.                                                          

(b) Reports on Form 8-K

In a report on Form 8-K dated
October 21, 2002 and filed on October 22, 2002, the
Company reported, under Item 5. Other Events, a
pre-tax charge related to the 1997 Securities Class Action
Lawsuits and the Companys expectation of earnings per
share for the quarter ended September 30, 2002.

In a report on Form 8-K dated and filed on
October 29, 2002, the Company reported, under Item 5.
Other Events, its results of operations for the
quarter ended September 30, 2002.

In a report on Form 8-K dated
November 22, 2002 and filed on November 25, 2002, the
Company reported, under Item 5. Other Events,
the completion of the transition from Dr. Norman Payson to
Charles Berg as CEO and Kent Thiry as Non-Executive Chairman.

In a report on Form 8-K dated and filed on
December 20, 2002, the Company reported, under Item 5.
Other Events, the trial date for the 1997 Securities
Class Action Litigation and an additional pre-tax charge
for litigation reserves related to the 1997 Securities
Class Action.

In a report on Form 8-K dated and filed on
December 23, 2002, the Company reported, under Item 5.
Other Events, the denial of a motion to add the
Company as a defendant in certain federal multi-district class
action litigation.

48



---



##### 



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 7th day of
February, 2003.



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



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

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

Pursuant to the requirements of the Securities
Act of 1933, this Report has been signed by the following
persons on behalf of the Registrant on February 7, 2003 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/ DAVID BONDERMANDavid Bonderman                           |  | 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                                               

49



---



##### 



CERTIFICATIONS

I, Charles G. Berg, President and Chief Executive
Officer, certify that:



| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Oxford Health Plans,
    Inc.;                                                                                                                                                                                                                                                                    
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary in order to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                                
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures for the registrant and have:                                                                                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date.                                                                                                                                



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of the registrants board
    of directors:



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                                          
| | -----------------------------------------
| | /s/ CHARLES G. BERG                      
| |                                          
| | Charles G. Berg                          
| | President and Chief Executive
    Officer

Date: February 7, 2003

50



---



##### 



I, Kurt B. Thompson, Chief Financial Officer,
certify that:



| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Oxford Health Plans,
    Inc.;                                                                                                                                                                                                                                                                    
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary in order to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                                
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures for the registrant and have:                                                                                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      

c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date.



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of the registrants board
    of directors:



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                        
| | -----------------------
| | /s/ KURT B. THOMPSON   
| |                        
| | Kurt B. Thompson       
| | Chief Financial Officer

Date: February 7, 2003

51



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULES

|                                                                                                                                        |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                        |  | Page
|                                                                                                                                        |  |     
|Independent Auditors Report                                                                                                            |  |      | 53 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                                        |  |      | 54 | 
|Consolidated Statements of Income for the years
    ended December 31, 2002, 2001 and 2000                                              |  |      | 55 | 
|Consolidated Statements of Shareholders
    Equity and Comprehensive Earnings for the years ended
    December 31, 2002, 2001 and 2000 |  |      | 56 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                          |  |      | 57 | 
|Notes to Consolidated Financial Statements                                                                                              |  |      | 59 | 
|Financial Statement Schedules:                                                                                                          |  |      |    | 
|I  Condensed Financial Information of
    Registrant                                                                                    |  |      | 82 | 
|II  Valuation and Qualifying Accounts                                                                                                   |  |      | 85 | 

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.

52



---



##### 



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, 2002 and 2001,
and the related consolidated statements of income,
shareholders equity and comprehensive earnings and cash
flows for each of the three years in the period ended
December 31, 2002. Our audits also included the financial
statement schedules listed in the Index at Item 14(a).
These consolidated financial statements and schedules are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Oxford Health
Plans, Inc. and subsidiaries as of December 31, 2002 and
2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2002, 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 24, 2003


53



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2001


|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |          |           | 
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | --------- | --------- |  | ------- | -------- | --------- | 
|                                                                          |                                                                                                                                         | 2002                                       |        | 2001     
|                                                                          |                                                                                                                                         |                                            |        |          
|                                                                          |                                                                                                                                         |                                           
|                                                                          |                                                                                                                                         | (In thousands, except share               
|                                                                          |                                                                                                                                         | amounts)                                  
|Assets                                                                   
|Current assets:                                                           |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          | Cash and cash equivalents                                                                                                               |                                            | $      | 321,627   |           |  | $       | 345,530  |          
|                                                                          | Investments  available-for-sale, at
    fair value                                                                                     |                                            |        | 1,102,664 |           |  |         | 961,652  |          
|                                                                          | Premiums receivable, net                                                                                                                |                                            |        | 29,803    |           |  |         | 37,127   |          
|                                                                          | Other receivables                                                                                                                       |                                            |        | 43,919    |           |  |         | 24,678   |          
|                                                                          | Prepaid expenses and other current assets                                                                                               |                                            |        | 10,214    |           |  |         | 3,450    |          
|                                                                          | Deferred income taxes                                                                                                                   |                                            |        | 111,652   |           |  |         | 83,416   |          
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          |                                                                                                                                         | Total current assets                       |        |           | 1,619,879 |  |         |          | 1,455,853 | 
|Property and equipment, net                                               |                                                                                                                                         |                                            | 34,445 |           |           |  | 35,084  |         
|Deferred income taxes                                                     |                                                                                                                                         |                                            | 9,173  |           |           |  | 8,348   |         
|Restricted cash and investments 
    held-to-maturity, at amortized cost |                                                                                                                                         |                                            | 56,421 |           |           |  | 58,813  |         
|Goodwill and other intangible assets, net                                 |                                                                                                                                         |                                            | 24,691 |           |           |  | 3,302   |         
|Other noncurrent assets                                                   |                                                                                                                                         |                                            | 8,907  |           |           |  | 15,325  |         
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          |                                                                                                                                         | Total assets                               |        | $         | 1,753,516 |  |         | $        | 1,576,725 | 
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         
|Liabilities and Shareholders
    Equity                                 
|Current liabilities:                                                      |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          | Medical costs payable                                                                                                                   |                                            | $      | 618,618   |           |  | $       | 595,064  |          
|                                                                          | Current portion of long term debt                                                                                                       |                                            |        | 30,625    |           |  |         | 26,250   |          
|                                                                          | Trade accounts payable and accrued expenses                                                                                             |                                            |        | 135,124   |           |  |         | 116,601  |          
|                                                                          | Reserve for litigation settlement                                                                                                       |                                            |        | 161,300   |           |  |         |         |          
|                                                                          | Unearned revenue                                                                                                                        |                                            |        | 201,045   |           |  |         | 201,225  |          
|                                                                          | Income taxes payable                                                                                                                    |                                            |        | 2,418     |           |  |         | 47,789   |          
|                                                                          | Current portion of capital lease obligations                                                                                            |                                            |        | 5,470     |           |  |         |         |          
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          |                                                                                                                                         | Total current liabilities                  |        |           | 1,154,600 |  |         |          | 986,929   | 
|Obligations under capital lease                                           |                                                                                                                                         |                                            | 5,749  |           |           |  |        |         
|Long-term debt                                                            |                                                                                                                                         |                                            | 96,250 |           |           |  | 126,876 |         
|Contingencies (see note 17)                                               |                                                                                                                                         |                                            |        |           |           |  |         |         
|Shareholders equity:                                                     |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          | Preferred stock, $.01 par value, authorized
    2,000,000 shares; none issued and outstanding                                           |                                            |        |          |           |  |         |         |          
|                                                                          | Common stock, $.01 par value, authorized
    400,000,000 shares; issued and outstanding 105,075,889 in 2002
    and 100,353,007 in 2001 |                                            |        | 1,051     |           |  |         | 1,004    |          
|                                                                          | Additional paid-in capital                                                                                                              |                                            |        | 709,258   |           |  |         | 605,661  |          
|                                                                          | Retained earnings                                                                                                                       |                                            |        | 437,130   |           |  |         | 215,165  |          
|                                                                          | Accumulated other comprehensive earnings                                                                                                |                                            |        | 25,038    |           |  |         | 7,587    |          
|                                                                          | Treasury stock, at cost                                                                                                                 |                                            |        | (675,560  | )         |  |         | (366,497 | )        
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          |                                                                                                                                         | Total shareholders equity                 |        |           | 496,917   |  |         |          | 462,920   | 
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         
|                                                                          |                                                                                                                                         | Total liabilities and shareholders equity |        | $         | 1,753,516 |  |         | $        | 1,576,725 | 
|                                                                          |                                                                                                                                         |                                            |        |           |           |  |         |         

See accompanying notes to consolidated financial
statements.

54



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

Consolidated Statements of Income

Years Ended December 31, 2002, 2001 and
2000


|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |           |           | 
|-------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---------------------------------------- | ------- | --------- | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                                                         |                                                 | 2002                                     |         | 2001      |           | 2000
|                                                                                                         |                                                 |                                          |         |           |           |     
|                                                                                                         |                                                 |                                         
|                                                                                                         |                                                 | (In thousands, except per share amounts)
|Revenues:                                                                                                |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Premiums earned                                 |                                          | $       | 4,850,964 |           |      | $       | 4,312,391 |           |   | $       | 4,023,397 |          
|                                                                                                         | Third-party administration, net                 |                                          |         | 17,744    |           |      |         | 13,791    |           |   |         | 15,390    |          
|                                                                                                         | Investment and other income, net                |                                          |         | 94,686    |           |      |         | 95,046    |           |   |         | 73,015    |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         |                                                 | Total revenues                           |         |           | 4,963,394 |      |         |           | 4,421,228 |   |         |           | 4,111,802 | 
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Expenses:                                                                                                |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Health care services                            |                                          |         | 3,848,803 |           |      |         | 3,401,331 |           |   |         | 3,116,544 |          
|                                                                                                         | Marketing, general and administrative           |                                          |         | 575,433   |           |      |         | 489,143   |           |   |         | 476,422   |          
|                                                                                                         | Litigation charge for estimated settlement, net |                                          |         | 151,300   |           |      |         |          |           |   |         |          |          
|                                                                                                         | Interest and other financing charges            |                                          |         | 11,041    |           |      |         | 19,003    |           |   |         | 34,332    |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         |                                                 | Total expenses                           |         |           | 4,586,577 |      |         |           | 3,909,477 |   |         |           | 3,627,298 | 
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Operating earnings before income taxes and
    extraordinary item                                        |                                                 |                                          | 376,817 |           |           |      | 511,751 |           |           |   | 484,504 |          
|Income tax expense                                                                                       |                                                 |                                          | 154,852 |           |           |      | 189,330 |           |           |   | 199,085 |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Net earnings before extraordinary item                                                                   |                                                 |                                          | 221,965 |           |           |      | 322,421 |           |           |   | 285,419 |          
|Extraordinary item  Loss on early
    retirement of debt, net of income tax benefits of $13,916 in 2000 |                                                 |                                          |        |           |           |      |        |           |           |   | (20,325 | )        
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Net earnings                                                                                             |                                                 |                                          | 221,965 |           |           |      | 322,421 |           |           |   | 265,094 |          
|Less preferred dividends and amortization                                                                |                                                 |                                          |        |           |           |      |        |           |           |   | (73,791 | )        
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Net earnings attributable to common shares                                                               |                                                 | $                                        | 221,965 |           |           | $    | 322,421 |           |           | $ | 191,303 |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Earnings per common share  basic:                                                                       |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Earnings before extraordinary item              |                                          | $       | 2.55      |           |      | $       | 3.35      |           |   | $       | 2.50      |          
|                                                                                                         | Extraordinary item                              |                                          |         |          |           |      |         |          |           |   |         | (0.24     | )        
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Net earnings per common share                   |                                          | $       | 2.55      |           |      | $       | 3.35      |           |   | $       | 2.26      |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Earnings per common share  diluted:                                                                     |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Earnings before extraordinary item              |                                          | $       | 2.45      |           |      | $       | 3.21      |           |   | $       | 2.24      |          
|                                                                                                         | Extraordinary item                              |                                          |         |          |           |      |         |          |           |   |         | (0.22     | )        
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Net earnings per common share                   |                                          | $       | 2.45      |           |      | $       | 3.21      |           |   | $       | 2.02      |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|Weighted-average common stock and common stock
    equivalents outstanding:                              |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Basic                                           |                                          |         | 87,145    |           |      |         | 96,269    |           |   |         | 84,728    |          
|                                                                                                         | Effect of dilutive securities:                  |                                          |         |           |           |      |         |           |           |   |         |           |          
|                                                                                                         | Stock options                                   |                                          |         | 3,599     |           |      |         | 4,274     |           |   |         | 4,779     |          
|                                                                                                         | Warrants                                        |                                          |         |          |           |      |         |          |           |   |         | 5,066     |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          
|                                                                                                         | Diluted                                         |                                          |         | 90,744    |           |      |         | 100,543   |           |   |         | 94,573    |          
|                                                                                                         |                                                 |                                          |         |           |           |      |         |           |           |   |         |          

See accompanying notes to consolidated financial
statements.

55



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

Consolidated Statements of Shareholders
Equity and Comprehensive Earnings

Years Ended December 31, 2002, 2001 and
2000


|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | -------------- | ------- | ---------- |  | -------- | ----- | --------- |  | ------------- | -------- | -------- |  | -------- | -------- | - |  | - | ------- |  |  | - | ------- | - |  | - | -------- | -
|                                                                                  |  |                |         |            |  |          |       |           |  | Accumulated   |          |         
|                                                                                  |  | Common Stock   |         |            |  |          |       |           |  | Other         |          |         
|                                                                                  |  |                |         | Additional |  | Retained |       |           |  | Comprehensive |          |         
|                                                                                  |  | Number         |         |            |  | Paid-In  |       | Earnings  |  | Comprehensive |          | Earnings |  | Treasury
|                                                                                  |  | of Shares      |         | Par Value  |  | Capital  |       | (Deficit) |  | Earnings      |          | (Loss)   |  | Stock   
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |         
|                                                                                  |  |               
|                                                                                  |  | (In thousands)
|Balance at January 1, 2000                                                        |  |                | 81,986  |            |  | $        | 820   |           |  | $             | 488,030  |          |  | $        | (372,350 | ) |  |   |         |  |  | $ | (17,745 | ) |  | $ |         |  
|Exercise of stock options                                                         |  |                | 5,332   |            |  |          | 53    |           |  |               | 64,537   |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Issuance of common shares                                                         |  |                | 10,986  |            |  |          | 110   |           |  |               | 194,900  |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                                 |  |                |        |            |  |          |      |           |  |               | 27,665   |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Repurchase of warrants                                                            |  |                |        |            |  |          |      |           |  |               | (141,408 | )        |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Compensatory stock grants under executive stock
    agreements                    |  |                |        |            |  |          |      |           |  |               | 1,924    |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Preferred stock dividends and amortization of
    discount                        |  |                |        |            |  |          |      |           |  |               | (30,978  | )        |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Amortization of preferred stock issuance costs                                    |  |                |        |            |  |          |      |           |  |               | (1,728   | )        |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Write-off of preferred stock discount and costs                                   |  |                |        |            |  |          |      |           |  |               | (41,085  | )        |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Net income                                                                        |  |                |        |            |  |          |      |           |  |               |         |          |  |          | 265,094  |   |  | $ | 265,094 |  |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
    securities, net of deferred taxes |  |                |        |            |  |          |      |           |  |               |         |          |  |          |         |   |  |   | 21,383  |  |  |   | 21,383  |   |  |   |         |  
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|Comprehensive earnings                                                            |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  | $ | 286,477 |  |  |   |         |   |  |   |          |  
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|Balance at December 31, 2000                                                      |  |                | 98,304  |            |  |          | 983   |           |  |               | 561,857  |          |  |          | (107,256 | ) |  |   |         |  |  |   | 3,638   |   |  |   |         |  
|Exercise of stock options                                                         |  |                | 2,049   |            |  |          | 21    |           |  |               | 29,473   |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                                 |  |                |        |            |  |          |      |           |  |               | 12,411   |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Compensatory stock grants under executive stock
    agreements                    |  |                |        |            |  |          |      |           |  |               | 1,920    |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Purchase of treasury stock                                                        |  |                |        |            |  |          |      |           |  |               |         |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   | (366,497 | )
|Net income                                                                        |  |                |        |            |  |          |      |           |  |               |         |          |  |          | 322,421  |   |  | $ | 322,421 |  |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
    securities, net of deferred taxes |  |                |        |            |  |          |      |           |  |               |         |          |  |          |         |   |  |   | 3,949   |  |  |   | 3,949   |   |  |   |         |  
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|Comprehensive earnings                                                            |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  | $ | 326,370 |  |  |   |         |   |  |   |          |  
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|Balance at December 31, 2001                                                      |  |                | 100,353 |            |  |          | 1,004 |           |  |               | 605,661  |          |  |          | 215,165  |   |  |   |         |  |  |   | 7,587   |   |  |   | (366,497 | )
|Exercise of stock options                                                         |  |                | 4,723   |            |  |          | 47    |           |  |               | 64,999   |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Tax benefit realized on exercise of stock options                                 |  |                |        |            |  |          |      |           |  |               | 38,278   |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Compensatory stock grants under executive stock
    agreements                    |  |                |        |            |  |          |      |           |  |               | 320      |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   |         |  
|Purchase of treasury stock                                                        |  |                |        |            |  |          |      |           |  |               |         |          |  |          |         |   |  |   |        |  |  |   |        |   |  |   | (309,063 | )
|Net income                                                                        |  |                |        |            |  |          |      |           |  |               |         |          |  |          | 221,965  |   |  | $ | 221,965 |  |  |   |        |   |  |   |         |  
|Appreciation in value of available-for-sale
    securities, net of deferred taxes |  |                |        |            |  |          |      |           |  |               |         |          |  |          |         |   |  |   | 17,451  |  |  |   | 17,451  |   |  |   |         |  
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|Comprehensive earnings                                                            |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  | $ | 239,416 |  |  |   |         |   |  |   |          |  
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  
|Balance at December 31, 2002                                                      |  |                | 105,076 |            |  | $        | 1,051 |           |  | $             | 709,258  |          |  | $        | 437,130  |   |  |   |         |  |  | $ | 25,038  |   |  | $ | (675,560 | )
|                                                                                  |  |                |         |            |  |          |       |           |  |               |          |          |  |          |          |   |  |   |         |  |  |   |         |   |  |   |          |  

See accompanying notes to consolidated financial
statements.

56



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

Consolidated Statements of Cash
Flows

Years Ended December 31, 2002, 2001 and
2000


|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |          |         |         |          |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | ------- | ------ | -------- | ---------- | ------- | ------- | -------- | -------- | ------- | ------- | -------- | -
|                                                         |                                                                                         | 2002                                                             |                                             | 2001                                      |         | 2000  
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |       
|                                                         |                                                                                         |                                                                 
|                                                         |                                                                                         | (In thousands)                                                  
|Cash flows from operating activities:                    |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|                                                         | Net earnings                                                                            |                                                                  | $                                           | 221,965                                   |         |        | $        | 322,421    |         |         | $        | 265,094  |        
|                                                         | Adjustments to reconcile net earnings to net cash
    provided by operating activities: |                                                                  |                                             |                                           |         |        |          |            |         |         |          |          |        
|                                                         |                                                                                         | Depreciation and amortization                                    |                                             |                                           | 22,928  |        |          |            | 21,417  |         |          |          | 34,229  |        
|                                                         |                                                                                         | Noncash income                                                   |                                             |                                           | (17,519 | )      |          |            |        |         |          |          |        |        
|                                                         |                                                                                         | Litigation and other noncash charges                             |                                             |                                           | 177,832 |        |          |            |        |         |          |          |        |        
|                                                         |                                                                                         | Deferred income taxes                                            |                                             |                                           | (36,432 | )      |          |            | 66,127  |         |          |          | 190,596 |        
|                                                         |                                                                                         | Extraordinary item                                               |                                             |                                           |        |        |          |            |        |         |          |          | 20,325  |        
|                                                         |                                                                                         | Realized gain on sale of investments                             |                                             |                                           | (26,883 | )      |          |            | (20,787 | )       |          |          | (111    | )      
|                                                         |                                                                                         | Loss on sale of assets                                           |                                             |                                           |        |        |          |            |        |         |          |          | 5,365   |        
|                                                         |                                                                                         | Changes in assets and liabilities, net of
    balances acquired: |                                             |                                           |         |        |          |            |         |         |          |          |         |        
|                                                         |                                                                                         |                                                                  | Premiums receivable                         |                                           |         | 11,039 |          |            |         | 19,567  |          |          |         | 7,377   |         
|                                                         |                                                                                         |                                                                  | Other receivables                           |                                           |         | (9,241 | )        |            |         | 56,316  |          |          |         | (48,406 | )       
|                                                         |                                                                                         |                                                                  | Prepaid expenses and other current assets   |                                           |         | (4,416 | )        |            |         | 1,684   |          |          |         | (899    | )       
|                                                         |                                                                                         |                                                                  | Medical costs payable                       |                                           |         | 323    |          |            |         | (17,866 | )        |          |         | (43,133 | )       
|                                                         |                                                                                         |                                                                  | Trade accounts payable and accrued expenses |                                           |         | 232    |          |            |         | 2,295   |          |          |         | (19,853 | )       
|                                                         |                                                                                         |                                                                  | Income taxes payable                        |                                           |         | (7,090 | )        |            |         | 47,789  |          |          |         |        |         
|                                                         |                                                                                         |                                                                  | Unearned revenue                            |                                           |         | 14,836 |          |            |         | 112,926 |          |          |         | (8,856  | )       
|                                                         |                                                                                         |                                                                  | Other, net                                  |                                           |         | (3,105 | )        |            |         | 1,920   |          |          |         | 2,976   |         
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|                                                         |                                                                                         |                                                                  |                                             | Net cash provided by operating activities |         |        | 344,469  |            |         |         | 613,809  |          |         |         | 404,704  |  
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|Cash flows from investing activities:                    |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|                                                         | Capital expenditures                                                                    |                                                                  |                                             | (18,981                                   | )       |        |          | (21,386    | )       |         |          | (12,774  | )      
|                                                         | Purchases of available-for-sale securities                                              |                                                                  |                                             | (1,460,763                                | )       |        |          | (1,193,074 | )       |         |          | (466,999 | )      
|                                                         | Sales and maturities of available-for-sale
    securities                               |                                                                  |                                             | 1,386,443                                 |         |        |          | 1,130,811  |         |         |          | 450,082  |        
|                                                         | Proceeds from sale of assets                                                            |                                                                  |                                             |                                          |         |        |          |           |         |         |          | 2,734    |        
|                                                         | Acquisitions, net of cash acquired                                                      |                                                                  |                                             | (1,288                                    | )       |        |          | (19,483    | )       |         |          | (2,300   | )      
|                                                         | Other, net                                                                              |                                                                  |                                             | (75                                       | )       |        |          | 798        |         |         |          | 10,030   |        
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|                                                         |                                                                                         |                                                                  |                                             | Net cash used by investing activities     |         |        | (94,664  | )          |         |         | (102,334 | )        |         |         | (19,227  | )
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|Cash flows from financing activities:                    |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|                                                         | Proceeds from exercise of stock options                                                 |                                                                  |                                             | 31,545                                    |         |        |          | 29,494     |         |         |          | 64,590   |        
|                                                         | Payments under capital leases                                                           |                                                                  |                                             | (2,552                                    | )       |        |          | (5,700     | )       |         |          | (12,554  | )      
|                                                         | Proceeds of notes and loans payable                                                     |                                                                  |                                             |                                          |         |        |          |           |         |         |          | 175,000  |        
|                                                         | Redemption of notes and loans payable                                                   |                                                                  |                                             | (27,136                                   | )       |        |          | (21,874    | )       |         |          | (376,050 | )      
|                                                         | Redemption of preferred stock, net of issuance
    expenses                             |                                                                  |                                             |                                          |         |        |          |           |         |         |          | (208,592 | )      
|                                                         | Redemption of warrants                                                                  |                                                                  |                                             |                                          |         |        |          |           |         |         |          | (142,122 | )      
|                                                         | Cash dividends paid on preferred stock                                                  |                                                                  |                                             |                                          |         |        |          |           |         |         |          | (13,792  | )      
|                                                         | Purchase of treasury stock                                                              |                                                                  |                                             | (251,509                                  | )       |        |          | (366,497   | )       |         |          |         |        
|                                                         | Payment of withholding tax on option exercises                                          |                                                                  |                                             | (24,056                                   | )       |        |          |           |         |         |          |         |        
|                                                         | Debt issuance expenses                                                                  |                                                                  |                                             |                                          |         |        |          |           |         |         |          | (6,207   | )      
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|                                                         |                                                                                         |                                                                  |                                             | Net cash used by financing activities     |         |        | (273,708 | )          |         |         | (364,577 | )        |         |         | (519,727 | )
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|Net increase (decrease) in cash and cash
    equivalents |                                                                                         |                                                                  | (23,903                                     | )                                         |         |        | 146,898  |            |         |         | (134,250 | )       
|Cash and cash equivalents at beginning of year           |                                                                                         |                                                                  | 345,530                                     |                                           |         |        | 198,632  |            |         |         | 332,882  |         
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         
|Cash and cash equivalents at end of year                 |                                                                                         | $                                                                | 321,627                                     |                                           |         | $      | 345,530  |            |         | $       | 198,632  |         
|                                                         |                                                                                         |                                                                  |                                             |                                           |         |        |          |            |         |         |          |         

57



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


Consolidated Statements of Cash
Flows  (Continued)

Years Ended December 31, 2002, 2001 and
2000


|                                                                          |                                                                   |                |   |        |  |      |   |        |  |  |   |         | 
|------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------- | - | ------ |  | ---- | - | ------ |  |  | - | ------- | 
|                                                                          |                                                                   | 2002           |   | 2001   |  | 2000
|                                                                          |                                                                   |                |   |        |  |     
|                                                                          |                                                                   |               
|                                                                          |                                                                   | (In thousands)
|Supplemental schedule of non-cash investing and
    financing activities: |                                                                   |                |   |        |  |      |   |        |  |  |   |        
|                                                                          | Unrealized appreciation of investments                            |                | $ | 31,102 |  |      | $ | 4,920  |  |  | $ | 23,911  | 
|                                                                          | Tax benefit realized on exercise of stock options                 |                |   | 38,278 |  |      |   | 12,411 |  |  |   | 27,665  | 
|                                                                          | Fair value of treasury shares associated with
    option exercise |                |   | 57,554 |  |      |   |       |  |  |   |        | 
|                                                                          | Obligation under capital lease                                    |                |   | 13,771 |  |      |   |       |  |  |   |        | 
|                                                                          | Obligation under outsource agreement                              |                |   |       |  |      |   | 13,603 |  |  |   |        | 
|                                                                          | Preferred stock dividends paid in-kind                            |                |   |       |  |      |   |       |  |  |   | 4,565   | 
|                                                                          | Amortization of preferred stock discount                          |                |   |       |  |      |   |       |  |  |   | 12,619  | 
|                                                                          | Amortization of preferred stock issuance expenses                 |                |   |       |  |      |   |       |  |  |   | 1,728   | 
|                                                                          | Exchange of warrants for common stock                             |                |   |       |  |      |   |       |  |  |   | 195,008 | 
|                                                                          | Write-off of preferred stock discount and costs                   |                |   |       |  |      |   |       |  |  |   | 40,373  | 

See accompanying notes to consolidated financial
statements.

58



---



##### 



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 four
health maintenance organizations (HMOs) and two
insurance companies and offers a health benefits administrative
service.

Oxfords HMOs, Oxford Health Plans (NY),
Inc. (Oxford NY), Oxford Health Plans (NJ), Inc.
(Oxford NJ), Oxford Health Plans (CT), Inc.
(Oxford CT) and MedSpan Health Options, Inc.
(MSHO), have each been granted a certificate of
authority to operate as a health maintenance organization by the
appropriate regulatory agency of the state in which it operates.
Oxford Health Insurance, Inc. (OHI), a wholly-owned
subsidiary of Oxford NY, currently does business under accident
and health insurance licenses granted by the Department of
Insurance in the states of New York and Connecticut, the
Department of Banking and Insurance of New Jersey and the
Commonwealth of Pennsylvania. As discussed in Note 13, in 2001,
Oxford acquired all of the outstanding stock of Investors
Guaranty Life Insurance Company (IGL), a California
insurance company licensed to issue individual and group
annuity, life and health insurance policies in most states. In
March 2002, the Company acquired MedSpan, Inc.
(MedSpan), the parent of MSHO.

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 all majority-owned subsidiaries. All
intercompany balances have been eliminated in consolidation.

(b) Premium revenue. Membership
contracts are generally established on a yearly basis subject to
cancellation by the 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 2002, premiums received from CMS
represented approximately 12.1% of the Companys total
premium revenue earned. Membership and category eligibility are
periodically reconciled with CMS and could result in revenue
adjustments. The Company is not aware of any material claims,
disputes or settlements relating to revenues it has received
from CMS. Premiums receivable are presented net of valuation
allowances for estimated uncollectible amounts of
$10 million in 2002 and 2001, respectively, and retroactive
billing adjustments of approximately $3.5 million and
$9.8 million in 2002 and 2001, respectively. Premium
revenues are net of write-offs and other premium
adjustments of approximately $4.1 million, $7 million
and $9.9 million in 2002, 2001 and 2000, 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 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

59



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 the Companys external auditors
and state regulatory authorities on a periodic basis. The
estimates for submitted claims and IBNR are made on an accrual
basis and adjusted in future periods as necessary. Adjustments
to prior period estimates, if any, are included in the current
period. Favorable development of prior years estimated medical
costs was primarily the result of ongoing incremental
improvements in processes such that the level of completion of
claims was, in retrospect, slightly higher than assumed for
2001. Medical costs payable also reflects payments required by
or anticipated benefits from public policy initiatives, rebates,
reinsurance and cost sharing arrangements. Management believes
that the Companys reserves for medical costs payable are
adequate to satisfy its ultimate unpaid claim liabilities.

Losses, if any, are recognized when it is
probable that the expected future health care cost of a group of
existing contracts (and the costs necessary to maintain those
contracts) will exceed the anticipated future premiums,
investment income and reinsurance recoveries on those contracts.
Groups of contracts are defined as commercial, individual and
government contracts consistent with the method of establishing
premium rates. The Company recognizes premium deficiency
reserves based upon expected premium revenue, medical expense
and administrative expense levels and remaining contractual
obligations using the Companys historical experience.
Anticipated investment income is not included in the
determination of premium deficiency reserves since its effect is
deemed to be immaterial. The Company evaluates the need for
premium deficiency reserves on a quarterly basis. No such
reserves were required as of December 31, 2002.

The following table shows the components of the
change in medical costs payable for the years ended
December 31, 2002, 2001 and 2000 (in millions):

|                                              |                          |      |          |          |   |      |          |          |   |   |          |          |  
|--------------------------------------------- | ------------------------ | ---- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                              |                          | 2002 |          | 2001     |   | 2000
|                                              |                          |      |          |          |   |     
|Balances as of January 1,                     |                          | $    | 595.1    |          |   | $    | 612.9    |          |   | $ | 656.1    |         
|Business purchases                            |                          |      | 25.7     |          |   |      |         |          |   |   |         |         
|Components of health care services expense:   |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Estimated costs incurred |      |          | 3,904.1  |   |      |          | 3,416.3  |   |   |          | 3,202.5  |  
|                                              | Estimate changes         |      |          | (55.3    | ) |      |          | (15.0    | ) |   |          | (86.0    | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Health care services expense                  |                          |      | 3,848.8  |          |   |      | 3,401.3  |          |   |   | 3,116.5  |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Payments for health care services related to: |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      |          | (3,347.1 | ) |      |          | (2,911.3 | ) |   |          | (2,656.8 | )
|                                              | Prior year               |      |          | (503.9   | ) |      |          | (507.8   | ) |   |          | (502.9   | )
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total paid                                    |                          |      | (3,851.0 | )        |   |      | (3,419.1 | )        |   |   | (3,159.7 | )       
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balances as of December 31,                   |                          | $    | 618.6    |          |   | $    | 595.1    |          |   | $ | 612.9    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Balance at December 31 related to:            |                          |      |          |          |   |      |          |          |   |   |          |         
|                                              | Current year             |      | $        | 557.0    |   |      | $        | 505.0    |   |   | $        | 545.7    |  
|                                              | Prior years              |      |          | 61.6     |   |      |          | 90.1     |   |   |          | 67.2     |  
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         
|Total                                         |                          | $    | 618.6    |          |   | $    | 595.1    |          |   | $ | 612.9    |         
|                                              |                          |      |          |          |   |      |          |          |   |   |          |         

Included in estimate changes are favorable
development of prior years estimated medical costs of
approximately $33.3 million, $8.4 million and
$47.7 million for 2002, 2001 and 2000, respectively,
estimate changes in New York market stabilization pool reserves
and stop loss pool recoveries of approximately

60



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$22 million, $6.6 million and
$25.1 million for 2002, 2001 and 2000, respectively, and
claim recoveries of approximately $13.2 million in 2000.

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

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

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

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

(h) Computer software costs. Internal
and external direct and incremental costs of $3.6 million
and $4.4 million incurred in developing or obtaining
computer software for internal use were capitalized for the
years ended December 31, 2002 and 2001, respectively. These
costs are presented in property and equipment and are being
amortized using the straight-line method over their estimated
useful lives, generally two years.

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

(j) Goodwill and other intangible
assets. In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141, Business
Combinations(SFAS 141), and SFAS
No. 142, Goodwill and Other Intangible
Assets(SFAS 142). 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 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 4 to 5 years.

61



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(k) 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. In
August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), which addresses
the impairment of long-lived assets and was effective for
financial statements issued for fiscal years beginning after
December 15, 2001. The implementation of this standard did
not have a material impact on the Companys consolidated
financial position, results of operations or cash flows.

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

(m) Stock option plans. At
December 31, 2002, the Company has three primary
stock-based employee compensation plans, which are described
more fully in Note 9. 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 income 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 following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123, Accounting for
Stock-Based Compensation, to stock-based employee
compensation for the years ended December 31.

|                                                                                                                                                    |             |                                 |         |      |  |      |         |      |  |   |         |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- | 
|                                                                                                                                                    |             | 2002                            |         | 2001 |  | 2000
|                                                                                                                                                    |             |                                 |         |      |  |     
|                                                                                                                                                    |             |                                
|                                                                                                                                                    |             | (In thousands, except per share
|                                                                                                                                                    |             | amounts)                       
|Net earnings, as reported                                                                                                                           |             | $                               | 221,965 |      |  | $    | 322,421 |      |  | $ | 191,303 |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |             |                                 | (17,641 | )    |  |      | (25,892 | )    |  |   | (26,808 | )   
|                                                                                                                                                    |             |                                 |         |      |  |      |         |      |  |   |         |     
|Pro forma net earnings                                                                                                                              |             | $                               | 204,324 |      |  | $    | 296,529 |      |  | $ | 164,495 |     
|                                                                                                                                                    |             |                                 |         |      |  |      |         |      |  |   |         |     
|Basic earnings per share                                                                                                                            |             |                                 |         |      |  |      |         |      |  |   |         |     
|                                                                                                                                                    | As reported |                                 | $       | 2.55 |  |      | $       | 3.35 |  |   | $       | 2.26 | 
|                                                                                                                                                    | Pro forma   |                                 | $       | 2.34 |  |      | $       | 3.08 |  |   | $       | 1.94 | 
|Diluted earnings per share                                                                                                                          |             |                                 |         |      |  |      |         |      |  |   |         |     
|                                                                                                                                                    | As reported |                                 | $       | 2.45 |  |      | $       | 3.21 |  |   | $       | 2.02 | 
|                                                                                                                                                    | Pro forma   |                                 | $       | 2.25 |  |      | $       | 2.95 |  |   | $       | 1.74 | 

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

(o) 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 certain state
regulated risk allocation 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.

62



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(p) Reporting comprehensive income.
The changes in value of available-for-sale securities as
reported in the consolidated statements of shareholders
equity and comprehensive earnings include unrealized holding
gains on available-for-sale securities of $58.3 million,
$25.7 million and $24 million in 2002, 2001 and 2000,
respectively, reduced by the tax effects of $23.2 million,
$9.5 million and $2.6 million in 2002, 2001 and 2000,
respectively, and reclassification adjustments relating to
realized investment gains of $(26.9) million,
$(20.8) million and $(0.1) million in 2002, 2001 and
2000, respectively, offset by the tax effects of
$9.3 million and $8.5 million in 2002 and 2001,
respectively.

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

(r) 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.

Membership in the Companys commercial and
Medicare plans was 1,479,500 and 70,100, respectively, at
December 31, 2002, 1,372,300 and 77,800, respectively, at
December 31, 2001, and 1,337,000 and 92,000, respectively,
at December 31, 2000. Premium revenue for the
Companys commercial and Medicare plans was
$4.265 billion and $585 million, respectively, for the
year ended December 31, 2002, $3.653 billion and
$659 million, respectively, for the year ended
December 31, 2001, and $3.346 billion and
$677 million, respectively, for the year ended
December 31, 2000. The medical loss ratio, including the
effect of prior year development, if any, for the Companys
commercial and Medicare plans (defined as the ratio of health
care services expense to premium revenue) was 79.0% and 81.6%,
respectively, for the year ended December 31, 2002, 78.4%
and 81.2%, respectively, for the year ended December 31,
2001 and 76.2% and 83.9%, respectively, for the year ended
December 31, 2000.

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



|    |            
|--- | -----------
|(3) | Investments

The following is a summary of marketable
securities as of December 31, 2002 and 2001:

|                   |                     |                             |  |            |         |            |  |            |        |  |  |   |      |   |  |   |         | 
|------------------ | ------------------- | --------------------------- |  | ---------- | ------- | ---------- |  | ---------- | ------ |  |  | - | ---- | - |  | - | ------- | 
|                   |                     |                             |  | Gross      |         | Gross      |  |           
|                   |                     | Amortized                   |  | Unrealized |         | Unrealized |  |           
|                   |                     | Cost                        |  | Gains      |         | Losses     |  | Fair Value
|                   |                     |                             |  |            |         |            |  |           
|                   |                     |                            
|                   |                     | (In thousands)             
|December 31, 2002: |                     |                             |  |            |         |            |  |            |        |  |  |   |      |   |  |  
|                   | Available-for-sale: |                             |  |            |         |            |  |            |        |  |  |   |      |   |  |   |        
|                   |                     | U.S. government obligations |  | $          | 374,949 |            |  | $          | 15,193 |  |  | $ |     |   |  | $ | 390,142 | 
|                   |                     | Corporate obligations       |  |            | 339,341 |            |  |            | 14,815 |  |  |   | (669 | ) |  |   | 353,487 | 

63



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                  |                                      |                        |   |            |           |            |   |            |        |  |   |      |        |   |   |         |           | 
|----------------- | ------------------------------------ | ---------------------- | - | ---------- | --------- | ---------- | - | ---------- | ------ |  | - | ---- | ------ | - | - | ------- | --------- | 
|                  |                                      |                        |   | Gross      |           | Gross      |   |           
|                  |                                      | Amortized              |   | Unrealized |           | Unrealized |   |           
|                  |                                      | Cost                   |   | Gains      |           | Losses     |   | Fair Value
|                  |                                      |                        |   |            |           |            |   |           
|                  |                                      |                       
|                  |                                      | (In thousands)        
|                  | 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    | 
|                  |                                      |                        |   |            |           |            |   |            |        |  |   |      |        |   |   |        

|                   |                     |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |   |         |         | 
|------------------ | ------------------- | ------------------------------------ | ---------------------- | ---------- | ------- | ---------- |  | ---------- | ----- | ------ |  | - | ------ | ------ | - | - | ------- | ------- | 
|                   |                     |                                      |                        | Gross      |         | Gross      |  |           
|                   |                     | Amortized                            |                        | Unrealized |         | Unrealized |  |           
|                   |                     | Cost                                 |                        | Gains      |         | Losses     |  | Fair Value
|                   |                     |                                      |                        |            |         |            |  |           
|                   |                     |                                     
|                   |                     | (In thousands)                      
|December 31, 2001: |                     |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |  
|                   | Available-for-sale: |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |   |        
|                   |                     | U.S. government obligations          |                        | $          | 276,920 |            |  | $          | 3,467 |        |  | $ | (1,887 | )      |   | $ | 278,500 |        
|                   |                     | Corporate obligations                |                        |            | 376,116 |            |  |            | 8,669 |        |  |   | (1,045 | )      |   |   | 383,740 |        
|                   |                     | Municipal bonds                      |                        |            | 67,640  |            |  |            | 469   |        |  |   | (630   | )      |   |   | 67,479  |        
|                   |                     | Mortgage and asset backed securities |                        |            | 229,890 |            |  |            | 2,686 |        |  |   | (643   | )      |   |   | 231,933 |        
|                   |                     |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |  
|                   |                     |                                      | Total investments      |            | $       | 950,566    |  |            | $     | 15,291 |  |   | $      | (4,205 | ) |   | $       | 961,652 | 
|                   |                     |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |  
|                   | Held-to-maturity:   |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |   |        
|                   |                     | U.S. government obligations          |                        | $          | 49,985  |            |  | $          | 2,198 |        |  | $ |       |        |   | $ | 52,183  |        
|                   |                     | Municipal bonds                      |                        |            | 5,317   |            |  |            |      |        |  |   | (189   | )      |   |   | 5,128   |        
|                   |                     | Cash and short term investments      |                        |            | 3,511   |            |  |            |      |        |  |   |       |        |   |   | 3,511   |        
|                   |                     |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |  
|                   |                     |                                      | Total held-to-maturity |            | $       | 58,813     |  |            | $     | 2,198  |  |   | $      | (189   | ) |   | $       | 60,822  | 
|                   |                     |                                      |                        |            |         |            |  |            |       |        |  |   |        |        |   |  

The amortized cost and estimated fair value of
marketable debt securities at December 31, 2002, 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                |       | $                  | 29,867  |                  |  | $         | 30,174  |           |  | $ | 31,201 |        |  | $ | 31,988 |       
|Due after one year through five years  |       |                    | 423,244 |                  |  |           | 436,481 |           |  |   | 20,306 |        |  |   | 22,023 |       
|Due after five years through ten years |       |                    | 263,320 |                  |  |           | 276,869 |           |  |   | 1,149  |        |  |   | 1,337  |       
|Due after ten years                    |       |                    | 344,045 |                  |  |           | 359,140 |           |  |   | 3,765  |        |  |   | 3,905  |       
|                                       |       |                    |         |                  |  |           |         |           |  |   |        |        |  |   |        |       
|                                       | Total |                    | $       | 1,060,476        |  |           | $       | 1,102,664 |  |   | $      | 56,421 |  |   | $      | 59,253 | 
|                                       |       |                    |         |                  |  |           |         |           |  |   |        |        |  |   |        |       

64



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Certain information related to marketable
securities is as follows:

|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  
|------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---- |  | ---- | --------- | - |  | - | ------- | -
|                                                                                            |  | 2002           |           | 2001 |  | 2000
|                                                                                            |  |                |           |      |  |     
|                                                                                            |  |               
|                                                                                            |  | (In thousands)
|Proceeds from sale or maturity of
    available-for-sale securities                         |  | $              | 1,380,307 |      |  | $    | 1,111,138 |   |  | $ | 430,682 |  
|Proceeds from maturity of held-to-maturity
    securities                                   |  |                | 6,136     |      |  |      | 19,673    |   |  |   | 19,400  |  
|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  
|Total proceeds from sale or maturity of
    marketable securities                           |  | $              | 1,386,443 |      |  | $    | 1,130,811 |   |  | $ | 450,082 |  
|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  
|Gross realized gains on sale of
    available-for-sale securities                           |  | $              | 30,947    |      |  | $    | 21,923    |   |  | $ | 2,192   |  
|Gross realized losses on sale of
    available-for-sale securities                          |  |                | (4,064    | )    |  |      | (1,136    | ) |  |   | (2,081  | )
|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  
|Net realized gains on sale of marketable
    securities                                     |  | $              | 26,883    |      |  | $    | 20,787    |   |  | $ | 111     |  
|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  
|Net unrealized gain on available-for-sale
    securities included in comprehensive earnings |  | $              | 31,102    |      |  | $    | 4,920     |   |  | $ | 23,911  |  
|Deferred income tax expense                                                                 |  |                | (13,651   | )    |  |      | (971      | ) |  |   | (2,528  | )
|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  
|Other comprehensive earnings                                                                |  | $              | 17,451    |      |  | $    | 3,949     |   |  | $ | 21,383  |  
|                                                                                            |  |                |           |      |  |      |           |   |  |   |         |  

Net investment income, including net realized
gains (losses) in 2002, 2001 and 2000 was $91.4 million,
$93.6 million and $77.4 million, respectively. Other
income in 2002 includes approximately $15.2 million related
to the Companys pharmacy benefit agreement, partially
offset by investment valuation losses of approximately
$13.7 million. Other income in 2000 includes a
$5.4 million loss on the sale of fixed assets, a
$1.5 million investment valuation loss, and a gain on
disposition of assets of $1.6 million.



|    |             
|--- | ------------
|(4) | Income Taxes

Income tax expense (benefit) consists of:

|                             |                 |                |   |          |         |       |   |         |         |   |   |         |         | 
|---------------------------- | --------------- | -------------- | - | -------- | ------- | ----- | - | ------- | ------- | - | - | ------- | ------- | 
|                             |                 | Current        |   | Deferred |         | Total
|                             |                 |                |   |          |         |      
|                             |                 |               
|                             |                 | (In thousands)
|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 | 
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|Year ended December 31, 2000 |                 |                |   |          |         |       |   |         |         |   |   |        
|                             | Federal         |                | $ |         |         |       | $ | 155,257 |         |   | $ | 155,257 |        
|                             | State and local |                |   | 1,180    |         |       |   | 42,648  |         |   |   | 43,828  |        
|                             |                 |                |   |          |         |       |   |         |         |   |   |        
|                             |                 | Total          |   | $        | 1,180   |       |   | $       | 197,905 |   |   | $       | 199,085 | 
|                             |                 |                |   |          |         |       |   |         |         |   |   |        

Cash paid for income taxes was approximately
$197.3 million, $75.9 million and $8.6 million
for 2002, 2001 and 2000, respectively. Cash paid for income
taxes in 2000 principally represents estimated federal
alternative minimum taxes.

65



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                      |                    |                |         |         |  |      |         |         |  |   |         |         | 
|--------------------------------------------------------------------- | ------------------ | -------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                      |                    | 2002           |         | 2001    |  | 2000
|                                                                      |                    |                |         |         |  |     
|                                                                      |                    |               
|                                                                      |                    | (In thousands)
|Income tax expense at statutory tax rate                              |                    | $              | 131,886 |         |  | $    | 179,113 |         |  | $ | 169,576 |        
|State and local income taxes, net of federal
    income tax benefit   |                    |                | 22,561  |         |  |      | 31,217  |         |  |   | 27,719  |        
|Change in valuation allowance                                         |                    |                |        |         |  |      | (21,000 | )       |  |   | (10,000 | )      
|Effect of future state and local tax rates on
    deferred tax assets |                    |                |        |         |  |      |        |         |  |   | 11,790  |        
|Other, net                                                            |                    |                | 405     |         |  |      |        |         |  |   |        |        
|                                                                      |                    |                |         |         |  |      |         |         |  |   |         |        
|                                                                      | Income tax expense |                | $       | 154,852 |  |      | $       | 189,330 |  |   | $       | 199,085 | 
|                                                                      |                    |                |         |         |  |      |         |         |  |   |         |        

The tax effects of temporary differences that
give rise to significant portions of the net deferred tax assets
at December 31, 2002 and 2001 are as follows:

|                                   |                                                                        |                             |   |         |         |   |   |        |        |  
|---------------------------------- | ---------------------------------------------------------------------- | --------------------------- | - | ------- | ------- | - | - | ------ | ------ | -
|                                   |                                                                        | 2002                        |   | 2001   
|                                   |                                                                        |                             |   |        
|                                   |                                                                        |                            
|                                   |                                                                        | (In thousands)             
|Deferred tax assets (liabilities): |                                                                        |                             |   |         |         |   |   |       
|                                   | Litigation settlement reserve                                          |                             | $ | 59,016  |         |   | $ |       |       
|                                   | Unearned revenue                                                       |                             |   | 36,458  |         |   |   | 43,907 |       
|                                   | Trade accounts payable and accrued expenses                            |                             |   | 13,727  |         |   |   | 17,277 |       
|                                   | Property and equipment                                                 |                             |   | 10,502  |         |   |   | 10,519 |       
|                                   | Medical costs payable                                                  |                             |   | 8,350   |         |   |   | 13,488 |       
|                                   | Allowance for doubtful accounts                                        |                             |   | 6,836   |         |   |   | 9,664  |       
|                                   | Net operating loss carryforwards                                       |                             |   | 6,355   |         |   |   | 2,635  |       
|                                   | Restructuring related                                                  |                             |   | 1,864   |         |   |   | 1,728  |       
|                                   | Unrealized appreciation in value of available for
    sale investments |                             |   | (17,150 | )       |   |   | (3,499 | )     
|                                   | Other                                                                  |                             |   | (1,999  | )       |   |   | (821   | )     
|                                   |                                                                        |                             |   |         |         |   |   |       
|                                   |                                                                        | Total gross deferred assets |   |         | 123,959 |   |   |        | 94,898 |  
|                                   |                                                                        | Less valuation allowances   |   |         | (3,134  | ) |   |        | (3,134 | )
|                                   |                                                                        |                             |   |         |         |   |   |       
|                                   |                                                                        | Net deferred tax assets     |   | $       | 120,825 |   |   | $      | 91,764 |  
|                                   |                                                                        |                             |   |         |         |   |   |       

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 years
ended December 31, 2001 and 2000 includes the reversal of
$21 million and $10 million, respectively, of deferred
tax valuation allowances. The remaining valuation allowance at
December 31, 2002 of $3.1 million relates primarily to
the recognition of certain restructuring related and property
and equipment deferred tax assets. The Company adjusted its net
deferred tax assets during 2000 for the effects of changes in
state and local tax rates relating to the periods when the net
deferred tax assets are expected to reverse. The impact was to
increase 2000 income tax expense by approximately
$11.8 million. Management believes that the Company will
obtain the full benefit of the net deferred tax assets recorded
at December 31, 2002.

66



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                       
|--- | ----------------------
|(5) | Property and Equipment

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

|                                          |                               |                    |         |         |  |   |         |         | 
|----------------------------------------- | ----------------------------- | ------------------ | ------- | ------- |  | - | ------- | ------- | 
|                                          |                               |                   
|                                          |                               | As of December 31,
|                                          |                               |                   
|                                          |                               | 2002               |         | 2001   
|                                          |                               |                    |         |        
|                                          |                               |                   
|                                          |                               | (In thousands)    
|Land and buildings                        |                               | $                  | 40      |         |  | $ | 40      |        
|Furniture and fixtures                    |                               |                    | 10,627  |         |  |   | 10,734  |        
|Equipment                                 |                               |                    | 65,597  |         |  |   | 63,769  |        
|Leasehold improvements                    |                               |                    | 29,316  |         |  |   | 33,537  |        
|                                          |                               |                    |         |         |  |   |         |        
|                                          | Property and equipment, gross |                    |         | 105,580 |  |   |         | 108,080 | 
|Accumulated depreciation and amortization |                               |                    | (71,135 | )       |  |   | (72,996 | )      
|                                          |                               |                    |         |         |  |   |         |        
|                                          | Property and equipment, net   |                    | $       | 34,445  |  |   | $       | 35,084  | 
|                                          |                               |                    |         |         |  |   |         |        

Depreciation and amortization of property and
equipment aggregated $15.6 million, $16.3 million and
$32.8 million during the years ended December 31,
2002, 2001 and 2000, respectively.

As discussed in Note 11, costs for equipment
purchased by the Companys previous outsourcing vendor for
certain of the Companys information technology operations
were capitalized and amortized over three to five years. During
2001, the Company capitalized equipment purchases totaling
approximately $28 million under the original agreement.
This technology outsourcing arrangement was cancelled during
2002. As a result, the Company recorded a charge of
$15.5 million during 2002 for termination fees and asset
impairments. New equipment leases of approximately
$14 million were capitalized in conjunction with the new
agreement with CSC.



|    |     
|--- | ----
|(6) | Debt

Debt consists of the following:

|                         |  |                    |         |      |  |   |         |  
|------------------------ |  | ------------------ | ------- | ---- |  | - | ------- | -
|                         |  |                   
|                         |  | As of December 31,
|                         |  |                   
|                         |  | 2002               |         | 2001
|                         |  |                    |         |     
|                         |  |                   
|                         |  | (In thousands)    
|Senior Secured Term Loan |  | $                  | 126,875 |      |  | $ | 153,126 |  
|Less current portion     |  |                    | (30,625 | )    |  |   | (26,250 | )
|                         |  |                    |         |      |  |   |         |  
|Long-term debt           |  | $                  | 96,250  |      |  | $ | 126,876 |  
|                         |  |                    |         |      |  |   |         |  

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

The New Term Loan provides for scheduled
quarterly repayments of principal in annual amounts ranging from
$21.9 million to $39.4 million with a final maturity
in June 2006. During the year ended December 31, 2002, the
Company repaid approximately $26.2 million of principal
outstanding under the New Term Loan and approximately
$0.9 million of other long-term debt.

67



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Credit Agreement also provides for voluntary
prepayments of principal and voluntary reductions in commitments
under the Revolver without penalty of a minimum amount of
$5 million and mandatory prepayments of principal from
proceeds upon the occurrence of certain events. Mandatory
prepayments of principal and/or reductions in the Revolver are
required from (1) the net proceeds from the sale of assets,
subject to certain exceptions; (2) 50% of the net proceeds
from certain equity issuances; and (3) the net proceeds
from the issuance of debt securities. The Credit Agreement also
provides for mandatory prepayment of the entire amount
outstanding under the Senior Credit Facilities at a 1% premium
upon the occurrence of a change in control (as defined). In
addition, the Credit Agreement (i) allows the Company to
use unrestricted Parent Company cash to repurchase common stock
and make other payments as defined in the Credit Agreement
subject to a minimum of $150 million of liquidity and
(ii) allows the Company, subject to certain restrictions,
to borrow an additional $300 million. The Company is in
compliance with all covenants in the Credit Agreement.

The commitment under the Revolver shall be
reduced to the greater of $50 million or the then
outstanding amount if a settlement of certain securities
litigation occurs (see Note 17), and $50 million on
January 1, 2005, with the expiration of all commitments
under the Revolver on December 31, 2005.

Borrowings under the Senior Credit Facilities
bear interest, subject to periodic resets, at either a base rate
(Base Rate Borrowings) or LIBOR plus an applicable
margin based on the Companys credit ratings. Interest on
Base Rate Borrowings is calculated as the higher of (a) the
prime rate or (b) the federal funds effective rate as
defined, plus an applicable margin based on the Companys
credit ratings. At December 31, 2002, interest expense is
based on a $62.8 million tranche at a rate of approximately
4.99% through February 13, 2003, and a $64 million
tranche at a rate of 5.19% through January 16, 2003. On
January 16, 2003, the rate with respect to the
$64 million tranche was reset at 4.64% to expire on
July 16, 2003. Commitment fees of 0.5% per annum are
payable on the unused portion of the Revolver.

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

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

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

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

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

68



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company made cash payments for interest
expense on indebtedness and delayed claims of approximately
$10.5 million, $16.1 million and $35.5 million in
2002, 2001 and 2000, respectively.



|    |                         
|--- | ------------------------
|(7) | Share Repurchase Program

In 2001, the Companys Board of Directors
approved a share repurchase program for up to $500 million
of the Companys outstanding common stock through September
2003. In September 2002, the Companys Board of Directors
approved an increase of $250 million to its existing share
repurchase program and extended the program through December
2003. The program authorizes the Company to purchase shares on
the open market and in privately negotiated transactions from
time to time depending on general market conditions. As of
December 31, 2002, the Company had repurchased 19,794,700
shares of its common stock at a total cost of approximately
$617.4 million. The Company had remaining share repurchase
authority of approximately $132.6 million at
December 31, 2002.



|    |                           
|--- | --------------------------
|(8) | Redeemable Preferred Stock

Activity for redeemable preferred stock was as
follows during 2000:

|                                             |  |                |          |  
|-------------------------------------------- |  | -------------- | -------- | -
|                                             |  | (In thousands)
|Beginning balance, January 1, 2000           |  | $              | 344,316  |  
|Accrued in-kind dividends                    |  |                | 4,565    |  
|Accrued cash dividends                       |  |                | 13,792   |  
|Cash dividends paid                          |  |                | (13,792  | )
|Redemption of principal in cash              |  |                | (208,592 | )
|Redemption of principal to exercise warrants |  |                | (195,008 | )
|Write-off preferred stock discount and costs |  |                | 40,373   |  
|Amortization of discount                     |  |                | 12,619   |  
|Amortization of issuance expenses            |  |                | 1,727    |  
|                                             |  |                |          |  
|Ending balance, December 31, 2000            |  | $              |         |  
|                                             |  |                |          |  

In February 2000, the Company commenced a capital
restructuring with the repurchase of approximately
$130 million of Series E Cumulative Preferred Stock,
par value $.01 per share (the Series E Preferred
Stock) and Series D Cumulative Preferred Stock, par
value $.01 per share (the Series D Preferred
Stock, together with the Series E Preferred Stock,
the Preferred Stock) and in December 2000, the
Company consummated an exchange and repurchase agreement
pursuant to which, among other things, (i) the Company paid
$220 million to TPG Partners II, L.P. (formerly TPG
Oxford LLC) and certain of its affiliates and designees
(TPG Investors) to repurchase certain of the shares
of Preferred Stock and certain of the warrants and (ii) TPG
Investors exchanged their remaining shares of Preferred Stock
and remaining warrants for 10,986,455 newly issued shares of
common stock (the Recapitalization). Accordingly, as
of the end of 2000, the Company had no warrants or Preferred
Stock outstanding.

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



|    |                   
|--- | ------------------
|(9) | Stock Option Plans

The Company grants fixed stock options under its
1991 Stock Option Plan, as amended (the 1991 Plan),
to certain directors, employees and consultants, under its 1997
Independent Contractor Stock Option

69



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
two members of the Board of Directors, selected by the Board.
The committee determines the individuals to whom awards shall be
granted as well as the terms and conditions of each award, the
grant date and the duration of each award. All options are
initially granted at fair market value on 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 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, 2000   |  |        | 15,262,357 |                  |  | $ | 15.04 | 
|Granted                          |  |        | 3,512,223  |                  |  |   | 13.75 | 
|Exercised                        |  |        | (5,321,694 | )                |  |   | 12.11 | 
|Cancelled                        |  |        | (3,058,887 | )                |  |   | 15.22 | 
|                                 |  |        |            |                  |  |   |       | 
|Outstanding at December 31, 2000 |  |        | 10,393,999 |                  |  |   | 16.03 | 
|Granted                          |  |        | 6,835,575  |                  |  |   | 31.00 | 
|Exercised                        |  |        | (2,051,109 | )                |  |   | 14.40 | 
|Cancelled                        |  |        | (1,716,678 | )                |  |   | 27.06 | 
|                                 |  |        |            |                  |  |   |       | 
|Outstanding at December 31, 2001 |  |        | 13,461,787 |                  |  |   | 22.47 | 
|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 | 
|                                 |  |        |            |                  |  |   |       | 
|Exercisable at December 31, 2002 |  |        | 3,118,212  |                  |  | $ | 22.25 | 
|                                 |  |        |            |                  |  |   |       | 

70



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002, there were
20,273,367 shares of common stock reserved for issuance
under the plans, including 12,879,978 shares reserved for
future grant.

Under the terms of an employment agreement,
Norman C. Payson, M.D., the Companys former Chief
Executive Officer, was granted a nonqualified stock option on
February 23, 1998 (the Option) to purchase
2,000,000 shares of common stock at an exercise price of
$15.52 per share and, in August 1998, a nonqualified stock
option (the Additional Option) to purchase an
additional 1,000,000 shares of Company common stock under
the 1991 Plan. The Additional Option was granted with an
exercise price equal to $6.0625, vested ratably over the four
years from February 23, 1998, and is otherwise subject to
the terms and conditions of the Employee Plan. The difference
between the exercise price and the fair market value of the
shares subject to the Option on the date of issuance has been
accounted for as unearned compensation and was amortized to
expense over the period restrictions lapse. Unearned
compensation charged to operations in 2002, 2001 and 2000 was
approximately $0.3 million, $1.9 million and
$1.9 million, respectively.

Information about fixed stock options outstanding
at December 31, 2002, is summarized as follows:

|                |  |             |           |                  |  |                  |       |  |  |  |            | 
|--------------- |  | ----------- | --------- | ---------------- |  | ---------------- | ----- |  |  |  | ---------- | 
|                |  |             |           |                  |  | Weighted-Average
|Range of        |  | Number      |           | Weighted-Average |  | Remaining       
|Exercise Prices |  | Outstanding |           | Exercise Price   |  | Contractual Life
|                |  |             |           |                  |  |                 
|$ 5.01-$10.00   |  |             | 151,562   |                  |  | $                | 6.24  |  |  |  | 1.17 Years | 
|10.01-15.00     |  |             | 294,529   |                  |  |                  | 13.52 |  |  |  | 1.99 Years | 
|15.01-20.00     |  |             | 1,395,583 |                  |  |                  | 16.37 |  |  |  | 4.09 Years | 
|20.01-25.00     |  |             | 83,625    |                  |  |                  | 22.77 |  |  |  | 6.04 Years | 
|25.01-50.00     |  |             | 5,458,090 |                  |  |                  | 31.10 |  |  |  | 5.46 Years | 
|50.01-74.00     |  |             | 10,000    |                  |  |                  | 59.38 |  |  |  | 4.38 Years | 
|                |  |             |           |                  |  |                  |       |  |  |  |            | 
|5.01-74.00      |  |             | 7,393,389 |                  |  |                  | 27.06 |  |  |  | 4.98 Years | 
|                |  |             |           |                  |  |                  |       |  |  |  |            | 

Information about fixed stock options exercisable
at December 31, 2002, is summarized as follows:

|                |  |             |           |                  |  |   |       | 
|--------------- |  | ----------- | --------- | ---------------- |  | - | ----- | 
|Range of        |  | Number      |           | Weighted-Average
|Exercise Prices |  | Exercisable |           | Exercise Price  
|                |  |             |           |                 
|$5.01-$10.00    |  |             | 151,562   |                  |  | $ | 6.24  | 
|10.01-15.00     |  |             | 291,279   |                  |  |   | 13.54 | 
|15.01-20.00     |  |             | 1,204,966 |                  |  |   | 16.03 | 
|20.01-25.00     |  |             | 38,125    |                  |  |   | 21.79 | 
|25.01-50.00     |  |             | 1,422,280 |                  |  |   | 30.77 | 
|50.01-74.00     |  |             | 10,000    |                  |  |   | 59.38 | 
|                |  |             |           |                  |  |   |       | 
|5.01-74.00      |  |             | 3,118,212 |                  |  |   | 22.25 | 
|                |  |             |           |                  |  |   |       | 

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 $19.52, $15.25 and $6.91 during 2002,
2001 and 2000, respectively, estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants: no dividend yield
for any year, expected volatility of 68.09%, 70.71% and 75.87%
during 2002, 2001 and 2000, respectively, risk-free interest
rates of 2.17%, 3.70% and 6.37% in 2002, 2001 and 2000,
respectively, and expected lives of four years.

71



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |       
|---- | ------
|(10) | Leases

Oxford leases office space and equipment under
operating leases. Rent expense under operating leases for the
years ended December 31, 2002, 2001, and 2000 was
approximately $12.2 million, $11.2 million and
$11.8 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. The capital lease information below includes the
Companys obligation as of December 31, 2002 for
certain information technology equipment under its agreement
with Computer Sciences Corporation. See additional discussion in
Note 11.

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

|                              |                          |                |        |        | 
|----------------------------- | ------------------------ | -------------- | ------ | ------ | 
|                              |                          | 2002          
|                              |                          |               
|                              |                          | (In thousands)
|Computer equipment            |                          | $              | 13,608 |       
|Other equipment               |                          |                | 163    |       
|                              |                          |                |        |       
|                              | Gross                    |                |        | 13,771 | 
|Less accumulated amortization |                          |                | (2,754 | )     
|                              |                          |                |        |       
|                              | Net capital lease assets |                | $      | 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, 2002 are
as follows:

|                                     |  |                |        | 
|------------------------------------ |  | -------------- | ------ | 
|                                     |  | Operating     
|                                     |  | Leases        
|                                     |  |               
|                                     |  | (In thousands)
|2003                                 |  | $              | 12,900 | 
|2004                                 |  |                | 13,700 | 
|2005                                 |  |                | 11,000 | 
|2006                                 |  |                | 8,400  | 
|2007                                 |  |                | 7,900  | 
|Thereafter                           |  |                | 13,200 | 
|                                     |  |                |        | 
|Total minimum future rental payments |  | $              | 67,100 | 
|                                     |  |                |        | 

The above amounts for operating leases are net of
estimated future minimum subrentals aggregating approximately
$6.4 million.



|     |                      
|---- | ---------------------
|(11) | Outsourcing Agreement

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

CSC 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

72



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. At December 31, 2001,
approximately $13.6 million was included in accounts
payable and accrued expense for equipment purchased by CSC.

In April 2002, the Company agreed with CSC to
conclude its technology outsourcing arrangement. The Company and
CSC have transitioned services and functions to the Company,
including employment of personnel, utilization of equipment and
assumption of third-party service contracts. 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. Included in this charge are $7.8 million of
negotiated termination fees, payable to CSC over a 30-month
period, and an asset impairment charge of approximately
$7.7 million, recognized primarily for computer systems
that will no longer be used in operations. 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.



|     |                                   
|---- | ----------------------------------
|(12) | Pharmacy Benefit Manager Agreement

In September 2001, the Company entered into a
five-year agreement with Merck-Medco, effective beginning
January 1, 2002, pursuant to which Merck-Medco and certain
of its subsidiaries provide pharmacy benefit management
services, including retail and mail-order pharmacy services, to
the Companys members. This agreement provided for a
payment of $4.5 million to Oxford to offset systems and
other costs associated with implementation of designated
services. In addition to the pharmacy services agreement, the
Company also entered into an alliance agreement with Merck-Medco
under which the Company has furnished and will continue to
furnish de-identified claim information and furnish strategic
consultative and other services to Merck-Medco over a five-year
period in return for a total payment of approximately
$82.9 million. The Company received a total of
$87.4 million in the third and fourth quarters of 2001.
Substantially all such amounts were included in unearned revenue
at December 30, 2001, and 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
in 2002 included approximately $15.2 million in other
income and approximately $2.3 million as an offset to
administrative expense.

In connection with its new pharmacy benefits
agreement, the Company provided for anticipated costs related to
its prior pharmacy benefits arrangements. Anticipated costs
unpaid related to the prior agreements of approximately
$8.7 million are included in medical costs payable as of
December 31, 2002.



|     |             
|---- | ------------
|(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. IGL is a
California insurance company licensed to issue individual and
group annuity, life and health insurance policies in most
states. All pre-existing business is currently reinsured. The
fair market value of IGLs assets acquired and liabilities
assumed was approximately $12 million and
$0.2 million, respectively. The amount allocated to other
noncurrent assets represents value assigned to business licenses
in various states. In the opinion of management, the licenses
acquired in the IGL business combination have an indefinite life
as it is the Companys intent to seek and obtain renewals
of such licenses (in those instances where the license has an
expiration date) prior to expiration. Accordingly, the Company
ceased amortizing the value assigned to the licenses effective
January 1,

73



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002, and performs periodic assessments for
impairment using the fair-value based tests required by SFAS
No. 142.

On March 1, 2002, the Company acquired
100 percent 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 $18.2 million,
subject to adjustment for certain items. As a result of the
acquisition, the Company has expanded its Connecticut provider
network and reduced combined administrative costs through
economies of scale.

At the date of acquisition, the fair market value
of MedSpans assets acquired and liabilities assumed was
approximately $57 million and $39 million,
respectively. Included in assets acquired were deferred tax
assets of approximately $6 million and approximately
$24.2 million of acquired intangible assets and goodwill.
As discussed above, the purchase price is subject to certain
adjustments that are anticipated to be finalized during the
first quarter of 2003, subject to certain provisions of the
acquisition agreement. At that time, amounts specifically
allocated to goodwill and other acquired intangible assets will
be finalized, and will likely include refinements to the value
assigned to MedSpans commercial insured membership and
hospital and physician provider network. Amortization of
intangible assets with finite lives is computed over the useful
lives of the respective assets, generally four to five years.
The amortization was approximately $2.1 million for the
year ended December 31, 2002. Effective January 2003, most
of the assets and liabilities of MedSpan were transferred and
assumed by Oxford CT pursuant to an assumption reinsurance
agreement.

In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets(SFAS 142). SFAS 142 requires goodwill
and other indefinite-lived assets to be tested for impairment
under certain circumstances, 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.

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 of approximately $7.7 million in 2001 and
$1.4 million in 2002, for a total investment of
approximately $11.4 million in MedUnite. This investment
was fully reserved prior to sale.



|     |                          
|---- | -------------------------
|(14) | Defined Contribution Plan

The Company has a qualified defined contribution
401(K) savings plan (the Savings Plan) that covers
all employees with six months of service and at least a
part-time employment status as defined. Employees may contribute
up to a maximum of 30% of compensation, as defined, up to a
maximum annual contribution of $11,000 in 2002. 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
$3.2 million, $1.4 million and $1.7 million in
2002, 2001 and 2000, respectively.



|     |                                                    
|---- | ---------------------------------------------------
|(15) | Regulatory and Contractual Capital
    Requirements

Certain restricted cash and investments at
December 31, 2002 and 2001 are held on deposit with various
financial institutions to comply with state regulatory capital
requirements. As of December 31, 2002, approximately
$56.4 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 and insurance
subsidiaries,

74



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the minimum amount of surplus required is based
on formulas established by the state insurance departments.
These statutory surplus requirements amounted to approximately
$213 million and $191 million at December 31,
2002 and 2001, respectively. At December 31, 2002, the
Companys HMO and insurance subsidiaries had statutory
surplus of approximately $551 million, as compared with
approximately $448.3 million at December 31, 2001, or
approximately $338 million in excess of current regulatory
requirements. The Company manages its statutory surplus
primarily against National Association of Insurance
Commissioners Company Action Level (CAL) Risk Based
Capital (RBC). At December 31, 2002, the
Companys statutory surplus was approximately 200% of CAL
RBC.

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

During 2002 and 2001, the Companys HMO
subsidiaries paid dividends to the parent company of
approximately $235 million and $328.4 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.



|     |                              
|---- | -----------------------------
|(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, 2002 and 2001, 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 75% of its commercial premium
revenues received from New York business. As a result, changes
in regulatory, market or health care provider conditions in any
of these states, particularly New York, could have a material
adverse effect on the Companys business, financial
condition or results of operations. In addition, the
Companys revenue under its contracts with CMS represented
approximately 12.1% of its premium revenue earned during 2002.



|     |              
|---- | -------------
|(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 were filed
against the Company and certain of its officers and directors in
the United States District Courts for the Southern and Eastern
Districts of New York, the District of Connecticut and the
District of Arkansas. In addition, purported shareholder
derivative actions were filed against the Company, its directors
and certain of its officers in the United States District Courts
for the Southern District of New York and the District of
Connecticut and the Connecticut Superior Court. The purported
securities class actions and the purported federal derivative
actions were consolidated before Judge Charles L. Brieant of the
United States District Court for the Southern District of New
York. On February 14, 2002, Judge Brieant approved a
settlement of the purported derivative actions. On
April 25, 2002, the Connecticut Superior Court derivative
actions were withdrawn with prejudice as part of the settlement.
The State Board of Administration of Florida has filed an
individual action against the Company and certain of its former
officers and current and former directors, which is also now
pending in the United

75



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

States District Court for the Southern District
of New York, asserting claims arising from the October 27,
1997 decline in the price per share of the Companys common
stock.

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). Subject
to the terms of the policies, the excess insurers have 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. The Excess Insurance carriers have advised
the Company that the Retention is currently $161.3 million.
The Company believes that, under the terms of the policies, the
Retention is currently $155 million, but the Excess
Insurance carriers have not accepted this interpretation. The
policies do not cover taxes, fines or penalties imposed by law
or the cost to comply with any injunctive or other non-monetary
relief or any agreement to provide any such relief. The coverage
under the policies described above is in addition to
approximately $25 million of coverage remaining under
preexisting primary insurance that is not subject to the
Retention applicable to the Excess Insurance policies. Of the
remaining $25 million in primary insurance coverage,
collectibility of some portion of $15 million is in doubt
because one of the Companys Directors and Officers
insurance carriers, Reliance Insurance Company
(Reliance), was placed in liquidation in October
2001 by the Commonwealth Court of Pennsylvania. Accordingly,
during the third quarter of 2001, the Company recorded a charge
of $10 million related to a provision for estimated
insurance recoveries related to anticipated legal expenses that
may not be recoverable from Reliance. Reliance also insured
$20 million of the $200 million Excess Insurance. Due
to the liquidation of Reliance, collectibility of some portion
of $20 million of the Excess Insurance would also be in
doubt if the Company makes a claim on that coverage.

The Company, in the opinion of management with
the advice of external counsel, has substantial defenses to the
plaintiffs claims in the securities class actions and may
ultimately prevail if these matters are brought to trial. There
can be no assurance, however, as to the ultimate result in this
litigation. In the event the Company ultimately suffers an
adverse judgment, or settles such actions prior to trial:
(i) the Company would be liable to fund the entire amount
of such judgment or settlement up to $161.3 million, less
any amount then remaining available and collectible under the
Companys primary Directors and Officers insurance,
(ii) to the extent that the amount of such judgment or
settlement is more than $161.3 million and less than $383.5
million, the Company would, in addition, be liable to fund 10%
of the excess over $161.3 million (90% of such amount being
covered by the Companys Excess Insurance), plus all of any
amount up to $20 million not collected from Reliance, and
(iii) the Company would be liable to fund the entire amount
of any excess over $383.5 million. Each of the amounts of
$161.3 million and $383.5 million in the preceding
sentence reflects the insurance carriers position
regarding the current Retention under the Excess Insurance.
Under the Companys interpretation of the policies, these
amounts would be $155 million and $377.2 million,
respectively. In the event that the Excess Insurance carriers
become liable to pay any losses under the policies, the Company
would be obligated to pay the carriers an additional premium of
$8 million.

On September 30, 2002, Judge Brieant agreed
to hold a settlement conference on November 6, 2002 with
parties to the securities class actions and the Excess Insurance
carriers. In view of the inherent risks and uncertainties of
litigation and the related time and expense, and in anticipation
of the settlement conference, the Company communicated to the
plaintiffs and the insurance carriers the Companys
willingness to pay $161.3 million. This offer reflects the
full amount of the current Retention under the insurance
carriers interpretation of the Excess Insurance policies.
As a result, the Company has recorded a net liability and
pre-tax charge of $151.3 million against earnings in the
third quarter of 2002. This $151.3 million charge
represents the Companys settlement offer less
$10 million, classified as other current receivables in the
Companys consolidated balance sheet, that the Company
estimates would be available and collectible under

76



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

its primary Directors and Officers insurance. If
a settlement is reached and the total settlement amount exceeds
$161.3 million, the amount of co-payments by the Company
required under the Excess Insurance policies and the amount, if
any, not collected from Reliance under the Excess Insurance
would depend on the terms and total amount of any settlement. At
the present time, no total settlement amount beyond
$161.3 million can be reasonably estimated. Accordingly,
the Company has not recorded a liability for any co-payments
required by the Excess Insurance or any amount not collected
from Reliance. Also, in the event the Excess Insurance carriers
contribute any amount to a settlement, the Company would be
obligated to pay the $8 million additional premium referred
to above. At this time, there is no assurance that a settlement
will be reached. Accordingly, the Company has not recorded a
liability for the additional premium payment. There can be no
assurance as to the terms of any settlement, or that the Court
would approve any such settlement. If no settlement is reached
and approved, the securities class actions would proceed to
trial, and, at the present time, no amount or range of loss can
be reasonably estimated. Accordingly, the Company has not
recorded a net liability for a potential unfavorable judgment or
settlement costs in excess of $151.3 million. There can be
no assurance as to the ultimate result in this litigation.

The Company, its Excess Insurance carriers and
the plaintiffs have not been able to reach a settlement in the
securities class actions. On December 19, 2002, Judge
Brieant scheduled a trial to begin on March 10, 2003. If
the securities class actions are not settled, the class actions
will go to trial. The Company recorded additional reserves and a
pretax charge of $20 million in the fourth quarter of 2002
as a result of revisions to estimates of legal fees and other
expenses related to the trial.

On September 7, 2000, the Connecticut
Attorney General filed suit against four 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 are enrolled in plans governed by ERISA. The
suit alleges that the named HMOs breached their disclosure
obligations and fiduciary duties under ERISA by, among other
things, (i) failing to timely pay claims; (ii) the use
of inappropriate and arbitrary coverage guidelines as the basis
for denials; (iii) the inappropriate use of drug
formularies; (iv) failing to respond to member
communications and complaints; and (v) failing to disclose
essential coverage and appeal information. The suit seeks
preliminary and permanent injunctions enjoining the defendants
from pursuing the complained of acts and practices. Also, on
September 7, 2000, a group of plaintiffs law firms
commenced an action in federal district court in Connecticut
against the Company and four other HMOs on behalf of a putative
national class consisting of all members of the defendant HMOs
who are or have been enrolled in plans governed by ERISA within
the past six years. The substantive allegations of this
complaint, which also claims violations of ERISA, are nearly
identical to that filed by the Connecticut Attorney General. The
complaint seeks the restitution of premiums paid and/or the
disgorgement of profits, in addition to injunctive relief.
Although this complaint was dismissed without prejudice as to
the Oxford defendants, another identical complaint against the
Company was filed on December 28, 2000 in the federal
district court in Connecticut under the caption Patel v.
Oxford Health Plans of Connecticut, Inc.(the
Patel action). On November 30, 2000, the
Judicial Panel on Multidistrict Litigation (JPML)
issued a Conditional Transfer Order, directing that the
Connecticut Attorney General action be transferred to the
Southern District of Florida for consolidated pretrial
proceedings along with various other ERISA and RICO cases
pending against other HMOs, which order was confirmed on
April 17, 2001. On November 13, 2001, the JPML issued
a Conditional Transfer Order, directing that the Patelaction also be transferred to the consolidated proceedings
in Florida, which order was confirmed on February 20, 2002.
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. There
has been no discovery involving Oxford in the Florida proceeding.

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

77



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Statute 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 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 AAA).
The Company has objected to this filing on the basis that
neither its arbitration agreement with Dr. Sutter, nor the
AAA rules, permit or provide for consolidated or class action
arbitration.

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 asserts
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
seeks a permanent injunction enjoining the Company from pursuing
the complained of acts and practices, as well as attorneys
fees and costs. The Company moved to dismiss the complaint, and
to consolidate the action with the Sutter action. On
October 25, 2002, the Court denied the Companys
motion to consolidate the actions because it dismissed the
Sutter action.

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.

On or about October 4, 2001, the Company was
sued in New Jersey state court in a purported class action on
behalf of all of the Companys members in New Jersey
between 1993 and the present who were injured by the actions of
third parties and with respect to whom the Company recovered
reimbursement for medical expenses pursuant to the subrogation
provision in the Companys member certificates. The
Complaint alleges that any subrogation payments collected by the
Company have been in violation of New Jersey law and insurance
regulations, and seeks monetary damages and injunctive relief.
The action is based upon a recent decision of the New Jersey
Supreme Court holding that subrogation by health insurers in
certain circumstances is prohibited under New Jersey laws and
regulations. The Company has removed the case to federal court,
where it has been consolidated with other, similar complaints
against other HMOs. Plaintiffs in all of

78



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

these complaints have filed motions to remand the
complaints back to state court, which motions were recently
denied by the federal court. Oxford and the other defendants
have moved to dismiss the complaint under both federal and state
law. The Company believes it has substantial defenses and
intends to defend the action vigorously.

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 1998 Agreement in exchange for
a payment to the Company of $37 million. The Amended ESI
Agreement further provided that, among other things,
(i) ESI would continue to administer the Companys
prescription drug benefits until December 31, 2005 and
(ii) in the event that the Company terminated the agreement
without cause prior to this date, ESI would be entitled to
certain annual payments through 2005, as defined (the
Termination Payments), which payments would
constitute ESIs sole remedy for such early termination. In
September 2001, the Company formally notified ESI that it would
terminate its agreement with ESI on December 31, 2001 and
recorded an estimated liability of approximately
$11.2 million for the Termination Payments, which are
payable over time, and 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. The Company
believes that ESIs claims are without merit and that the
Company has substantial defenses in this matter. Amounts unpaid
related to termination of this agreement totaling approximately
$8.7 million are included in medical costs payable at
December 31, 2002.

On July 25, 2002, the Company settled an
investigation by the Securities and Exchange Commission
(SEC) regarding a previously announced loss in the
third quarter of 1997, as described above. Without admitting or
denying the SECs findings, all relating to 1997, the
Company consented to the entry of an administrative cease and
desist order and the entry of a civil monetary penalty in the
United States District Court for the Southern District of New
York in the amount of $250,000. The SECs order did not
make any findings of fraud by the Company or any of its present
or former officers or directors.

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.

79



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |                                    
|---- | -----------------------------------
|(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, 2002.



|     |                    
|---- | -------------------
|(19) | Government Programs

During 2002, 2001 and 2000, the Company earned
premiums of $585.2 million, $659.3 million and
$677.5 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.

(20) Quarterly Information
(Unaudited)

Tabulated below are certain data for each quarter
of 2002 and 2001.

|                              |                                         |                                                         |   |           |      |          |   |           |      |  |   |           |      |  |   |           |      | 
|----------------------------- | --------------------------------------- | ------------------------------------------------------- | - | --------- | ---- | -------- | - | --------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                              |                                         |                                                        
|                              |                                         | Quarter Ended                                          
|                              |                                         |                                                        
|                              |                                         | March 31                                                |   | June 30   |      | Sept. 30 |   | Dec. 31  
|                              |                                         |                                                         |   |           |      |          |   |          
|                              |                                         |                                                        
|                              |                                         | (In thousands, except membership and per share amounts)
|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 |     

80



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |                                         |                                                         |   |           |      |          |   |           |      |  |   |           |      |  |   |           |      | 
|----------------------------- | --------------------------------------- | ------------------------------------------------------- | - | --------- | ---- | -------- | - | --------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                              |                                         |                                                        
|                              |                                         | Quarter Ended                                          
|                              |                                         |                                                        
|                              |                                         | March 31                                                |   | June 30   |      | Sept. 30 |   | Dec. 31  
|                              |                                         |                                                         |   |           |      |          |   |          
|                              |                                         |                                                        
|                              |                                         | (In thousands, except membership and per share amounts)
|Year ended December 31, 2001: |                                         |                                                         |   |           |      |          |   |           |      |  |   |           |      |  |   |          
|                              | Net operating revenues                  |                                                         | $ | 1,058,364 |      |          | $ | 1,080,645 |      |  | $ | 1,088,403 |      |  | $ | 1,098,770 |     
|                              | Operating expenses                      |                                                         |   | 957,695   |      |          |   | 996,465   |      |  |   | 962,115   |      |  |   | 974,199   |     
|                              | Net earnings                            |                                                         |   | 67,572    |      |          |   | 74,799    |      |  |   | 85,717    |      |  |   | 94,333    |     
|                              | Per common and common equivalent share: |                                                         |   |           |      |          |   |           |      |  |   |           |      |  |   |           |     
|                              |                                         | Basic                                                   |   | $         | 0.69 |          |   | $         | 0.76 |  |   | $         | 0.88 |  |   | $         | 1.04 | 
|                              |                                         | Diluted                                                 |   | $         | 0.65 |          |   | $         | 0.73 |  |   | $         | 0.85 |  |   | $         | 1.00 | 
|                              | Membership at quarter-end               |                                                         |   | 1,504,100 |      |          |   | 1,512,000 |      |  |   | 1,507,900 |      |  |   | 1,510,100 |     

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

On March 1, 2002, the Company acquired all
of the outstanding stock of MedSpan, a Connecticut managed
health care organization, for cash of approximately
$18.2 million, subject to adjustment for certain items.
MedSpan net operating revenues were approximately
$11.1 million for the quarter ended March 31, 2002,
$30.1 million for the quarter ended June 30, 2002,
$26.7 million for the quarter ended September 30, 2002
and $24.5 million for the quarter ended December 31,
2002. MedSpan fully insured commercial membership was 49,700 at
March 31, 2002, 43,300 at June 30, 2002, 36,400 at
September 30, 2002 and 32,700 at December 31, 2002.
Net earnings attributable to MedSpan were not material for the
year ended December 31, 2002.

In April 2002, the Company agreed with CSC to
conclude its 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. Included in this charge were
$7.8 million of negotiated termination fees, payable to CSC
over 30 months, and an asset impairment charge of
approximately $7.7 million recognized primarily for fixed
assets that will no longer be used in operations.

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 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.

The second and fourth quarters of 2001 include
the reversal of deferred tax valuation allowances of
$11 million ($0.11 per diluted share) and $10 million
($0.11 per diluted share), respectively (see Note 4). The fourth
quarter of 2001 includes $6.6 million ($0.04 per diluted
share) in additional recoveries from the New York Stabilization
Pools related to prior years. The third quarter of 2001 includes
a charge of $10 million ($0.06 per diluted share) for legal
expenses related to the securities class actions. The first
quarter of 2001 includes favorable development of prior period
medical cost estimates of $8 million ($0.05 per diluted
share).

81



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

Schedule I  Condensed
Financial Information of Registrant

Condensed Balance Sheets

December 31, 2002 and 2001


|                                                 |                                                                   |                                            |         |          |         |  |         |          |         | 
|------------------------------------------------ | ----------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- |  | ------- | -------- | ------- | 
|                                                 |                                                                   | 2002                                       |         | 2001    
|                                                 |                                                                   |                                            |         |         
|                                                 |                                                                   |                                           
|                                                 |                                                                   | (In thousands)                            
|Current assets:                                  |                                                                   |                                            |         |          |         |  |         |         
|                                                 | Cash and cash equivalents                                         |                                            | $       | 42,260   |         |  | $       | 122,599  |        
|                                                 | Investments  available-for-sale                                  |                                            |         | 82,085   |         |  |         | 58,714   |        
|                                                 | Receivables, net                                                  |                                            |         | 14,049   |         |  |         | 6,925    |        
|                                                 | Deferred income taxes                                             |                                            |         | 105,392  |         |  |         | 57,342   |        
|                                                 | Other current assets                                              |                                            |         | 9,773    |         |  |         | 3,441    |        
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|                                                 |                                                                   | Total current assets                       |         |          | 253,559 |  |         |          | 249,021 | 
|Property and equipment, net                      |                                                                   |                                            | 34,157  |          |         |  | 35,080  |         
|Investments in and advances to subsidiaries, net |                                                                   |                                            | 599,295 |          |         |  | 456,376 |         
|Deferred income taxes                            |                                                                   |                                            | 7,368   |          |         |  | 8,348   |         
|Other assets                                     |                                                                   |                                            | 3,858   |          |         |  | 15,271  |         
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|                                                 |                                                                   | Total assets                               |         | $        | 898,237 |  |         | $        | 764,096 | 
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|Current liabilities:                             |                                                                   |                                            |         |          |         |  |         |         
|                                                 | Accounts payable, accrued expenses and medical
    claims payable |                                            | $       | 35,345   |         |  | $       | 63,305   |        
|                                                 | Current portion of long-term debt                                 |                                            |         | 30,625   |         |  |         | 26,250   |        
|                                                 | Unearned revenue                                                  |                                            |         | 66,581   |         |  |         | 84,745   |        
|                                                 | Reserve for litigation settlement                                 |                                            |         | 161,300  |         |  |         |         |        
|                                                 | Current portion of capital lease obligations                      |                                            |         | 5,470    |         |  |         |         |        
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|                                                 |                                                                   | Total current liabilities                  |         |          | 299,321 |  |         |          | 174,300 | 
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|Capital lease obligation                         |                                                                   |                                            | 5,749   |          |         |  |        |         
|Long-term debt                                   |                                                                   |                                            | 96,250  |          |         |  | 126,876 |         
|Shareholders equity:                            |                                                                   |                                            |         |          |         |  |         |         
|                                                 | Common stock                                                      |                                            |         | 1,051    |         |  |         | 1,004    |        
|                                                 | Additional paid-in capital                                        |                                            |         | 709,258  |         |  |         | 605,661  |        
|                                                 | Retained earnings                                                 |                                            |         | 437,130  |         |  |         | 215,165  |        
|                                                 | Accumulated other comprehensive earnings                          |                                            |         | 25,038   |         |  |         | 7,587    |        
|                                                 | Treasury stock                                                    |                                            |         | (675,560 | )       |  |         | (366,497 | )      
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|                                                 |                                                                   | Total shareholders equity                 |         |          | 496,917 |  |         |          | 462,920 | 
|                                                 |                                                                   |                                            |         |          |         |  |         |         
|                                                 |                                                                   | Total liabilities and shareholders equity |         | $        | 898,237 |  |         | $        | 764,096 | 
|                                                 |                                                                   |                                            |         |          |         |  |         |         

82



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


Schedule I  Condensed
Financial Information of Registrant 
(Continued)

Condensed Statements of Income

Years Ended December 31, 2002, 2001 and
2000


|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |         |         | 
|----------------------------------------------------------------- | ----------------------------------------------- | -------------- | -------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                  |                                                 | 2002           |          | 2001    |         | 2000
|                                                                  |                                                 |                |          |         |         |     
|                                                                  |                                                 |               
|                                                                  |                                                 | (In thousands)
|Revenues-management fees and investment and other
    income, net |                                                 | $              | 403,551  |         |         | $    | 368,615 |         |         | $ | 396,549 |        
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|Expenses:                                                         |                                                 |                |          |         |         |      |         |         |         |   |         |        
|                                                                  | Health care services                            |                |          | (3,342  | )       |      |         | (1,488  | )       |   |         | (12,674 | )      
|                                                                  | Marketing, general and administrative           |                |          | 406,044 |         |      |         | 364,987 |         |   |         | 373,884 |        
|                                                                  | Interest and other financing charges            |                |          | 9,745   |         |      |         | 15,602  |         |   |         | 24,311  |        
|                                                                  | Litigation charge for estimated settlement, net |                |          | 151,300 |         |      |         |        |         |   |         |        |        
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|                                                                  |                                                 | Total expenses |          |         | 563,747 |      |         |         | 379,101 |   |         |         | 385,521 | 
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|Operating earnings (loss)                                         |                                                 |                | (160,196 | )       |         |      | (10,486 | )       |         |   | 11,028  |        
|Equity in net earnings of subsidiaries                            |                                                 |                | 314,307  |         |         |      | 287,874 |         |         |   | 281,530 |        
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|Earnings before income taxes and extraordinary
    item           |                                                 |                | 154,111  |         |         |      | 277,388 |         |         |   | 292,558 |        
|Income tax expense (benefit)(1)                                   |                                                 |                | (67,854  | )       |         |      | (45,033 | )       |         |   | 7,139   |        
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|Net earnings before extraordinary item                            |                                                 |                | 221,965  |         |         |      | 322,421 |         |         |   | 285,419 |        
|Extraordinary item, net of income tax benefits                    |                                                 |                |         |         |         |      |        |         |         |   | (20,325 | )      
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|Net earnings                                                      |                                                 |                | 221,965  |         |         |      | 322,421 |         |         |   | 265,094 |        
|Less preferred dividends and amortization                         |                                                 |                |         |         |         |      |        |         |         |   | (73,791 | )      
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        
|Net earnings attributable to common shares                        |                                                 | $              | 221,965  |         |         | $    | 322,421 |         |         | $ | 191,303 |        
|                                                                  |                                                 |                |          |         |         |      |         |         |         |   |         |        



---



|    |                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 2002, 2001 and 2000, the Registrant
received cash dividends from its consolidated subsidiaries
aggregating $235 million, $328.4 million and $317.6
million, respectively.

83



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##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES


Schedule I  Condensed
Financial Information of Registrant 
(Continued)

Condensed Statements of Cash Flows

Increase (Decrease) in Cash and Cash
Equivalents


Years Ended December 31, 2002, 2001 and
2000


|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |          |          |  
|-------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------ | ------- | -------- | -------- | ---- | ------- | -------- | -------- | - | -------- | -------- | -------- | -
|                                                         |                                                             | 2002                                             |         | 2001     |          | 2000
|                                                         |                                                             |                                                  |         |          |          |     
|                                                         |                                                             |                                                 
|                                                         |                                                             | (In thousands)                                  
|Net cash provided by operating activities(1)             |                                                             | $                                                | 245,622 |          |          | $    | 492,450 |          |          | $ | 318,030  |         
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|Cash flows from investing activities:                    |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|                                                         | Capital expenditures                                        |                                                  |         | (18,981  | )        |      |         | (21,386  | )        |   |          | (12,774  | )       
|                                                         | Sale or maturity of available-for-sale securities           |                                                  |         | 314,567  |          |      |         | 39,061   |          |   |          | 10,400   |         
|                                                         | Purchase of available-for-sale investments                  |                                                  |         | (334,683 | )        |      |         | (95,260  | )        |   |          | (11      | )       
|                                                         | Proceeds on the sale of assets                              |                                                  |         |         |          |      |         |         |          |   |          | 2,734    |         
|                                                         | Acquisitions and other investments                          |                                                  |         |         |          |      |         | (7,667   | )        |   |          |         |         
|                                                         | Other, net                                                  |                                                  |         | 28,141   |          |      |         | 4,836    |          |   |          | 10,884   |         
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|                                                         |                                                             | Net cash provided (used) by investing activities |         |          | (10,956  | )    |         |          | (80,416  | ) |          |          | 11,233   |  
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|Cash flow from financing activities:                     |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|                                                         | Proceeds from exercise of stock options                     |                                                  |         | 31,545   |          |      |         | 29,494   |          |   |          | 64,590   |         
|                                                         | Redemption of preferred stock, net of issuance
    expenses |                                                  |         |         |          |      |         |         |          |   |          | (208,592 | )       
|                                                         | Redemption of warrants                                      |                                                  |         |         |          |      |         |         |          |   |          | (142,122 | )       
|                                                         | Proceeds of notes and loans payable                         |                                                  |         |         |          |      |         |         |          |   |          | 175,000  |         
|                                                         | Redemption of notes and loans payable                       |                                                  |         | (26,251  | )        |      |         | (21,874  | )        |   |          | (376,050 | )       
|                                                         | Cash dividends paid on preferred stock                      |                                                  |         |         |          |      |         |         |          |   |          | (13,792  | )       
|                                                         | Debt issuance expenses                                      |                                                  |         |         |          |      |         |         |          |   |          | (6,207   | )       
|                                                         | Proceeds of surplus note                                    |                                                  |         |         |          |      |         |         |          |   |          | 38,000   |         
|                                                         | Payment of withholding tax on option exercises              |                                                  |         | (24,056  | )        |      |         |         |          |   |          |         |         
|                                                         | Investments in and advances to subsidiaries, net            |                                                  |         | (42,182  | )        |      |         | (12,760  | )        |   |          | (6,000   | )       
|                                                         | Payments under capital lease obligations                    |                                                  |         | (2,552   | )        |      |         | (5,700   | )        |   |          | (12,554  | )       
|                                                         | Purchase of treasury stock                                  |                                                  |         | (251,509 | )        |      |         | (366,497 | )        |   |          |         |         
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|                                                         |                                                             | Net cash used by financing activities            |         |          | (315,005 | )    |         |          | (377,337 | ) |          |          | (487,727 | )
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|Net increase (decrease) in cash and cash
    equivalents |                                                             |                                                  | (80,339 | )        |          |      | 34,697  |          |          |   | (158,464 | )       
|Cash and cash equivalents at beginning of year           |                                                             |                                                  | 122,599 |          |          |      | 87,902  |          |          |   | 246,366  |         
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         
|Cash and cash equivalents at end of year                 |                                                             | $                                                | 42,260  |          |          | $    | 122,599 |          |          | $ | 87,902   |         
|                                                         |                                                             |                                                  |         |          |          |      |         |          |          |   |          |         



---

|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes cash dividends received from
    consolidated subsidiaries of $235 million,
    $328.4 million and $317.6 million, respectively, in
    2002, 2001 and 2000.

84



---



##### 



OXFORD HEALTH PLANS, INC. AND
SUBSIDIARIES

Schedule II  Valuation and
Qualifying Accounts

Years Ended December 31, 2002, 2001 and
2000


|                             |                                    |                                                             |  |               |        |               |  |            |         |   |  |   |       |  |  |   |        | 
|---------------------------- | ---------------------------------- | ----------------------------------------------------------- |  | ------------- | ------ | ------------- |  | ---------- | ------- | - |  | - | ----- |  |  | - | ------ | 
|                             |                                    |                                                             |  | Charged       |        |               |  |           
|                             |                                    | Balance at                                                  |  | (Credited) to |        |               |  | Balance at
|                             |                                    | Beginning of                                                |  | Costs and     |        | Deductions/   |  | End of    
|                             |                                    | Period                                                      |  | Expenses      |        | Write-offs(1) |  | Period    
|                             |                                    |                                                             |  |               |        |               |  |           
|                             |                                    |                                                            
|                             |                                    | (In thousands)                                             
|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 | 
|                             |                                    |                                                             |  |               |        |               |  |            |         |   |  |   |       |  |  |  
|Year ended December 31, 2000 |                                    |                                                             |  |               |        |               |  |            |         |   |  |   |       |  |  |  
|                             | Deducted from Accounts Receivable: |                                                             |  |               |        |               |  |            |         |   |  |   |       |  |  |   |       
|                             |                                    | Allowance for doubtful accounts and billing
    adjustments |  | $             | 40,853 |               |  | $          | (11,153 | ) |  | $ | 1,080 |  |  | $ | 28,620 | 
|                             |                                    |                                                             |  |               |        |               |  |            |         |   |  |   |       |  |  |  



---



|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes write-offs and other premium
    adjustments recorded in 2002, 2001 and 2000 of approximately
    $4.1 million, $7 million and $9.9 million,
    respectively, as reductions to premium revenue.

85



---



##### 



EXHIBIT INDEX

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

86



---



##### 



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- |  |  | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|No.     |       |  |  | Description of Document
|        |       |  |  |                        
|        | 10(n) |  |  |                        |  | 1991 Stock Option Plan, as amended, incorporated
    by reference to Exhibit 10(t) of the Registrants
    Annual report on Form 10-K for the year ended
    December 31, 2000 (File No. 0-19442)                                                                                                                                                                                                                                 
|        | 10(o) |  |  |                        |  | 1997 Independent Contractor Stock Option Plan,
    incorporated by reference to the Registrants Form S-8
    filed on September 16, 1997 (File No. 0-19442)                                                                                                                                                                                                                                                                      
|        | 10(p) |  |  |                        |  | Oxford Health Plans, Inc. 401(k) Plan, as
    amended, incorporated by reference to Exhibit 10(v) of the
    Registrants Annual report on Form 10-K for the year
    ended December 31, 2000 (File No. 0-19442)                                                                                                                                                                                                                  
|        | 10(q) |  |  |                        |  | Non-Employee Directors Stock Option Plan, as
    amended, incorporated by reference to Exhibit 10(l)(ii) of
    the Registrants Annual Report on Form 10-K for the
    year ended December 31, 1994 (File No. 0-19442)                                                                                                                                                                                                           
|        | 10(r) |  |  |                        |  | Oxford Health Plans, Inc. 2002 Equity Incentive
    Compensation Plan, incorporated by reference to the
    Registrants Form S-8 filed on September 30, 2002
    (File No. 33-40539)                                                                                                                                                                                                                                             
|        | 10(s) |  |  |                        |  | 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. 33-40539)                                                                                                                                                                                                                                        
|        | 10(t) |  |  |                        |  | Oxford Health Plans, Inc. Special Salary
    Continuation Plan, previously filed with and incorporated by
    reference to Exhibit 10(c) of the Registrants report
    on Form 10-Q for the quarterly period ended March 31,
    1999 (File No. 0-19442)                                                                                                                                                                         
|        | 10(u) |  |  |                        |  | 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(v) |  |  |                        |  | Credit Agreement, dated as of December 22,
    2000, among the Registrant, the financial institutions listed
    therein as Lenders, Credit Suisse First Boston, as
    Administrative Agent, and the other parties thereto,
    incorporated by reference to Exhibit 10.3 of the
    registration Statement on Form S-3, filed January 10,
    2001 (File No. 0-19442)                                                           
|        | 10(w) |  |  |                        |  | First Amendment to Credit Agreement, dated as of
    July 6, 2001, by and among the Registrant, Oxford Benefit
    Management, Inc., the financial institutions listed therein as
    Lenders, Credit Suisse First Boston, Deutsche Banc Alex Brown,
    Inc. and Credit Lyonnais New York Branch, incorporated by
    reference to the Registrants Form 10-Q for the
    quarterly period ended June 30, 2001 (File No. 0-19442)
|        | 21    |  |  |                        |  | Subsidiaries of the Registrant*                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 23(a) |  |  |                        |  | Consent of Ernst & Young LLP*                                                                                                                                                                                                                                                                                                                                                                                                     



---



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

87