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

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FORM 10-Q

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(Mark One)


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

For the quarterly period ended September 30, 2003

OR



For the transition period from ________to _________

Commission file number    1-8865

Sierra Health Services, Inc.(Exact name of Registrant as specified in its Charter)



|Nevada                                                         | 88-0200415                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

2724 North Tenaya Way
Las Vegas, Nevada     89128

(702) 242-7000

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes

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

As of November 3, 2003,  there were  27,668,000  shares of common  stock
outstanding.

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SIERRA HEALTH SERVICES, INC.

          Quarterly Report on Form 10-Q

For the period ended September 30, 2003



|PART I.   FINANCIAL INFORMATION                                                                                               | Page No.
|----------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                              |         
|Item 1. Financial Statements (Unaudited):                                                                                     |         
|                                                                                                                              |         
|Condensed Consolidated Balance Sheets -
          
                   September 30, 2003 and December 31, 2002                | 3       
|                                                                                                                              |         
|Condensed Consolidated Statement of Operations -
          
          three and nine months ended September 30, 2003 and 2002 | 4       
|                                                                                                                              |         
|Condensed Consolidated Statement of Cash Flows -
          
          nine months ended September 30, 2003 and 2002           | 5       
|                                                                                                                              |         
|Notes to Condensed Consolidated Financial Statements                                                                          | 6 - 18  
|                                                                                                                              |         
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations         | 19 - 33 
|                                                                                                                              |         
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                          | 34      
|                                                                                                                              |         
|Item 4.  Controls and Procedures                                                                                              | 34      
|                                                                                                                              |         
|PART II.  OTHER INFORMATION                                                                                                   |         
|                                                                                                                              |         
|Item 1.   Legal Proceedings                                                                                                   | 35      
|                                                                                                                              |         
|Item 2.   Changes in Securities and Use of Proceeds                                                                           | 35      
|                                                                                                                              |         
|Item 3. Default upon Senior Securities                                                                                        | 35      
|                                                                                                                              |         
|Item 4. Submission of Matters to a Vote of Security Holders                                                                   | 35      
|                                                                                                                              |         
|Item 5. Other Information                                                                                                     | 35      
|                                                                                                                              |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                                    | 35 - 36 
|                                                                                                                              |         
|Signatures                                                                                                                    | 37      
|                                                                                                                              |         

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      (In thousands, except per share data)

                                   (Unaudited)

`September 30,  December 31,
                                                                           2003          2002
                                                                     --------------  -------------
                              ASSETS                                                                       
CURRENT ASSETS:
     Cash and Cash Equivalents..................................... $      128,550  $      45,778
     Investments...................................................        138,465        182,452
     Accounts Receivable (Less Allowance for Doubtful
         Accounts; 2003 - $8,075; 2002 - $10,626)..................         13,675         11,232
     Military Accounts Receivable (Less Allowance for Doubtful
         Accounts; 2003 and 2002 - $100)...........................         70,696         47,126
     Current Portion of Deferred Tax Asset.........................         34,752         50,402
     Prepaid Expenses and Other Current Assets.....................         36,903         18,380
     Assets of Discontinued Operations.............................        568,256        565,058
                                                                     --------------  -------------
         Total Current Assets......................................        991,297        920,428

PROPERTY AND EQUIPMENT, NET........................................         62,398         64,868
RESTRICTED CASH AND INVESTMENTS....................................         17,422         17,557
GOODWILL...........................................................         14,782         14,782
DEFERRED TAX ASSET (Less Current Portion)..........................         15,818         14,947
OTHER ASSETS.......................................................         43,293         33,384
                                                                     --------------  -------------
TOTAL ASSETS....................................................... $    1,145,010  $   1,065,966
                                                                     ==============  =============
                                                                                                           
               LIABILITIES AND STOCKHOLDERS' EQUITY                                                        
CURRENT LIABILITIES:
     Accrued Liabilities........................................... $       56,470  $      50,349
     Trade Accounts Payable........................................         39,419         29,249
     Accrued Payroll and Taxes.....................................         25,160         13,660
     Medical Claims Payable........................................        102,883         98,031
     Unearned Premium Revenue......................................         12,472         40,758
     Military Health Care Payable..................................         77,404         65,223
     Current Portion of Long-Term Debt.............................            696            186
     Liabilities of Discontinued Operations........................        480,586        500,720
                                                                     --------------  -------------
         Total Current Liabilities.................................        795,090        798,176

LONG-TERM DEBT (Less Current Portion)..............................        116,031         60,710
OTHER LIABILITIES..................................................         52,736         50,515
                                                                     --------------  -------------
TOTAL LIABILITIES..................................................        963,857        909,401
                                                                     --------------  -------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.01 Par Value, 1,000
       Shares Authorized; None Issued or Outstanding
  Common Stock, $.005 Par Value, 60,000 Shares Authorized;
       2003 - 32,448; 2002 - 30,953 Shares Issued..................            162            155
  Treasury Stock: 2003 - 4,416; 2002 - 1,163 Common Stock Shares...        (66,525)       (17,148)
  Additional Paid-in Capital.......................................        215,534        196,711
  Deferred Compensation............................................            (88)          (473)
  Accumulated Other Comprehensive (Loss) Gain......................         (1,414)           381
  Retained Earnings (Accumulated Deficit)..........................         33,484        (23,061)
                                                                     --------------  -------------
TOTAL STOCKHOLDERS' EQUITY.........................................        181,153        156,565
                                                                     --------------  -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $    1,145,010  $   1,065,966
                                                                     ==============  =============`

See accompanying notes to condensed consolidated financial statements.

---

SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share data)

                                   (Unaudited)

`Three Months Ended September 30,      Nine Months Ended September 30,
                                                --------------------------------     --------------------------------
                                                      2003             2002                2003             2002
OPERATING REVENUES:                             ---------------  ---------------     ---------------  --------------- 
   Medical Premiums.......................... $        242,875  $       217,995     $       717,097  $       636,047
   Military Contract Revenues................          132,788          100,366             352,632          279,560
   Professional Fees.........................            8,984            7,819              27,403           23,045
   Investment and Other Revenues.............            4,590            4,837              14,580           13,081
                                                ---------------  ---------------     ---------------  ---------------
         Total...............................          389,237          331,017           1,111,712          951,733
                                                ---------------  ---------------     ---------------  ---------------
OPERATING EXPENSES:
   Medical Expenses..........................          191,248          178,958             572,009          530,402
   Military Contract Expenses................          128,966           96,629             344,109          268,845
   General and Administrative Expenses.......           33,845           34,405             101,845          100,140
                                                ---------------  ---------------     ---------------  ---------------
         Total ..............................          354,059          309,992           1,017,963          899,387
                                                ---------------  ---------------     ---------------  ---------------

OPERATING INCOME FROM CONTINUING OPERATIONS..           35,178           21,025              93,749           52,346
Interest Expense.............................           (1,295)          (1,634)             (4,445)          (6,468)
Other Income (Expense), Net..................              100              243                (243)             137
                                                ---------------  ---------------     ---------------  ---------------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES.......................           33,983           19,634              89,061           46,015
PROVISION FOR INCOME TAXES...................          (11,806)          (7,240)            (30,946)         (15,936)
                                                ---------------  ---------------     ---------------  ---------------
INCOME FROM CONTINUING OPERATIONS............           22,177           12,394              58,115           30,079
INCOME (LOSS) FROM DISCONTINUED
   OPERATIONS (net of income tax
   (provision) benefit  of ($54),
   $87, $1,268 and ($236)), respectively.....               30            1,669                (621)           1,888
                                                ---------------  ---------------     ---------------  ---------------
NET INCOME .................................. $         22,207  $        14,063     $        57,494  $        31,967
                                                ===============  ===============     ===============  ===============
EARNINGS PER COMMON SHARE:
Income from Continuing Operations............ $           0.78  $          0.42     $          2.05  $          1.05
Income (Loss) from Discontinued Operations...               --             0.06               (0.02)            0.07
                                                ---------------  ---------------     ---------------  ---------------
   Net Income ............................... $           0.78  $          0.48     $          2.03  $          1.12
                                                ===============  ===============     ===============  ===============
EARNINGS PER COMMON SHARE ASSUMING DILUTION:
Income from Continuing Operations............ $           0.72  $          0.39     $          1.90  $          0.97
Income (Loss) from Discontinued Operations...               --             0.05               (0.02)            0.06
                                                ---------------  ---------------     ---------------  ---------------
   Net Income ............................... $           0.72  $          0.44     $          1.88  $          1.03
                                                ===============  ===============     ===============  ===============`

See accompanying notes to condensed consolidated financial statements.

---

SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

`Nine Months Ended September 30,
                                                                      --------------------------------
                                                                            2003             2002
                                                                      ----------------  --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income ...................................................... $         57,494  $       31,967
   Adjustments to Reconcile Net Income to Net Cash
       Provided by Operating Activities:
          Loss (Income) from Discontinued Operations................              621          (1,888)
          Depreciation and Amortization.............................           11,750          13,949
          Deferred Compensation Expense.............................              385             438
          Provision for Doubtful Accounts...........................            2,098           1,716
          Loss (Gain) on Disposal of Assets.........................              772            (107)
   Changes in Assets and Liabilities:
          Other Assets .............................................           (4,072)         (3,247)
          Deferred Tax Asset........................................           23,804          33,494
          Other Liabilities.........................................           21,571           5,236
          Other Current Assets......................................          (23,064)          7,877
          Military Accounts Receivable..............................          (23,570)         (1,536)
          Military Health Care Payable..............................           12,181          (1,157)
          Medical Claims Payable....................................            4,852          19,653
          Accrued Payroll and Taxes.................................           11,500          11,601
          Unearned Premium Revenue..................................          (28,286)        (25,540)
                                                                      ----------------  --------------
       Net Cash Provided by Operating Activities
          of Continuing Operations..................................           68,036          92,456
                                                                      ----------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital Expenditures, Net of Dispositions........................          (13,728)         (5,035)
   Change in Investments............................................           43,606         (76,990)
                                                                      ----------------  --------------
       Net Cash Provided by (Used for) Investing Activities of
          Continuing Operations.....................................           29,878         (82,025)
                                                                      ----------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Senior Convertible Debentures......................          115,000              --
   Proceeds from Other Long-Term Debt...............................            1,327              --
   Proceeds from  Sale-Leaseback....................................               --          16,862
   Debt Issue Costs.................................................           (5,834)             --
   Payments on Debt and Capital Leases..............................          (60,496)        (40,208)
   Purchase of Treasury Stock.......................................          (52,765)             --
   Issuance of Stock in Connection with Stock Plans.................           12,639          10,193
                                                                      ----------------  --------------
       Net Cash Provided by (Used for) Financing Activities of
          Continuing Operations.....................................            9,871         (13,153)
                                                                      ----------------  --------------

NET CASH USED FOR DISCONTINUED OPERATIONS...........................          (25,013)        (37,902)
                                                                      ----------------  --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................           82,772         (40,624)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................           45,778         107,114
                                                                      ----------------  --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $        128,550  $       66,490
                                                                      ================  ==============

Supplemental Condensed Consolidated Continuing Operations
  Statements of Cash Flows Information:
---------------------------------------
Cash Paid During the Period for Interest
   (Net of Amount Capitalized)...................................... $         (3,283) $       (5,910)
Net Cash (Paid) Received During the Period for Income Taxes.........          (10,699)         13,019
Non-cash Investing and Financing Activities:
   Retired Sale-Leaseback Assets, Liabilities
       and Financing Obligations ...................................               --          89,751`

See accompanying notes to condensed consolidated financial statements.

1. 	BASIS OF PRESENTATION

The accompanying unaudited financial statements include
the consolidated accounts of Sierra Health Services, Inc. ("Sierra", a holding
company, together with its subsidiaries, collectively referred to herein as the
"Company"). All material intercompany balances and transactions have been
eliminated. These statements and the Company's annual audited consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America; however, these statements do
not contain all of the information and disclosures that would be required in a
complete set of audited financial statements. They should, therefore, be read in
conjunction with the Company's annual audited consolidated financial statements
and related notes thereto for the year ended December 31, 2002. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements reflect all material adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial results for the
interim periods presented.

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Such estimates and
assumptions could change in the future as more information becomes available,
which could impact the amounts reported and disclosed herein. Actual results may
differ materially from estimates.

Certain amounts in the condensed consolidated financial
statements for the three and nine months ended September 30, 2002 have been
reclassified to conform with the current year presentation.

2.	EMPLOYEE STOCK PLANS

In December 2002, the Financial Accounting Standards
Board ("FASB"), issued Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS No. 148").  SFAS No. 148 is an amendment of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123").  SFAS No. 148 requires
prominent disclosures in interim as well as annual financial statements about
the method of accounting for stock-based employee compensation and the effect of
the method used on reported net income.  The Company has continued to account
for its stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," as amended.  Accordingly, no compensation cost has been
recognized for the Company's employee stock plans except for those expenses
associated with the restricted stock units.

The following schedule reflects the pro forma impact on net
income and earnings per common share for the accounting of stock option grants
and the Company's employee stock purchase plan using SFAS No. 123, which would
result in the recognition of compensation expense for the fair value of stock
option grants and the employee stock purchase plan as computed using the Black-
Scholes option-pricing model.

`Three Months Ended September 30,      Nine Months Ended September 30,
                                                     --------------------------------     --------------------------------
                                                           2003             2002                2003             2002
                                                     ---------------  ---------------     ---------------  ---------------
  (In thousands, except per share data)

Net income, as reported............................ $        22,207  $        14,063     $        57,494  $        31,967
Less: total stock-based employee compensation
   expense determined under fair value based
   methods for all  awards, net of tax.............          (1,451)            (927)             (4,868)          (3,435)
                                                     ---------------  ---------------     ---------------  ---------------
Pro forma net income .............................. $        20,756  $        13,136     $        52,626  $        28,532
                                                     ===============  ===============     ===============  ===============

Net income per share, as reported.................. $          0.78  $          0.48     $          2.03  $          1.12
Pro forma net income, per share ...................            0.73             0.45                1.86             1.00

Net income per share
   assuming dilution, as reported.................. $          0.72  $          0.44     $          1.88  $          1.03
Pro forma net income, per share ...................            0.67             0.41                1.72             0.92`

3.	ASSET IMPAIRMENT, RESTRUCTURING, REORGANIZATION AND OTHER COSTS

the table below presents a summary of asset impairment, restructuring, reorganization and other cost activity
for the periods indicated that were included in general and administrative expenses.  Discontinued operations are excluded from this presentation.

`Other
                                           ------------ 
  (In thousands)
Balance, January 1, 2002................. $      4,447
Charges recorded.........................           --
Cash used................................           --
Non-cash activity........................         (500)
Changes in estimate......................           --
                                           ------------
Balance, December 31, 2002...............        3,947
Charges recorded.........................           --
Cash used................................           --
Non-cash activity........................           --
Changes in estimate......................           --
                                           ------------
Balance, September 30, 2003.............. $      3,947
                                           ============`

The remaining other costs of $3.9 million are related to
legal claims. Management believes that the remaining reserves, as of September
30, 2003, are appropriate and that no revisions to the estimates are necessary
at this time.

#### 

4.	LONG-TERM DEBT

Sierra Debentures - In March 2003, the Company
issued $115.0 million aggregate principal amount of its 21⁄4% senior convertible
debentures due March 15, 2023.  The debentures pay interest, which is due semi-
annually on March 15 and September 15 of each year.  Each $1,000 principal
amount of debentures is convertible, at the option of the holders, into 54.6747
shares of Sierra Health Services, Inc. common stock prior to March 15, 2023 if
(1) the sale price of the Company's common stock for at least 20 trading days in
a period of 30 consecutive trading days ending on the last trading day of the
preceding fiscal quarter exceeds 120% of the conversion price per share of the
Company's common stock; (2) the debentures are called for redemption; (3) there
is an event of default with respect to the debentures; or (4) specified
corporate transactions have occurred.  The conversion rate is subject to certain
adjustments.  This conversion rate initially represents a conversion price of
$18.29 per share.  Holders of the debentures may require the Company to
repurchase all or a portion of their debentures on March 15 in 2008, 2013 and
2018 or upon certain corporate events including a change in control.  In either
case, the Company may choose to pay the purchase price of such debentures in
cash or common stock or a combination of cash and common stock.  The debentures
can be redeemed by the Company for cash beginning on or after March 20,
2008.

The Company used the net proceeds of the offering to repay
the $39.0 million outstanding under the then existing credit facility and to
contribute $35.0 million to Sierra Military Health Services, Inc.
("SMHS").  The Company also used $19.9 million of the proceeds to
purchase 1.6 million shares of the Company's common stock under its repurchase
program. The remainder of the net proceeds were used for working capital and
general corporate purposes including additional share repurchases.

New Credit Facility - On March 3, 2003, the Company
entered into a new $65.0 million revolving credit facility which replaced the
amended and restated credit facility.  The new facility may be increased up to
an aggregate amount of $125.0 million upon receipt of new commitments from
existing or additional lenders.  Interest on the facility was initially LIBOR
plus 2.25% and is currently LIBOR plus 2.00%.  The facility will expire on April
30, 2006 but can be extended, at the sole discretion of each of the lenders,
until March 3, 2008.  The new facility is available for general corporate
purposes.  The Company has not yet utilized this facility.

The new credit facility is secured by guarantees by certain
of the Company's subsidiaries and a first priority perfected security interest
in (i) all the capital stock of each of the Company's unregulated, material
domestic subsidiaries (direct or indirect) as well as all of the capital stock
of certain regulated, material domestic subsidiaries and (ii) all other present
and future assets and properties of the Company and those of its subsidiaries
that guarantee the credit agreement obligations (including, without limitation,
accounts receivable, inventory, real property, equipment, contracts, trademarks,
copyrights, patents, license rights and general intangibles) subject, in each
case, to the exclusion of the capital stock of CII Financial, Inc. or any of its
subsidiaries and certain other exclusions.

'The new revolving credit facility
has covenants that limit the Company's ability and the ability of the Company's
subsidiaries to dispose of assets, incur indebtedness, incur other liens, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, repurchase Company common stock or make capital expenditures and
otherwise restricts certain corporate activities.  In addition, the Company is
required to comply with specified financial ratios as set forth in the new
credit agreement.  The Company believes it is in compliance with all covenants
of the new credit agreement.

#### 5. 	SHARE REPURCHASE PROGRAM

#### 

As of September 30, 2003,
the Company's Board of Directors had authorized a program for the repurchase of
up to 4.6 million shares of the Company's common stock.  Through September 30,
2003, the Company had purchased, at prevailing prices in the open market by
block purchase or private transactions, 3.5 million shares for $52.8 million.
From October 1 to October 28, 2003, the Company repurchased an additional
310,000 shares for $6.5 million.  On October 28, 2003, the Company announced
that its Board of Directors had authorized the Company to purchase an additional
3.0 million shares of the Company's common stock.  As of October 28, 2003, the
Company is now authorized to purchase approximately 3.8 million shares of its
common stock.



6. 	TEXAS DISCONTINUED OPERATIONS

During the third quarter of 2001, the Company announced
its plan to exit the Texas HMO health care market and received formal approval
from the Texas Department of Insurance to withdraw its HMO operations in mid-
October.  The Company ceased providing HMO health care coverage in Texas on
April 17, 2002.

The Company elected to early adopt SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets,"
("SFAS No. 144"), effective January 1, 2001 and the Company's Texas
HMO health care operations were reclassified as discontinued operations.



The following are the unaudited condensed assets and
liabilities of the discontinued Texas HMO health care operations:



`September 30,     December 31,
                                                                 2003             2002
                                                          ----------------  ----------------
  (In thousands)                                                                            
ASSETS                                                                                      
 Cash and Cash Equivalents............................ $              572  $             --
 Investments..........................................              4,107             4,263
 Other Assets.........................................                178               916
 Property and Equipment, Net..........................              4,575            11,967
                                                          ----------------  ----------------
ASSETS OF DISCONTINUED OPERATIONS.....................              9,432            17,146
                                                          ----------------  ----------------
LIABILITIES                                                                                 
 Accounts Payable and Other Liabilities...............              2,767             9,059
 Medical Claims Payable...............................                425             1,754
 Mortgage Loan........................................                 --            14,961
                                                          ----------------  ----------------
LIABILITIES OF DISCONTINUED OPERATIONS................              3,192            25,774
                                                          ----------------  ----------------
NET ASSETS (LIABILITIES) OF DISCONTINUED OPERATIONS... $            6,240  $         (8,628)
                                                          ================  ================`

The assets and liabilities above do not include an
intercompany liability of $50.1 million from Texas Health Choice, L.C.,
("TXHC") to Sierra at September 30, 2003.  The liability is partially
secured by certain of the TXHC land and buildings and has been eliminated upon
consolidation.

Property and equipment consists mainly of real estate
properties located in the Dallas/Fort Worth metroplex areas.  TXHC acquired
these properties from Kaiser Foundation Health Plan of Texas ("Kaiser-
Texas"), for $44.0 million as part of the acquisition of certain assets of
Kaiser-Texas in October 1998.  In June 2000, as part of its restructuring and
reorganization of the Texas HMO health care operations, the Company announced
its intention to sell these properties.  The real estate was written down to its
estimated fair value and the Company took an asset impairment charge of $27.0
million.  The real estate was encumbered by a mortgage loan payable to Kaiser-
Texas, which was guaranteed by Sierra.  In December 2001, the mortgage loan was
restructured and Kaiser-Texas forgave $8.5 million of the outstanding principal
balance of the mortgage loan and extended the maturity from November 1, 2003 to
November 1, 2006.  In accordance with accounting principles generally accepted
in the United States of America, the carrying amount of the mortgage loan was
equal to the total future cash payments (interest and principal).

During the third and fourth quarters of 2002, TXHC sold four
of the eight real estate properties and a parcel of land.  As required under the
terms of the mortgage loan agreement, pre-determined minimum amounts of the
mortgage note are required to be paid as each piece of real estate is sold.
Accordingly, total payments of $11.3 million were made to Kaiser-Texas on the
mortgage loan.  Since the principal payments resulted in a reduction of future
interest, future accrued interest was reduced and a gain, net of tax, of $1.9
million was recorded.  During the second quarter of 2003, the remaining mortgage
loan was paid off, resulting in a gain, net of tax, of  $1.3 million.

During the third quarter of 2003, TXHC sold one of the four
remaining real estate properties for a net loss of $300,000.  Subsequent to
September 30, 2003, TXHC sold another of the remaining properties at its net
book value.  As of October 31, 2003, two properties remain to be sold.

The following are unaudited condensed statements of
operations of the discontinued Texas HMO health care operations:

`Three Months Ended September 30,    Nine Months Ended September 30,
                                                      --------------------------------    -------------------------------
                                                            2003             2002               2003            2002
                                                      ---------------  ---------------    ---------------  --------------  
  (In thousands)
Operating Revenues.................................. $           111  $            84    $           182  $        3,837
                                                      ---------------  ---------------    ---------------  --------------

 Medical Expenses...................................             (70)          (2,165)            (1,521)         (5,975)
 General and Administrative Expenses, Net...........             254              705               (146)          9,352
 Interest Expense and Other, Net
   (including rental income)........................            (503)          (1,423)            (3,160)         (2,507)
                                                      ---------------  ---------------    ---------------  --------------
 Total Expenses, Net................................            (319)          (2,883)            (4,827)            870
                                                      ---------------  ---------------    ---------------  --------------
 Income from Discontinued Operations Before Taxes...             430            2,967              5,009           2,967
 Income Tax Provision...............................            (179)          (1,039)            (1,779)         (1,039)
                                                      ---------------  ---------------    ---------------  --------------
 Net Income from Discontinued Operations............ $           251  $         1,928    $         3,230  $        1,928
                                                      ===============  ===============    ===============  ==============`

The operating revenues of $111,000 and $182,000 for the three
and nine months ended September 30, 2003, respectively, are all related to
investment income compared to investment income of $37,000 and $116,000 for the
three and nine months ended September 30, 2002, respectively.  All of the
discontinued Texas HMO health care operations had previously been a component of
the "managed care and corporate operations" segment.

In conjunction with the Company's plan to exit the Texas HMO
health care market, during the third quarter of 2001, the Company recorded
charges of $10.6 million for premium deficiency medical costs, $1.6 million to
write down certain Texas furniture and equipment, $2.0 million in lease and
other termination costs, $1.8 million in legal and restitution costs, $500,000
in various other exit related costs and $570,000 in premium deficiency
maintenance.

The Company continually evaluates its remaining liabilities
and makes adjustments as appropriate.  During the second quarter of 2002, the
medical claims run out had been favorable compared with the Company's original
projection and the legal and other costs were estimated to be higher than
originally anticipated.  As a result, during the second quarter, the Company
reduced its medical claims payable and medical expenses by $5.0 million and
increased its estimate of legal, restitution and other exit related costs by
$5.0 million.

During the third and fourth quarters of 2002, the Company had
favorable development in both medical claims and legal, restitution and other
exit related costs.  As a result, the Company reduced its estimate of medical
claims payable by $4.8 million and legal, restitution and other exit related
costs by $4.2 million.

In the first quarter of 2003, the Company made a further
adjustment due to continued favorable development.  The Company's estimate for
medical claims payable was reduced by $1.4 million and legal, restitution and
other exit related costs and the related accruals were reduced by $1.9 million.
Included in the $1.9 million reduction is $1.2 million that had been originally
recorded as a charge in the third quarter of 2001 and is presented in the table
below.  In the second quarter of 2003, the Company determined that it needed to
increase its legal and restitution accruals by approximately $500,000.  In the
third quarter of 2003, the Company incurred favorable development relative to
legal, restitution and other exit costs and the related accruals were reduced by
$1.6 million.

The table below presents a summary of current activity of the
discontinued Texas HMO health care operations' charge recorded in the third
quarter of 2001.

`Restructuring     Premium
                                      and        Deficiency
                                 Reorganization  Maintenance    Total
                                 --------------  -----------  ---------
  (In thousands)
Balance, January 1, 2002....... $        4,294  $       570  $   4,864
Charges recorded...............             --           --         --
Cash used......................         (2,490)        (570)    (3,060)
Non-cash activity..............         (4,222)          --     (4,222)
Changes in estimate............          5,000           --      5,000
                                 --------------  -----------  ---------
Balance, December 31, 2002.....          2,582           --      2,582
Charges recorded...............             --           --         --
Cash used......................           (786)          --       (786)
Non-cash activity..............           (523)          --       (523)
Changes in estimate............         (1,150)          --     (1,150)
                                 --------------  -----------  ---------
Balance, September 30, 2003.... $          123  $        --  $     123
                                 ==============  ===========  =========`

The remaining restructuring and reorganization costs of
$123,000 are primarily due to various exit related costs. Management believes
that the remaining reserves, as of September 30, 2003, are appropriate and that
no further revisions to the estimates are necessary at this time.  Based on the
current estimated Texas HMO health care run-out costs and recorded reserves, the
Company believes it has adequate funds available and the ability to fund the
anticipated obligations.



7.	CII FINANCIAL, INC. DISCONTINUED OPERATIONS



On January 15, 2003, the Company announced that it was
exploring strategic alternatives to sell its workers' compensation company, CII
Financial, Inc., ("CII").  Sierra's Board of Directors approved the
plan to sell the operations on December 31, 2002.  Accordingly, beginning in the
fourth quarter of 2002, the Company reclassified its workers' compensation
insurance business as discontinued operations.  CII represented the majority of
the Company's previous workers' compensation operations segment and specialty
product income and expenses.  See Note 10 for a discussion of the recast segment
presentation.



The following are the unaudited assets and liabilities of the
discontinued operations of CII:

`September 30,     December 31,
                                                            2003             2002
                                                     ----------------  ----------------  
  (In thousands)                                                                         
ASSETS                                                                                   
Cash and Cash Equivalents.......................... $         44,166  $         23,060
Investments........................................          267,895           287,242
Reinsurance Recoverable............................          175,378           189,409
Property and Equipment, Net........................            1,611             2,167
Other Assets.......................................           69,774            46,034
                                                     ----------------  ----------------
TOTAL ASSETS.......................................          558,824           547,912
                                                     ----------------  ----------------
                                                                                        
LIABILITIES                                                                             
Accounts Payable and Other Accrued Expenses........           59,356            30,989
Senior Debentures..................................               --            16,765
Reserve for Loss and Loss Adjustment Expenses......          418,038           427,192
                                                     ----------------  ----------------
TOTAL LIABILITIES..................................          477,394           474,946
                                                     ----------------  ----------------
NET ASSETS OF DISCONTINUED OPERATIONS.............. $         81,430  $         72,966
                                                     ================  ================`

All intercompany notes receivable/payable have been
eliminated upon consolidation.



The following are the unaudited condensed statements of
operations of the discontinued operations of CII:



`Three Months Ended September 30,      Nine Months Ended September 30,
                                              ----------------------------------    --------------------------------
                                                    2003              2002               2003             2002
                                              ----------------  ----------------    ---------------  --------------- 
  (In thousands)
OPERATING REVENUES:
Specialty Product Revenues.................. $         25,455  $         46,983    $        97,499  $       132,294
Investment and Other Revenues...............            1,616             3,046              8,916            9,557
                                              ----------------  ----------------    ---------------  ---------------
    Total Revenues..........................           27,071            50,029            106,415          141,851
                                              ----------------  ----------------    ---------------  ---------------

OPERATING EXPENSES:
Specialty Product Expenses..................           27,480            51,493            114,227          142,883
Interest Expense and Other
  (Income) Expense, Net.....................              (63)              (80)              (914)            (190)
                                              ----------------  ----------------    ---------------  ---------------
    Total Operating Expenses................           27,417            51,413            113,313          142,693
                                              ----------------  ----------------    ---------------  ---------------

Loss from Discontinued
   Operations Before Income Tax ............             (346)           (1,384)            (6,898)            (842)

Income Tax Benefit..........................              125             1,126              3,047              803
                                              ----------------  ----------------    ---------------  ---------------
Net Loss from Discontinued
   Operations............................... $           (221) $           (258)   $        (3,851) $           (39)
                                              ================  ================    ===============  ===============`

In the fourth quarter of 2002, in conjunction with the
decision to dispose of the workers' compensation operations, CII recorded
valuation adjustments of $17.3 million, $11.3 million after tax, to reduce the
operations to its estimated net realizable value upon disposition.  The
valuation adjustments included the write down of accounts receivable, fixed
assets and certain other assets of $3.5 million, an investment valuation
adjustment of $500,000 and additional loss reserves of $8.3 million for the 2002
accident year and $5.0 million for prior accident years.



In the second quarter of 2003, CII recorded an additional
valuation adjustment of $4.0 million, $2.6 million after tax, to further reduce
the operations to its estimated net realizable value upon disposition based on
the most recent information available.  The valuation adjustments included the
write down of accounts receivable, fixed assets and certain other
adjustments.



During the nine months ended September 30, 2003 and 2002, the
Company experienced net adverse loss development on prior years of $13.4 million
and $10.8 million, respectively.  The net adverse loss development recorded was
largely attributable to higher costs per claim, or claim severity, in
California.  Many workers' compensation insurance carriers in California are
also experiencing high claim severity.  Factors influencing the higher claim
severity include rising average temporary disability costs, the increase in the
number of major permanent disability claims, medical inflation and adverse court
decisions related to medical control of a claimant's treatment.



Long-Term Debt - Senior Debentures.  At September 30,
2000, CII had approximately $47.1 million of subordinated debentures outstanding
that were due on September 15, 2001.  These subordinated debentures were neither
assumed nor guaranteed by Sierra and were subordinated to Sierra's credit
facility debt.  In December 2000, CII commenced an offer to exchange the
subordinated debentures for cash and/or new debentures.  On May 7, 2001, CII
closed its exchange offer on $42.1 million of its outstanding subordinated
debentures.  CII purchased $27.1 million in principal amount of subordinated
debentures for $20.0 million in cash and issued $15.0 million in new 91⁄2% senior
debentures, due September 15, 2004, in exchange for $15.0 million in
subordinated debentures. The remaining $5.0 million in subordinated debentures
were paid at maturity.



The transaction was accounted for as a restructuring of debt;
therefore, all subsequent cash payments, including interest, related to the
debentures were reductions of the carrying amount of the debentures and no
additional interest expense was recognized.



On June 3, 2003, CII called the outstanding 91⁄2% senior
debentures and redeemed them at the applicable premium of 102.5% along with all
outstanding accrued interest.  The transaction resulted in a gain of $1.4
million, or $1.3 million net of tax.



Intercompany Notes Receivable/Payable.  In connection
with the exchange offer for the subordinated debentures, CII has promissory
notes payable to Sierra aggregating $17.0 million and bearing interest at 9.5%
under which principal and interest are due on demand.



Also in connection with the exchange offer for the
subordinated debentures, California Indemnity Insurance Company, a wholly owned
subsidiary of CII Financial, Inc., loaned Sierra $7.5 million.  The loan bears
interest at 8.5%, which is due semi-annually on March 31 and September 30 of
each year, commencing September 30, 2001.  All outstanding principal and accrued
interest is due on September 30, 2004.  The loan is secured by the common stock
of Sierra Health and Life Insurance Company, Inc., a wholly owned subsidiary of
Sierra, equal to 120% of the principal amount outstanding.



In connection with the redemption of the outstanding 91⁄2%
senior debentures on June 3, 2003, CII entered into a promissory note payable to
another unregulated subsidiary of Sierra aggregating $15.6 million.  The loan
bears interest at 7.5%, which is due semi-annually on March 15 and September 15
of each year, commencing September 15, 2003.  The note is payable on demand
after September 15, 2004.  All intercompany notes receivable/payable have been
eliminated upon consolidation.





8.	EARNINGS PER SHARE:



The following table provides a reconciliation of basic
and diluted earnings per share:

`Three Months Ended September 30,     Nine Months Ended September 30,
                                               --------------------------------    --------------------------------
                                                    2003             2002               2003             2002
                                               ---------------  ---------------    ---------------  ---------------
  (In thousands, except per share data)


Income from continuing operations............ $        22,177  $        12,394    $        58,115  $        30,079
Income (loss) from discontinued operations...              30            1,669               (621)           1,888
                                               ---------------  ---------------    ---------------  ---------------
Net income................................... $        22,207  $        14,063    $        57,494  $        31,967
                                               ===============  ===============    ===============  ===============
Earnings per common share:
Income from continuing operations............ $          0.78  $          0.42    $          2.05  $          1.05
Income (loss) from discontinued operations...              --             0.06              (0.02)            0.07
                                               ---------------  ---------------    ---------------  ---------------
Net income................................... $          0.78  $          0.48    $          2.03  $          1.12
                                               ===============  ===============    ===============  ===============
Earnings per common share assuming dilution:
Income from continuing operations............ $          0.72  $          0.39    $          1.90  $          0.97
Income (loss) from discontinued operations...              --             0.05              (0.02)            0.06
                                               ---------------  ---------------    ---------------  ---------------
Net income................................... $          0.72  $          0.44    $          1.88  $          1.03
                                               ===============  ===============    ===============  ===============

Weighted average common shares outstanding...          28,423           29,166             28,265           28,489
Dilutive options outstanding.................           2,352            2,346              2,174            2,261
Restricted shares outstanding................             122              244                122              244
Weighted average common shares outstanding     ---------------  ---------------    ---------------  ---------------
   assuming dilution.........................          30,897           31,756             30,561           30,994
                                               ===============  ===============    ===============  ===============`



9.	COMPREHENSIVE INCOME

#### 



The following table presents comprehensive income for the periods
indicated:

`Three Months Ended September 30,     Nine Months Ended September 30,
                                                   --------------------------------    --------------------------------
                                                         2003             2002               2003             2002
                                                   ---------------  ---------------    ---------------  ---------------  
  (In thousands)
Net Income ...................................... $        22,207  $        14,063    $        57,494  $        31,967
Change in Unrealized Holding Gain
  on Available-for-Sale Investments, net of tax..          (1,400)           6,555             (1,435)           7,667
Change in Minimum Pension Liability, net of tax..            (566)              --               (360)              --
                                                   ---------------  ---------------    ---------------  ---------------
Comprehensive Income ............................ $        20,241  $        20,618    $        55,699  $        39,634
                                                   ===============  ===============    ===============  ===============`

#### 

1. SEGMENT REPORTING

The Company has two reportable
segments based on the products and services offered:  managed care and corporate
operations and military health services operations. The managed care and
corporate operations segment includes managed health care services provided
through HMO, managed indemnity plans, third-party administrative services
programs for employer-funded health benefit plans and self-insured workers'
compensation plans, multi-specialty medical groups, other ancillary services and
corporate operations.

The military health services segment administers a managed
care federal contract for the Department of Defense's TRICARE program in Region
1, through Sierra Military Health Services, Inc., or SMHS.  The Company
allocates a portion of the general and administrative expenses of the
corporate operations to SMHS.  SMHS completed the last year of a five-year
contract in May 2003.  SMHS is currently in the first year of the contract
extension which can be up to four additional years at the government's sole
option on a year-to-year basis.  Earlier this year, the Department of Defense,
or DoD, procured bids for managed care services under the TRICARE Next
Generation, or T-Nex, contract, in a combined and larger North Region (covering
Michigan, Ohio, Kentucky, Indiana, Illinois, Wisconsin, West Virginia and North
Carolina in addition to the areas that make up Region 1 which we currently
serve).  SMHS submitted a bid to the DoD for the North Region T-Nex contract and
was notified that they were not selected as a T-Nex contractor.  SMHS has filed
a protest of the contract award with the General Accounting Office and
anticipates receiving a decision on the protest by the end of the fourth
quarter.  Based on the current timetable set by the DoD, the new contractor is
scheduled to be fully operational in Region 1 by the end of the third quarter of
2004.  The new contract supersedes the remainder of the contract extension SMHS
negotiated with the DoD.  Once the new contractor is fully operational, SMHS
would commence wind down operations for a period of approximately six months at
substantially reduced revenues than under the current TRICARE Region 1
contract.

Due to the classification of the workers' compensation
insurance operations as discontinued operations in 2002, all amounts presented
have been recast to conform with the two segment presentation at September 30,
2003.

The Company evaluates each segment's performance based on
segment operating profit.  The accounting policies of the operating segments are
the same as those described in the summary of significant accounting
policies.

`Managed Care     Military Health
                                                and Corporate       Services
                                                 Operations        Operations         Total
                                              -----------------  ---------------  -------------
  (In thousands)                                                                               
Three Months Ended September 30, 2003                                                          
Medical Premiums............................ $         242,875  $            --  $     242,875
Military Contract Revenues..................                --          132,788        132,788
Professional Fees...........................             8,984               --          8,984
Investment and Other Revenues...............             3,979              611          4,590
                                              -----------------  ---------------  -------------
   Total Revenue............................ $         255,838  $       133,399  $     389,237
                                              =================  ===============  =============

Segment Operating Profit.................... $          30,745  $         4,433  $      35,178
Interest Expense............................            (1,228)             (67)        (1,295)
Other Income (Expense), Net.................                56               44            100
                                              -----------------  ---------------  -------------
Income from Continuing Operations
   Before Income Taxes...................... $          29,573  $         4,410  $      33,983
                                              =================  ===============  =============
                                                                                               
Three Months Ended September 30, 2002                                                          
Medical Premiums............................ $         217,995  $            --  $     217,995
Military Contract Revenues..................                --          100,366        100,366
Professional Fees...........................             7,819               --          7,819
Investment and Other Revenues...............             4,213              624          4,837
                                              -----------------  ---------------  -------------
   Total Revenue............................ $         230,027  $       100,990  $     331,017
                                              =================  ===============  =============

Segment Operating Profit.................... $          16,664  $         4,361  $      21,025
Interest Expense............................            (1,580)             (54)        (1,634)
Other Income (Expense), Net.................                98              145            243
                                              -----------------  ---------------  -------------
Income from Continuing Operations
   Before Income Taxes...................... $          15,182  $         4,452  $      19,634
                                              =================  ===============  =============
                                                                                               
Nine Months Ended September 30, 2003                                                           
Medical Premiums............................ $         717,097  $            --  $     717,097
Military Contract Revenues..................                --          352,632        352,632
Professional Fees...........................            27,403               --         27,403
Investment and Other Revenues...............            13,138            1,442         14,580
                                              -----------------  ---------------  -------------
   Total Revenue............................ $         757,638  $       354,074  $   1,111,712
                                              =================  ===============  =============

Segment Operating Profit.................... $          83,784  $         9,965  $      93,749
Interest Expense............................            (4,248)            (197)        (4,445)
Other Income (Expense), Net.................              (649)             406           (243)
                                              -----------------  ---------------  -------------
Income from Continuing Operations
   Before Income Taxes...................... $          78,887  $        10,174  $      89,061
                                              =================  ===============  =============
                                                                                               
Nine Months Ended September 30, 2002                                                           
Medical Premiums............................ $         636,047  $            --  $     636,047
Military Contract Revenues..................                --          279,560        279,560
Professional Fees...........................            23,045               --         23,045
Investment and Other Revenues...............            11,372            1,709         13,081
                                              -----------------  ---------------  -------------
   Total Revenue............................ $         670,464  $       281,269  $     951,733
                                              =================  ===============  =============

Segment Operating Profit.................... $          39,922  $        12,424  $      52,346
Interest Expense............................            (6,316)            (152)        (6,468)
Other Income (Expense), Net.................               (91)             228            137
                                              -----------------  ---------------  -------------
Income from Continuing Operations
   Before Income Taxes...................... $          33,515  $        12,500  $      46,015
                                              =================  ===============  =============`

11. 	INVESTMENTS

Investments consist principally of U.S. Government and
its agencies' securities and municipal bonds, as well as corporate and mortgage-backed
securities.  At September 30, 2003, over 90% of the Company's portfolio
is invested in U.S. Government and its agencies' securities and municipal bonds.
All non-restricted investments that are designated as available-for-sale are
classified as current assets.  These investments are available for use in the
current operations regardless of contractual maturity dates.  Non-restricted
investments designated as held-to-maturity are classified as current assets if
expected maturity is within one year of the balance sheet date.  Otherwise, they
are classified as long-term investments. Realized gains and losses are
calculated using the specific identification method and are included in
investment and other revenues.  Unrealized holding gains and losses on
available-for-sale securities are included as a separate component of
stockholders' equity, net of income tax effects, until realized.

Investments that the Company has the intention and ability to
hold to maturity are stated at amortized cost and categorized as held-to-maturity.
  All of the held-to-maturity investments are part of the discontinued
workers' compensation operations.  The remaining investments have been
categorized as available-for-sale and are stated at their fair value.  Fair
value is estimated primarily from published market values as of the balance
sheet date. The Company does not believe it has any other than temporary
investment impairments.

12. 	RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the FASB issued Statement of Financial
Accounting Standards No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" ("SFAS No. 149"), which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133.  SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 except for the provisions that were cleared by the
FASB in prior pronouncements. The Company does not expect the adoption of SFAS
No. 149 to have a material effect on the Company's consolidated financial
position or results of operations.

#### ITEM 2.

The following discussion and
analysis provides information which management believes is relevant for an
assessment and understanding of our consolidated financial condition and results
of operations. The discussion should be read in conjunction with our audited
consolidated financial statements and accompanying notes for the year ended
December 31, 2002, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our 2002 annual report on Form
10-K/A filed with the Securities and Exchange Commission on August 15, 2003, and
in conjunction with our unaudited condensed consolidated financial statements
and accompanying notes for the three and nine month periods ended September 30,
2003 and 2002, included in this Form 10-Q. The information contained below is
subject to risk factors. We urge the reader to review carefully the section
"Risk Factors" in our 2002 annual report on Form 10-K/A for a more complete
discussion of the risks associated with an investment in our securities. See
"Forward-Looking Statements" and "Risk Factors" under Item 1 of our
2002 annual report on Form 10-K/A.

This report on Form 10-Q contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, both as amended.  The
forward-looking statements regarding our business and results of operations
should be considered by our stockholders or any reader of our business or
financial information along with the risk factors discussed in our 2002 annual
report on Form 10-K/A.  All statements other than statements of historical fact
are forward-looking statements for purposes of federal and state securities
laws. The cautionary statements are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, as amended,
and identify important factors that could cause our actual results to differ
materially from those expressed in any projected, estimated or forward-looking
statements relating to us.  These forward-looking statements are generally
identified by their use of terms and phrases such as "anticipate,"
"believe," "could,"  "estimate,"
"expect,"  "hope,"  "intend,"  "may,"
"plan,"  "predict,"  "project,"
"seeks," "will," "continue," and other similar
terms and phrases, including all references to assumptions.

Although we believe that the expectations reflected in any of
our forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-looking
statements that speak only as of the date hereof. We undertake no
obligation to republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America.  In preparing these financial statements, we are required to make
judgments, assumptions and estimates, which we believe are reasonable and
prudent based on the available facts and circumstances.  These judgments,
assumptions and estimates affect certain of our revenues and expenses and their
related balance sheet accounts and in disclosing our contingent assets and
liabilities.  Our most significant accounting estimates are for our premium
allowance, the liability for medical claims payable, military contract revenues
and expenses, investment impairment, litigation and legal accruals, reserve for
losses and loss adjustment expense, or LAE, reinsurance recoverables,
deferred tax assets and liabilities and the net realizable value on disposal of the CII workers' compensation operations. We base our assumptions and estimates
primarily on historical experience and trends and factor in known and projected
trends.  On an on-going basis, we re-evaluate our selection of assumptions and
the method of calculating our estimates.  Actual future results, however, may
materially differ from our calculated estimates and this difference would be
reported in our then current operations.

For a more detailed description of our critical accounting
policies and estimates, see Item 7 of our 2002 annual report on Form 10-K/A and
for a more extensive discussion of our accounting policies, see Note 2, Summary
of Significant Accounting Policies, in the Notes to the Consolidated Financial
Statements in our 2002 annual report on Form 10-K/A filed on August 15, 2003.

RESULTS OF OPERATIONS, THREE MONTHS ENDED SEPTEMBER 30,
2003, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002.

Total Operating Revenues increased approximately
17.6% to $389.2 million from $331.0 million for 2002.



The change in operating revenues was comprised of the
following:



- An increase in medical premiums of $24.9 million
- An increase in military contract revenues of $32.4
million
- An increase in professional fees of $1.2 million
- A decrease in investment and other revenues of
$200,000



Medical Premiums from our HMO and managed indemnity
insurance subsidiaries increased from $218.0 million to $242.9 million, an
increase of $24.9 million or 11.4%. The $24.9 million increase in premium
revenue reflects a 7.2% increase in Medicare member months (the number of months
individuals are enrolled in a plan), an 11.8% increase in Medicaid member months
and a 6.6% increase in commercial member months.  The growth in Medicare member
months contributes significantly to the increase in premium revenues as the
Medicare per member premium rates are more than three times higher than the
average commercial premium rate.

HMO and POS premium rates for renewing
commercial groups increased on average 10% to 12% while the overall recorded per
member per month revenue increase, including new and continuing business, was
approximately 10%.  Managed indemnity rates on renewing groups increased
approximately 9%.  We did not receive a Medicaid rate increase in 2002 or 2003.
The basic Medicare rate increase received in 2003 was approximately 2.0%.  Our
overall Medicare rate increase was approximately 2.4% due primarily to an
increase in the Social HMO membership as a percentage of our total Medicare
membership.

The Centers for Medicare and Medicaid Services, or CMS,
has adopted a new risk adjustment payment methodology for Medicare beneficiaries
who are enrolled in managed care programs, including the Social HMO.  Beginning
January 2004, 90% of the per member per month prospective payment for the Social
HMO members will be based on the member demographics of the current Social HMO
payment methodology and 10% will be based on the risk-adjusted payment
methodology used for other Medicare+Choice plans.  As a result, we are
projecting an increase in our CMS rate of approximately 2.2% for 2004.  There is
ongoing activity in Congress to extend the Social HMO program beyond 2004;
however, there is no guarantee at this time that the Social HMO contract will be
renewed beyond 2004.  If the reimbursement for these members decreases
significantly and related benefit changes are not made timely, there could be a
materially adverse effect on our business.  Continued medical premium revenue
growth is principally dependent upon continued enrollment in our products and
upon competitive and regulatory factors.

Military Contract Revenues increased from
$100.4 million to $132.8 million, an increase of $32.4 million or 32.3%. The
increase in revenue is primarily the result of increased eligible beneficiaries
resulting from the call up of reservists in Region 1 and their family members
who are eligible for the TRICARE program after 30 days, additional TRICARE
change orders and the positive impact of the first year of our contract
extension which began June 2003.  The base monthly revenue under the contract
extension is higher than it was under the previous contract.

Sierra Military Health Services, Inc., or SMHS, completed the
last year of a five-year contract in May 2003.  It is currently in the first
year of the contract extension which can be up to four additional years at the
government's sole option on a year-to-year basis.  Earlier this year the
Department of Defense, or DoD, procured bids for managed care services under the
TRICARE Next Generation, or T-Nex, contract in a combined and larger North
Region (covering Michigan, Ohio, Kentucky, Indiana, Illinois, Wisconsin, West
Virginia and North Carolina in addition to the areas that make up Region 1 which
we currently serve).    SMHS submitted a bid to the DoD for the T-Nex contract
for the North Region on January 29, 2003, with Sierra as a proposed guarantor.
SMHS has been notified that they were not selected as a T-Nex contractor and has
filed a protest of the contract award with the General Accounting Office and
anticipates receiving a decision on the protest by the end of the fourth
quarter.  Based on the current timetable set by the DoD, the new contractor is
scheduled to be fully operational in Region 1 by the end of the third quarter of
2004.  The new contract supersedes the remainder of the contract extension we
have negotiated with the DoD under our current TRICARE Region 1 contract.

Should SMHS not prevail in its protest, it is expected that
it will continue full operations until at least September 2004, followed by a
phase out of its activities for a period of approximately six months at
substantially reduced revenues.  For more detail on SMHS' results of operations
see Note 10, Segment Reporting, in the Notes to the Condensed Consolidated
Financial Statements.

Professional Fees increased from $7.8 million
to $9.0 million, an increase of $1.2 million, or 14.9% as a result of increased
visits due to membership growth, a higher percentage of members selecting our
owned medical group and an increase in related services performed by our other
provider subsidiaries.

Investment and Other Revenues decreased from
$4.8 million to $4.6 million, a decrease of $200,000 or 5.1%.  Investment
revenues decreased due to losses on our deferred compensation plan assets and a
decrease in revenues associated with administrative services.  Investment and
other revenues now include the revenue associated with administrative services,
which were previously reported as part of specialty product revenues.

Medical Expenses increased from $179.0 million
to $191.2 million, an increase of $12.2 million or 6.9%.  The increase is due
primarily to our increased membership which is in part offset by a lower medical
care ratio.  Medical expenses as a percentage of medical premiums and
professional fees decreased to 75.9% from 79.3%.  The favorable decrease is
primarily due to premium yields in excess of cost and utilization increases.
Our medical claims payable liability requires us to make significant
estimates.

We contract with hospitals, physicians and other
independently contracted providers of health care under capitated or discounted
fee-for-service arrangements including hospital per diems to provide medical
care services to members.  Capitated providers are at risk for a portion of the
cost of medical care services provided to our members in the relevant geographic
areas; however, we are ultimately responsible for the provision of services to
our members should the capitated provider be unable to provide the contracted
services.  We incurred capitation expenses of $26.1 million and $23.0 million,
or 13.7% and 12.9%, of our total medical expenses for the three months ended
September 30, 2003 and 2002, respectively.

During the third quarter of 2002, we entered into a new
hospital contract.  With this new contract, which began October 1, 2002, we hold
some form of contracted provider relationship with every hospital in the Las
Vegas area.

Military Contract Expenses increased from $96.6
million to $129.0 million, an increase of $32.4 million or 33.5%. The increase
is consistent with the increase in revenues discussed previously and includes
$3.8 million in T-Nex related costs for 2003. Health care delivery expense
consists primarily of costs to provide managed health care services to eligible
beneficiaries in accordance with Sierra's TRICARE contract.  Under the contract,
SMHS provides health care services to approximately 704,000 eligible individuals
of active duty military personnel, military retirees under the age of 65 and
dependents of military retirees through a network of approximately 55,000 health
care providers and certain other subcontractor partnerships.  Also included in
military contract expenses are costs incurred to perform specific administrative
services, such as health care appointment scheduling, enrollment, medical and
network management services as well as health care advice line services, and
other administrative functions of the military health care subsidiary. These
administrative services are performed for active duty personnel and family
members as well as retired military families.

General and Administrative Expenses, or
G&A, decreased from $34.4 million to $33.8 million, a decrease of
approximately $600,000 or 1.6%. G&A expenses decreased due to decreases in
advertising and payroll related expenses.  As a percentage of revenues, G&A
expenses were 8.7% for 2003, compared to 10.4% in 2002.  As a percentage of
medical premium revenue, G&A expenses were 13.9% for 2003, compared to 15.8%
for 2002.  G&A expenses now include the expenses associated with certain
administrative services which were previously reported as part of specialty
product expenses.

Interest Expense decreased from $1.6 million to
$1.3 million, a decrease of approximately $300,000 or 20.7%.  Interest expense
related to the sale-leaseback transaction decreased by approximately $300,000 as
the remaining buildings qualified as a sale during 2002.  The decrease in the
interest expense related to our revolving credit facility was primarily offset
by an increase in interest related to the new senior convertible debentures.  We
currently incur a fee of 0.375% on the unused portion of our new revolving
credit facility.

Other Income (Expense), Net resulted in income
of approximately $100,000 for 2003 compared to income of approximately $200,000
for 2002.

Provision for Income Taxes was recorded at
$11.8 million for 2003 compared to $7.2 million for 2002. The effective tax rate
for 2003 was 34.7% compared to 36.9% for 2002. Our effective tax rate is less
than the statutory rate due primarily to tax preferred investments.

Discontinued Operations consist of our Texas
HMO health care operations and the CII workers' compensation operations. The net
income from discontinued operations for 2003 was approximately $30,000 compared
to $1.7 million for 2002.  The Texas HMO health care operations had net income
of approximately $250,000 for 2003, which was offset by a net loss on the CII
workers' compensation operations of $220,000.

Discontinued Texas HMO health care operations.  The
income from the Texas HMO health care operations for 2003 was primarily due to a
decrease in litigation accruals of approximately $1.6 million partially offset
by an additional valuation allowance on the remaining real estate of $1.2
million. The combined adjustments resulted in income from the discontinued Texas
HMO health care operations of $430,000 pre-tax or net income of approximately
$250,000.

Discontinued CII workers' compensation operations.
The discontinued workers' compensation operations for 2003 had a net loss of
$220,000.  We are continuing to operate the business until a disposal
occurs.

Net earned premiums decreased by $21.5 million or 45.8% due
primarily to a decrease in direct earned premiums of $18.8 million, an increase
in ceded reinsurance premiums of $2.2 million and a decrease in assumed premiums
of approximately $500,000. We have been increasing our premium rates, especially
in California, where we have experienced significant adverse loss development on
prior accident years.  In addition, we are becoming more selective in the types
of accounts we insure.  In the third quarter of 2003, our average premium rate
increase on renewing California policies was approximately 64%, which is in
addition to a 48% average premium rate increase in the third quarter of 2002.
In other states, our average premium rate increase on renewing policies was
approximately 6% in 2003 compared to approximately 12% in 2002.

We continue to implement stricter underwriting guidelines and
we believe that our announcement that the workers' compensation insurance
business was reclassified to discontinued operations has negatively impacted our
premium production.  These factors have limited our ability to retain current
business and obtain new business.  Premiums in force are an indicator of future
written premium trends and represent the total estimated annual premiums of all
policies in force at a point in time.  Total inforce premiums decreased by 37%
from $169.0 million at September 30, 2002 to $105.7 million at September 30,
2003.  Premiums in force at September 30, 2003 in California are down $57.8
million or 50% over the comparable 2002 period.  Premiums in force in our other
states are down by approximately $5.5 million or 11%, primarily in Texas and
Colorado.

Investment and other revenue decreased by $1.4 million or
46.9% due to a decrease in the average investment yields during the period.

Expenses decreased in the CII workers' compensation
operations by approximately $24.0 million or 46.7%. The decrease is primarily
due to the following:

- In 2003, we recorded $4.0 million of net adverse loss
development for prior accident years compared to net adverse loss development of
$5.5 million recorded in 2002. The net adverse loss development recorded in 2003
was largely attributable to higher costs per claim, or claim severity, in
California, primarily on accident year 2002.  Higher claim severity has had a
negative impact on the entire California workers' compensation industry in the
past few periods and this trend may continue.
- The loss and LAE ratio for the 2003 accident year
compared to the 2002 accident year was lower by 11.5%, which resulted in a
decrease of approximately $2.9 million.   The reduction is primarily related to
our premium rate increases.
- A $15.8 million reduction in loss and LAE is related to
the decrease in net earned premiums in 2003 compared to 2002.
- The net decrease in underwriting expenses, policyholders'
dividends and other operating expenses was approximately $3.8
million.

The net adverse loss development on prior accident years
included those years that were covered by our reinsurance agreements.  This
resulted in an increase in the reinsurance recoverable balance which was then
reduced by amounts collected from reinsurers.  During the three months ended
September 30, 2003, we increased our ceded reserves by $5.4 million and received
payments from our reinsurers totaling $11.5 million.

The loss and LAE reserves recorded as of September 30, 2003
reflect our best estimate of the ultimate loss costs for reported and unreported
claims occurring in accident year 2003 as well as those occurring in accident
years prior to 2003.  Workers' compensation claim payments are made over several
years from the date of the claim.  Until the final payments for reported claims
are made, reserves are invested to generate investment income.

The combined ratio is a measurement of the workers'
compensation underwriting profit or loss and is the sum of the loss and LAE
ratio, underwriting expense ratio and policyholders' dividend ratio.  A combined
ratio of less than 100% indicates an underwriting profit.  Our combined ratio
was 107.7% compared to 109.4% for 2002.  The decrease was primarily due to a
decrease in the policyholders' dividend ratio. Excluding prior accident years'
adverse loss development, the combined ratio would have been 92.0% for 2003 and
97.7% for 2002.

In February 2002, California enacted Assembly Bill 749.  This
new legislation increased benefits paid to injured workers starting January 1,
2003.  Increased loss costs, such as benefit increases, are normally built into
the rate making process so that premiums are increased to cover the increase in
costs.  On October 18, 2002, the California Insurance Commissioner approved an
increase of 10.5% in pure premium rates for new and renewal policies effective
in 2003.  In addition, the Commissioner approved a 4.9% increase in pure premium
rates for the unexpired terms of policies in force at January 1, 2003.  The
Commissioner also approved an additional mid year rate increase of 7.2%
effective July 1, 2003.  Although we have increased our premiums, there is no
assurance that our increase will be sufficient to cover the ultimate cost
increases or that the estimate of cost increases provided by the Workers'
Compensation Insurance Rating Bureau, or WCIRB, (the organization that
accumulates premium and loss data for the State of California for rate making
purposes) is accurate.  Assembly Bill 749 is effective for claims occurring on
and after January 1, 2003.  However, due to other statutes, certain temporary
total disability claims with dates of injury prior to 2003 automatically
increased to the new benefit levels effective January 1, 2003.

New California workers' compensation insurance reform
legislation was signed into law in September 2003 to address some of the cost
drivers that have led to significantly higher workers' compensation insurance
premium rates over the past three years.  The WCIRB has preliminarily indicated
that the reform legislation will reduce the 2004 loss costs by an average of
2.9% to 5.3%.  Prior to the enactment of the legislation, the WCIRB had
indicated that 2004 loss costs should increase by an average of 12%.  We have
not adjusted our reserving methods and there is no assurance that our rates will
be adequate given the inherent uncertainties in any new legislation.

In the wake of the events of September 11, 2001 and the
ensuing hardening of the reinsurance market, our new reinsurance agreements,
which cover new and renewal policies effective on and after January 1, 2003,
cost more and have reduced coverage limits, including exclusions for terrorist
acts.  We continue to retain the first $500,000 per occurrence but the maximum
coverage has been reduced from statutory (i.e., unlimited) limits to $20.0
million per occurrence.  We also must meet certain annual aggregate deductibles
before we can begin to recover from some of our reinsurers.  This new coverage
will result in our retaining more of the losses and LAE.   We have factored
these higher costs into our premium rates but there is no assurance that our
rates will be adequate to cover the ultimate costs.

Reinsurance contracts do not relieve us from our obligations
to injured workers or policyholders.  At September 30, 2003, we had $175.4
million in reinsurance recoverable.  We evaluate the financial condition of our
reinsurers to minimize our exposure to significant losses from reinsurer
insolvencies.  We also periodically review the financial strength ratings of our
reinsurers to determine if an allowance for uncollectible reinsurance is
warranted.  As of September 30, 2003, no allowance was established.  At
September 30, 2003, all of our reinsurers were rated A- or better by Fitch Inc.
(7th of 23) and the A.M. Best Company (4th of 16).  Should
these companies be unable to perform their obligations to reimburse us for ceded
losses, we would experience significant losses.

RESULTS OF OPERATIONS, NINE MONTHS ENDED SEPTEMBER 30,
2003, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002.

Total Operating Revenues increased approximately
16.8% to $1.11 billion from $951.7 million for 2002.



The change in operating revenues was comprised of the
following:



- An increase in medical premiums of $81.1 million
- An increase in military contract revenues of $73.0
million
- An increase in professional fees of $4.4 million
- An increase in investment and other revenues of $1.5
million



Medical Premiums increased from $636.0 million
to $717.1 million from our HMO and managed indemnity insurance subsidiaries, an
increase of $81.1 million or 12.7%. The $81.1 million increase in premium
revenue reflects a 7.3% increase in Medicare member months (the number of months
individuals are enrolled in a plan), a 24.2% increase in Medicaid member months
and a 3.9% increase in commercial member months.  The growth in Medicare member
months contributes significantly to the increase in premium revenues as the
Medicare per member premium rates are more than three times higher than the
average commercial premium rate.

HMO and POS premium rates for renewing commercial groups
increased on average 10% to 12% while the overall recorded per member per month
revenue increase, including new and continuing business, was approximately 12%.
Managed indemnity rates on renewing groups increased approximately 10%.  We did
not receive a Medicaid rate increase in 2002 or 2003.  The basic Medicare rate
increase received in 2003 was approximately 2.0%.  Our overall Medicare rate
increase was approximately 3.2% due primarily to the following:

- An increase in the Social HMO membership as a percentage
of our total Medicare membership.  The Social HMO members have a higher average
rate than our other Medicare members.  Approximately 96% of our Nevada Medicare
members are enrolled in the Social HMO Medicare program which includes our Reno
membership which was not part of the Social HMO program in 2002.
- The CMS screening of our Social HMO Medicare membership
indicated an increase in risk factors which contributes to higher rates and
corresponding increases in medical expenses.

Military Contract Revenues increased from
$279.6 million to $352.6 million, an increase of $73.0 million or 26.1%. The
increase in revenue is primarily the result of increased eligible beneficiaries
resulting from the call up of reservists in Region 1 and their family members
who are eligible for the TRICARE program after 30 days, additional TRICARE
change orders and the positive impact of the first year of our contract
extension which began in June 2003.  The base monthly revenue under the contract
extension is higher than it was under the previous contract.

Professional Fees increased from $23.0 million
to $27.4 million, an increase of $4.4 million or 18.9% as a result of increased
visits due to membership growth, a higher percentage of members selecting our
owned medical group and an increase in other related services performed by our
other provider subsidiaries.

Investment and Other Revenues increased from
$13.1 million to $14.6 million, an increase of approximately $1.5 million or
11.5%.  Investment revenues increased due to higher average invested balances,
an increase in net gains on the sale of investments and an increase in revenues
associated with administrative services.  Investment and other revenues now
include the revenue associated with administrative services, which were
previously reported as part of specialty product revenues.

Medical Expenses increased from $530.4 million
to $572.0 million, an increase of $41.6 million or 7.8%.  The increase is due
primarily to our increased revenues and associated membership which is in part
offset by a lower medical care ratio.  Medical expenses as a percentage of
medical premiums and professional fees decreased to 76.8% from 80.5%.  The
favorable decrease is primarily due to premium yields in excess of cost and
utilization increases and was partially offset by malpractice cost increases at
our medical provider subsidiary.  Our medical claims payable liability requires
us to make significant estimates.

We contract with hospitals, physicians and other
independently contracted providers of health care under capitated or discounted
fee-for-service arrangements including hospital per diems to provide medical
care services to members.  Capitated providers are at risk for a portion of the
cost of medical care services provided to our members in the relevant geographic
areas; however, we are ultimately responsible for the provision of services to
our members should the capitated provider be unable to provide the contracted
services.  We incurred capitation expenses of $75.2 million and $65.5 million or
13.1% and 12.3% of our total medical expenses for the nine months ended
September 30, 2003 and 2002, respectively.

Military Contract Expenses increased from
$268.8 million to $344.1 million, an increase of $75.3 million or 28.0%. The
increase is consistent with the increase in revenues discussed previously and
includes $8.1 million in T-Nex related costs for 2003. Health care delivery
expense consists primarily of costs to provide managed health care services to
eligible beneficiaries in accordance with Sierra's TRICARE contract.  Under the
contract, SMHS provides health care services to approximately 704,000 eligible
individuals of active duty military personnel, military retirees under the age
of 65 and dependents of military retirees through a network of approximately
55,000 health care providers and certain other subcontractor partnerships.  Also
included in military contract expenses are costs incurred to perform specific
administrative services, such as health care appointment scheduling, enrollment,
medical and network management services as well as health care advice line
services, and other administrative functions of the military health care
subsidiary. These administrative services are performed for active duty
personnel and family members as well as retired military families.

General and Administrative Expenses, or
G&A, increased from $100.1 million to $101.8 million, an increase of $1.7
million or 1.7%.  G&A expenses increased due to increases in payroll and
benefits, and facility lease expense partially offset by a decrease in legal
expenses.  The increase in facility lease expense is due to the rent payments
associated with the sale-leaseback transaction for our administrative buildings
now being recorded as an operating expense.  Previously, the rent payments were
recorded as interest and a reduction of principal and the assets were being
depreciated.  As a percentage of revenues, G&A expenses were 9.2% for 2003,
compared to 10.5% in 2002.  As a percentage of medical premium revenue, G&A
expenses were 14.2% for 2003, compared to 15.7% for 2002.  G&A expenses now
include the expenses associated with certain administrative services which were
previously reported as part of specialty product expenses.

Interest Expense decreased from $6.5 million to
$4.4 million, a decrease of $2.1 million or 31.3%.  Interest expense related to
the sale-leaseback transaction decreased by $2.5 million as the remaining
buildings qualified as a sale during 2002.  The decrease in the interest expense
related to our revolving credit facility was primarily offset by an increase in
interest related to the new senior convertible debentures.  We currently incur a
fee of 0.375% on the unused portion of our new revolving credit facility.

Other Income (Expense), Net resulted in expense
of approximately $200,000 compared to income of approximately $100,000 for
2002.

Provision for Income Taxes was recorded at
$30.9 million for 2003 compared to $15.9 million for 2002. The effective tax
rate for 2003 was 34.7% compared to 34.6% for 2002. Our effective tax rate is
less than the statutory rate due primarily to tax preferred investments.

Discontinued Operations consist of our Texas
HMO health care operations and the CII workers' compensation operations. The net
loss from discontinued operations for 2003 was approximately $600,000 compared
to income of approximately $1.9 million for 2002.  The Texas HMO health care
operations had net income of $3.2 million for 2003, which was offset by a net
loss on the CII workers' compensation operations of $3.8 million.

Discontinued Texas HMO health care operations.  The
income from the Texas HMO health care operations for 2003 included a pre-tax
gain on the early payoff of the remaining Kaiser-Texas mortgage loan of $2.1
million, a net decrease in litigation accruals of $3.0 million and, favorable
development in medical claim liabilities of $1.4 million partially offset by a
net loss on the sale/write down of real estate of approximately $1.8 million.
The combined adjustments resulted in income from the discontinued Texas HMO
health care operations of $5.0 million pre-tax or net income of $3.2
million.

Discontinued CII workers' compensation operations.
The discontinued workers' compensation operations for 2003 had a loss of $6.9
million pre-tax or a net loss of $3.8 million.  We are continuing to operate the
business until a disposal occurs.

Net earned premiums decreased by $34.8 million or 26.3% due
primarily to a decrease in direct earned premiums of $30.3 million and an
increase in ceded reinsurance premiums of $5.1 million offset by an increase in
assumed premiums of $600,000.  We have been increasing our premium rates,
especially in California, where we have experienced significant adverse loss
development.  In addition, we are becoming more selective in the types of
accounts we insure.  For the first nine months of 2003, our average premium rate
increase on renewing California policies was approximately 63%, which is in
addition to a 35% average rate increase in the first nine months of 2002.  In
other states, our average premium rate increase on renewing policies was
approximately 8% in 2003 compared to approximately 7% in 2002.

We continue to implement stricter underwriting guidelines and
we believe that our announcement that the workers' compensation insurance
business was reclassified to discontinued operations has negatively impacted our
premium production.  These factors have limited our ability to retain current
business and obtain new business.

Investment and other revenue decreased by $600,000 or 6.7%
due to a decrease in the average investment yields during the period.

Expenses decreased in the CII workers' compensation
operations by approximately $29.4 million or 20.6%. The decrease is primarily
due to the following:

- In 2003, we recorded $13.4 million of net adverse loss
development for prior accident years compared to net adverse loss development of
$10.8 million recorded in 2002. The net adverse loss development recorded in
2003 was largely attributable to higher costs per claim, or claim severity, in
California, primarily on accident years 1997, 1998, 1999, 2001 and 2002.  Higher
claim severity has had a negative impact on the entire California workers'
compensation industry in the past few periods and this trend may
continue.
- The loss and LAE ratio for the 2003 accident year
compared to the 2002 accident year was lower by 3.0% which resulted in a
decrease of approximately $2.9 million.
- A $25.8 million reduction in loss and LAE is related to
the decrease in net earned premiums in 2003 compared to 2002.

- In order to write down the workers' compensation
operations to its current estimated realizable value, CII recorded valuation
adjustments during 2003, which included the write down of accounts receivable,
fixed assets and certain other adjustments totaling $4.0 million.

- The net decrease in underwriting expenses, policyholders'
dividends and other operating expenses was approximately $5.9 million.
- A gain on the redemption of the 91⁄2% senior debentures of
$1.4 million pre-tax or $1.3 million net of tax.

The net adverse loss development on prior accident years
included those years that were covered by our reinsurance agreements.  This
resulted in an increase in the reinsurance recoverable balance which was then
reduced by amounts collected from reinsurers.  During the nine months ended
September 30, 2003, we increased our ceded reserves by $24.8 million and
received payments from our reinsurers totaling $38.8 million.

The combined ratio is a measurement of the workers'
compensation underwriting profit or loss and is the sum of the loss and LAE
ratio, underwriting expense ratio and policyholders' dividend ratio.  A combined
ratio of less than 100% indicates an underwriting profit.  Our combined ratio
was 117.6% compared to 107.9% for 2002.  The increase was primarily due to the
$4.0 million write down, increased net adverse loss development for prior
accident years and the decrease in net earned premiums. Excluding the $4.0
million write down, as well as prior accident years' adverse loss development,
the combined ratio would have been 99.8% for both 2003 and 2002.

LIQUIDITY AND CAPITAL RESOURCES

For continuing operations, we had cash provided by operating
activities of $68.0 million in 2003, compared to $92.5 million in 2002.  We
received only eight monthly CMS payments during the first nine months of 2003
and 2002.  We received the January payments of $29.9 million and $26.8 million
in December 2002 and 2001, respectively.  When the periods are adjusted to
reflect the January monthly payments from CMS, the cash flow from continuing
operations is $97.9 million in 2003 compared to  $119.3 million in 2002.  We
believe presenting this adjustment for the timing of the CMS payments is useful
for making a period to period comparison of our cash flow from continuing
operations.  The decrease in cash provided by operating activities in 2003 when
compared to 2002 is primarily related to increases in other receivables, an
increase in military accounts receivable and net income tax payments of $10.7
million in 2003 compared to net income tax receipts of $13.0 million in 2002.
Our business and cash flows could be adversely affected if the timing or amount
of the payments we receive from the DoD vary significantly from our
expectations.

On November 16, 2001, SMHS entered into a securitization
arrangement with General Electric Capital Corporation.  The arrangement provides
for the assignment of SMHS' Federal Government accounts receivable to SMHS
Funding.  SMHS Funding is a special purpose limited liability company owned by
SMHS and was formed for the purpose of purchasing all receivables of SMHS.  This
entity is fully consolidated into SMHS. SMHS Funding may assign an undivided
interest in certain of the receivables to a subsidiary of General Electric
Capital Corporation in the event that additional financing by SMHS is warranted.
This securitization arrangement has not been utilized and we do not anticipate
utilizing it in 2003.

For continuing operations, cash provided by investing
activities during 2003 was $29.9 million, compared to a use of cash of $82.0
million in 2002. The 2003 amount included $13.7 million in net capital
expenditures compared to $5.0 million in 2002. The net change in investments for
the period was a decrease in investments of $43.6 million for 2003, as
investments matured or were sold and were converted to cash.  For 2002, we used
cash from operations to purchase investments for a net increase in investments
of $77.0 million.

For continuing operations, cash provided by financing
activities during 2003 was $9.9 million, compared to cash used of $13.2 million
in 2002. The 2003 amount included net payments of $60.0 million on the revolving
credit facility compared to $39.0 million in 2002.  In addition, in 2003 we
received $115.0 million in proceeds from the sale of our senior convertible
debentures and $1.3 million from proceeds of other long-term debt.  These
proceeds were offset by debt issue costs of $5.8 million.  Proceeds from the
issuance of stock in connection with stock plans were $12.6 million in 2003,
compared to $10.2 million in 2002.  We used cash of $52.8 million to purchase
treasury stock during the first nine months of 2003 while no treasury stock
purchases were made during 2002.

Discontinued operations used cash of $25.0 million in 2003,
compared to $37.9 million in 2002. Cash used in 2003 was primarily for the
payoff of the remaining Kaiser-Texas mortgage loan for $11.3 million and the
redemption of the outstanding 91⁄2% senior debentures for $15.3 million.  Cash
used in 2002 was primarily for the run out of claims and other legal and
restitution related items. Based on the current estimated Texas HMO health care
run-out costs and recorded reserves, we believe we have adequate funds available
and the ability to invest, should we be required to do so, adequate funds in
Texas to meet the anticipated obligations for our former members' health care
claims.

Sierra Debentures

In March 2003, we issued $115.0 million aggregate
principal amount of 21⁄4% senior convertible debentures due March 15, 2023.  The
debentures pay interest, which is due semi-annually on March 15 and September 15
of each year.  Each $1,000 principal amount of debentures is convertible, at the
option of the holders, into 54.6747 shares of Sierra Health Services, Inc.,
common stock prior to March 15, 2023 if (1) the sale price of our common stock
for at least 20 trading days in a period of 30 consecutive trading days ending
on the last trading day of the preceding fiscal quarter exceeds 120% of the
conversion price per share of our common stock; (2) the debentures are called
for redemption; (3) there is an event of default with respect to the debentures;
or (4) specified corporate transactions have occurred.  The conversion rate is
subject to certain adjustments.  This conversion rate initially represents a
conversion price of $18.29 per share.  Holders of the debentures may require
us to repurchase all or a portion of their debentures on March 15 in 2008, 2013
and 2018 or upon certain corporate events including a change in control.  In
either case, we may choose to pay the purchase price of such debentures in cash
or common stock or a combination of cash and common stock.  The debentures can
be redeemed by us for cash beginning on or after March 20, 2008.

The debentures were sold to Banc of America Securities LLC,
Credit Lyonnais Securities (USA), Inc., and U.S. Bancorp Piper Jaffray, as
"accredited investors" within the meaning of Rule 501 under the Securities Act
of 1933, in reliance upon the private placement exemption afforded by Section
4(2) of the Securities Act, and were offered and resold to "qualified
institutional buyers" under Rule 144A of the Securities Act. We filed a
registration statement under the Securities Act to permit registered resales of
the debentures and the common stock into which the debentures are convertible.
This registration statement was declared effective by the Securities and
Exchange Commission on August 29, 2003.

The aggregate offering price of the debentures was $115.0
million, 100% of the principal amount thereof.  The purchase price paid to the
Company by the initial purchasers was the initial offering price less a discount
of $3.5 million or 3.0% of the principal amount of the debentures.  The Company
used the net proceeds of the offering to repay the $39.0 million outstanding
under the then existing credit facility and to contribute $35.0 million to SMHS.
The Company also used $19.9 million of the proceeds to purchase 1.6 million
shares of the Company's common stock under its repurchase program. The remainder
of the net proceeds were used for working capital and general corporate purposes
including additional share repurchases.

New Credit Facility

On March 3, 2003, we entered into a new $65.0 million
revolving credit facility which replaced the amended and restated credit
facility.  The new facility may be increased up to an aggregate amount of $125.0
million upon receipt of new commitments from existing or additional lenders.
Interest on the facility is initially LIBOR plus 2.25% and is currently LIBOR
plus 2.00%.  The facility will expire on April 30, 2006 but can be extended, at
the sole discretion of each of the lenders, until March 3, 2008.  The new
facility is available for general corporate purposes.  We have not yet utilized
this facility.

The new credit facility is secured by guarantees by certain
of our subsidiaries and a first priority perfected security interest in (i) all
the capital stock of each of our unregulated, material domestic subsidiaries
(direct or indirect) as well as all of the capital stock of certain regulated,
material domestic subsidiaries and (ii) all other present and future assets and
properties of ours and those of our subsidiaries that guarantee our credit
agreement obligations (including, without limitation, accounts receivable,
inventory, real property, equipment, contracts, trademarks, copyrights, patents,
license rights and general intangibles) subject, in each case, to the exclusion
of the capital stock of CII Financial, Inc., or any of its subsidiaries and
certain other exclusions.

The new revolving credit facility has covenants that limit
our ability and the ability of our subsidiaries to dispose of assets, incur
indebtedness, incur other liens, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, repurchase our common stock
or make capital expenditures and otherwise restricts certain corporate
activities.  In addition, we are required to comply with specified financial
ratios as set forth in the new credit agreement.  We believe that we are in
compliance with all covenants of the new credit agreement.

Sierra Share Repurchase Program

As of September 30, 2003, our Board of Directors had
authorized a program for the repurchase of up to 4.6 million shares of our
common stock.  Through September 30, 2003, we had purchased, at prevailing
prices in the open market by block purchase or private transactions, 3.5 million
shares for $52.8 million.  From October 1 to October 28, 2003, we repurchased an
additional 310,000 shares for $6.5 million.  On October 28, 2003, we announced
that our Board of Directors had authorized us to purchase an additional 3.0
million shares of our common stock.  As of October 28, 2003, we are now
authorized to purchase approximately 3.8 million shares of our common stock.

Statutory Capital and Deposit Requirements

Our HMO and insurance subsidiaries are required by state
regulatory agencies to maintain certain deposits and must also meet certain net
worth and reserve requirements.  The HMO and insurance subsidiaries, including
the discontinued operations, had restricted assets on deposit in various states
totaling $36.1 million at September 30, 2003. The HMO and insurance subsidiaries
must also meet requirements to maintain minimum stockholders' equity, on a
statutory basis, as well as minimum risk-based capital requirements, which are
determined annually.  In conjunction with the exit from the Texas HMO health
care market, the Texas Department of Insurance approved a plan of withdrawal and
TXHC is now required to maintain deposits and net worth of at least $1.5
million.  We believe we are in material compliance with our regulatory
requirements.

Of the $173.3 million in cash and cash equivalents held at
September 30, 2003, including discontinued operations, $44.7 million was held by
discontinued operations, and of the remainder, $49.4 million was designated for
use only by the regulated subsidiaries.  Amounts are available for transfer to
the holding company from the HMO and insurance subsidiaries only to the extent
that they can be remitted in accordance with the terms of existing management
agreements and by dividends. The holding company will not receive dividends from
its regulated subsidiaries if such dividend payment would cause violation of
statutory net worth and reserve requirements.

Obligations and Commitments

The following schedule represents our obligations and
commitments for long-term debt, capital leases and operating leases at September
30, 2003.  The amounts below represent the entire payment, principal and
interest, on our outstanding obligations.



`Long-Term   Capital   Operating
                                              Debt      Leases     Leases      Total
                                            ---------  ---------  ---------  ---------
  (In thousands)
Continuing Operations
------------------------
Payments due within 12 months............. $   2,705  $     105  $  17,719  $  20,529
Payments due in 13 to 36 months...........     5,368         61     34,063     39,492
Payments due in 37 to 60 months...........     6,155         61     31,742     37,958
Payments due in more than 60 months.......   152,814        131    110,126    263,071
                                            ---------  ---------  ---------  ---------
     Total Continuing Operations.......... $ 167,042  $     358  $ 193,650  $ 361,050
                                            =========  =========  =========  =========
Discontinued Operations
------------------------
Payments due within 12 months............. $      --  $     235  $     823  $   1,058
Payments due in 13 to 36 months...........        --         --      1,415      1,415
Payments due in 37 to 60 months...........        --         --      1,094      1,094
Payments due in more than 60 months.......        --         --         85         85
                                            ---------  ---------  ---------  ---------
     Total Discontinued Operations........ $      --  $     235  $   3,417  $   3,652
                                            =========  =========  =========  =========`

Included in long-term debt
payments for continuing operations are the $115.0 million 21⁄4% senior convertible
debentures along with the associated interest payments.  The debentures are due
March 2023 but holders of the debentures may require us to repurchase all or a
portion of their debentures on March 15 in 2008, 2013 and 2018 or upon certain
events including a change in control and the sale price of our common stock trading in excess of 120% of the conversion price during certain periods.

Recent Accounting Pronouncements

In April 2003, the FASB issued Statement of Financial
Accounting Standards No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" or SFAS No. 149, which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133.  SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 except for the provisions that were cleared by the
FASB in prior pronouncements. We do not expect the adoption of SFAS No. 149 to
have a material effect on our consolidated financial position or results of
operations.

Ratings

Financial strength ratings are the opinion of the rating
agencies and the significance of individual ratings varies from agency to
agency.  Companies with higher ratings generally, in the opinion of the rating
agency, have the strongest capacity for repayment of debt or payment of claims,
while companies at the bottom end of the range have the weakest capacity.
Rating agencies continually review the financial performance and condition of
insurers. The current financial strength ratings of Sierra's continuing HMO and
insurance subsidiaries are as follows:





Debt ratings are assessments of the likelihood that a company
will make timely payments of principal and interest. The principal agencies that
rate Sierra's senior convertible debentures are as follows:





The ratings reflect the opinion of each rating agency on our
operating performance and ability to meet obligations to policyholders and
debenture holders and are not evaluations directed toward the protection of
investors in our common stock or senior convertible debentures.  Neither of the
ratings on our debentures are investment grade.  A rating is not a
recommendation to buy, sell or hold securities, and may be subject to revision
or withdrawal at any time by the rating agency.  Each individual rating should
be evaluated independently of any other rating.

Other

We have a 2003 capital budget of $30.9 million of which we
have spent $16.7 million through September 30, 2003.  We no longer expect to
spend all of our 2003 capital budget this year.  We are limited in the amount of
capital expenditures we can make by our new revolving credit facility.  The 2003
planned expenditures are primarily for medical equipment, the purchase of
computer hardware and software, furniture and equipment and other normal capital
requirements.  Our liquidity needs over the next 12 months will primarily be for
the capital items noted above and debt service.  We believe that our existing
working capital, operating cash flow and, if necessary, equipment leasing,
divestitures of certain non-core assets and amounts available under our credit
facility should be sufficient to fund our capital expenditures and debt service.
Additionally, subject to unanticipated cash requirements, we believe that our
existing working capital and operating cash flow should enable us to meet our
liquidity needs on a long-term basis.



We had a $25.0 million interest-rate swap agreement which
expired on September 30, 2003.  The original intent of the agreement was to keep
our interest rate on $25.0 million of the credit facility relatively fixed.  In
accordance with Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," we had
reported the interest-rate swap agreement at its fair value.



In the second quarter of 1997, our Board of Directors
authorized a $3.0 million loan from us to our Chief Executive Officer, or CEO.
In April 2000, our Board of Directors authorized an additional $2.5 million loan
from us to our CEO.  In the second quarter of 2001, our Board of Directors
approved a loan amendment which extended the maturity of the principal balance
along with accrued interest to December 31, 2003.  During the nine months ended
September 30, 2003 and during 2002 and 2001, our CEO made payments of $360,000,
$1.0 million and $898,000, respectively.  As of September 30, 2003, the
aggregate principal balance outstanding and accrued interest for both
instruments was $4.0 million.  All amounts borrowed bear interest at a rate
equal to our current borrowing rate under our revolving credit facility plus 10
basis points.  The amounts outstanding are collateralized with certain of the
CEO's assets and rights to compensation from us.



Inflation



Health care costs continue to rise at a rate faster than the
Consumer Price Index.  We use various strategies to mitigate the negative
effects of health care cost inflation, including setting commercial premiums
based on our anticipated health care costs, risk-sharing arrangements with our
various health care providers and other health care cost containment measures
including member co-payments.  There can be no assurance, however, that in the
future, our ability to manage medical costs will not be negatively impacted by
items such as technological advances, competitive pressures, applicable
regulations, increases in pharmacy costs, utilization changes and catastrophic
items, which could, in turn, result in medical cost increases equaling or
exceeding premium increases.



Government Regulation



Our business, offering health care coverage, health care
management services, workers' compensation programs and, to a lesser extent, the
delivery of medical services, is heavily regulated at both the federal and state
levels.



Government regulation of health care coverage products and
services is a dynamic area of law that varies from jurisdiction to jurisdiction.
Amendments to existing laws and regulations are continually being considered and
interpretation of the existing laws and rules changes from time to time.
Regulatory agencies generally exercise broad discretion in interpreting laws and
promulgating regulations to enforce their interpretations.



While we are unable to predict what legislative or regulatory
changes may occur or the impact of any particular change, our operations and
financial results could be negatively affected by any legislative or regulatory
requirements.  For example, any proposals to eliminate or reduce the pre-emption
of state laws provided by the Employee Retirement Income Security Act, or ERISA,
which regulates insured and self-insured health care coverage plans offered by
employers, would increase litigation exposure, affect underwriting practices,
limit rate increases, require new or additional benefits or affect contracting
arrangements (including proposals to require HMOs and PPOs to accept any health
care provider willing to abide by an HMO's or PPO's contract terms) may have a
material adverse effect on our business.  The continued consideration and
enactment of "anti-managed care" laws and regulations by federal and
state bodies may make it more difficult for us to manage medical costs and may
adversely affect financial results.



In addition to changes in existing laws and regulations, we
are subject to audits, investigations and enforcement actions.  These include
possible government actions relating to ERISA, the Federal Employees Health
Benefit Plan, federal and state fraud and abuse laws and laws relating to
utilization management and the delivery and payment of health care.  In
addition, our Medicare business is subject to Medicare regulations promulgated
by CMS.  Violation of government laws and regulations may result in an
assessment of damages, civil or criminal fines or penalties, or other sanctions,
including exclusion from participation in government programs.  In addition,
disclosure of any adverse investigation or audit results or sanctions could
negatively affect our reputation in various markets and make it more difficult
for us to sell our products and services.



In addition to the items described above, we urge you to
review carefully the section "Risk Factors" in our 2002 annual report
on Form 10-K/A for a more complete discussion of the risks associated with an
investment in our securities.  See "Note on Forward-Looking
Statements" and "Risk Factors" under Item 1.



The following table presents our membership as of September 30, 2003 and
2002:



`Number of Members at September 30,
                                              -----------------------------------
                                                     2003              2002
                                              -----------------  ----------------
Continuing Operations:
-------------------------
HMO
  Commercial................................           199,400           185,800
  Medicare..................................            50,400            47,100
  Medicaid..................................            38,800            34,900
Managed Indemnity...........................            23,700            26,700
Medicare Supplement.........................            17,900            19,900
Administrative Services.....................           191,800           219,600
TRICARE Eligibles...........................           704,300           662,300
                                              -----------------  ----------------
Total Members...............................         1,226,300         1,196,300
                                              =================  ================`

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

As of September 30, 2003, we had unrealized holding gains on
available for sale investments of $6,000, net of tax, compared to $1.4 million,
net of tax, at December 31, 2002.  We believe that changes in market interest
rates, resulting in unrealized holding gains or losses, should not have a
material impact on future earnings or cash flows, as it is unlikely that we
would need or choose to substantially liquidate our investment portfolio.

As of September 30, 2003, we had outstanding $115.0 million
in aggregate principal amount of our 21⁄4% senior convertible debentures due March
15, 2023.  The debentures are fixed rate, therefore, the interest expense on
the debentures will not be impacted by future interest rate fluctuations.  The
interest rate on our new $65 million revolving credit facility was initially LIBOR plus
2.25% and is currently LIBOR plus 2.00%; we have not yet utilized this
facility.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this report.  Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures as of the end of the period covered by this
report were designed and were functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Company in
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.  The Company believes that a system of controls, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.

Change in Internal Control over Financial Reporting

No change in the Company's internal control over
financial reporting occurred during the Company's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
PART II.  OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS

We are subject to various claims and other litigation in
the ordinary course of business.  Such litigation includes, but is not limited
to, claims of medical malpractice, claims for coverage or payment for medical
services rendered to HMO and other members and claims by providers for payment
for medical services rendered to HMO and other members.  Some litigation may
also include claims for punitive damages that are not covered by insurance.
Also included in such litigation are claims for workers' compensation and claims
by providers for payment for medical services rendered to injured workers.
These actions are in various stages of litigation and some may ultimately be
brought to trial.  With respect to certain pending actions, we maintain
commercial insurance coverage with varying deductibles for which we maintain
estimated reserves for our self-insured portion based upon our current
assessment of such litigation.  Due to recent unfavorable changes in the
commercial insurance market, we have, for certain risks, purchased coverage with
higher deductibles and lower limits of coverage.  In the opinion of management,
based on information presently available, the amount or range of any potential
loss cannot be reasonably estimated but the ultimate resolution of these pending
legal proceedings should not have a material adverse effect on our financial
condition.

SMHS submitted a bid to the DoD for the North Region T-Nex
contract on January 29, 2003, with Sierra as a proposed guarantor.  SMHS was
notified on August 21, 2003 that its bid to be the TRICARE North Region
contractor was unsuccessful. On August 27, 2003 representatives from Sierra and
SMHS met with representatives from the DoD to discuss the evaluation process
used to award the contract and the evaluation findings. Subsequently, SMHS
determined there were serious and material errors in the evaluation process and
findings warranting SMHS to file a formal protest with the Comptroller General
of the United States General Accounting Office. SMHS anticipates
receiving a decision on the protest by the end of the fourth quarter of
2003.

ITEM 2.	CHANGES IN SECURITIES AND
USE OF PROCEEDS

None

ITEM 3.	DEFAULTS UPON SENIOR
SECURITIES

None

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

None

ITEM 5.	OTHER INFORMATION

None

ITEM 6.	EXHIBITS AND REPORTS ON
FORM 8-K

(a)	Exhibits



|(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. as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Executive
Officer dated August 13, 2003.
|(32.2) | Certification pursuant to 18 U.S.C. as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Financial
Officer dated August 13, 2003.

(b)	Reports on Form 8-K

Current Report on Form 8-K, dated July 24, 2003, with the
Securities and Exchange Commission reporting operating results for the quarter
ended June 30, 2003.

Current Report on Form 8-K, dated August 21, 2003, with the Securities and
Exchange Commission announcing that Sierra Military Health Services was not
awarded the contract for the TRICARE North Region.

Current Report on Form 8-K, dated August 27, 2003, with the
Securities and Exchange Commission announcing the Company's participation in a
health care conference on September 9, 2003.

Current Report on Form 8-K, dated September 2, 2003, with the
Securities and Exchange Commission announcing that the Company had filed a
formal protest of the recent award of Managed Care Support Services Contracts by
the United States Department of Defense (DoD) with the Comptroller General of
the United States General Accounting Office (GAO) on Friday, August 29, 2003.





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. 
Registrant 
By:/s/ Paul H. Palmer 
Paul H. Palmer
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------