MID ATLANTIC MEDICAL SERVICES, INC.
                      1998 NON-QUALIFIED STOCK OPTION PLAN

Article I.  Purpose, Adoption and Term of the Plan

         1.01 Purpose.  The purpose of the Mid Atlantic Medical  Services,  Inc.
1998 NonQualified  Stock Option Plan (hereinafter  referred to as the "Plan") is
to advance  the  interests  of the  Company  (as  hereinafter  defined)  and its
Subsidiaries  (as  hereinafter  defined) by  encouraging  and  providing for the
acquisition  of an equity  interest  in the Company by  non-employee  directors,
officers and key employees through the grant of options to purchase Common Stock
(as  hereinafter  defined).  The Plan will  enable  the  Company  to retain  the
services  of  non-employee  directors  and key  employees  upon whose  judgment,
interest, and special effort the successful conduct of its operations is largely
dependent and to compete  effectively with other enterprises for the services of
non-employee  directors,  officers  and key  employees  as may be needed for the
continued improvement of its business.

         1.02 Adoption and Term. The Plan shall become effective on May 1, 1998,
subject to the prior  approval  of a simple  majority  of the  holders of Common
Stock  represented,  by person or by proxy, and entitled to vote at an annual or
special  meeting of the holders of Common  Stock.  The Plan shall  terminate  on
April 30, 2003,  or such earlier  date as shall be  determined  by the Board (as
hereinafter  defined);  provided,  however,  that,  in the event the Plan is not
approved by a simple  majority of the holders of Common  Stock  represented,  by
person or by proxy,  and entitled to vote at an annual or special  meeting at or
before the Company's  1998 annual  meeting of holders of Common Stock,  the Plan
shall terminate on such date and any Options (as hereinafter defined) made under
the Plan prior to such date shall be void and of no force and effect.

Article II.  Definitions

         For purposes of the Plan,  capitalized  terms shall have the  following
meanings:

         2.01 "Beneficiary" means an individual, trust or estate who or that, by
will or the  laws of  descent  and  distribution,  succeeds  to the  rights  and
obligations of the Participant  under the Plan and an Option  Agreement upon the
Participant's death.

         2.02     "Board" means the Board of Directors of the Company.

         2.03 "Cause" means, with respect to a Participant who is a Non-Employee
Director,  removal as a director by the holders of Common  Stock or by the Board
for cause; provided, however, that, if a Non-Employee Director is not a director
of the  Company,  removal as a director  by the  holders of common  stock of any
Subsidiary  on whose  Board of  Directors  he or she  serves or by such Board of
Directors for cause.


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         2.04 "Code"  means the Internal  Revenue Code of 1986,  as amended from
time to time,  or any  successor  thereto.  References  to a section of the Code
shall include that section and any comparable  section or sections of any future
legislation that amends, supplements, or supersedes said section.

         2.05  "Committee"  means a committee of the Board as may be  appointed,
from time to time, by the Board.

                  (a)  The  Board  may  appoint  more  than  one   Committee  to
         administer  the  Plan.  If it  appoints  more than one  Committee,  one
         Committee  (the "Stock Option  Committee")  shall have the authority to
         grant Options to a Participant  who is either,  at the Date of Grant of
         the Option, a "covered employee" as defined in Section 162(m) or who is
         subject to Section 16 of the  Exchange  Act;  however,  such  Committee
         shall also have the authority to grant  Options to other  Participants.
         The Stock Option  Committee shall be composed of at least two directors
         of the Company, each of whom is a "non-employee director" as defined in
         Rule 16b-3 and an  "outside  director"  within  the  meaning of Section
         162(m).  If, however,  at least two of the Company's  directors are not
         both  "non-employee  directors" and "outside  directors," the Board may
         grant  Options to a Participant  who is either a "covered  employee" or
         subject to Section 16 of the Exchange  Act, in which case the Board may
         also administer the Plan and the term  "Committee" as used herein shall
         also include the Board.  The other  Committee (the "Select  Committee")
         shall be  composed of at least one  director,  who may be an officer of
         the Company. The Select Committee shall have authority to grant Options
         to a Participant who is not, at the Date of Grant of the Option, either
         a "covered employee" as defined in Section 162(m) or subject to Section
         16 of the Exchange Act.

                  (b) The Board may, from time to time,  appoint members of each
         Committee  in  substitution  for  those  members  who  were  previously
         appointed and may fill vacancies, however caused, in the Committee.

                  (c) The Stock Option  Committee and the Select Committee shall
         each have the power and authority to administer  the Plan in accordance
         with Article III with respect to particular classes of Participants (as
         specified  in  Section  2.05(a))  and,  when  used  herein,   the  term
         "Committee"  shall mean either the Stock Option Committee or the Select
         Committee if the Board  appoints  more than one Committee to administer
         the Plan. If, however,  there is a conflict between the  determinations
         made by the  Stock  Option  Committee  and the  Select  Committee,  the
         determinations made by the Stock Option Committee shall control.

         2.06 "Common Stock" means the Common Stock, par value $.01 per share,
         of the Company.



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         2.07 "Company" means Mid Atlantic Medical Services, Inc., a corporation
organized under the laws of the State of Delaware, and its successors.

         2.08 "Date of Grant" means the date  designated by the Committee as the
date as of which it grants an Option,  which shall not be earlier  than the date
on which the Committee approves the granting of such Option.

         2.09 "Disability" has the meaning specified in Section 22(e)(3) of
 the Code.

         2.10  "Disability  Date"  means  the  date  as  of  which  an  Employee
Participant is determined by the Committee to have a Disability.

         2.11  "Employee Participant" means a Participant who is not a
Non-Employee Director.

         2.12 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.

         2.13  "Exchange  Act" means the  Securities  Exchange  Act of 1934,  as
amended.

         2.14 "Fair Market  Value" of a share of Common  Stock means,  as of any
given date,  the closing  sales price of a share of Common Stock on such date on
the  principal  national  securities  exchange on which the Common Stock is then
traded  or, if the  Common  Stock is not then  traded on a  national  securities
exchange,  the closing sales price or, if none, the average of the bid and asked
prices of the Common Stock on such date as reported on the National  Association
of Securities Dealers Automated Quotation System ("Nasdaq");  provided, however,
that, if there were no sales  reported as of such date,  Fair Market Value shall
be  computed  as of the  last  date  preceding  such  date on  which a sale  was
reported;  provided,  further, that, if any such exchange or quotation system is
closed on any day on which Fair Market  Value is to be  determined,  Fair Market
Value shall be determined as of the first date  immediately  preceding such date
on which such  exchange or quotation  system was open for trading.  In the event
the Common Stock is not admitted to trade on a securities  exchange or quoted on
Nasdaq,  the Fair Market  Value of a share of Common  Stock as of any given date
shall be as determined in good faith by the Committee,  in its sole and absolute
discretion, which determination may be based on, among other things, the opinion
of one or more independent and reputable appraisers qualified to value companies
in the  Company's  line of business.  Notwithstanding  the  foregoing,  the Fair
Market  Value of a share of Common  Stock shall never be less than par value per
share.

         2.15  "Non-Employee  Director" means each member of the Board or of the
Board of Directors of a  Subsidiary,  in each case who is not an employee of the
Company or of any of its Subsidiaries;  provided, however, that Francis C. Bruno
shall be considered to be a Non-Employee Director.

         2.16  "Non-Employee   Director  Option"  means  an  Option  granted  in
accordance with Article VII.

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         2.17 "Option  Agreement" means a written  agreement between the Company
and a  Participant  specifically  setting  forth the terms and  conditions of an
Option granted to a Participant under the Plan.

         2.18 "Option"  means any option to purchase  Common Stock granted to an
Employee Participant pursuant to Articles V and VI or to a Non-Employee Director
pursuant to Article  VII.  All Options  granted  under the Plan shall be Options
that do not qualify as incentive stock options under Section 422 of the Code.

         2.19  "Participant"  means any  employee  of the  Company or any of its
Subsidiaries  selected by the  Committee  to receive an Option under the Plan in
accordance  with Articles V and VI and, solely to the extent provided in Article
VII, any Non-Employee Director.

         2.20     "Plan" means the Mid Atlantic Medical Services, Inc. 1998
Non-Qualified Stock Option Plan as set forth herein, and as the same may be
amended from time to time.

         2.21 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under Section
16 of the Exchange Act and any successor rule.

         2.22     "SEC" means the Securities and Exchange Commission.

         2.23     "Section 162(m)" means Section 162(m) of the Code and the
regulations thereunder.

         2.24 "Subsidiary" means a company more than 50% of the equity interests
of which are beneficially owned, directly or indirectly, by the Company.

         2.25  "Termination  of Employment"  means,  with respect to an Employee
Participant,  the  voluntary  or  involuntary  termination  of  a  Participant's
employment  with  the  Company  or any  of  its  Subsidiaries  for  any  reason,
including, without limitation, death, Disability, retirement or as the result of
the sale or other  divestiture  of the  Participant's  employer  or any  similar
transaction in which the Participant's  employer ceases to be the Company or one
of its Subsidiaries. Whether entering military or other government service shall
constitute Termination of Employment, and whether a Termination of Employment is
a result of Disability, shall be determined in each case by the Committee in its
sole and absolute discretion.

Article III.  Administration

         3.01 Committee. The Plan shall be administered by the Committee,  which
shall have exclusive and final authority in each determination,  interpretation,
or other action  affecting the Plan and its  Participants.  The Committee  shall
have the sole and absolute  discretion  to interpret  the Plan, to establish and
modify  administrative  rules for the Plan, to select the officers and other key
employees to whom Options may be granted,  to determine the terms and provisions
of the respective Option Agreements (which need not be identical),  to determine
all  claims  for  benefits  under  the  Plan,  to  impose  such  conditions  and
restrictions on Options as it determines appropriate, to determine

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whether the shares  delivered on exercise of Options will be treasury  shares or
will be authorized but  previously  unissued  shares,  and to take such steps in
connection with the Plan and Options granted  hereunder as it may deem necessary
or advisable.  No action of the Committee will be effective if it contravenes or
amends the Plan in any respect.

         3.02  Actions of the  Committee.  Except  when the  "Committee"  is the
"Board" in the circumstance  described in the last sentence of Section 2.05, all
determinations of the Committee shall be made by a majority vote of its members.
A majority of a Committee's  members shall constitute a quorum.  Any decision or
determination reduced to writing and signed by all of the members shall be fully
as effective as if it had been made by a majority  vote at a meeting duly called
and held. The Committee shall also have express  authorization to hold Committee
meetings by conference telephone, or similar communication equipment by means of
which all persons participating in the meeting can hear each other.

Article IV.  Shares of Common Stock

         4.01 Number of Shares of Common Stock Issuable.  Subject to adjustments
as provided in Section 8.05, 1,500,000 shares of Common Stock shall be available
for Options under the Plan. Any and all of such shares may be issued pursuant to
Options  granted to Employee  Participants  or to  Non-Employee  Directors.  The
Common  Stock to be offered  under the Plan  shall be  authorized  and  unissued
Common  Stock,  or issued  Common Stock that shall have been  reacquired  by the
Company and held in its treasury.

         4.02 Number of Shares of Common Stock  Awarded to any  Participant.  In
the event the purchase price of an Option is paid, or related tax or withholding
payments  are  satisfied,  in whole or in part through the delivery of shares of
Common  Stock  issuable  in  connection  with  the  exercise  of the  Option,  a
Participant  will be deemed to have  received  an Option  with  respect to those
shares of Common Stock.

         4.03 Shares of Common Stock Subject to Terminated  Options.  The Common
Stock covered by any  unexercised  portions of  terminated  Options may again be
subject to new Options under the Plan.

Article V.  Participation

         5.01 Eligible Participants.  Employee Participants in the Plan shall be
such  officers  and other key  employees  of the  Company  or its  Subsidiaries,
whether or not  directors  of the  Company,  as the  Committee,  in its sole and
absolute   discretion,   may  designate  from  time  to  time.  In  making  such
designation,  the  Committee  may take into  account the nature of the  services
rendered  by the  officers  and  key  employees,  their  present  and  potential
contributions  to the  success of the  Company,  and such  other  factors as the
Committee,  in  its  sole  and  absolute  discretion,  may  deem  relevant.  The
Committee's designation of an Employee Participant in any year shall not require
the Committee to designate such person to receive Options in any other year. The
Committee  shall  consider  such  factors  as it deems  pertinent  in  selecting
Employee Participants and in determining the type and

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amount of their respective  Options. A Participant may hold more than one Option
granted under the Plan. During the term of the Plan, no Employee Participant may
receive  Options to purchase more than one million  shares of Common Stock under
the Plan.

         Non-Employee  Directors shall receive Non-Employee  Director Options in
accordance  with  Article  VII,  the  provisions  of  which  are  automatic  and
non-discretionary in operation.  Non-Employee Directors shall not be eligible to
receive any other Options under the Plan unless they are no longer  Non-Employee
Directors on the Date of Grant of such Options.

Article VI.  Stock Options

         6.01 Grant of Option. Any Option granted under the Plan shall have such
terms as the  Committee  may,  from  time to time,  approve,  and the  terms and
conditions of Options need not be the same with respect to each Participant.

         6.02 Terms of Options.  Options granted under the Plan shall be subject
to the following terms and conditions and shall be in such form and contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:

                  (a) Option  Price.  The option price per share of Common Stock
         purchasable under an Option shall be determined by the Committee at the
         time of grant but shall not be less than 100% of the Fair Market  Value
         of a share of  Common  Stock on the Date of Grant;  provided,  however,
         that, except as required by Rule 16b- 3 with respect to Options granted
         to persons  subject to Section 16 of the Exchange  Act, no amendment of
         an Option  shall be deemed to be the grant of a new Option for purposes
         of this Section  6.02(a).  Notwithstanding  the  foregoing,  the option
         price per share of Common  Stock of an Option  shall never be less than
         par value per share.

                  (b) Option Term. The term of each Option shall be fixed by the
         Committee,  but no Option  shall be  exercisable  more than five  years
         after the Date of Grant.

                  (c)  Exercisability.  An  Option  Agreement  with  respect  to
         Options may contain such performance targets, waiting periods, exercise
         dates and  restrictions on exercise  (including,  but not limited to, a
         requirement  that an Option is exercisable  in periodic  installments),
         and restrictions on transfer of the underlying  shares of Common Stock,
         if any, as may be determined by the Committee at the time of grant.  To
         the  extent  not   exercised,   installments   shall  cumulate  and  be
         exercisable,   in  whole  or  in  part,  at  any  time  after  becoming
         exercisable,  subject to the limitations set forth in Sections 6.02(b),
         (f) and (g).


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                  (d)  Method  of  Exercise.  Subject  to  whatever  installment
         exercise and waiting  period  provisions  that apply under Section 6.02
         (c) above,  Options  may be  exercised  in whole or in part at any time
         during the term of the Option,  by giving written notice of exercise to
         the  Company  specifying  the  number of  shares of Common  Stock to be
         purchased.  Such notice shall be  accompanied by payment in full of the
         purchase  price in such form as the  Committee  may  accept  (including
         payment in accordance with a cashless  exercise program approved by the
         Committee).  If and to the extent the Committee  determines in its sole
         and absolute  discretion at or after grant,  payment in full or in part
         may also be made in the form of shares of Common Stock already owned by
         the Participant (and for which the Participant has good title, free and
         clear of any liens or  encumbrances)  based on the Fair Market Value of
         the  shares  of  Common  Stock  on the date the  Option  is  exercised;
         provided, however, that any already owned Common Stock used for payment
         must have  been held by the  Participant  for at least six  months.  No
         Common Stock shall be issued on exercise of an Option until payment, as
         provided herein,  therefor has been made. A Participant shall generally
         have the  right to  dividends  or other  rights of a  stockholder  with
         respect to Common  Stock  subject to the Option only when  certificates
         for shares of Common Stock are issued to the Participant.

                  (e)   Non-Transferability  of  Options.  No  Option  shall  be
         transferable by the Participant  otherwise than by will, by the laws of
         descent and distribution, or pursuant at a qualified domestic relations
         order as defined by the Code, Title I of ERISA or the rules thereunder.

                  (f) Acceleration or Extension of Exercise Time. The Committee,
         in its sole and  absolute  discretion,  shall have the right (but shall
         not in any case be  obligated)  to  permit  purchase  of  Common  Stock
         subject to any Option granted to an Employee  Participant  prior to the
         time such Option would otherwise become  exercisable under the terms of
         the Option  Agreement.  In  addition,  the  Committee,  in its sole and
         absolute discretion, shall have the right (but shall not in any case be
         obligated) to permit any Option  granted to an Employee  Participant to
         be  exercised  after  its  expiration  date,  subject,  however  to the
         limitation set forth in Section 6.02(b).

                  (g) Exercise of Options Upon  Termination of  Employment.  The
         following provisions apply to Options granted to Employee Participants:

               (i) Exercise of Vested Options Upon Termination of
                  Employment.

                                    (A)  Termination.  Unless the Committee,  in
                           its  sole and  absolute  discretion,  provides  for a
                           shorter  or  longer  period  of  time  in the  Option
                           Agreement  or a longer  period of time in  accordance
                           with Section 6.02(f), upon an Employee  Participant's
                           Termination of Employment other than by

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                           reason   of  death  or   Disability,   the   Employee
                           Participant may, within three months from the date of
                           such  Termination of Employment,  exercise all or any
                           part of his or her Options as were exercisable at the
                           date  of  Termination  of  Employment.  In no  event,
                           however,  may any Option be exercised  later than the
                           date determined pursuant to Section 6.02(b).

                                    (B) Disability. Unless the Committee, in its
                           sole and absolute discretion,  provides for a shorter
                           or longer period of time in the Option Agreement or a
                           longer  period  of time in  accordance  with  Section
                           6.02(f),  upon an Employee  Participant's  Disability
                           Date, the Employee  Participant  may, within one year
                           after the Disability Date,  exercise all or a part of
                           his or her  Options,  whether or not such  Option was
                           exercisable on the  Disability  Date, but only to the
                           extent  not  previously   exercised.   In  no  event,
                           however,  may any Option be exercised  later than the
                           date determined pursuant to Section 6.02(b).

                                    (C) Death. Unless the Committee, in its sole
                           and  absolute  discretion,  provides for a shorter or
                           longer  period of time in the Option  Agreement  or a
                           longer  period  of time in  accordance  with  Section
                           6.02(f),  in the  event of the  death of an  Employee
                           Participant  while  employed  by  the  Company  or  a
                           Subsidiary,  the right of the Employee  Participant's
                           Beneficiary  to exercise the Option in full  (whether
                           or not all or any part of the Option was  exercisable
                           as of the date of death of the Employee  Participant,
                           but  only to the  extent  not  previously  exercised)
                           shall expire upon the expiration of one year from the
                           date of the  Employee  Participant's  death or on the
                           date of expiration of the Option determined  pursuant
                           to Section 6.02(b), whichever is earlier.

                            (ii) Expiration of Unvested Options Upon Termination
                  of Employment.  Subject to Sections 6.02(f) and  6.02(g)(i)(B)
                  and (C), to the extent all or any part of an Option granted to
                  an Employee  Participant was not exercisable as of the date of
                  Termination of Employment, such right shall expire at the date
                  of  such  Termination  of  Employment.   Notwithstanding   the
                  foregoing,  the Committee, in its sole and absolute discretion
                  and under  such terms as it deems  appropriate,  may permit an
                  Employee  Participant who will continue to render  significant
                  services  to the  Company  or a  Subsidiary  after  his or her
                  Termination  of Employment to continue to accrue  service with
                  respect to the right to exercise his or her Options during the
                  period in

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                  which the individual continues to render such services.

Article VII.  Non-Employee Director Options

         7.01 Grant of Non-Employee  Director Options;  Exercise Price; Term. On
May 1, 1998,  each person who is a  Non-Employee  Director on such date shall be
granted a  Non-Employee  Director  Option to  purchase  the  number of shares of
Common Stock determined in accordance with Section 7.02. A Non-Employee Director
shall only receive one  Non-Employee  Director Option on May 1, 1998, even if he
or she serves as a Non-Employee Director of the Company and/or of one or more of
its Subsidiaries.

         The exercise price per share for Non-Employee Director Options shall be
the Fair  Market  Value of a share of  Common  Stock on the Date of  Grant.  All
Non-Employee Director Options shall have a five year term.

         7.02 Number of Shares. Each Non-Employee  Director Option shall entitle
the holder to purchase 3,000 shares of Common Stock; provided, however, that, if
a  Non-Employee  Director is not a  Non-Employee  Director of the Company on the
Date of Grant of the Option, his or her Non- Employee Director Option shall only
entitle him or her to purchase 2,400 shares of Common Stock.


                  (a) Adjustments. Such number of shares is, however, subject to
         increase  (but not  decrease)  based on the  application  of the factor
         described in Section 7.02(b) below; provided,  however, that the number
         of shares of Common Stock  covered by a  Non-Employee  Director  Option
         shall be  increased  by one or two  shares of Common  Stock so that the
         number of covered  shares is divisible  by three and provided  further,
         however,  that a  Non-Employee  Director  Option  shall not entitle the
         holder  to  purchase   more  than  6,000  shares  (4,800  shares  if  a
         Non-Employee  Director is not a Non-Employee Director of the Company on
         the Date of Grant of the Option) of Common Stock.

                  (b) Number of Years of  Service.  Each  Non-Employee  Director
         Option shall  entitle the holder to purchase an  additional  150 shares
         (120 shares if a Non- Employee Director is not a Non-Employee  Director
         of the Company on the Date of Grant of the Option) of Common  Stock for
         each calendar year the  Non-Employee  Director has served as a director
         of the Company or of one of its Subsidiaries, but only if such calendar
         year has been completed prior to the Date of Grant of the Non- Employee
         Director Option.  The following rules shall apply in calculating  years
         of service as a director:

                           (i)  Partial  Service.  If a person  has  served as a
                  director  of  the  Company  or as a  director  of  any  of its
                  Subsidiaries at any time during a calendar year, that calendar
                  year shall count as one year of service even if the person did
                  not serve as such for a full year;

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                           (ii) Multiple Service. Notwithstanding the foregoing,
                  service as a director of the  Company  and/or as a director of
                  one or more of its Subsidiaries during any calendar year shall
                  not be double counted.  Accordingly, if a person has served as
                  a director  of the Company and as a director of one or more of
                  its  Subsidiaries  during a calendar year,  that calendar year
                  shall count as only one year of service; and

                           (iii)  Service as an  Employee.  Notwithstanding  the
                  foregoing, if a Non-Employee Director served as an employee of
                  the Company or of one of its Subsidiaries at any time during a
                  calendar year, that calendar year shall not count as a year of
                  service.

         7.03  Exercisability.  Each  Non-Employee  Director Option shall become
exercisable  cumulatively  in three equal  installments on June 1, 1999, June 1,
2000 and June 1, 2001; provided,  however,  that, if a Non-Employee  Director is
removed for Cause, any Option held by such Non- Employee Director shall cease to
continue to become exercisable on or after the date of such removal.

         7.04 Termination. If a Non-Employee Director's service with the Company
terminates  for  any  reason  or if  such  person  ceases  to be a  Non-Employee
Director,  such Option shall continue to become  exercisable in accordance  with
Section 7.03 and may be exercised until the expiration of the stated term of the
Option.  Accordingly, if a Non-Employee Director is removed for Cause, he or she
may  continue to exercise  his or her  Non-Employee  Director  Option  until the
expiration  of the stated term of such  Option,  but only to the extent that (a)
such Option became  exercisable prior to the date of such removal and (b) it was
not previously exercised.

         7.05 Other  Plan  Provisions.  All  applicable  provisions  of the Plan
(other than  Sections  6.02(f) and (g)) not  inconsistent  with this Article VII
shall apply to Options granted to Non-Employee Directors.

         Article VIII.  Terms Applicable to All Options Granted Under the Plan

         8.01 Plan Provisions  Control Option Terms. The terms of the Plan shall
govern all Options  granted under the Plan,  and in no event shall the Committee
have the  power to grant to a  Participant  any  Option  under  the Plan that is
contrary to any provisions of the Plan. In the event any provision of any Option
granted  under  the Plan  shall  conflict  with any of the  terms in the Plan as
constituted  on the  Date of  Grant  of such  Option,  the  terms in the Plan as
constituted on the Date of Grant of such Option shall control.

         8.02 Option Agreement. No person shall have any rights under any Option
granted under the Plan unless and until the Company and the  Participant to whom
such Option shall have been granted  shall have executed and delivered an Option
Agreement  authorized  by the  Committee  expressly  granting the Option to such
person and containing provisions setting forth the terms of the

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Option.  If there is any conflict between the provisions of an Option Agreement
and the terms of the Plan, the terms of the Plan shall control.

         8.03  Modification  of Option  After  Grant.  Except as provided by the
Committee,  in its sole and absolute  discretion,  in the Option Agreement or as
provided in Section 8.05, no Option granted under the Plan to a Participant  may
be modified (unless such modification does not materially  decrease the value of
the Option) after the Date of Grant except by express written  agreement between
the Company and the Participant,  provided that any such change (a) shall not be
inconsistent  with the  terms of the  Plan,  and (b)  shall be  approved  by the
Committee.

         8.04 Taxes.  The Company shall be entitled,  if the Committee  deems it
necessary or desirable,  to withhold (or secure payment from the  Participant in
lieu of withholding)  the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any Common Stock  issuable
under such  Participant's  Option,  and the Company may defer issuance of Common
Stock  upon  the  grant or  exercise  of an  Option  unless  indemnified  to its
satisfaction  against  any  liability  for any  such  tax.  The  amount  of such
withholding  or tax payment shall be determined by the Committee or its delegate
and  shall  be  payable  by the  Participant  at  such  time  as  the  Committee
determines.  A  Participant  shall be  permitted  to  satisfy  his or her tax or
withholding obligation by (a) having cash withheld from the Participant's salary
or other compensation payable by the Company or a Subsidiary, (b) the payment of
cash by the  Participant  to the  Company,  (c) the  payment in shares of Common
Stock already owned by the Participant  valued at Fair Market Value,  and/or (d)
the withholding from the Option,  at the appropriate time, of a number of shares
of Common  Stock  sufficient,  based upon the Fair  Market  Value of such Common
Stock, to satisfy such tax or withholding  requirements.  The Committee shall be
authorized,  in its  sole  and  absolute  discretion,  to  establish  rules  and
procedures  relating  to any such  withholding  methods  it deems  necessary  or
appropriate  (including,  without  limitation,  rules and procedures relating to
elections by Participants who are subject to the provisions of Section 16 of the
Exchange Act to have shares of Common Stock withheld from an Award to meet those
withholding obligations).

         8.05     Adjustments to Reflect Capital Changes; Change in Control.

                  (a) Recapitalization. The number and kind of shares subject to
         outstanding  Options,  the  purchase  price or  exercise  price of such
         Options,  the amount of Non- Employee Director Options to be granted on
         any date under Section  7.02,  the limit set forth in the last sentence
         of the first  paragraph of Section 5.01 of the Plan, and the number and
         kind of shares  available  for Options  subsequently  granted under the
         Plan shall be  appropriately  adjusted to reflect  any stock  dividend,
         stock split,  combination or exchange of shares, merger,  consolidation
         or other change in  capitalization  with a similar  substantive  effect
         upon the Plan or the  Options  granted  under the Plan.  The  Committee
         shall have the power and sole and absolute  discretion to determine the
         nature and amount of the adjustment to be made in each case.

                  (b)  Sale or Reorganization.  After any reorganization,
 merger, or

                                                     - 11 -

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         consolidation  in which  the  Company  is the  surviving  entity,  each
         Participant shall, at no additional cost, be entitled upon the exercise
         of an Option outstanding prior to such event to receive (subject to any
         required  action by  stockholders),  in lieu of the number of shares of
         Common Stock receivable on exercise pursuant to such Option, the number
         and  class  of  shares  of  stock or  other  securities  to which  such
         Participant  would  have  been  entitled  pursuant  to the terms of the
         reorganization,  merger,  or  consolidation  if,  at the  time  of such
         reorganization, merger, or consolidation, such Participant had been the
         holder of record  of a number  of shares of Common  Stock  equal to the
         number of shares of Common  Stock  receivable  on exercise  pursuant to
         such Option.  Comparable rights shall accrue to each Participant in the
         event of successive reorganizations,  mergers, or consolidations of the
         character described above.

                  (c) Options to Purchase Stock of Acquired Companies. After any
         reorganization,  merger, or consolidation in which the Company shall be
         a surviving entity,  the Committee may grant substituted  Options under
         the provisions of the Plan,  replacing old options granted under a plan
         of another party to the reorganization,  merger, or consolidation whose
         stock subject to the old options may no longer be issued following such
         reorganization, merger, or consolidation. The foregoing adjustments and
         manner of application of the foregoing  provisions  shall be determined
         by  the  Committee  in its  sole  and  absolute  discretion.  Any  such
         adjustments may provide for the elimination of any fractional shares of
         Common Stock that might otherwise become subject to any Options.

                  (d)  Changes  in  Control.   (i)  Upon  the   dissolution   or
         liquidation  of the Company,  (ii) upon a  reorganization,  merger,  or
         consolidation  in which the Company is not the  surviving  corporation,
         (iii) upon the sale of  substantially  all of the property or assets of
         the Company to another corporation,  or (iv) if at least 50% or more of
         the voting  stock of the Company is sold either  through a tender offer
         or otherwise  to a party or an  affiliated  group of parties,  then the
         Plan  and  the  Options  issued  thereunder  shall  terminate,   unless
         provisions  are  made  in  connection  with  such  transaction  for the
         assumption of Options theretofore  granted, or for the substitution for
         such Options of new options of the successor corporation or a parent or
         subsidiary  thereof,  with appropriate  adjustment as to the number and
         kinds of shares and the per share  exercise  prices.  In the event such
         Options  shall  be  terminated,   all  outstanding   Options  shall  be
         exercisable  in full  for at least  30 days  prior to such  termination
         date, whether or not exercisable during such period, subject,  however,
         to the limitation set forth in Sections  6.02(b) and 7.01. For purposes
         of this Section  8.05(d),  the Company  refers to Mid Atlantic  Medical
         Services,  Inc.,  MD-Individual  Practice  Association,  Inc.,  Optimum
         Choice, Inc., and/or Physicians Health Plan of Maryland,  Inc., jointly
         or separately. [Additional entities?] The Committee shall determine the
         date on which Options may become  exercisable  pursuant to this Section
         8.05(d).



                                                     - 12 -

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         8.06 Surrender of Options.  Any Option  granted to a Participant  under
the Plan may be surrendered to the Company for cancellation on such terms as the
Committee and holder approve.

         8.07 No Right to Option; No Right to Employment.  Except as provided in
Article VII, no director, employee or other person shall have any claim or right
to be granted an Option.  Neither the Plan nor any action taken  hereunder shall
be  construed  as giving any  employee any right to be retained in the employ of
the Company or any of its Subsidiaries.

         8.08 Options Not Includable for Benefit Purposes.  Income recognized by
a  Participant  pursuant to the  provisions of the Plan shall not be included in
the  determination  of benefits under any employee pension benefit plan (as such
term is defined in Section 3(2) of ERISA) or group  insurance  or other  benefit
plans applicable to the Participant that are maintained by the Company or any of
its  Subsidiaries,  except as may be  provided  under the terms of such plans or
determined by resolution of the Board.

         8.09  Governing Law. The Plan and all  determinations  made and actions
taken  pursuant  to the Plan  shall  be  governed  by the  laws of the  State of
Delaware  other than the conflict of laws  provisions of such laws, and shall be
construed in accordance therewith.

         8.10 No Strict  Construction.  No rule of strict  construction shall be
implied  against  the  Company,  the  Committee,  or  any  other  person  in the
interpretation  of any of the terms of the Plan,  any Option  granted  under the
Plan or any rule or procedure established by the Committee.

         8.11 Compliance with Rule 16b-3 and Section 162(m). It is intended that
the Plan be applied  and  administered  in  compliance  with Rule 16b-3 and with
Section  162(m).  If any  provision of the Plan would be in violation of Section
162(m) if applied as written,  such  provision  shall not have effect as written
and shall be given effect so as to comply with Section  162(m) as  determined by
the  Committee in its sole and absolute  discretion.  The Board is authorized to
amend the Plan and the Committee is authorized to make any such modifications to
Option  Agreements to comply with Rule 16b-3 and Section 162(m),  as they may be
amended  from  time  to  time,  and  to  make  any  other  such   amendments  or
modifications  deemed necessary or appropriate to better accomplish the purposes
of the Plan in light of any  amendments  made to Rule 16b-3 and Section  162(m).
Notwithstanding  the  foregoing,  the  Board  may  amend the Plan so that it (or
certain of its provisions) no longer comply with either or both of Rule 16b-3 or
Section 162(m) if the Board  specifically  determines that such compliance is no
longer  desired and the Committee may grant Options that do not comply with Rule
16b-3  and/or  Section  162(m)  if the  Committee  determines,  in its  sole and
absolute discretion, that it is in the interest of the Company to do so.

         8.12 Captions.  The captions (i.e.,  all Article and Section  headings)
used in the Plan are for convenience only, do not constitute a part of the Plan,
and  shall  not be  deemed  to  limit,  characterize,  or  affect in any way any
provisions of the Plan,  and all provisions of the Plan shall be construed as if
no captions have been used in the Plan.



                                                     - 13 -

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         8.13 Severability.  Whenever  possible,  each provision in the Plan and
every Option at any time  granted  under the Plan shall be  interpreted  in such
manner as to be effective and valid under  applicable  law, but if any provision
of the Plan or any Option at any time granted under the Plan shall be held to be
prohibited by or invalid under  applicable law, then (a) such provision shall be
deemed  amended to  accomplish  the  objectives  of the  provision as originally
written to the fullest extent  permitted by law, and (b) all other provisions of
the Plan and every other Option at any time granted  under the Plan shall remain
in full force and effect.

         8.14 Legends.  All  certificates  for Common Stock  delivered under the
Plan shall be subject to such  transfer  restrictions  set forth in the Plan and
such other  restrictions  as the Committee may deem  advisable  under the rules,
regulations,  and other  requirements  of the SEC, any stock exchange upon which
the Common Stock is then listed,  and any applicable federal or state securities
law.  The  Committee  may  cause  a  legend  or  legends  to be put on any  such
certificates to make appropriate references to such restrictions.

         8.15  Investment  Representation.  The  Committee  may, in its sole and
absolute  discretion,  demand that any Participant  awarded an Option deliver to
the  Committee  at the time of  grant  or  exercise  of such  Option  a  written
representation  that the shares of Common Stock to be acquired upon exercise are
to be  acquired  for  investment  and  not  for  resale  or  with a view  to the
distribution thereof. Upon such demand,  delivery of such written representation
by the Participant  prior to the delivery of any shares of Common Stock pursuant
to the  exercise  of his or her Option  shall be a  condition  precedent  to the
Participant's right to purchase or otherwise acquire such shares of Common Stock
by such grant or  exercise.  The Company is not  legally  obliged  hereunder  if
fulfillment  of its  obligations  under the Plan would violate  federal or state
securities laws.

         8.16     Amendment and Termination.

                  (a)  Amendment.  The  Board  shall  have  complete  power  and
         authority  to  amend  the Plan at any time it is  deemed  necessary  or
         appropriate;  provided,  however, that the Board shall not, without the
         affirmative  approval  of a simple  majority  of the  holders of Common
         Stock,  represented,  by person or by proxy, and entitled to vote at an
         annual or special  meeting of the  holders  of Common  Stock,  make any
         amendment that requires  stockholder  approval under  applicable law or
         rule, unless the Board determines that compliance with such law or rule
         is no  longer  desired  with  respect  to the  Plan as a  whole  or the
         provision to be amended.  No  termination or amendment of the Plan may,
         without  the  consent  of the  Participant  to whom  any  Option  shall
         theretofore  have been  granted  under the Plan,  adversely  affect the
         right of such individual under such Option; provided, however, that the
         Committee may, in its sole and absolute  discretion,  make provision in
         an Option  Agreement for such amendments that, in its sole and absolute
         discretion, it deems appropriate.

                  (b) Termination.  The Board shall have the right and the power
         to terminate the Plan at any time. No Option shall be granted under the
         Plan after the termination of the Plan, but the termination of the Plan
         shall not have any other effect and any

<PAGE>                                    14




         Option  outstanding  at the time of the  termination of the Plan may be
         amended and exercised and may vest after termination of the Plan at any
         time prior to the  expiration  date of such  Option to the same  extent
         such Option could have been amended or would have been  exercisable  or
         vest had the Plan not terminated.

         8.17  Costs  and   Expenses.   All  costs  and  expenses   incurred  in
administering the Plan shall be borne by the Company.

         8.18 Unfunded Plan.  The Plan shall be unfunded.  The Company shall not
be  required  to  establish  any  special  or  separate  fund or make any  other
segregation of assets to assure the payment of any award under the Plan.