| x | ANNUAL      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|---|------------------------------------------------------------------------------------------------|

| ¨ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|----------------------------------------------------------------------------------------------------|

| NEVADA(State      or other jurisdiction of incorporation or organization)              |   | 88-0200415(I.R.S.      Employer Identification No.) |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
|                                                                                   |   |                                                |
| 2724 North Tenaya Way,      Las Vegas, NV(Address      of principal executive offices) |   | 89128(Zip      Code)                                |

| COMMON STOCK, $.005      PAR VALUE (no shares area authorized under the registrant's articles of      incorporation nor outstanding(Title      of each class) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Large      accelerated filer x                     |   | Accelerated      filer ¨         |
|----------------------------------------------------|--------|---------------------------------------|
| Non-accelerated      filer ¨                  |   | Smaller      reporting company ¨ |
| (Do      not check if a smaller reporting company) |   |                                  |

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Annual Report on Form 10-K

|       |   |                                                                                                              | Page |
|------------|--------|-------------------------------------------------------------------------------------------------------------------|------|
| PART I     |
| Item       | 1.     | Business                                                                                                          | 1    |
| Item       | 1A.    | Risk Factors                                                                                                      | 17   |
| Item       | 1B.    | Unresolved Staff Comments                                                                                         | 23   |
| Item       | 2.     | Properties                                                                                                        | 23   |
| Item       | 3.     | Legal Proceedings                                                                                                 | 24   |
| Item       | 4.     | Submission of Matters to a Vote of Security      Holders                                                          | 25   |
|       |   |                                                                                                              |
| PART II    |
| Item       | 5.     | Market for Registrant's Common Equity, Related Stockholder      Matters and Issuer Purchases of Equity Securities | 26   |
| Item       | 6.     | Selected Financial Data                                                                                           | 27   |
| Item       | 7.     | Management's Discussion and Analysis of Financial Condition      and Results of Operations                        | 28   |
| Item       | 7A.    | Quantitative and Qualitative Disclosures About Market      Risk                                                   | 46   |
| Item       | 8.     | Financial Statements and Supplementary    Data                                                                    | 47   |
| Item       | 9.     | Changes in and Disagreements With Accountants on Accounting      and Financial Disclosure                         | 78   |
| Item       | 9A.    | Controls and Procedures                                                                                           | 78   |
| Item       | 9B.    | Other Information                                                                                                 | 80   |
|       |   |                                                                                                              |
| PART III   |
| Item       | 10.    | Directors, Executive Officers and Corporate      Governance                                                       | 80   |
| Item       | 11.    | Executive Compensation                                                                                            | 80   |
| Item       | 12.    | Security Ownership of Certain Beneficial Owners and      Management and Related Stockholder Matters               | 80   |
| Item       | 13.    | Certain Relationships and Related Transactions, and      Director Independence                                    | 80   |
| Item       | 14.    | Principal Accounting Fees and Services                                                                            | 80   |
|       |   |                                                                                                              |
| PART IV    |
| Item       | 15.    | Exhibits and Financial Statement    Schedules                                                                     | 81   |
| Signatures |   | 83                                                                                                                |

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PART I

ITEM 1.   

| ·   | a      federally qualified health maintenance organization  (HMO); |
|--------------------|--------------------------------------------------------------------|

| ·   | managed      indemnity plans; |
|--------------------|-------------------------------|

| ·   | ancillary      products and services that complement our managed health care product      lines; and |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | a      third-party administrative services program for employer-funded health      benefit plans and self-insured workers’ compensation  plans. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Health      Plan of Nevada, Inc. (HPN), a Nevada corporation, is a federally qualified      HMO that provides health care benefits to employer groups, individuals,      and Medicare and Medicaidbeneficiaries. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Sierra      Health and Life Insurance Company, Inc. (SHL), a California corporation,      provides managed indemnity plans, a local Medicare Advantage PPO plan, a      regional Medicare Advantage PPO plan, a Medicare Advantage Private      Fee-For-Service plan, a Medicare Part D prescription drug program (PDP), a      Health Saving Account (HSA) plan, and Medicare Select      products. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Southwest      Medical Associates, Inc. (SMA), a Nevada corporation, is Nevada’s largest      multi-specialty medical group serving as the primary care provider for 74%      of our southern Nevada HMO members. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Behavioral      Healthcare Options, Inc. (BHO), a Nevada corporation, provides mental      health and substance abuseservices. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------|

| ·   | Sierra      Home Medical Products, Inc., a Nevada corporation, provides home infusion      care and home medical equipment andsupplies. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Family      Health Care Services, a Nevada corporation, is a Medicare certified full      service home health agency licensed by the state of Nevada, providing      in-home care and case management. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Family      Home Hospice, Inc., a Nevada corporation, is a Medicare/Medicaid certified      agency that provides full-service hospice care and counseling for the      terminally ill. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Sierra      Health-Care Options, Inc., a Nevada corporation, operates third-party      network access and utilization review services for employer-funded health      benefit plans. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Sierra      Nevada Administrators, Inc., a Nevada corporation, operates as a      third-party administrator of workers’ compensation claims primarily for      self-insured Nevada employers. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                          |       | At      December 31, |
|-------------------------------|------------|----------------------|
|                          |       | 2007                 |   | 2006 |   | 2005 |   | 2004 |   | 2003 |
| HMO:                          |       |                 |   |   |   |   |   |   |   |   |
|                          | Commercial |                 | 284,800 |   | 279,100 |   | 254,200 |   | 226,200 |   | 202,400 |
|                          | Medicare   |                 | 56,600 |   | 56,600 |   | 56,000 |   | 53,300 |   | 51,200 |
|                          | Medicaid   |                 | 60,800 |   | 60,500 |   | 55,100 |   | 50,500 |   | 39,000 |
| Commercial      PPO and HSA   |       | 38,200               |   | 32,900 |   | 27,500 |   | 25,900 |   | 24,500 |
| Medicare      PPO and PFFS    |       | 3,500                |   | 1,900 |   | 300 |   | ¾ |   | ¾ |
| Medicare      Part D-Basic    |       | 148,900              |   | 184,900 |   | ¾ |   | ¾ |   | ¾ |
| Medicare      Part D-Enhanced |       | 43,600               |   | ¾ |   | ¾ |   | ¾ |   | ¾ |
| Medicare      supplement      |       | 12,500               |   | 13,600 |   | 15,300 |   | 16,400 |   | 17,500 |
| Administrative      services  |       | 228,500              |   | 222,000 |   | 229,500 |   | 188,200 |   | 193,100 |
| Subtotal                      |       | 877,400              |   | 851,500 |   | 637,900 |   | 560,500 |   | 527,700 |
| TRICARE      eligibles        |       | ¾               |   | ¾ |   | ¾ |   | ¾ |   | 707,000 |
| Total      Membership         |       | 877,400              |   | 851,500 |   | 637,900 |   | 560,500 |   | 1,234,700 |

| Membership      By Commercial Employer Group Size |   | Membership      By Commercial Employer Group Type |
|---------------------------------------------------|--------|---------------------------------------------------|
|                                              |   |                                              |   |   |   |   |   |   |   |   |
|                                              |   | 2007                                              |   | 2006 |   |   |   | 2007 |   | 2006 |
|                                              |   |                                              |   |   |   |   |   |   |   |   |   |   |
| 1-50      employees (small)                       |   | 7%                                                |   | 7% |   | Gaming |   | 50,100 | 18% |   | 53,500 | 19% |
| 51-500      employees (mid-size)                  |   | 29%                                               |   | 31% |   | School      districts |   | 31,600 | 11% |   | 26,400 | 9% |
| 501      + employees (large)                      |   | 64%                                               |   | 62% |   | Government |   | 24,100 | 8% |   | 30,400 | 11% |
| Total                                             |   | 100%                                              |   | 100% |   | National      accounts |   | 23,300 | 8% |   | 25,400 | 9% |
|                                              |   |                                              |   |   |   | Unions |   | 39,000 | 14% |   | 31,500 | 12% |
|                                              |   |                                              |   |   |   | All      others |   | 116,700 | 41% |   | 111,900 | 40% |
|                                              |   |                                              |   |   |   | Total |   | 284,800 | 100% |   | 279,100 | 100% |

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|                                                |   | A.M.      Best Company, Inc. (1) |   | Fitch      Ratings (2) |
|-----------------------------------------------------|--------|----------------------------------|--------|------------------------|
|                                                |   | Rating                           |   | Ranking                |   | Rating |   | Ranking |   |
| Financial      strength rating:                     |   |                             |   |                   |   |   |   |   |   |
| HMO      and health and life insurance subsidiaries |   | B++      Good                    |   | 5th      of 16         |   | A-      Strong |   | 7th      of 23 |   |
|                                                |   |                             |   |                   |   |   |   |   |   |
| Issuer      credit ratings:                         |   |                             |   |                   |   |   |   |   |   |
| HMO      and health and life insurance subsidiaries |   | bbb+      Adequate               |   | 8th      of 22         |   | n/a |   | n/a |   |
|                                                |   |                             |   |                   |   |   |   |   |   |
|    Parent      company               |   | bb+      Speculative             |   | 11th      of 22        |   | BBB      Good |   | 9th      of 23 |   |
|                                                |   |                             |   |                   |   |   |   |   |   |
| Senior      convertible debentures                  |   | bb+      Speculative             |   | 11th      of 22        |   | BBB-      Investment Grade |   | 10th      of 23 |   |

|                               |   | Standard      & Poor's Corp. (3) |
|------------------------------------|--------|--------------------------------------|
|                               |   | Rating                               |   | Ranking |
|                               |   |                                 |   |   |
| Counterparty      credit rating    |   | BB+      Speculative                 |   | 11th      of 22 |
|                               |   |                                 |   |   |
| Senior      convertible debentures |   | BB+      Speculative                 |   | 11th      of 22 |

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| ·   | variation      from actuarial assumptions used to price our bid proposals for the      Medicare Prescription Drug Program and our Medicare Advantage programs can      lead to higher than expected medicalcosts; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | failure      to design and price our products appropriately and      competitively; |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | loss      of health care premium revenues due to heightened pricing competition or      other factors; |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | loss      of health care premium revenues due to inadequate membership data provided      by CMS; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | inadequate      premium revenues due to heightened competition, miscalculations of      underlying health care cost inflation and other trends, utilization and      other factors in our rate filings and in underwriting      accounts; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | significant      reductions in account and memberretention; |
|--------------------|-------------------------------------------------------------|

| ·   | inability      or delays in making timely changes to health care benefits to offset the      impact of inadequate premium rates; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | loss      of Medicare, Medicaid, or large commercial  contracts; |
|--------------------|------------------------------------------------------------------|

| ·   | a      reduction in the actual proceeds to be realized from the note receivable      related to the sale of our workers’ compensation insurance      business; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | loss      of or significant changes in our health care provider      contracts; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | inability      or unwillingness of our contracted providers to provide health care      services to our members; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | inability      to control our admissions to non-contracted  facilities; |
|--------------------|-------------------------------------------------------------------------|

| ·   | inadequate      capacity at contracted facilities; |
|--------------------|----------------------------------------------------|

| ·   | higher      than expected medical costs including utilization of    services; |
|--------------------|-------------------------------------------------------------------------------|

| ·   | the      introduction of new medical technologies and    pharmaceuticals; |
|--------------------|---------------------------------------------------------------------------|

| ·   | higher      costs of medical malpractice and other insurance, increased claims,      reduced coverage that increases our risk exposure or the unavailability of      coverage that either affects us or our contracted    providers; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | unpaid      health care claims and health care costs resulting from insolvencies of      providers with whom we have capitatedcontracts; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | significant      declines in investment rates or a continued deterioration of the real      estate market could materially impair our investments in trust deed      mortgage notes or real estate jointventures; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | terrorist      acts that directly affect the operation of our business and/or our      providers, customers, policyholders andmembers; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a      sustained economic recession, especially in  Nevada; |
|--------------------|-------------------------------------------------------------|

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| ·   | adverse      loss development on health care payables resulting from unanticipated      increases or changes in our claimscosts; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------|

| ·   | actual      provider settlements that are higher than our recorded      estimates; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | adverse      legal judgments that are not covered by insurance or that indirectly      impact our ability to obtain insurance in the future at reasonable      costs; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | inability      to implement material regulatory requirements on a timely, accurate and      cost effective basis; |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   | a      ratings downgrade from insurance rating agencies, such as A.M. Best      Company and Fitch Ratings, and from health care quality rating      organizations, such as the NCQA orURAC; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes      in federal or state regulations and laws or programs, including but not      limited to, health care reform, other initiatives and    taxes; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | inability      to maintain or enhance, as required, our management information systems to      ensure, among other things, the timely and accurate billing of premiums      and the timely and accurate payment of claims, in compliance with      applicable governmental and contractual  requirements; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | inability      to expand our e-business initiatives on a timely basis and in compliance      with government regulations; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| ·   | other      factors referenced in this Annual Report on Form 10-K, including those set      forth under the caption “RiskFactors.” |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

ITEM 1A.

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ITEM 1B.   

ITEM2.   

ITEM 3.  

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ITEM 4. 

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PART II

ITEM 5.

| Period                                                                         |   | Total      NumberOf      SharesRepurchased      (1) |   | AveragePrice      PaidPer      Share |   | Total      NumberOf      Shares PurchasedAs      Part Of PubliclyAnnounced      PlanOr      Program |   | Approximate      DollarValue      Of SharesThat      May Yet BePurchased      UnderThe      Plan (2) |
|--------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|
|                                                                           |   | (In      thousands, except per share data)          |
| Beginning      approximate dollar value of shares that may yet be    purchased |   |                                                | $      | 24,142                               |
| January      1, 2007 – January 31, 2007                                  |   | 500                                                 | $      | 35.80                                |   | 500                                                                                                 |   | 56,251                                                                                               |
| February      1, 2007 – February 28, 2007                                |   | 85                                                  |   | 37.45                                |   | 85                                                                                                  |   | 53,070                                                                                               |
| March      1, 2007 – March 31, 2007                                      |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| April      1, 2007 – April 30, 2007                                      |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| May      1, 2007 – May 31, 2007                                          |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| June      1, 2007 – June 30, 2007                                        |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| July      1, 2007 – July 31, 2007                                        |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| August      1, 2007 – August 31, 2007                                    |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| September      1, 2007 – September 30, 2007                              |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| October      1, 2007 – October 31, 2007                                  |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| November      1, 2007 – November 30, 2007                                |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |
| December      1, 2007 – December 31, 2007                                |   | ¾                                              |   | ¾                               |   | ¾                                                                                              |   | 53,070                                                                                               |

|   | (1) | Repurchases      were made pursuant to a 10b5-1plan. |
|--------|-----|------------------------------------------------------|

|   | (2) | At      January 1, 2007, $24.1 million remained available for purchase under      previously approved plans. On January 25, 2007, our Board of Directors      authorized an additional $50.0 million in share      repurchases.  The repurchase program has no stated expiration      date; however, we halted our repurchase program as a result of the merger      with UnitedHealth Group. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Period                                            |   | Total      Dollar Value Of Debentures Converted |   | Average      PricePaid      PerDebenture                                               |   | Total      Dollar ValueOf      DebenturesPurchasedAs      Part Of PubliclyAnnounced      PlanOr      Program |   | Approximate      DollarValue      Of DebenturesThat      May Yet BePurchased      UnderThe      Plan |
|---------------------------------------------------|--------|-------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|
| January      1, 2007 – January 31, 2007     | $      | 21,720,000                                      |   | 109.35      shares of common stock for each $1,000 principal amount of      debentures |   | none                                                                                                         |   | none                                                                                                 |
| February      1, 2007 – February 28, 2007   |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| March      1, 2007 – March 31, 2007         |   | 1,536,000                                       |   | 109.35      shares of common stock for each $1,000 principal amount of      debentures |   | none                                                                                                         |   | none                                                                                                 |
| April      1, 2007 – April 30, 2007         |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| May      1, 2007 – May 31, 2007             |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| June      1, 2007 – June 30, 2007           |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| July      1, 2007 – July 31, 2007           |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| August      1, 2007 – August 31, 2007       |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| September      1, 2007 – September 30, 2007 |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| October      1, 2007 – October 31, 2007     |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| November      1, 2007 – November 30, 2007   |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |
| December      1, 2007 – December 31, 2007   |   | ¾                                          |   | ¾                                                                                 |   | ¾                                                                                                       |   | ¾                                                                                               |

ITEM 6. 

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ITEM 7.

|                                                     |   |                                                  |      |   |                          |   |      |       |   |   | Percent      Of Revenue |   |   | Increase |   |
|----------------------------------------------------------|--------|-------------------------------------------------------|-----------|--------|-------------------------------|--------|-----------|------------|--------|--------|-------------------------|--------|--------|----------|--------|
|                                                     |   | Years      Ended December 31,                         |      |   | Years      Ended December 31, |   |      | (Decrease) |   |
|                                                     |   | 2007                                                  |      |   | 2006                          |   |      | 2005       |   |   | 2007                    |   |   | 2006     |   |   | 2005 |   |   | 2007      vs. 2006 |   |   | 2006      vs. 2005 |   |
| Operating      revenues:                                 |   | (In      thousands, except per share and percentages) |      |
| Medical      premiums                                    |   | $                                                     | 1,811,086 |   |                          | $      | 1,623,515 |       |   | $      | 1,291,296               |   |   |     | 94.8   | % |   |   | 94.5 | % |   |   | 93.2 | % |   | $ | 187,571 |   |   |   | 11.6 | % |   | $ | 332,219 |   |   |   | 25.7 | % |
| Military      contract revenues                          |   |                                                  | ¾    |   |                          |   | ¾    |       |   |   | 16,326                  |   |   |     | ¾ |   |   |   | ¾ |   |   |   | 1.2 |   |   |   |   |   |   |   |   |   |   |   | (16,326 | ) |   |   | (100.0 | ) |
| Professional      fees                                   |   |                                                  | 57,199    |   |                          |   | 52,266    |       |   |   | 43,186                  |   |   |     | 3.0    |   |   |   | 3.0 |   |   |   | 3.1 |   |   |   | 4,933 |   |   |   | 9.4 |   |   |   | 9,080 |   |   |   | 21.0 |   |
| Investment      and other revenues                       |   |                                                  | 41,412    |   |                          |   | 43,111    |       |   |   | 34,228                  |   |   |     | 2.2    |   |   |   | 2.5 |   |   |   | 2.5 |   |   |   | (1,699 | ) |   |   | (3.9 | ) |   |   | 8,883 |   |   |   | 26.0 |   |
| Total                                                    |   |                                                  | 1,909,697 |   |                          |   | 1,718,892 |       |   |   | 1,385,036               |   |   |     | 100.0  |   |   |   | 100.0 |   |   |   | 100.0 |   |   |   | 190,805 |   |   |   | 11.1 |   |   |   | 333,856 |   |   |   | 24.1 |   |
|                                                     |   |                                                  |      |   |                          |   |      |       |   |   |                    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                                 |   |                                                  |      |   |                          |   |      |       |   |   |                    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Medical      expenses                                    |   |                                                  | 1,524,733 |   |                          |   | 1,295,978 |       |   |   | 1,020,754               |   |   |     | 79.8   |   |   |   | 75.4 |   |   |   | 73.7 |   |   |   | 228,755 |   |   |   | 17.7 |   |   |   | 275,224 |   |   |   | 27.0 |   |
|      Medical care      ratio    |   |                                                  | 81.6      | %      |                          |   | 77.3      | %          |   |   | 76.5                    | %      |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4.3 |   |   |   |   |   |   |   | 0.8 |   |
| Military      contract expenses                          |   |                                                  | ¾    |   |                          |   | ¾    |       |   |   | 2,392                   |   |   |     | ¾ |   |   |   | ¾ |   |   |   | 0.2 |   |   |   | ¾ |   |   |   | ¾ |   |   |   | (2,392 | ) |   |   | (100.0 | ) |
| General      and administrative expenses                 |   |                                                  | 236,244   |   |                          |   | 205,480   |       |   |   | 172,473                 |   |   |     | 12.4   |   |   |   | 12.0 |   |   |   | 12.5 |   |   |   | 30,764 |   |   |   | 15.0 |   |   |   | 33,007 |   |   |   | 19.1 |   |
| Total                                                    |   |                                                  | 1,760,977 |   |                          |   | 1,501,458 |       |   |   | 1,195,619               |   |   |     | 92.2   |   |   |   | 87.4 |   |   |   | 86.4 |   |   |   | 259,519 |   |   |   | 17.3 |   |   |   | 305,839 |   |   |   | 25.6 |   |
|                                                     |   |                                                  |      |   |                          |   |      |       |   |   |                    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      income                                    |   |                                                  | 148,720   |   |                          |   | 217,434   |       |   |   | 189,417                 |   |   |     | 7.8    |   |   |   | 12.6 |   |   |   | 13.6 |   |   |   | (68,714 | ) |   |   | (31.6 | ) |   |   | 28,017 |   |   |   | 14.8 |   |
| Interest      expense                                    |   |                                                  | (3,970    | )      |                          |   | (3,901    | )          |   |   | (8,791                  | )      |   |     | (0.2   | ) |   |   | (0.2 | ) |   |   | (0.6 | ) |   |   | (69 | ) |   |   | 1.8 |   |   |   | 4,890 |   |   |   | (55.6 | ) |
| Other      income (expense), net                         |   |                                                  | 1,984     |   |                          |   | 1,960     |       |   |   | 1,099                   |   |   |     | 0.1    |   |   |   | 0.1 |   |   |   | 0.1 |   |   |   | 24 |   |   |   | 1.2 |   |   |   | 861 |   |   |   | 78.3 |   |
|                                                     |   |                                                  |      |   |                          |   |      |       |   |   |                    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before income taxes                          |   |                                                  | 146,734   |   |                          |   | 215,493   |       |   |   | 181,725                 |   |   |     | 7.7    |   |   |   | 12.5 |   |   |   | 13.1 |   |   |   | (68,759 | ) |   |   | (31.9 | ) |   |   | 33,768 |   |   |   | 18.6 |   |
| Provision      for income taxes                          |   |                                                  | (52,682   | )      |                          |   | (75,022   | )          |   |   | (61,708                 | )      |   |     | (2.8   | ) |   |   | (4.3 | ) |   |   | (4.4 | ) |   |   | 22.340 |   |   |   | (29,8 | ) |   |   | (13,314 | ) |   |   | 21.6 |   |
|         Tax      rate                          |   |                                                  | 35.9      | %      |                          |   | 34.8      | %          |   |   | 34.0                    | %      |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1.1 |   |   |   |   |   |   |   | 0.8 |   |
| Net      income                                          |   | $                                                     | 94,052    |   |                          | $      | 140,471   |       |   | $      | 120,017                 |   |   |     | 4.9    | % |   |   | 8.2 | % |   |   | 8.7 | % |   | $ | (46,419 | ) |   |   | (33.0 | )      % |   | $ | 20,454 |   |   |   | 17.0 | % |
|                                                     |   |                                                  |      |   |                          |   |      |       |   |   |                    |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share assuming dilution: |   | $                                                     | 1.60      |   |                          | $      | 2.25      |       |   | $      | 1.81                    |   |   |     |   |   |   |   |   |   |   |   |   |   |   | $ | (0.65 | ) |   |   | (28.9 | )      % |   | $ | 0.44 |   |   |   | 24.3 | % |

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|                          |   |                          |      |   |       |   |      |   |   |   | Increase           |   |
|-------------------------------|--------|-------------------------------|-----------|--------|------------|--------|-----------|--------|--------|--------|--------------------|--------|
|                          |   | Years      Ended December 31, |      |   | (Decrease) |   |
|                          |   | 2007                          |      |   | 2006       |   |      | 2005   |   |   | 2007      vs. 2006 |   |   | 2006      vs. 2005 |   |
| Membership                    |   |                          |      |   |       |   |      |   |   |   |               |   |   |   |   |   |   |   |   |   |   |
| HMO:                          |   |                          |      |   |       |   |      |   |   |   |               |   |   |   |   |   |   |   |   |   |   |
| Commercial                    |   |                          | 284,800   |   |       |   | 279,100   |   |   |   | 254,200            |   |   |   | 5,700 |   |   |   | 2.0 | % |   |   | 24,900 |   |   |   | 9.8 | % |
| Medicare                      |   |                          | 56,600    |   |       |   | 56,600    |   |   |   | 56,000             |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 600 |   |   |   | 1.1 |   |
| Medicaid                      |   |                          | 60,800    |   |       |   | 60,500    |   |   |   | 55,100             |   |   |   | 300 |   |   |   | .5 |   |   |   | 5,400 |   |   |   | 9.8 |   |
| Subtotal      HMO             |   |                          | 402,200   |   |       |   | 396,200   |   |   |   | 365,300            |   |   |   | 6,000 |   |   |   | 1.5 |   |   |   | 30,900 |   |   |   | 8.5 |   |
|                          |   |                          |      |   |       |   |      |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial      PPO and HSA   |   |                          | 38,200    |   |       |   | 32,900    |   |   |   | 27,500             |   |   |   | 5,300 |   |   |   | 16.1 |   |   |   | 5,400 |   |   |   | 19.6 |   |
| Medicare      PPO and PFFS    |   |                          | 3,500     |   |       |   | 1,900     |   |   |   | 300                |   |   |   | 1,600 |   |   |   | 84.2 |   |   |   | 1,600 |   |   |   | 533.3 |   |
| Medicare      Part D-Basic    |   |                          | 148,900   |   |       |   | 184,900   |   |   |   | ¾             |   |   |   | (36,000 | ) |   |   | (19.5 | ) |   |   | 184,900 |   |   |   | ¾ |   |
| Medicare      Part D-Enhanced |   |                          | 43,600    |   |       |   | ¾    |   |   |   | ¾             |   |   |   | 43,600 |   |   |   | 100.0 |   |   |   | ¾ |   |   |   | ¾ |   |
| Medicare      supplement      |   |                          | 12,500    |   |       |   | 13,600    |   |   |   | 15,300             |   |   |   | (1,100 | ) |   |   | (8.1 | ) |   |   | (1,700 | ) |   |   | (11.1 | ) |
| Administrative      services  |   |                          | 228,500   |   |       |   | 222,000   |   |   |   | 229,500            |   |   |   | 6,500 |   |   |   | 2.9 |   |   |   | (7,500 | ) |   |   | (3.3 | ) |
| Total  membership   |   |                          | 877,400   |   |       |   | 851,500   |   |   |   | 637,900            |   |   |   | 25,900 |   |   |   | 3.0 | % |   |   | 213,600 |   |   |   | 33.5 | % |
|                          |   |                          |      |   |       |   |      |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Member      months            |   |                          |      |   |       |   |      |   |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                    |   |                          | 3,349,000 |   |       |   | 3,208,000 |   |   |   | 2,949,600          |   |   |   | 141,000 |   |   |   | 4.4 | % |   |   | 258,400 |   |   |   | 8.8 | % |
| Medicare      HMO             |   |                          | 679,900   |   |       |   | 679,700   |   |   |   | 656,400            |   |   |   | 200 |   |   |   | ¾ |   |   |   | 23,300 |   |   |   | 3.5 |   |
| Medicaid                      |   |                          | 705,900   |   |       |   | 684,300   |   |   |   | 629,200            |   |   |   | 21,600 |   |   |   | 3.2 | % |   |   | 55,100 |   |   |   | 8.8 | % |

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| ·   | Total      operating revenues increased by 11.1%.  This increase was      primarily driven by an 11.6% increase in medical premiums due to a 32.5%      increase in premiums for our stand alone Medicare Part D prescription drug      (PDP) programs, an increase in our commercial membership and premium rate      increases.  Also contributing to the increase in operating      revenues was a 9.4% increase in professional fees primarily due to an      increase in visits to our clinicalsubsidiaries. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | HMO      membership increased 1.5% as a result of new accounts and in-case growth      on commercial membership and growth in Medicaid member      months.  This increase is net of the 11,000 commercial member      terminations effective January 1, 2007, from three large employer groups      that had been anticipated. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Medical      expenses, as a percentage of medical premiums and professional fees, or      medical care ratio, increased to 81.6% in 2007 from 77.3% in      2006.  The increase in our medical care ratio is primarily      related to a 2007 pre-tax loss of $67.9 million related to our new      enhanced PDP product that was recorded during the period, which      significantly increased medical expenses.  The medical ratio on      this product was 159.9%. See Medical Expenses below for more      details. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | General      and administrative (G&A) expenses as a percentage of medical premiums      increased to 13.0% in 2007 from 12.7% in 2006.  Total G&A      expenses increased 15.0% primarily due to costs associated with our merger      with UnitedHealth Group, increases in premium taxes and brokers' fees,      G&A costs related to our new enhanced PDP product and impairment      charges related to our investments in trust deed mortgage notes and joint      ventures.  See General and Administrative Expenses below for      more details. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      had operating income of $148.7 million in 2007 compared to $217.4 million      in 2006.  This decrease is related to a $67.9 million operating      loss recorded during 2007 related to our new enhanced PDP      product.  See Medical Expenses below for more details. This      decrease was partially offset by an increase in operating income primarily      driven by growth in our core membership lines of  business. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Cash      flows from operating activities decreased to $45.8 million from $190.4      million during 2006.  This decrease is mostly due to a $67.9      million operating loss in our Enhanced Plan and a $22.6 million decrease      in medical claims payable in 2007 compared to an $87.0 million increase in      2006.   The change in the medical claims payable is mostly      due to the settlement of provider disputes, the timing of claims payments,      and claims activity related to our PDP.   In 2006, we      reserved amounts for a state to plan reconciliation related to our PDP and      had a pharmacy claims run on December 31, 2006.  Both of these      amounts were settled in 2007.  See Medical Expenses below for      more details on our Enhanced Plan. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                  |   | Years      Ended December 31, |       |
|-------------------------------------------------------|--------|-------------------------------|------------|
|                                                  |   | 2007                          |       |   | 2006 |   |
|                                                  |   | (In      thousands)           |       |
| Sources      of cash:                                 |   |                          |       |   |   |   |
| Cash      provided by operating activities            |   | $                             | 45,813     |   |   | $ | 190,371 |   |
| Exercise      of stock in connection with stock plans |   |                          | 6,683      |   |   |   | 14,464 |   |
| Proceeds      from other long-term debt               |   |                          | ¾     |   |   |   | 75,000 |   |
| Proceeds      from sales of investments               |   |                          | 1,004,802  |   |   |   | 818,923 |   |
| Other                                                 |   |                          | 9,478      |   |   |   | 9,853 |   |
| Total      cash sources                               |   |                          | 1,066,776  |   |   |   | 1,108,611 |   |
|                                                  |   |                          |       |   |   |   |   |   |
| Uses      of cash:                                    |   |                          |       |   |   |   |   |   |
| Payments      on other long-term debt                 |   |                          | (78,531    | ) |   |   | (111 | ) |
| Purchase      of investments                          |   |                          | (920,823   | ) |   |   | (878,186 | ) |
| Purchase      of treasury stock                       |   |                          | (21,081    | ) |   |   | (243,136 | ) |
| Other                                                 |   |                          | (9,688     | ) |   |   | (16,319 | ) |
| Total      cash uses                                  |   |                          | (1,030,123 | ) |   |   | (1,137,752 | ) |
|                                                  |   |                          |       |   |   |   |   |   |
| Net      increase (decrease) in cash                  |   | $                             | 36,653     |   |   | $ | (29,141 | ) |

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|                         |   | Payments      due in: |   |
|------------------------------|--------|-----------------------|--------|
|                         |   | Less      than        |   |   | 1      to 3 |   |   | 3      to 5 |   |   | More      than |   |   |   |   |
|                         |   | 1      year           |   |   | years |   |   | years |   |   | 5      years |   |   | Total |   |
|                         |   | (In      thousands)   |   |
| Long-term      debt(1)       |   | $                     | 20,344 |   |   | $ | ¾ |   |   | $ | ¾ |   |   | $ | ¾ |   |   | $ | 20,344 |   |
| Capital      leases          |   |                  | 166    |   |   |   | 207 |   |   |   | 86 |   |   |   | ¾ |   |   |   | 459 |   |
| Operating      leases        |   |                  | 18,570 |   |   |   | 34,204 |   |   |   | 32,916 |   |   |   | 48,043 |   |   |   | 133,733 |   |
| Purchase      obligations(2) |   |                  | 7,866  |   |   |   | ¾ |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 7,866 |   |
| FIN      48(3)               |   |                  | 6,738  |   |   |   | 16,111 |   |   |   | 39 |   |   |   | ¾ |   |   |   | 22,888 |   |
| Transition      services(4)  |   |                  | 2,575  |   |   |   | 3,160 |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 5,735 |   |
| Total                        |   | $                     | 56,259 |   |   | $ | 53,682 |   |   | $ | 33,041 |   |   | $ | 48,043 |   |   | $ | 191,025 |   |

| 1)   | On      January 24, 2008, Sierra notified Wells Fargo Bank, N.A., as trustee under      the Indenture dated as of March 3, 2003 governing our 2.25% Senior      Convertible Debentures Due 2023, that all outstanding debentures will be      redeemed by Sierra on March 20, 2008 in accordance with the terms of the      Indenture.  Outstanding debentures may be converted into      $4,756.70 in cash for each $1,000 principal amount of debentures so      converted until March 19, 2008. Due to the impending redemption, the      debentures have been classified as a current liability in the Consolidated      Balance Sheet at December 31, 2007. See Note 8 – "Long-Term Debt" in the      Notes to Consolidated Financial Statements for additional information      related to our senior convertibledebentures. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | Purchase      obligations include a $7.6 million investment commitment to purchase a      limited partnership interest in a private equity group and purchase      obligations totaling $230,000 that have a remaining commitment in excess      of $100,000 at December 31, 2007. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3)   | The      FIN 48 obligations shown in the table above represents uncertain tax      positions recorded in accordance with FASB Interpretation No. 48,      “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB      Statement No. 109”.  The years for which the uncertain tax      positions will reverse have been estimated in scheduling the obligations      within the table. Included in the unrecognized tax positions above are      potential penalties of $2.6 million and interest of $3.2      million. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4)   | This      liability is for transition services related to our sale of CII that we      are required to provide through December 31,  2009. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------|

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| Completion      Factor (a)              |   |     | PMPM      Factor (b) |   |
|-----------------------------------------|--------|----------|----------------------|--------|
|                                    |   |     | Increase             |   |   |   |   |   | Increase |   |
| Increase                                |   |     | (Decrease)      In   |   |   | Increase |   |   | (Decrease)      In |   |
| (Decrease)                              |   |     | Medical      Claims  |   |   | (Decrease) |   |   | Medical      Claims |   |
| In      Factor                          |   |     | Payable              |   |   | In      Factor |   |   | Payable |   |
| (In      thousands, except percentages) |   |
|                                    |   |     |                 |   |   |   |   |   |   |   |
|                                    | (3     | )      % |                 | $      | 33,837 |   |   |   | (3 | )      % |   | $ | (5,291 | ) |
|                                    | (2     | )      % |                 |   | 22,324 |   |   |   | (2 | )      % |   |   | (3,528 | ) |
|                                    | (1     | )      % |                 |   | 11,048 |   |   |   | (1 | )      % |   |   | (1,764 | ) |
|                                    | 1      | %        |                 |   | (6,916 | ) |   |   | 1 | % |   |   | 1,764 |   |
|                                    | 2      | %        |                 |   | (9,779 | ) |   |   | 2 | % |   |   | 3,528 |   |
|                                    | 3      | %        |                 |   | (11,731 | ) |   |   | 3 | % |   |   | 5,291 |   |

| (a)   | Reflects      estimated potential changes in medical claims payable caused by changes in      the completion factors for claims incurred in months prior to the most      recent three months.  Completion factors are not increased      beyond 100%. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Reflects      estimated potential changes in medical claims payable caused by changes in      PMPM factors for claims incurred in the most recent three      months. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                         |   | Years      Ended December 31, |      |
|--------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                         |   | 2007                          |      |   | 2006 |   |   | 2005 |   |
|                                                         |   | (In      thousands)           |      |
| Medical      claims payable, beginning of period             |   | $                             | 222,895   |   |   | $ | 135,867 |   |   | $ | 119,337 |   |
| Add:  components      of incurred medical expenses |   |                          |      |   |   |   |   |   |   |   |   |   |
| Current      period medical claims                           |   |                          | 1,556,103 |   |   |   | 1,311,854 |   |   |   | 1,034,089 |   |
| Changes      in prior periods’ estimates               |   |                          | (31,370   | ) |   |   | (15,876 | ) |   |   | (13,335 | ) |
| Total      incurred medical expenses                         |   |                          | 1,524,733 |   |   |   | 1,295,978 |   |   |   | 1,020,754 |   |
|                                                         |   |                          |      |   |   |   |   |   |   |   |   |   |
| Less:  medical      claims paid                    |   |                          |      |   |   |   |   |   |   |   |   |   |
| Current      period                                          |   |                          | 1,366,210 |   |   |   | 1,104,093 |   |   |   | 912,806 |   |
| Prior      period                                            |   |                          | 181,078   |   |   |   | 104,857 |   |   |   | 91,418 |   |
| Total      claims paid                                       |   |                          | 1,547,288 |   |   |   | 1,208,950 |   |   |   | 1,004,224 |   |
|                                                         |   |                          |      |   |   |   |   |   |   |   |   |   |
| Medical      claims payable, end of period                   |   | $                             | 200,340   |   |   | $ | 222,895 |   |   | $ | 135,867 |   |

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ITEM 7A.    

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ITEM 8.  

|                                                                                                                 | Page   |
|----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                 |   |
| Report of Independent Registered Public Accounting      Firm                                                         | 48     |
| Consolidated Balance Sheets at December 31, 2007 and      2006                                                       | 49     |
| Consolidated Statements of Income for the Years      Ended  December 31, 2007, 2006 and 2005               | 50     |
| Consolidated Statements of Stockholders' Equity  for      the Years Ended December 31, 2007, 2006 and 2005 | 51     |
| Consolidated Statements of Cash Flows for the Years      Ended  December 31, 2007, 2006 and 2005           | 52     |
| Notes to Consolidated Financial    Statements                                                                        | 53     |

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REPORT

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CONSOLIDATED BALANCE SHEETS

|                                                                        |                                                                                                     |   | 2007   |    |     | 2006   |   |
|-----------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|--------|--------|---------|----------|--------|--------|
| Assets                                                                      |                                                                                                     |   |   |    |     |   |   |
| Current      assets:                                                        |                                                                                                     |   |   |    |     |   |   |
|                                                                        | Cash      and cash equivalents                                                                           |   |   | $       | 95,571   |   |   | $ | 58,918 |   |
|                                                                        | Investments                                                                                              |   |   |    | 223,292  |   |   |   | 323,846 |   |
|                                                                        | Accounts      receivable (less allowance for doubtful accounts: 2007 - $9,852; 2006 -      $5,518)       |   |   |    | 36,691   |   |   |   | 21,308 |   |
|                                                                        | Current      portion of deferred tax asset                                                               |   |   |    | 29,530   |   |   |   | 29,861 |   |
|                                                                        | Prepaid      expenses and other current assets                                                           |   |   |    | 135,784  |   |   |   | 110,020 |   |
| Total      current assets                                                   |                                                                                                     |   |   | 520,868 |     |   |   | 543,953 |   |
|                                                                        |                                                                                                     |   |   |    |     |   |   |   |   |   |   |
| Property      and equipment, net                                            |                                                                                                     |   |   | 62,442  |     |   |   | 71,893 |   |
| Restricted      cash and investments                                        |                                                                                                     |   |   | 17,467  |     |   |   | 19,428 |   |
| Goodwill      (less accumulated amortization: 2007 and 2006 - $6,972)       |                                                                                                     |   |   | 14,782  |     |   |   | 14,782 |   |
| Deferred      tax asset (less current portion)                              |                                                                                                     |   |   | 28,763  |     |   |   | 18,656 |   |
| Note      receivable (less valuation allowance: 2007 and 2006 -    $15,000) |                                                                                                     |   |   | 47,000  |     |   |   | 47,000 |   |
| Other      assets                                                           |                                                                                                     |   |   | 83,329  |     |   |   | 93,700 |   |
| Total      assets                                                           |                                                                                                     |   | $      | 774,651 |     |   | $      | 809,412 |   |
|                                                                        |                                                                                                     |   |   |    |     |   |   |   |   |   |   |
| Liabilities      and stockholders’ equity                             |                                                                                                     |   |   |    |     |   |   |   |   |
| Current      liabilities:                                                   |                                                                                                     |   |   |    |     |   |   |   |   |
|                                                                        | Accrued      and other current liabilities                                                               |   |   | $       | 54,324   |   |   | $ | 100,390 |   |
|                                                                        | Trade      accounts payable                                                                              |   |   |    | 1,772    |   |   |   | 1,552 |   |
|                                                                        | Accrued      payroll and taxes                                                                           |   |   |    | 22,677   |   |   |   | 25,925 |   |
|                                                                        | Medical      claims payable                                                                              |   |   |    | 200,340  |   |   |   | 222,895 |   |
|                                                                        | Unearned      premium revenue                                                                            |   |   |    | 53,137   |   |   |   | 52,075 |   |
|                                                                        | Current      portion of long-term debt                                                                   |   |   |    | 20,379   |   |   |   | 116 |   |
| Total      current liabilities                                              |                                                                                                     |   |   | 352,629 |     |   |   | 402,953 |   |
|                                                                        |                                                                                                     |   |   |    |     |   |   |   |   |   |   |
| Long-term      debt (less current portion)                                  |                                                                                                     |   |   | 262     |     |   |   | 118,734 |   |
| Other      liabilities                                                      |                                                                                                     |   |   | 98,190  |     |   |   | 71,007 |   |
| Total      liabilities                                                      |                                                                                                     |   |   | 451,081 |     |   |   | 592,694 |   |
|                                                                        |                                                                                                     |   |   |    |     |   |   |   |   |   |   |
| Commitments      and contingencies (Footnote 12)                            |                                                                                                     |   |   |    |     |   |   |   |   |
|                                                                        |                                                                                                     |   |   |    |     |   |   |   |   |   |   |
| Stockholders’      equity:                                            |                                                                                                     |   |   |    |     |   |   |   |   |
|                                                                        | Preferred      stock, $.01 par value, 1,000 shares authorized;                                           |   |   |    |     |   |   |   |   |   |
|                                                                        | none      issued or outstanding                                                                          |   |   |    | ¾   |   |   |   | ¾ |   |
|                                                                        | Common      stock, $.005 par value, 120,000 shares authorized; 2007 –      73,599;                 |   |   |    |     |   |   |   |   |   |
|                                                                        | 2006      – 70,835 shares issued; 2007 – 56,208; 2006 – 53,824 shares      outstanding |   |   |    | 368      |   |   |   | 354 |   |
|                                                                        | Treasury      stock: 2007 – 17,391; 2006 – 17,011 common stock shares                        |   |   |    | (614,605 | )      |   |   | (600,539 | ) |
|                                                                        | Additional      paid-in capital                                                                          |   |   |    | 470,872  |   |   |   | 436,643 |   |
|                                                                        | Accumulated      other comprehensive loss                                                                |   |   |    | (7,633   | )      |   |   | (8,635 | ) |
|                                                                        | Retained      earnings                                                                                   |   |   |    | 474,568  |   |   |   | 388,895 |   |
| Total      stockholders’ equity                                       |                                                                                                     |   |   | 323,570 |     |   |   | 216,718 |   |
| Total      liabilities and stockholders’ equity                       |                                                                                                     |   | $      | 774,651 |     |   | $      | 809,412 |   |

----

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME

|                                               |   |   |      |   |   |   |
|----------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                               |   | 2007   |      |   | 2006   |   |   | 2005 |   |
| Operating      revenues:                           |   |   |      |   |   |   |   |   |   |
| Medical      premiums                              |   | $      | 1,811,086 |   |   | $      | 1,623,515 |   |   | $ | 1,291,296 |   |
| Military      contract revenues                    |   |   | ¾    |   |   |   | ¾ |   |   |   | 16,326 |   |
| Professional      fees                             |   |   | 57,199    |   |   |   | 52,266 |   |   |   | 43,186 |   |
| Investment      and other revenues                 |   |   | 41,412    |   |   |   | 43,111 |   |   |   | 34,228 |   |
| Total                                              |   |   | 1,909,697 |   |   |   | 1,718,892 |   |   |   | 1,385,036 |   |
|                                               |   |   |      |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                           |   |   |      |   |   |   |   |   |   |   |   |   |
| Medical      expenses                              |   |   | 1,524,733 |   |   |   | 1,295,978 |   |   |   | 1,020,754 |   |
| Military      contract expenses                    |   |   | ¾    |   |   |   | ¾ |   |   |   | 2,392 |   |
| General      and administrative expenses           |   |   | 236,244   |   |   |   | 205,480 |   |   |   | 172,473 |   |
| Total                                              |   |   | 1,760,977 |   |   |   | 1,501,458 |   |   |   | 1,195,619 |   |
|                                               |   |   |      |   |   |   |   |   |   |   |   |   |
| Operating      income                              |   |   | 148,720   |   |   |   | 217,434 |   |   |   | 189,417 |   |
| Interest      expense                              |   |   | (3,970    | )      |   |   | (3,901 | ) |   |   | (8,791 | ) |
| Other      income (expense), net                   |   |   | 1,984     |   |   |   | 1,960 |   |   |   | 1,099 |   |
|                                               |   |   |      |   |   |   |   |   |   |   |   |   |
| Income      before income taxes                    |   |   | 146,734   |   |   |   | 215,493 |   |   |   | 181,725 |   |
| Provision      for income taxes                    |   |   | (52,682   | )      |   |   | (75,022 | ) |   |   | (61,708 | ) |
| Net      income                                    |   | $      | 94,052    |   |   | $      | 140,471 |   |   | $ | 120,017 |   |
|                                               |   |   |      |   |   |   |   |   |   |   |   |   |
| Net      income per common share                   |   | $      | 1.68      |   |   | $      | 2.49 |   |   | $ | 2.16 |   |
|                                               |   |   |      |   |   |   |   |   |   |   |   |   |
| Net      income per common share assuming dilution |   | $      | 1.60      |   |   | $      | 2.25 |   |   | $ | 1.81 |   |

----

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                                                                    |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    | Accumulated      |   |   |     |   |   | Total  |   |
|---------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------------|----------|--------|----------|--------|---------|------------------|--------|--------|----------|--------|--------|--------|--------|
|                                                                                                    |   |              |   |   |             |   |   |    |   |   |    |   |   | Additional    |     |   | Deferred |   |    | Other            |   |   |     |   |   | Stock- |   |
|                                                                                                    |   | Common      Stock |   |   | In      Treasury |   |   | Paid-in |   |   | Compen- |   |   | Comprehensive |     |   | Retained |   |    | holders’   |   |
|                                                                                                    |   | Shares            |   |   | Amount           |   |   | Shares  |   |   | Amount  |   |   | Capital       |     |   | sation   |   |    | Gain      (Loss) |   |   | Earnings |   |   | Equity |   |
|                                                                                                    |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |
| Balance,      January 1, 2005                                                                           |   |              | 61,954 |   |             | $      | 310    |    |   |   | 9,192   |   |   | $             | (237,876 | )      |     | $      | 286,439 |             |   | $      | (288     | )      |   | $      | (245   | ) |   | $ | 153,357 |   |   | $ | 201,697 |   |
| Common      stock issued in connectionwith stock      plans                                             |   |              | 2,106  |   |             |   | 11     |    |   |   | (511    | )      |   |          | 15,068   |   |     |   | 18,089  |             |   |   | (7       | )      |   |   | ¾ |   |   |   | (10,815 | ) |   |   | 22,346 |   |
| Stock-based      compensation expense                                                                   |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | 7,096   |             |   |   | 295      |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 7,391 |   |
| Common      stock issued in connectionwith conversion of      debentures                                |   |              | 6,890  |   |             |   | 34     |    |   |   | ¾  |   |   |          | ¾   |   |     |   | 62,966  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 63,000 |   |
| Tax      benefits from      share-based payment      arrangement                                        |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | 25,697  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 25,697 |   |
| Repurchase      of common stock shares                                                                  |   |              | ¾ |   |             |   | ¾ |    |   |   | 2,325   |   |   |          | (154,382 | )      |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | (154,382 | ) |
| Treasury      shares not included in stockdividend                                                      |   |              | (1,814 | )      |             |   | (9     | )       |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | (9 | ) |
| Comprehensive      income:                                                                              |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                         |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | 120,017 |   |   |   | 120,017 |   |
| Other      comprehensive income:                                                                        |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding loss onavailable-for-sale investments ($2,315      pretax)             |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (1,505 | ) |   |   | ¾ |   |   |   | (1,505 | ) |
| Total      comprehensive income                                                                         |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (1,505 | ) |   |   | 120,017 |   |   |   | 118,512 |   |
| Balance,      December 31, 2005                                                                         |   |              | 69,136 |   |             |   | 346    |    |   |   | 11,006  |   |   |          | (377,190 | )      |     |   | 400,287 |             |   |   | ¾   |   |   |   | (1,750 | ) |   |   | 262,559 |   |   |   | 284,252 |   |
| Common      stock issued in connection with stock plans                                                 |   |              | 770    |   |             |   | 3      |    |   |   | (571    | )      |   |          | 19,755   |   |     |   | 8,847   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | (14,141 | ) |   |   | 14,464 |   |
|  Stock-based       compensation expense                                                       |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | 32       |   |     |   | 9,161   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | 6 |   |   |   | 9,199 |   |
| Common      stock issued in connection with conversion of      debentures                               |   |              | 929    |   |             |   | 5      |    |   |   | ¾  |   |   |          | ¾   |   |     |   | 8,495   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 8,500 |   |
| Excess      tax benefits from share-basedpayment      arrangements                                      |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | 9,853   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 9,853 |   |
| Repurchase      of common stock shares                                                                  |   |              | ¾ |   |             |   | ¾ |    |   |   | 6,576   |   |   |          | (243,136 | )      |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | (243,136 | ) |
| Adjustment      to initially apply SFAS 158, net of tax                                                 |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (6,024 | ) |   |   | ¾ |   |   |   | (6,024 | ) |
| Comprehensive      income:                                                                              |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                         |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | 140,471 |   |   |   | 140,471 |   |
| Other      comprehensive income:                                                                        |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding loss on available-for-sale      investments  ($224 pretax)   |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (146   | ) |   |   | ¾ |   |   |   | (146 | ) |
| Unfunded      portion of defined benefit pension plan (($1,100)      pretax)                       |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (715   | ) |   |   | ¾ |   |   |   | (715 | ) |
| Total      comprehensive income                                                                         |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (861   | ) |   |   | 140,471 |   |   |   | 139,610 |   |
| Balance,      December 31, 2006                                                                         |   |              | 70,835 |   |             |   | 354    |    |   |   | 17,011  |   |   |          | (600,539 | )      |     |   | 436,643 |             |   |   | ¾   |   |   |   | (8,635 | ) |   |   | 388,895 |   |   |   | 216,718 |   |
| Common      stock issued in connectionwith stock      plans                                             |   |              | 221    |   |             |   | 1      |    |   |   | (170    | )      |   |          | 5,815    |   |     |   | 2,938   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | (4,310 | ) |   |   | 4,444 |   |
| Stock-based      compensation expense                                                                   |   |              | ¾ |   |             |   | ¾ |    |   |   | (35     | )      |   |          | 1,200    |   |     |   | 3,349   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | 198 |   |   |   | 4,747 |   |
| Common      stock issued in connectionwith conversion of      debentures                                |   |              | 2,543  |   |             |   | 13     |    |   |   | — |   |   |          | —  |   |     |   | 23,243  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 23,256 |   |
| Excess      tax benefits from share-basedpayment      arrangements                                      |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | 4,699   |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | 4,699 |   |
| Repurchase      of common stock shares                                                                  |   |              | ¾ |   |             |   | ¾ |    |   |   | 585     |   |   |          | (21,081  | )      |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | ¾ |   |   |   | (21,081 | ) |
| Cumulative      effect from adoption of FIN      48                                                |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | (4,267 | ) |   |   | (4,267 | ) |
| Comprehensive      income:                                                                              |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                         |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | ¾ |   |   |   | 94,052 |   |   |   | 94,052 |   |
| Other      comprehensive income:                                                                        |   |              |   |   |             |   |   |    |   |   |    |   |   |          |     |   |     |   |    |             |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      unrealized holding gain on  available-for-sale      investments ($3,398 pretax) |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | 2,209  |   |   |   | ¾ |   |   |   | 2,209 |   |
| Unfunded      portion of defined benefitpension plan      (($1,857) pretax)                             |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | (1,207 | ) |   |   | ¾ |   |   |   | (1,207 | ) |
| Total      comprehensive income                                                                         |   |              | ¾ |   |             |   | ¾ |    |   |   | ¾  |   |   |          | ¾   |   |     |   | ¾  |             |   |   | ¾   |   |   |   | 1,002  |   |   |   | 94,052 |   |   |   | 95,054 |   |
| Balance,      December 31, 2007                                                                         |   |              | 73,599 |   |             | $      | 368    |    |   |   | 17,391  |   |   | $             | (614,605 | )      |     | $      | 470,872 |             |   | $      | ¾   |   |   | $      | (7,633 | ) |   | $ | 474,568 |   |   | $ | 323,570 |   |

----

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                    |   | 2007   |     |   | 2006   |   |     | 2005   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| Cash      flows from operating activities:                                                                              |   |   |     |   |   |   |     |   |   |
| Net      income                                                                                                         |   | $      | 94,052   |   |   | $      | 140,471  |   |   | $ | 120,017 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities:                             |   |   |     |   |   |   |     |   |   |   |   |   |
|      Depreciation                                                                              |   |   | 15,294   |   |   |   | 16,570   |   |   |   | 14,951 |   |
|      Stock      based compensation expense                                                     |   |   | 4,747    |   |   |   | 9,199    |   |   |   | 7,391 |   |
|      Excess      tax benefits from share-based payment arrangements                            |   |   | (4,699   | )      |   |   | (9,853   | )      |   |   | ¾ |   |
|      Impairment      on investments in trust deed mortgage notes and joint    ventures         |   |   | 23,952   |   |   |   |     |   |   |   |   |   |
|      Provision      for doubtful accounts                                                      |   |   | 7,204    |   |   |   | 2,715    |   |   |   | 2,017 |   |
|      Other      adjustments                                                                    |   |   | (1,077   | )      |   |   | 256      |   |   |   | (2,110 | ) |
|      Change      in operating assets and liabilities:                                          |   |   |     |   |   |   |     |   |   |   |   |   |
| Military accounts      receivable                                                                                       |   |   | 303      |   |   |   | 75       |   |   |   | 25,171 |   |
| Deferred tax    asset                                                                                                   |   |   | (10,954  | )      |   |   | 2,257    |   |   |   | 20,124 |   |
| Other current      assets                                                                                               |   |   | (43,553  | )      |   |   | (90,127  | )      |   |   | 4,679 |   |
| Other assets                                                                                                            |   |   | (2,939   | )      |   |   | (7,217   | )      |   |   | 1,671 |   |
| Accrued payroll and      taxes                                                                                          |   |   | (3,248   | )      |   |   | 4,456    |   |   |   | (6,199 | ) |
| Medical claims      payable                                                                                             |   |   | (22,555  | )      |   |   | 87,028   |   |   |   | 16,530 |   |
| Military healthcare      payable                                                                                        |   |   | ¾   |   |   |   | ¾   |   |   |   | (17,061 | ) |
| Other current      liabilities                                                                                          |   |   | (33,484  | )      |   |   | 31,462   |   |   |   | (19,466 | ) |
| Unearned premium      revenue                                                                                           |   |   | 1,062    |   |   |   | 3,008    |   |   |   | (1,696 | ) |
| Other    liabilities                                                                                                    |   |   | 21,708   |   |   |   | 71       |   |   |   | 813 |   |
| Net      cash provided by operating activities                                                                          |   |   | 45,813   |   |   |   | 190,371  |   |   |   | 166,832 |   |
|                                                                                                                    |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash      flows from investing activities:                                                                              |   |   |     |   |   |   |     |   |   |   |   |   |
| Capital      expenditures                                                                                               |   |   | (9,688   | )      |   |   | (16,749  | )      |   |   | (13,946 | ) |
| Property      and equipment dispositions                                                                                |   |   | 4,779    |   |   |   | 430      |   |   |   | 919 |   |
| Purchase      of available-for-sale investments, including restricted      investments                                  |   |   | (900,476 | )      |   |   | (814,737 | )      |   |   | (870,143 | ) |
| Proceeds      from sales/maturities of available-for-sale investments,      including  restricted investments |   |   | 977,225  |   |   |   | 799,691  |   |   |   | 755,843 |   |
| Purchase      of other investments                                                                                      |   |   | (20,347  | )      |   |   | (63,449  | )      |   |   | (39,420 | ) |
| Proceeds      from sales/maturities of other investments                                                                |   |   | 27,577   |   |   |   | 19,232   |   |   |   | 22,500 |   |
| Net      cash provided by (used for) investing activities                                                               |   |   | 79,070   |   |   |   | (75,582  | )      |   |   | (144,247 | ) |
|                                                                                                                    |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash      flows from financing activities:                                                                              |   |   |     |   |   |   |     |   |   |   |   |   |
| Payments      on debt and capital leases                                                                                |   |   | (78,531  | )      |   |   | (111     | )      |   |   | (10,109 | ) |
| Proceeds      from other long-term debt                                                                                 |   |   | ¾   |   |   |   | 75,000   |   |   |   | ¾ |   |
| Purchase      of treasury stock                                                                                         |   |   | (21,081  | )      |   |   | (243,136 | )      |   |   | (154,382 | ) |
| Excess      tax benefits from share-based payment arrangements                                                          |   |   | 4,699    |   |   |   | 9,853    |   |   |   | ¾ |   |
| Exercise      of stock options in connection with stock plans                                                           |   |   | 6,683    |   |   |   | 14,464   |   |   |   | 22,346 |   |
| Net      cash used for financing activities                                                                             |   |   | (88,230  | )      |   |   | (143,930 | )      |   |   | (142,145 | ) |
|                                                                                                                    |   |   |     |   |   |   |     |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                                               |   |   | 36,653   |   |   |   | (29,141  | )      |   |   | (119,560 | ) |
| Cash      and cash equivalents at beginning of year                                                                     |   |   | 58,918   |   |   |   | 88,059   |   |   |   | 207,619 |   |
| Cash      and cash equivalents at end of year                                                                           |   | $      | 95,571   |   |   | $      | 58,918   |   |   | $ | 88,059 |   |

| Cash      paid during the year for interest (net of amount    capitalized)  |   | $      | (3,840  | )      |   | $      | (2,564  | )      |   | $      | (8,600  | )      |
|-----------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|
| Cash      paid during the year for income taxes                             |   |   | (65,602 | )      |   |   | (55,748 | )      |   |   | (44,732 | )      |
|                                                                        |   |   |    |   |   |   |    |   |   |   |    |   |
| Non-cash      investing and financing activities:                           |   |   |    |   |   |   |    |   |   |   |    |   |
| Senior      convertible debentures converted into Sierra common stock       |   |   | 23,256  |   |   |   | 8,500   |   |   |   | 63,000  |   |
| Asset      received in consideration for payment of a loan                  |   |   | 6,815   |   |   |   | — |   |   |   | — |   |
| Tax      benefits from share-based payment arrangements                     |   |   | ¾  |   |   |   | ¾  |   |   |   | 25,697  |   |
| Additions      to capital leases                                            |   |   | 200     |   |   |   | 47      |   |   |   | 19      |   |
| Cashless      exercise of restricted stock units                            |   |   | 2,237   |   |   |   | — |   |   |   | — |   |
| Investments      (received but not yet purchased) purchased but not settled |   |   | (9,900  | )      |   |   | 9,900   |   |   |   | 3,330   |   |

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1.       BUSINESS

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| Buildings      and Improvements            | 10 | - | 30 | years |
|--------------------------------------------|----|---|----|-------|
| Leasehold      Improvements                | 3  | - | 10 | years |
| Data      Processing Hardware and Software | 3  | - | 10 | years |
| Furniture,      Fixtures and Equipment     | 3  | - | 5  | years |

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|                           |   |                |   |   |   |   |
|--------------------------------|--------|---------------------|--------|--------|--------|--------|
|                           |   | 2007                |   |   | 2006   |   |
| Other      investments:        |   | (In      thousands) |   |
| Classified      as current     |   |                |   |   |   |   |
| Trust      deed mortgage notes |   | $                   | 33,645 |   |   | $      | 62,295 |   |
| Classified      as long-term   |   |                |   |   |   |   |   |   |
| Trust      deed mortgage notes |   |                | ¾ |   |   |   | 6,270 |   |
| Joint      ventures            |   |                | 12,941 |   |   |   | 19,897 |   |
| Total      long-term           |   |                | 12,941 |   |   |   | 26,167 |   |
| Total      other investments   |   | $                   | 46,586 |   |   | $      | 88,462 |   |

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|                                                           |   |                |    |   | Gross      |   |   | Gross      |   |   |   |   |
|----------------------------------------------------------------|--------|---------------------|---------|--------|------------|--------|--------|------------|--------|--------|--------|--------|
|                                                           |   | Amortized           |    |   | Unrealized |   |   | Unrealized |   |   | Fair   |   |
|                                                           |   | Cost                |    |   | Gains      |   |   | Losses     |   |   | Value  |   |
|                                                           |   | (In      thousands) |    |
| Available-for-sale      investments:                           |   |                |    |   |       |   |   |       |   |   |   |   |
| Classified      as current:                                    |   |                |    |   |       |   |   |       |   |   |   |   |
| U.S. government and its      agencies                          |   | $                   | 31,007  |   |       | $      | 770    |       |   | $      | 72     |   |   | $ | 31,705 |   |
| Municipal      obligations                                     |   |                | 129,349 |   |       |   | 264    |       |   |   | 166    |   |   |   | 129,447 |   |
| Mortgage backed      securities                                |   |                | 8,134   |   |       |   | 49     |       |   |   | 93     |   |   |   | 8,090 |   |
| Corporate bonds                                                |   |                | 20,206  |   |       |   | 97     |       |   |   | 459    |   |   |   | 19,844 |   |
| Other                                                          |   |                | 242     |   |       |   | ¾ |       |   |   | 90     |   |   |   | 152 |   |
| Total      debt securities                                     |   |                | 188,938 |   |       |   | 1,180  |       |   |   | 880    |   |   |   | 189,238 |   |
|        Preferred      stock |   |                | 400     |   |       |   | 9      |       |   |   | ¾ |   |   |   | 409 |   |
| Total      current                                             |   |                | 189,338 |   |       |   | 1,189  |       |   |   | 880    |   |   |   | 189,647 |   |
|                                                           |   |                |    |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Classified      as restricted:                                 |   |                |    |   |       |   |   |       |   |   |   |   |   |   |   |   |
| U.S. government and its      agencies                          |   |                | 12,103  |   |       |   | 189    |       |   |   | 30     |   |   |   | 12,262 |   |
| Municipal      obligations                                     |   |                | 1,189   |   |       |   | 2      |       |   |   | 1      |   |   |   | 1,190 |   |
| Other debt      securities                                     |   |                | 4,015   |   |       |   | ¾ |       |   |   | ¾ |   |   |   | 4,015 |   |
| Total      restricted                                          |   |                | 17,307  |   |       |   | 191    |       |   |   | 31     |   |   |   | 17,467 |   |
| Total      available-for-sale                                  |   | $                   | 206,645 |   |       | $      | 1,380  |       |   | $      | 911    |   |   | $ | 207,114 |   |

|                                  |   |                |    |   | Gross      |   |   | Gross      |   |   |   |   |
|---------------------------------------|--------|---------------------|---------|--------|------------|--------|--------|------------|--------|--------|--------|--------|
|                                  |   | Amortized           |    |   | Unrealized |   |   | Unrealized |   |   | Fair   |   |
|                                  |   | Cost                |    |   | Gains      |   |   | Losses     |   |   | Value  |   |
|                                  |   | (In      thousands) |    |
| Available-for-sale      investments:  |   |                |    |   |       |   |   |       |   |   |   |   |
| Classified      as current:           |   |                |    |   |       |   |   |       |   |   |   |   |
| U.S. government and its      agencies |   | $                   | 41,134  |   |       | $      | 6      |       |   | $      | 1,051  |   |   | $ | 40,089 |   |
| Municipal      obligations            |   |                | 196,522 |   |       |   | 124    |       |   |   | 341    |   |   |   | 196,305 |   |
| Mortgage backed      securities       |   |                | 6,745   |   |       |   | 51     |       |   |   | 73     |   |   |   | 6,723 |   |
| Corporate bonds                       |   |                | 19,498  |   |       |   | 24     |       |   |   | 1,234  |   |   |   | 18,288 |   |
| Other                                 |   |                | 236     |   |       |   | ¾ |       |   |   | 90     |   |   |   | 146 |   |
| Total      current                    |   |                | 264,135 |   |       |   | 205    |       |   |   | 2,789  |   |   |   | 261,551 |   |
|                                  |   |                |    |   |       |   |   |       |   |   |   |   |   |   |   |   |
| Classified      as restricted:        |   |                |    |   |       |   |   |       |   |   |   |   |   |   |   |   |
| U.S. government and its      agencies |   |                | 12,529  |   |       |   | 4      |       |   |   | 339    |   |   |   | 12,194 |   |
| Municipal      obligations            |   |                | 3,244   |   |       |   | 20     |       |   |   | 16     |   |   |   | 3,248 |   |
| Other debt      securities            |   |                | 3,986   |   |       |   | ¾ |       |   |   | ¾ |   |   |   | 3,986 |   |
| Total      restricted                 |   |                | 19,759  |   |       |   | 24     |       |   |   | 355    |   |   |   | 19,428 |   |
| Total      available-for-sale         |   | $                   | 283,894 |   |       | $      | 229    |       |   | $      | 3,144  |   |   | $ | 280,979 |   |

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|                                       |   | Less      Than 12 Months |   |   | 12      Months Or More |   |   | Total  |   |
|--------------------------------------------|--------|--------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                                       |   | Fair                     |   |   | Unrealized             |   |   | Fair   |   |   | Unrealized |   |   | Fair |   |   | Unrealized |   |
|                                       |   | Value                    |   |   | Losses                 |   |   | Value  |   |   | Losses |   |   | Value |   |   | Losses |   |
|                                       |   | (In      thousands)      |   |
| Description      of securities:            |   |                     |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.      government and its agencies      |   | $                        | ¾ |   |                   | $      | ¾ |   |   | $ | 20,403 |   |   | $ | 102 |   |   | $ | 20,403 |   |   | $ | 102 |   |
| Municipal      obligations                 |   |                     | 18,797 |   |                   |   | 120    |   |   |   | 8,520 |   |   |   | 48 |   |   |   | 27,317 |   |   |   | 168 |   |
| Mortgage      backed securities            |   |                     | 2,735  |   |                   |   | 47     |   |   |   | 2,798 |   |   |   | 45 |   |   |   | 5,533 |   |   |   | 92 |   |
| Corporate      bonds                       |   |                     | 2,100  |   |                   |   | 86     |   |   |   | 10,316 |   |   |   | 373 |   |   |   | 12,416 |   |   |   | 459 |   |
| Other                                      |   |                     | ¾ |   |                   |   | ¾ |   |   |   | 153 |   |   |   | 90 |   |   |   | 153 |   |   |   | 90 |   |
| Total      temporarily impaired securities |   | $                        | 23,632 |   |                   | $      | 253    |   |   | $ | 42,190 |   |   | $ | 658 |   |   | $ | 65,822 |   |   | $ | 911 |   |

|                                           |   | Amortized           |    |   | Fair   |   |
|------------------------------------------------|--------|---------------------|---------|--------|--------|--------|
|                                           |   | Cost                |    |   | Value  |   |
|                                           |   | (In      thousands) |    |
| Due      in one year or less                   |   | $                   | 81,406  |   |   | $      | 81,223 |   |
| Due      after one year through five years     |   |                | 50,071  |   |   |   | 49,864 |   |
| Due      after five years through ten years    |   |                | 29,665  |   |   |   | 29,942 |   |
| Due      after ten years through fifteen years |   |                | 9,017   |   |   |   | 8,987 |   |
| Due      after fifteen years                   |   |                | 36,086  |   |   |   | 36,689 |   |
| Total                                          |   | $                   | 206,245 |   |   | $      | 206,705 |   |

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|                                                      |   | 2007                |     |   | 2006   |   |
|-----------------------------------------------------------|--------|---------------------|----------|--------|--------|--------|
|                                                      |   | (In      thousands) |     |
| Land                                                      |   | $                   | 12,251   |   |   | $      | 15,220 |   |
| Buildings      and improvements                           |   |                | 33,727   |   |   |   | 31,632 |   |
| Furniture,      fixtures and equipment                    |   |                | 41,513   |   |   |   | 40,589 |   |
| Data      processing equipment and software               |   |                | 107,631  |   |   |   | 102,870 |   |
| Software      in development and construction in progress |   |                | 351      |   |   |   | 358 |   |
| Less:  accumulated      depreciation            |   |                | (133,031 | )      |   |   | (118,776 | ) |
| Property      and equipment, net                          |   | $                   | 62,442   |   |   | $      | 71,893 |   |

|                                           |   | 2007                |   |   | 2006   |   |
|------------------------------------------------|--------|---------------------|--------|--------|--------|--------|
|                                           |   | (In      thousands) |   |
| Buildings      and improvements                |   | $                   | 277    |   |   | $      | 278 |   |
| Furniture,      fixtures and equipment         |   |                | 499    |   |   |   | 475 |   |
| Less:  accumulated      depreciation |   |                | (537   | )      |   |   | (452 | ) |
| Property      and equipment, net               |   | $                   | 239    |   |   | $      | 301 |   |

|                             |   | 2007                |   |   | 2006   |   |   | 2005   |   |
|----------------------------------|--------|---------------------|--------|--------|--------|--------|--------|--------|--------|
|                             |   | (In      thousands) |   |
| Provision      for income taxes: |   |                |   |   |   |   |   |   |   |
| Current                          |   | $                   | 53,899 |   |   | $      | 82,441 |   |   | $ | 69,149 |   |
| Deferred                         |   |                | (4,862 | )      |   |   | (9,207 | )      |   |   | (7,758 | ) |
| Non-current                      |   |                | 3,645  |   |   |   | 1,788  |   |   |   | 317 |   |
| Total                            |   | $                   | 52,682 |   |   | $      | 75,022 |   |   | $ | 61,708 |   |

|                                |   | 2007   |   |   | 2006   |   |   | 2005   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Statutory      rate                 |   |   | 35     | %      |   |   | 35     | %      |   |   | 35 | % |
| Tax      preferred investments      |   |   | (1     | )      |   |   | (1     | )      |   |   | (1 | ) |
| Compensation      and benefit plans |   |   | ¾ |   |   |   | ¾ |   |   |   | 1 |   |
| Intangibles                         |   |   | ¾ |   |   |   | ¾ |   |   |   | (1 | ) |
| Other                               |   |   | 2      |   |   |   | 1      |   |   |   | ¾ |   |
| Effective      rate                 |   |   | 36     | %      |   |   | 35     | %      |   |   | 34 | % |

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|                                                   |   | 2007                |   |   | 2006   |   |
|--------------------------------------------------------|--------|---------------------|--------|--------|--------|--------|
|                                                   |   | (In      thousands) |   |
| Deferred      tax assets:                              |   |                |   |   |   |   |
| Medical      claims payable                            |   | $                   | 5,466  |   |   | $      | 9,196 |   |
| Accruals      not currently deductible                 |   |                | 16,489 |   |   |   | 11,867 |   |
| Compensation      accruals                             |   |                | 25,238 |   |   |   | 27,521 |   |
| Bad      debt allowances                               |   |                | 5,805  |   |   |   | 1,017 |   |
| Loss      carryforwards and credits                    |   |                | 15,192 |   |   |   | 15,192 |   |
| Depreciation      and amortization                     |   |                | 3,487  |   |   |   | 758 |   |
| Other                                                  |   |                | 4,656  |   |   |   | 1,381 |   |
| Total                                                  |   |                | 76,333 |   |   |   | 66,932 |   |
|                                                   |   |                |   |   |   |   |   |   |
| Deferred      tax liabilities:                         |   |                |   |   |   |   |   |   |
| Prepaid      expenses                                  |   |                | 2,530  |   |   |   | 2,756 |   |
| Other                                                  |   |                | 1,216  |   |   |   | 1,177 |   |
| Total                                                  |   |                | 3,746  |   |   |   | 3,933 |   |
| Net      deferred tax asset before valuation allowance |   |                | 72,587 |   |   |   | 62,999 |   |
| Less:  valuation      allowance              |   |                | 14,294 |   |   |   | 14,842 |   |
| Net      deferred tax asset                            |   | $                   | 58,293 |   |   | $      | 48,157 |   |

|                                                                                           |   | (In      thousands) |   |
|------------------------------------------------------------------------------------------------|--------|---------------------|--------|
| Balance,      January 1, 2007                                                                  |   | $                   | 15,818 |   |
| Additions      for current year tax positions                                                  |   |                | 3,773  |   |
| Additions      for prior year tax positions                                                    |   |                | 1,830  |   |
| Reductions      for tax positions of prior years for approved change in accounting      method |   |                | (4,376 | ) |
| Balance,      December 31, 2007                                                                |   | $                   | 17,045 |   |

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|                                                         |   | Years      Ended December 31, |      |
|--------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                         |   | 2007                          |      |   | 2006 |   |   | 2005 |   |
|                                                         |   | (In      thousands)           |      |
| Medical      claims payable, beginning of period             |   | $                             | 222,895   |   |   | $ | 135,867 |   |   | $ | 119,337 |   |
| Add:  components      of incurred medical expenses |   |                          |      |   |   |   |   |   |   |   |   |   |
| Current      period medical claims                           |   |                          | 1,556,103 |   |   |   | 1,311,854 |   |   |   | 1,034,089 |   |
| Changes      in prior periods’ estimates               |   |                          | (31,370   | ) |   |   | (15,876 | ) |   |   | (13,335 | ) |
| Total      incurred medical expenses                         |   |                          | 1,524,733 |   |   |   | 1,295,978 |   |   |   | 1,020,754 |   |
|                                                         |   |                          |      |   |   |   |   |   |   |   |   |   |
| Less:  medical      claims paid                    |   |                          |      |   |   |   |   |   |   |   |   |   |
| Current      period                                          |   |                          | 1,366,210 |   |   |   | 1,104,093 |   |   |   | 912,806 |   |
| Prior      period                                            |   |                          | 181,078   |   |   |   | 104,857 |   |   |   | 91,418 |   |
| Total      claims paid                                       |   |                          | 1,547,288 |   |   |   | 1,208,950 |   |   |   | 1,004,224 |   |
|                                                         |   |                          |      |   |   |   |   |   |   |   |   |   |
| Medical      claims payable, end of period                   |   | $                             | 200,340   |   |   | $ | 222,895 |   |   | $ | 135,867 |   |

|                                              |   | 2007                |    |   | 2006   |   |
|---------------------------------------------------|--------|---------------------|---------|--------|--------|--------|
|                                              |   | (In      thousands) |    |
| 2.25%      Senior Convertible Debentures Due 2023 |   | $                   | 20,244  |   |   | $      | 43,500 |   |
| Revolving      credit facility                    |   |                | ¾  |   |   |   | 75,000 |   |
| Capital      leases                               |   |                | 397     |   |   |   | 350 |   |
| Total                                             |   |                | 20,641  |   |   |   | 118,850 |   |
| Less      current portion                         |   |                | (20,379 | )      |   |   | (116 | ) |
| Long-term      debt                               |   | $                   | 262     |   |   | $      | 118,734 |   |

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|                                                |   |                |   |   | Obligations        |   |
|-----------------------------------------------------|--------|---------------------|--------|--------|--------------------|--------|
|                                                |   | Long-Term           |   |   | Under      Capital |   |
|                                                |   | Debt                |   |   | Leases             |   |
|                                                |   | (In      thousands) |   |
| Years      Ending December 31,                      |   |                |   |   |               |   |
| 2008                                                |   | $                   | 20,244 |   |               | $      | 166 |   |
| 2009                                                |   |                | ¾ |   |               |   | 130 |   |
| 2010                                                |   |                | ¾ |   |               |   | 77 |   |
| 2011                                                |   |                | ¾ |   |               |   | 52 |   |
| 2012                                                |   |                | ¾ |   |               |   | 35 |   |
| Thereafter                                          |   |                | ¾ |   |               |   | ¾ |   |
| Total                                               |   | $                   | 20,244 |   |               |   |   |   |
| Less:  amounts      representing interest |   |                |   |   |               |   | (63 | ) |
| Present      value of minimum lease payments        |   |                |   |   |               | $      | 397 |   |

|                                                           |   | Years      Ended December 31, |   |
|----------------------------------------------------------------|--------|-------------------------------|--------|
|                                                           |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                                           |   | (In      thousands)           |   |
| Medical      expenses                                          |   | $                             | 955    |   |   | $ | 1,074 |   |   | $ | ¾ |   |
| General      and administrative expenses                       |   |                          | 3,792  |   |   |   | 8,125 |   |   |   | 7,391 |   |
| Stock-based      compensation expense before income taxes      |   |                          | 4,747  |   |   |   | 9,199 |   |   |   | 7,391 |   |
| Income      tax benefit                                        |   |                          | (1,661 | ) |   |   | (3,220 | ) |   |   | (2,587 | ) |
| Total      stock-based compensation expense after income taxes |   | $                             | 3,086  |   |   | $ | 5,979 |   |   | $ | 4,804 |   |

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|                                                                                 |   | 2005                                       |    |
|--------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                                                 |   | (In      thousands, except per share data) |    |
| Net      income, as reported                                                         |   | $                                          | 120,017 |   |
| Add:  stock-based      employee compensation expense                       |   |                                       |    |   |
|        for      restricted stock and stock awards |   |                                       |    |   |
| included      in reported net income, net of tax                                     |   |                                       | 4,804   |   |
|                                                                                 |   |                                       |    |   |
| Less:  total      stock-based employee compensation expense                |   |                                       |    |   |
| determined      under fair value based methods for all                               |   |                                       |    |   |
| awards,      net of tax                                                              |   |                                       | (12,724 | ) |
| Pro      forma net income                                                            |   | $                                          | 112,097 |   |
|                                                                                 |   |                                       |    |   |
| Net      income per share, as reported                                               |   | $                                          | 2.16    |   |
| Pro      forma net income, per share                                                 |   |                                       | 2.02    |   |
|                                                                                 |   |                                       |    |   |
| Net      income per share assuming dilution, as reported                             |   | $                                          | 1.81    |   |
| Pro      forma net income, per share                                                 |   |                                       | 1.69    |   |

|                                           | 2007      (1)                                                      |   | 2006      (1)                                                      |   |   | 2005   |   |
|------------------------------------------------|--------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|--------|--------|--------|
| Average      expected term (years)             |           ¾ |   |           ¾ |   |   | 3.37   |   |
| Risk-free      interest rates                  |           ¾ |   |           ¾ |   |   | 3.94   | %      |
| Expected      volatility                       |           ¾ |   |           ¾ |   |   | 45.09  | %      |
| Dividend      yield                            |           ¾ |   |           ¾ |   |   | ¾ |   |
| Weighted-average      fair value at grant date |           ¾ |   |           ¾ |   | $      | 23.29  |   |

|   | (1) | No      stock options were granted during theperiod. |
|--------|-----|------------------------------------------------------|

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|                                           |   | 2007                                                               |   | 2006                                                               |   | 2005   |   |
|------------------------------------------------|--------|--------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|--------|--------|
| Average      expected term (years)             |   |          .50          |   |          .50          |   | .50    |   |
| Risk-free      interest rates                  |   |           4.32   | %      |          4.32         | %      | 2.95   | %      |
| Expected      volatility                       |   |          34.70        | %      |        34.70                    | %      | 21.25  | %      |
| Dividend      yield                            |   |           ¾ |   |           ¾ |   | ¾ |   |
| Weighted-average      fair value at grant date | $      |       9.95                           | $      |       9.95                           | $      | 10.83  |   |

|                                  |   | NumberOf            |   |   | WeightedAverage        |   |   | WeightedAverage      Contractual |   |   | AggregateIntrinsic  |   |
|---------------------------------------|--------|---------------------|--------|--------|------------------------|--------|--------|----------------------------------|--------|--------|---------------------|--------|
|                                  |   | Shares              |   |   | Exercisable      Price |   |   | Life      Remaining              |   |   | Value               |   |
|                                  |   | (In      thousands) |   |   |                   |   |   | (In      years)                  |   |   | (In      thousands) |   |
| Outstanding,      January 1, 2007     |   |                | 1,775  |   |                   | $      | 12.94  |                             |   |   |                |   |   |   |
| Granted                               |   |                | ¾ |   |                   |   | ¾ |                             |   |   |                |   |   |   |
| Exercised                             |   |                | (349   | )      |                   |   | 9.94   |                             |   |   |                |   |   |   |
| Canceled                              |   |                | (29    | )      |                   |   | 17.31  |                             |   |   |                |   |   |   |
| Outstanding,      December 31, 2007   |   |                | 1,397  |   |                   |   | 13.58  |                             |   |   | 4.58                |   |   | $ | 39,644 |   |
|                                  |   |                |   |   |                   |   |   |                             |   |   |                |   |   |   |   |   |
| Exercisable      at December 31, 2007 |   |                | 961    |   |                   | $      | 10.31  |                             |   |   | 4.49                |   |   | $ | 30,410 |   |

|                                         |   | Number              |   |   | Weighted-Average |   |
|----------------------------------------------|--------|---------------------|--------|--------|------------------|--------|
|                                         |   | Of                  |   |   | Grant      Date  |   |
|                                         |   | Shares              |   |   | Fair      Value  |   |
|                                         |   | (In      thousands) |   |   |             |   |
| Nonvested      shares, January 1, 2007 (1)   |   |                | 803    |   |             | $      | 7.34 |   |
| Granted                                      |   |                | ¾ |   |             |   | ¾ |   |
| Vested                                       |   |                | (496   | )      |             |   | 6.08 |   |
| Canceled                                     |   |                | (11    | )      |             |   | 6.54 |   |
| Nonvested      shares, December 31, 2007 (1) |   |                | 296    |   |             | $      | 9.50 |   |

| (1) | Excludes      164,000 and 140,000 shares at January 1, 2007 and December 31, 2007,      respectively, which vested in 2005, but are not exercisable until      2008. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                      |   | Number              |   |   | Aggregate |
|-------------------------------------------|--------|---------------------|--------|--------|-----------|
|                                      |   | Of                  |   |   | Intrinsic |
|                                      |   | Shares              |   |   | Value     |
|                                      |   | (In      thousands) |
| Outstanding,      January 1, 2007(1)      |   |                | 104    |   |      |   |
| Granted                                   |   |                | 10     |   |      |   |
| Vested                                    |   |                | (24    | )      |      |   |
| Canceled                                  |   |                | (1     | )      |      |   |
| Outstanding,      December 31, 2007(2)(3) |   |                | 89     |   |  $   | 3,734 |

|   | (1)      Does not include 540,000 shares that have vested but have not      settled. |
|--------|--------------------------------------------------------------------------------------|

|   | (2)      Exercise price for all Units is$0.00. |
|--------|------------------------------------------------|

|   | (3)Does      not include 296,000 shares that have vested but have not      settled. |
|--------|-------------------------------------------------------------------------------------|

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|                                                |   | Years      Ended December 31, |    |
|-----------------------------------------------------|--------|-------------------------------|---------|
|                                                |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                |   | (In      thousands)           |    |
| Change      in benefit obligation                   |   |                          |    |   |   |   |   |   |   |
| Benefit      obligation at beginning of year        |   | $                             | 31,386  |   |   | $ | 28,695 |   |   | $ | 23,097 |   |
| Service      cost                                   |   |                          | 556     |   |   |   | 504 |   |   |   | 377 |   |
| Interest      cost                                  |   |                          | 1,705   |   |   |   | 1,596 |   |   |   | 1,283 |   |
| Actuarial      loss                                 |   |                          | 3,791   |   |   |   | 1,321 |   |   |   | 4,998 |   |
| Benefits      paid                                  |   |                          | (6,783  | ) |   |   | (730 | ) |   |   | (1,060 | ) |
| Benefit      obligation at end of year              |   | $                             | 30,655  |   |   | $ | 31,386 |   |   | $ | 28,695 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Change      in plan assets                          |   |                          |    |   |   |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of year |   | $                             | ¾  |   |   | $ | ¾ |   |   | $ | ¾ |   |
| Employer      contributions                         |   |                          | 6,783   |   |   |   | 730 |   |   |   | 1,060 |   |
| Benefits      paid                                  |   |                          | (6,783  | ) |   |   | (730 | ) |   |   | (1,060 | ) |
| Fair      value of plan assets at end of year       |   | $                             | ¾  |   |   | $ | ¾ |   |   | $ | ¾ |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Funded      status                                  |   | $                             | (30,655 | ) |   | $ | (31,386 | ) |   | $ | (28,695 | ) |
| Unrecognized      prior service cost (1)            |   |                          | 3,304   |   |   |   | 4,515 |   |   |   | 5,725 |   |
| Unrecognized      net actuarial loss (1)            |   |                          | 8,920   |   |   |   | 5,853 |   |   |   | 4,660 |   |
| Accrued      net benefit cost                       |   |                          | (18,430 | ) |   |   | (21,018 | ) |   |   | (18,310 | ) |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Unfunded      accumulated benefit obligation        |   |                          | (30,655 | ) |   |   | (31,386 | ) |   |   | (22,936 | ) |
| Additional      liability                           |   |                          | (12,224 | ) |   |   | (10,368 | ) |   |   | (4,626 | ) |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Intangible      asset                               |   |                          | ¾  |   |   |   | ¾ |   |   |   | 4,626 |   |
| Benefit      liability                              |   | $                             | (30,655 | ) |   | $ | (31,386 | ) |   | $ | (22,936 | ) |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Discount      rate                                  |   |                          | 5.90    | % |   |   | 5.60 | % |   |   | 5.75 | % |
| Rate      of compensation increase                  |   |                          | 3.00    | % |   |   | 3.00 | % |   |   | 3.00 | % |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Components      of net periodic benefit cost:       |   |                          |    |   |   |   |   |   |   |   |   |   |
| Service      cost                                   |   | $                             | 555     |   |   | $ | 504 |   |   | $ | 377 |   |
| Interest      cost                                  |   |                          | 1,704   |   |   |   | 1,596 |   |   |   | 1,283 |   |
| Amortization      of prior service credits          |   |                          | 1,211   |   |   |   | 1,211 |   |   |   | 1,211 |   |
| Recognized      actuarial loss                      |   |                          | 209     |   |   |   | 128 |   |   |   | ¾ |   |
| Net      periodic benefit cost                      |   | $                             | 3,679   |   |   | $ | 3,439 |   |   | $ | 2,871 |   |

| (1)   | Included      in accumulated comprehensive income for 2007 and  2006. |
|-----------------|-----------------------------------------------------------------------|

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|                   |   | (In      thousands) |   |
|------------------------|--------|---------------------|--------|
| 2008                   |   | $                   | 4,119  |   |
| 2009                   |   |                | 2,495  |   |
| 2010                   |   |                | 2,495  |   |
| 2011                   |   |                | 2,495  |   |
| 2012                   |   |                | 2,562  |   |
| 2013      through 2042 |   |                | 47,914 |   |
| Total                  |   | $                   | 62,080 |   |

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|                                                               |   | Years      Ended December 31,              |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                               |   | 2007                                       |   |   | 2006 |   |   | 2005 |   |
|                                                               |   | (In      thousands, except per share data) |   |
| Basic      income per share:                                       |   |                                       |   |   |   |   |   |   |   |
| Net      income                                                    |   | $                                          | 94,052 |   |   | $ | 140,471 |   |   | $ | 120,017 |   |
|                                                               |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares outstanding                    |   |                                       | 55,948 |   |   |   | 56,391 |   |   |   | 55,556 |   |
|                                                               |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share                                   |   | $                                          | 1.68   |   |   | $ | 2.49 |   |   | $ | 2.16 |   |
|                                                               |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Diluted      income per share:                                     |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                    |   |                                       | 94,052 |   |   |   | 140,471 |   |   |   | 120,017 |   |
| Interest      expense on Sierra debentures, net of tax             |   |                                       | 317    |   |   |   | 721 |   |   |   | 1,256 |   |
| Income      for purposes of computing diluted net income per share |   | $                                          | 94,369 |   |   | $ | 141,192 |   |   | $ | 121,273 |   |
|                                                               |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares outstanding                    |   |                                       | 55,948 |   |   |   | 56,391 |   |   |   | 55,556 |   |
| Dilutive      options and restricted shares outstanding            |   |                                       | 688    |   |   |   | 935 |   |   |   | 2,266 |   |
| Dilutive      impact of conversion of Sierra debentures            |   |                                       | 2,364  |   |   |   | 5,386 |   |   |   | 9,327 |   |
| Weighted      average common shares outstanding assuming dilution  |   |                                       | 59,000 |   |   |   | 62,712 |   |   |   | 67,149 |   |
|                                                               |   |                                       |   |   |   |   |   |   |   |   |   |   |
| Net      income per common share assuming dilution                 |   | $                                          | 1.60   |   |   | $ | 2.25 |   |   | $ | 1.81 |   |

| Years      Ended December 31, |   | (In      thousands) |    |
|-------------------------------|--------|---------------------|---------|
| 2008                          |   | $                   | 18,570  |   |
| 2009                          |   |                | 17,555  |   |
| 2010                          |   |                | 16,649  |   |
| 2011                          |   |                | 16,748  |   |
| 2012                          |   |                | 16,168  |   |
| Thereafter                    |   |                | 48,043  |   |
| Total                         |   | $                   | 133,733 |   |

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|                               |   | Managed      Care And Corporate Operations |      |   | Military      Health Services Operations |   |   | Total  |   |
|------------------------------------|--------|--------------------------------------------|-----------|--------|------------------------------------------|--------|--------|--------|--------|
|                               |   | (In      thousands)                        |      |
| Year      Ended December 31, 2007  |   |                                       |      |
| Medical      premiums              |   | $                                          | 1,811,086 |   |                                     | $      | ¾ |   |   | $ | 1,811,086 |   |
| Professional      fees             |   |                                       | 57,199    |   |                                     |   | ¾ |   |   |   | 57,199 |   |
| Investment      and other revenues |   |                                       | 41,412    |   |                                     |   | ¾ |   |   |   | 41,412 |   |
| Total      revenue                 |   | $                                          | 1,909,697 |   |                                     | $      | ¾ |   |   | $ | 1,909,697 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Segment      operating profit      |   | $                                          | 148,720   |   |                                     | $      | ¾ |   |   | $ | 148,720 |   |
| Interest      expense              |   |                                       | (3,970    | )      |                                     |   | ¾ |   |   |   | (3,970 | ) |
| Other      income (expense), net   |   |                                       | 1,984     |   |                                     |   | ¾ |   |   |   | 1,984 |   |
| Income      before income taxes    |   | $                                          | 146,734   |   |                                     | $      | ¾ |   |   | $ | 146,734 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Segment      assets                |   | $                                          | 774,651   |   |                                     | $      | ¾ |   |   | $ | 774,651 |   |
| Capital      expenditures          |   |                                       | (9,688    | )      |                                     |   | ¾ |   |   |   | (9,688 | ) |
| Depreciation                       |   |                                       | 15,294    |   |                                     |   | ¾ |   |   |   | 15,294 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Year      Ended December 31, 2006  |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Medical      premiums              |   | $                                          | 1,623,515 |   |                                     | $      | ¾ |   |   | $ | 1,623,515 |   |
| Professional      fees             |   |                                       | 52,266    |   |                                     |   | ¾ |   |   |   | 52,266 |   |
| Investment      and other revenues |   |                                       | 43,111    |   |                                     |   | ¾ |   |   |   | 43,111 |   |
| Total      revenue                 |   | $                                          | 1,718,892 |   |                                     | $      | ¾ |   |   | $ | 1,718,892 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Segment      operating profit      |   | $                                          | 217,434   |   |                                     | $      | ¾ |   |   | $ | 217,434 |   |
| Interest      expense              |   |                                       | (3,901    | )      |                                     |   | ¾ |   |   |   | (3,901 | ) |
| Other      income (expense), net   |   |                                       | 1,960     |   |                                     |   | ¾ |   |   |   | 1,960 |   |
| Income      before income taxes    |   | $                                          | 215,493   |   |                                     | $      | ¾ |   |   | $ | 215,493 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Segment      assets                |   | $                                          | 809,412   |   |                                     | $      | ¾ |   |   | $ | 809,412 |   |
| Capital      expenditures          |   |                                       | (16,749   | )      |                                     |   | ¾ |   |   |   | (16,749 | ) |
| Depreciation                       |   |                                       | 16,570    |   |                                     |   | ¾ |   |   |   | 16,570 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Year      Ended December 31, 2005  |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Medical      premiums              |   | $                                          | 1,291,296 |   |                                     | $      | ¾ |   |   | $ | 1,291,296 |   |
| Military      contract revenues    |   |                                       | ¾    |   |                                     |   | 16,326 |   |   |   | 16,326 |   |
| Professional      fees             |   |                                       | 43,186    |   |                                     |   | ¾ |   |   |   | 43,186 |   |
| Investment      and other revenues |   |                                       | 33,698    |   |                                     |   | 530    |   |   |   | 34,228 |   |
| Total      revenue                 |   | $                                          | 1,368,180 |   |                                     | $      | 16,856 |   |   | $ | 1,385,036 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Segment      operating profit      |   | $                                          | 174,953   |   |                                     | $      | 14,464 |   |   | $ | 189,417 |   |
| Interest      expense              |   |                                       | (8,779    | )      |                                     |   | (12    | )      |   |   | (8,791 | ) |
| Other      income (expense), net   |   |                                       | 1,407     |   |                                     |   | (308   | )      |   |   | 1,099 |   |
| Income      before income taxes    |   | $                                          | 167,581   |   |                                     | $      | 14,144 |   |   | $ | 181,725 |   |
|                               |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Segment      assets                |   | $                                          | 667,618   |   |                                     | $      | 1,228  |   |   | $ | 668,846 |   |
| Capital      expenditures          |   |                                       | (13,946   | )      |                                     |   | ¾ |   |   |   | (13,946 | ) |
| Depreciation                       |   |                                       | 14,735    |   |                                     |   | 216    |   |   |   | 14,951 |   |

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|   | . |
|--------|---|

|                                    |   | March                                      |    |   | June   |   |    | September |   |   | December |   |
|-----------------------------------------|--------|--------------------------------------------|---------|--------|--------|--------|---------|-----------|--------|--------|----------|--------|
|                                    |   |                                       | 31      |   |   |   | 30      |      |   |   | 30       |   |   |   | 31 |   |
|                                    |   | (In      thousands, except per share data) |    |
| Quarter      ended 2007:                |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Operating      revenues                 |   | $                                          | 494,637 |   |   | $      | 482,047 |      |   | $      | 468,924  |   |   | $ | 464,089 |   |
| Operating      income                   |   |                                       | 134     |   |   |   | 60,308  |      |   |   | 51,585   |   |   |   | 36,693 |   |
| Net      (loss) income                  |   |                                       | (1,239  | )      |   |   | 39,360  |      |   |   | 34,626   |   |   |   | 21,305 |   |
|                                    |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Basic      (loss) earnings per share:   |   | $                                          | (0.02   | )      |   | $      | 0.70    |      |   | $      | 0.62     |   |   | $ | 0.38 |   |
|                                    |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Diluted      (loss) earnings per share: |   | $                                          | (0.02   | )      |   | $      | 0.67    |      |   | $      | 0.59     |   |   | $ | 0.36 |   |
|                                    |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Quarter      ended 2006:                |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Operating      revenues                 |   | $                                          | 438,248 |   |   | $      | 424,438 |      |   | $      | 429,997  |   |   | $ | 426,209 |   |
| Operating      income                   |   |                                       | 50,390  |   |   |   | 52,471  |      |   |   | 55,012   |   |   |   | 59,561 |   |
| Net      income                         |   |                                       | 32,671  |   |   |   | 33,534  |      |   |   | 34,929   |   |   |   | 39,337 |   |
|                                    |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Basic      earnings per share:          |   | $                                          | 0.57    |   |   | $      | 0.60    |      |   | $      | 0.62     |   |   | $ | 0.71 |   |
|                                    |   |                                       |    |   |   |   |    |      |   |   |     |   |   |   |   |   |
| Diluted      earnings per share:        |   | $                                          | 0.51    |   |   | $      | 0.54    |      |   | $      | 0.56     |   |   | $ | 0.65 |   |

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ITEM 9.     

ITEM 9A.  

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ITEM 9B. 

PART III

ITEM 10. 

ITEM 11.

ITEM 12.   

ITEM 13.  

ITEM 14.  

|                        |   | 2007   |      |   | 2006   |   |
|-----------------------------|--------|--------|-----------|--------|--------|--------|
| Audit      fees (1)         |   | $      | 1,122,000 |   |   | $      | 1,058,000 |   |
| Audit-related      fees (2) |   |   | 42,000    |   |   |   | 81,000 |   |
| Tax      fees (3)           |   |   | ¾    |   |   |   | ¾ |   |
| All      other fees (4)     |   |   | ¾    |   |   |   | ¾ |   |
| Total                       |   | $      | 1,164,000 |   |   | $      | 1,139,000 |   |

| (1)   | Audit      fees consist of fees for the audit of our annual financial statements, the      review of quarterly financial statements, consents related to SEC      registration statements, as well as work that generally only the      independent registered public accounting firm can reasonably be expected      to provide, such as statutory audits and financial audits of subsidiaries.      Audit fees also included fees for professional services rendered for the      audit of (i) management’s assessment that the Company maintained effective      internal control over financial reporting, and (ii) the effectiveness of      the Company’s internal control over financial  reporting. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Audit-related      fees consist principally of fees for assurance and related services that      are reasonably related to the performance of an audit and fees for the      audit of the Company’s employee benefitplans. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | There      were no fees paid to Deloitte for tax compliance, tax advice, or tax      planning in 2007 or 2006. |
|-----------------|----------------------------------------------------------------------------------------------------------------|

| (4)   | There      were no other fees and no fees paid to Deloitte Consulting during the      years ended December 31, 2007 or2006. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------|

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PART IV

ITEM 15. 

| (a)(1)                                                                                                                                                                                          | Financial      Statements.  See Index to Financial Statements on page      47.                                                            |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| (a)(2)                                                                                                                                                                                          | Financial      Statement Schedules:                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            | Schedule      I                                                                                                                                     | Condensed      Financial Information of Registrant                                                                                                                                                                                                                                                                                                                              | S-1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                            | Schedule      II                                                                                                                                    | Valuation      and Qualifying Accounts                                                                                                                                                                                                                                                                                                                                          | S-5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| All      other schedules are omitted because they are not applicable, not required,      or because the required information is in the consolidated financial      statements or notes thereto. |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| (a)(3)                                                                                                                                                                                          | The      following exhibits are filed as part of, or incorporated by reference      into, this Report as required by Item 601 of Regulation    S-K: |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            | (2.1)                                                                                                                                               | Agreement      and Plan of Merger by and among UnitedHealth Group Incorporated, Sapphire      Acquisition, Inc. and Sierra Health Services, Inc. dated as of March 11,      2007, incorporated by reference to Exhibit 2.1 to the Registrant’s Current      Report on Form 8-K filed on March 12, 2007.                                                                   |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                            | (3.1)                                                                                                                                          | Amended      and restated Articles of Incorporation incorporated by reference to      Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on      February 26, 2008.                                                                                                                                                                                         |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            | (3.2)                                                                                                                                               | Amended      and Restated Bylaws incorporated by reference to Exhibit 3.2 to the      Registrant’s Current Report on Form 8-K filed on February 26,      2008.                                                                                                                                                                                                            |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            | (10.1)                                                                                                                                              | Form      of Contract With Eligible Medicare Part D Prescription Drug Contractor and      the Centers for Medicare and Medicaid Services for the period January 1,      2006 to December 31, 2006, renewable annually and incorporated by      reference to Exhibit 10.1 to the Registrant’s Annual Report on Form 10-K      for the fiscal year ended December 31, 2006. |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            | (10.2)                                                                                                                                              | Form      of Contract With Eligible Medicare+Choice Organization and the Centers for      Medicare and Medicaid Services for the period January 1, 2005 to December      31, 2005, renewable annually and incorporated by reference to Exhibit 10.5      to the Registrant’s Annual Report on Form 10-K for the fiscal year ended      December 31, 2005.                 |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            | (10.3)                                                                                                                                              | Compensatory      Plans, Contracts and Arrangements.                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                            |                                                                                                                                                | (a)                                                                                                                                                                                                                                                                                                                                                                             | Form      of Split Dollar Life Insurance Agreement effective as of August 25, 1998,      by and between Sierra Health Services, Inc., and Jonathon W. Bunker, Frank      E. Collins, William R. Godfrey, Laurence S. Howard, Erin E. MacDonald,      Anthony M. Marlon, M.D., Kathleen M. Marlon, Michael A. Montalvo, John A.      Nanson, M.D., Paul H. Palmer and Marie H. Soldo, incorporated by reference      to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the      fiscal year ended December 31, 2000. |
|                                                                                                                                                                                            |                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|                                                                                                                                                                                            |                                                                                                                                                | (b)                                                                                                                                                                                                                                                                                                                                                                             | Sierra      Health Services, Inc. Deferred Compensation Plan effective May 1, 1996, as      Amended and Restated Effective April 27, 2007 and incorporated by      reference to Exhibit 10.9 to the Registrant's Quarterly Report on Form      10-Q for the fiscal quarter ended June 30,2007.                                                                                                                                                                                                                                            |

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|   |   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Sierra      Health Services, Inc. Supplemental Executive Retirement Plan effective      July 1, 1997, as Amended and Restated August 10, 2006, incorporated by      reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K      filed on August 16, 2006.                        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   |   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Sierra      Health Services, Inc. Supplemental Executive Retirement Plan effective as      of March 1, 1998, as Amended and Restated August 10, 2006, incorporated by      reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K      filed on August 16, 2006.                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   |   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Sierra      Health Services, Inc. Supplemental Executive Retirement Plan III effective      January 1, 2005 and incorporated by reference to Exhibit 10.1 to the      Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended      September 30, 2006.                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   |   | (f)                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Sierra      Health Services, Inc. Management Incentive Compensation Plan for the year      ended December 31, 2007.                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   |   | (g)                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Form      of Indemnity Agreement between Sierra Health Services, Inc. and each of      its directors and certain of its officers and its subsidiaries’ officers,      incorporated by reference to Exhibit 10.1 to the Registrant’s Current      Report on Form 8-K filed on March 13, 2007. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (10.4) | Stock      Purchase Agreement, dated as of November 25, 2003, as amended on December      17, 2003, as further amended on December 29, 2003 and as further amended      on January 12, 2004, among Sierra Health Services, Inc., CII Financial,      Inc. and Folksamerica Holding Company, Inc., incorporated by reference to      Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal      year ended December 31, 2003. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (10.5) | Form      of Contingent Purchase Price Note Agreement among Folksamerica Holding      Company, Inc., Sierra Health Services, Inc., CII Financial, Inc., and,      with respect to Article 5 only, Folksamerica Reinsurance Company,      incorporated by reference to Exhibit 10.7 to the Registrant’s Annual      Report on Form 10-K for the fiscal year ended December 31,      2003.                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (12.1) | Statement      re: Computation of Ratios.                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (31.1) | Rule      13a – 14(a) Certification of Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (31.2) | Rule      13a – 14(a) Certification of Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (32.1) | Certification      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002 of Principal Executive Officer dated March      17, 2008.                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   | (32.2) | Certification      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002 of Principal Financial Officer dated March      17, 2008.                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
|   |   | All      other Exhibits are omitted because they are notapplicable.                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                     |   |
| (c)    |   | Financial      Statement Schedules                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                     |   |

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| SIGNATURES                                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                         |   |   |   |   |
| Pursuant      to the requirements of Section 13 or 15(d) of the Securities Exchange Act      of 1934, the Registrant has caused this report to be signed on its behalf      by the undersigned thereto duly authorized.      |
|                                                                                                                                                                                                                         |   |   |   |   |
|                                                                                                                                                                                                                         |   | SIERRA      HEALTH SERVICES, INC. |   |
|                                                                                                                                                                                                                         |   |   |   |   |
|                                                                                                                                                                                                                         |   |   |   |   |
|                                                                                                                                                                                                                         |   | By: | /s/ Anthony M. Marlon,      M.D. |   |
| Date:      March 17, 2008                                                                                                                                                                                                    |   |   | Anthony      M. Marlon, M.D. |   |
|                                                                                                                                                                                                                         |   |   | Chief      Executive Officerand      Chairman of the Board |   |
|                                                                                                                                                                                                                         |   |   |   |   |
| Pursuant      to the requirements of the Securities Exchange Act of 1934, this report      has been signed below by the following persons on behalf of the Registrant      and in the capacities and on the dates indicated. |
|                                                                                                                                                                                                                         |   |   |   |   |
| Signature                                                                                                                                                                                                                    |   | Title |   | Date |
|                                                                                                                                                                                                                         |   |   |   |   |
|                                                                                                                                                                                                                         |   |   |   |   |
| /s/ Anthony M. Marlon,      M.D.Anthony      M. Marlon, M.D.                                                                                                                                                                 |   | Chief      Executive Officerand      Chairman of the Board(Principal      Executive Officer) |   | March      17, 2008 |
|                                                                                                                                                                                                                         |   |   |   |   |
| /s/ Marc R.      BriggsMarc      R. Briggs                                                                                                                                                                                   |   | Senior      Vice President of Finance,Chief      Financial Officer, Treasurer, and Director(Principal      Financial and Accounting Officer) |   | March      17, 2008 |
|                                                                                                                                                                                                                         |   |   |   |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | December      31,   |     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2007                |     |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (In      thousands) |     |
| Assets                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                |     |   |   |   |
| Current      assets:                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                |     |   |   |   |
| Cash      and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                   | 6,507    |   |   | $ | 17,379 |   |
| Short-term      investments                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                | 33,950   |   |   |   | 27,147 |   |
| Current      portion of deferred tax asset                                                                                                                                                                                                                                                                                                                                                                                                     |   |                | 11,603   |   |   |   | 8,617 |   |
| Prepaid      expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                 |   |                | 28,340   |   |   |   | 22,550 |   |
| Total      current assets                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                | 80,400   |   |   |   | 75,693 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                |     |   |   |   |   |   |
| Property      and equipment, net                                                                                                                                                                                                                                                                                                                                                                                                               |   |                | 18,969   |   |   |   | 23,959 |   |
| Restricted      cash and investments                                                                                                                                                                                                                                                                                                                                                                                                           |   |                | 658      |   |   |   | 727 |   |
| Equity      in net assets of subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                      |   |                | 246,667  |   |   |   | 232,834 |   |
| Notes      receivable from subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                        |   |                | 8,567    |   |   |   | 8,732 |   |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                | 2,154    |   |   |   | 2,154 |   |
| Deferred      tax asset                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                | 27,620   |   |   |   | 21,393 |   |
| Other      assets                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                | 59,769   |   |   |   | 70,578 |   |
| Total      assets                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                   | 444,804  |   |   | $ | 436,070 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                |     |   |   |   |   |   |
| Liabilities      and stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                |   |                |     |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                |     |   |   |   |   |   |
| Accounts      payable and other accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                            |   | $                   | 17,823   |   |   | $ | 33,278 |   |
| Current      portion of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                         |   |                | 20,330   |   |   |   | 42 |   |
| Total      current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                | 38,153   |   |   |   | 33,320 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                |     |   |   |   |   |   |
| Long-term      debt (less current portion)                                                                                                                                                                                                                                                                                                                                                                                                     |   |                | 137      |   |   |   | 118,588 |   |
| Other      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                | 82,944   |   |   |   | 67,444 |   |
| Total      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                | 121,234  |   |   |   | 219,352 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                |     |   |   |   |   |   |
| Commitments      and contingencies                                                                                                                                                                                                                                                                                                                                                                                                             |   |                |     |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                |     |   |   |   |   |   |
| Stockholders’      equity:                                                                                                                                                                                                                                                                                                                                                                                                               |   |                |     |   |   |   |   |   |
| Common      stock                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                | 368      |   |   |   | 354 |   |
| Treasury      stock                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                | (614,605 | ) |   |   | (600,539 | ) |
| Additional      paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                |   |                | 470,872  |   |   |   | 436,643 |   |
| Accumulated      other comprehensive      loss                                                                 |   |                | (7,633   | ) |   |   | (8,635 | ) |
| Retained      earnings                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                | 474,568  |   |   |   | 388,895 |   |
| Total      stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                          |   |                | 323,570  |   |   |   | 216,718 |   |
| Total      liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                          |   | $                   | 444,804  |   |   | $ | 436,070 |   |

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|                                                |   | Years      Ended December 31, |    |
|-----------------------------------------------------|--------|-------------------------------|---------|
|                                                |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                |   | (In      thousands)           |    |
| Revenues:                                           |   |                          |    |
| Management      fees                                |   | $                             | 162,051 |   |   | $ | 157,116 |   |   | $ | 147,698 |   |
| Subsidiary      dividends                           |   |                          | 34,950  |   |   |   | 35,500 |   |   |   | 55,307 |   |
| Investment      and other income                    |   |                          | 8,621   |   |   |   | 11,552 |   |   |   | 10,026 |   |
| Total      revenues                                 |   |                          | 205,622 |   |   |   | 204,168 |   |   |   | 213,031 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Expenses:                                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Depreciation                                        |   |                          | 6,017   |   |   |   | 6,805 |   |   |   | 6,798 |   |
| Other                                               |   |                          | 77,134  |   |   |   | 53,078 |   |   |   | 44,780 |   |
| Interest      expense and other, net                |   |                          | 1,867   |   |   |   | 348 |   |   |   | 6,166 |   |
| Total      expenses                                 |   |                          | 85,018  |   |   |   | 60,231 |   |   |   | 57,744 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Income      before income taxes                     |   |                          | 120,604 |   |   |   | 143,937 |   |   |   | 155,287 |   |
| Provision      for income taxes                     |   |                          | (33,491 | ) |   |   | (40,094 | ) |   |   | (34,488 | ) |
| Income      of parent company                       |   |                          | 87,113  |   |   |   | 103,843 |   |   |   | 120,799 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Equity      in undistributed income of subsidiaries |   |                          | 6,939   |   |   |   | 36,628 |   |   |   | (782 | ) |
| Net      income                                     |   | $                             | 94,052  |   |   | $ | 140,471 |   |   | $ | 120,017 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Years      Ended December 31, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (In      thousands)           |    |
| Cash      flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          |    |   |   |   |   |   |   |
| Income      from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                             | 94,052  |   |   | $ | 140,471 |   |   | $ | 120,017 |   |
| Adjustments      to reconcile net income to net cash provided by                                                                                                                                                                                                                                                                                                                                                                                    |   |                          |    |   |   |   |   |   |   |   |   |   |
|      operating      activities:                                                                                                                                                                                                                                                                                                                                                                                            |   |                          |    |   |   |   |   |   |   |   |   |   |
|      Depreciation                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          | 6,017   |   |   |   | 6,805 |   |   |   | 6,798 |   |
|      Stock      based compensation expense                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 4,747   |   |   |   | 9,199 |   |   |   | 7,391 |   |
|      Excess      tax benefits from share-based payment arrangements                                                                                                                                                                                                                                                                                                                                                        |   |                          | (4,699  | ) |   |   | (9,853 | ) |   |   |   |   |
|      Other      adjustments                                                                                                                                                                                                                                                                                                                                                                                                |   |                          | 23,705  |   |   |   | 55 |   |   |   | (2,272 | ) |
|      Equity      in undistributed income of subsidiaries from continuing      operations                                                                                                                                                                                                                                                                                                                                   |   |                          | 6,939   |   |   |   | 36,628 |   |   |   | (782 | ) |
|      Change      in assets and liabilities                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | (73,040 | ) |   |   | (88,196 | ) |   |   | (46,142 | ) |
| Net      cash provided by operating activities                                                                                                                                                                                                                                                                                                                                                                                                      |   |                          | 57,721  |   |   |   | 95,109 |   |   |   | 85,010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          |    |   |   |   |   |   |   |   |   |   |
| Capital      expenditures                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                          | (839    | ) |   |   | (5,273 | ) |   |   | (2,034 | ) |
| Property      and equipment dispositions                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | 8       |   |   |   | (74 | ) |   |   | 988 |   |
| Decrease      (increase) in investments                                                                                                                                                                                                                                                                                                                                                                                                             |   |                          | (17,906 | ) |   |   | 6,666 |   |   |   | (15,785 | ) |
| Dividends      from subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | 34,950  |   |   |   | 35,500 |   |   |   | 55,307 |   |
| Net      cash provided by investing      activities                                                                 |   |                          | 16,213  |   |   |   | 36,819 |   |   |   | 38,476 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          |    |   |   |   |   |   |   |   |   |   |
| Payments      on debt and capital leases                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | (75,107 | ) |   |   | (32 | ) |   |   | (10,029 | ) |
| Proceeds      from other long-term debt                                                                                                                                                                                                                                                                                                                                                                                                             |   |                          | ¾  |   |   |   | 75,000 |   |   |   | ¾ |   |
| Purchase      of treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                          | (21,081 | ) |   |   | (243,136 | ) |   |   | (154,382 | ) |
| Excess      tax benefits from share-based payment arrangements                                                                                                                                                                                                                                                                                                                                                                                      |   |                          | 4,699   |   |   |   | 9,853 |   |   |   |   |   |
| Exercise      of stock in connection with stock plans                                                                                                                                                                                                                                                                                                                                                                                               |   |                          | 6,683   |   |   |   | 14,464 |   |   |   | 22,338 |   |
| Net      cash used for financing      activities                                                                    |   |                          | (84,806 | ) |   |   | (143,851 | ) |   |   | (142,073 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Net      (decrease) increase in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                           |   |                          | (10,872 | ) |   |   | (11,923 | ) |   |   | (18,587 | ) |
| Cash      and cash equivalents at beginning of year                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 17,379  |   |   |   | 29,302 |   |   |   | 47,889 |   |
| Cash      and cash equivalents at end of year                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                             | 6,507   |   |   | $ | 17,379 |   |   | $ | 29,302 |   |

| Supplemental      condensed statements of cash flows information:          |   |
|----------------------------------------------------------------------------|--------|
|                                                                       |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Cash      paid during the year for interest (net of amount    capitalized) |   | $ | (3,818 | ) |   | $ | (2,535 | ) |   | $ | (8,557 | ) |
| Cash      paid during the year for income taxes                            |   |   | (65,590 | ) |   |   | (55,750 | ) |   |   | (44,924 | ) |
|                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-cash      investing and financing activities:                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Senior      convertible debentures converted into Sierra common stock      |   |   | 23,256 |   |   |   | 8,500 |   |   |   | 63,000 |   |
| Tax      benefits from share-based payment arrangements                    |   |   | ¾ |   |   |   | ¾ |   |   |   | 25,697 |   |
| Additions      to capital leases                                           |   |   | 171 |   |   |   | 47 |   |   |   | 19 |   |

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| December      31, |   | (In      thousands) |
|-------------------|--------|---------------------|
| 2008              | $      | 20,330              |
| 2009              |   | 78                  |
| 2010              |   | 38                  |
| 2011              |   | 16                  |
| 2012              |   | 5                   |
| Thereafter        |   | ¾              |
| Total             | $      | 20,467              |

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| (In      thousands)           |   |                                |   | Additions      Charged To |   |   |
|-------------------------------|--------|-------------------------------------|--------|---------------------------|--------|--------|
| Years      Ended December 31, |   | Balance      At Beginning Of Period |   | CostsAndExpenses          |   |   | Other |   | Deductions |   | Balance      At End      OfPeriod |
| 2007                          | $      | 15,000                              | $      | ¾                    |   | $      | ¾ | $ | ¾ | $ | 15,000 |
| 2006                          |   | 15,000                              |   | ¾                    |   |   | ¾ |   | ¾ |   | 15,000 |
| 2005                          |   | 15,000                              |   | ¾                    |   |   | ¾ |   | ¾ |   | 15,000 |

| (In      thousands)           |   |                                |   | Additions      Charged To |   |   |
|-------------------------------|--------|-------------------------------------|--------|---------------------------|--------|--------|
| Years      Ended December 31, |   | Balance      At Beginning Of Period |   | CostsAndExpenses          |   |   | Other |   | Deductions |   | Balance      At End      OfPeriod |
| 2007                          | $      | 14,842                              | $      | (548)                     |   | $      | ¾ | $ | ¾ | $ | 14,294 |
| 2006                          |   | 15,082                              |   | (240)                     |   |   | ¾ |   | ¾ |   | 14,842 |
| 2005                          |   | 15,082                              |   | ¾                    |   |   | ¾ |   | ¾ |   | 15,082 |

| (In      thousands)           |   |                                |   | Additions      Charged To |   |   |
|-------------------------------|--------|-------------------------------------|--------|---------------------------|--------|--------|
| Years      Ended December 31, |   | Balance      At Beginning Of Period |   | CostsAndExpenses          |   |   | Other |   | Deductions |   | Balance      At End      OfPeriod |
| 2007                          | $      | 250                                 | $      | 13,721                    |   | $      | ¾ | $ | ¾ | $ | 13,971 |
| 2006                          |   | ¾                              |   | ¾                    |   |   | ¾ |   | ¾ |   | ¾ |
| 2005                          |   | ¾                              |   | ¾                    |   |   | ¾ |   | ¾ |   | ¾ |