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

UNIVERSAL AMERICAN CORP.
(Exact name of registrant as specified in its charter)

Six International Drive, Suite 190, Rye Brook, New York 10573
(Address of principal executive offices and zip code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

As used in this quarterly report on Form 10-Q, "Universal American," "we," "our," and "us" refer to Universal American Corp. and its subsidiaries, except where the context otherwise requires or as otherwise indicated.

Portions of the information in this quarterly report on Form 10-Q, such as those set forth or incorporated by reference under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", and oral statements made from time to time by our representatives may constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and the PSLRA. These forward-looking statements are statements relating to:

You can identify forward-looking statements by words such as the following, or indicating or implying the following:

Forward-looking statements are inherently subject to risks, trends and uncertainties, many of which are beyond our ability to control or predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in any forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that we will achieve our expectations. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements.

The risks and uncertainties set forth in this report in Part I—Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the risks and uncertainties incorporated by reference into Part II—Item 1A "Risk Factors," and other risks and uncertainties set forth in this report, constitute important factors that may cause actual results to differ materially from forward-looking statements. We assume no obligation to update or supplement any forward-looking statements that may become untrue because of subsequent events, whether as a result of new information, future events or otherwise.

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)

			June 30, 2009			December 31, 2008

			(Unaudited)
ASSETS
Investments:
	Fixed maturities available for sale, at fair value (amortized cost: 2009, $899,232; 2008, $1,075,078)		$	874,046		$	1,032,393
	Policy loans			47			22,274
	Other invested assets			1,687			1,649

		Total investments		875,780			1,056,316
Cash and cash equivalents				331,832			511,032
Accrued investment income				10,054			13,214
Deferred policy acquisition costs				149,602			237,630
Amounts due from reinsurers				755,533			220,986
Due and unpaid premiums				289,952			97,320
Present value of future profits and other amortizing intangible assets				179,205			192,742
Goodwill and other indefinite lived intangible assets				530,031			530,031
Income taxes receivable				—			38,032
Deferred income tax asset				24,867			—
CMS contract deposit receivables				144,732			609,293
Other Part D receivables				199,815			154,049
Advances to agents				60,728			60,017
Other assets				117,196			141,501

		Total assets	$	3,669,327		$	3,862,163

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policyholder account balances			$	369,559		$	396,700
Reserves for future policy benefits				628,357			625,012
Policy and contract claims—life				6,829			10,133
Policy and contract claims—health				631,576			729,070
Advance premiums				11,912			7,183
Loan payable				318,875			320,625
Other long term debt				110,000			110,000
Amounts due to reinsurers				12,086			22,091
Income taxes payable				9,556			—
Deferred income tax liability				—			6,877
Other Part D liabilities				104,438			149,523
Other liabilities				153,857			168,865

		Total liabilities		2,357,045			2,546,079

Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY
Preferred stock (Authorized: 3 million shares):
		Series A (Designated: 300,000 shares, issued and outstanding: 2009, 42,105 shares, liquidation value $36,716; 2008, 42,105 shares, liquidation value $37,137)		42			42
		Series B (Designated: 300,000 shares, issued and outstanding 2009, 0 shares; 2008, 0 shares)		—			—
Common stock—voting (Authorized: 200 million shares, issued and outstanding: 2009, 87.5 million shares; 2008, 87.4 million shares)				875			874
Common stock—non-voting (Authorized: 30 million shares)				—			—
Additional paid-in capital				876,863			870,520
Accumulated other comprehensive loss				(26,062	)		(36,422	)
Retained earnings				561,177			558,675
Less: treasury stock (2009, 10.1 million shares; 2008, 7.2 million shares)				(100,613	)		(77,605	)

		Total stockholders' equity		1,312,282			1,316,084

		Total liabilities and stockholders' equity	$	3,669,327		$	3,862,163

				2009			2008

Revenues:
	Direct premium and policyholder fees earned			$	1,266,434		$	1,416,724
	Reinsurance premiums assumed				13,816			12,384
	Reinsurance premiums ceded				(44,174	)		(204,184	)

		Net premiums and policyholder fees earned			1,236,076			1,224,924
	Net investment income				12,487			19,476
	Fee and other income				4,980			10,926
	Realized loss
		Total other-than-temporary impairment losses on securities			(8,265	)		(13,156	)
		Portion of loss recognized in other comprehensive income			3,742			—

			Net other-than temporary impairment losses on securities recognized in earnings		(4,523	)		(13,156	)
			Realized loss, excluding other-than-temporary impairment on securities		(3,523	)		(129	)

	Net realized losses on investments				(8,046	)		(13,285	)

		Total revenues			1,245,497			1,242,041

Benefits, Claims and Expenses:
	Claims and other benefits				1,055,413			1,045,160
	Change in reserves for future policy benefits				125			1,268
	Interest credited to policyholders				—			3,383
	Change in deferred acquisition costs				885			3,268
	Amortization of intangible assets				6,006			9,926
	Commissions				30,658			36,758
	Reinsurance commission and expense allowances				(6,911	)		(16,876	)
	Interest expense				4,806			5,793
	Loss on reinsurance and other related costs				7,624			—
	Restructuring costs				4,727			—
	Other operating costs and expenses				134,202			140,081

		Total benefits, claims and other deductions			1,237,535			1,228,761

Income before equity in earnings of unconsolidated subsidiary					7,962			13,280
Equity in earnings of unconsolidated subsidiary					8			15,281

Income before income taxes					7,970			28,561
Provision for income taxes					3,036			193

Net income				$	4,934		$	28,368

Earnings per common share:
		Basic (Note 6)		$	0.06		$	0.32

		Diluted		$	0.06		$	0.32

Weighted average shares outstanding:
	Weighted average common shares outstanding				86,738			73,198
		Less weighted average treasury shares			(9,926	)		(3,249	)

	Basic weighted shares outstanding (Note 6)				76,812			69,949
	Weighted average common equivalent of preferred shares outstanding				4,211			17,500
		Effect of dilutive securities			334			291

	Diluted weighted shares outstanding				81,357			87,740

				2009			2008

Revenues:
	Direct premium and policyholder fees earned			$	2,639,110		$	2,849,535
	Reinsurance premiums assumed				27,498			23,833
	Reinsurance premiums ceded				(81,399	)		(430,793	)

		Net premiums and policyholder fees earned			2,585,209			2,442,575
	Net investment income				28,223			43,757
	Fee and other income				9,109			22,787
	Realized loss
		Total other-than-temporary impairment losses on securities			(16,341	)		(42,955	)
		Portion of loss recognized in other comprehensive income			3,742			—

			Net other-than temporary impairment losses on securities recognized in earnings		(12,599	)		(42,955	)
			Realized loss, excluding other-than-temporary impairment on securities		(2,669	)		662

	Net realized losses on investments				(15,268	)		(42,293	)

		Total revenues			2,607,273			2,466,826

Benefits, Claims and Expenses:
	Claims and other benefits				2,244,889			2,158,681
	Change in reserves for future policy benefits				(44	)		3,632
	Interest credited to policyholders				4,284			7,522
	Change in deferred acquisition costs				8,583			10,799
	Amortization of intangible assets				11,899			11,826
	Commissions				62,363			76,014
	Reinsurance commission and expense allowances				(12,430	)		(34,626	)
	Interest expense				10,064			12,097
	Loss on reinsurance and other related costs				7,624			—
	Restructuring costs				4,727			—
	Other operating costs and expenses				277,992			278,966

		Total benefits, claims and other deductions			2,619,951			2,524,911

Loss before equity in earnings of unconsolidated subsidiary					(12,678	)		(58,085	)
Equity in earnings of unconsolidated subsidiary					105			31,333

Loss before income taxes					(12,573	)		(26,752	)
Benefit from income taxes					(4,359	)		(9,120	)

Net loss				$	(8,214	)	$	(17,632	)

Loss per common share:
		Basic (Note 6)		$	(0.10	)	$	(0.20	)

		Diluted		$	(0.10	)	$	(0.20	)

Weighted average shares outstanding:
	Weighted average common shares outstanding				86,782			73,819
		Less weighted average treasury shares			(9,361	)		(1,875	)

	Basic weighted shares outstanding (Note 6)				77,421			71,944
	Weighted average common equivalent of preferred shares outstanding				4,211			17,500
		Effect of dilutive securities			383			536

	Diluted weighted shares outstanding				82,015			89,980

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2009 and 2008

(Unaudited)

(in thousands)

	Preferred Stock Series A			Preferred Stock Series B		Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Treasury Stock			Total

*2008*
Balance, January 1, 2008	$	47		$	128	$	750		$	890,882		$	(66	)	$	463,583		$	(4,258	)	$	1,351,066
Net loss		—			—		—			—			—			(17,632	)		—			(17,632	)
Other comprehensive loss		—			—		—			—			(6,715	)		—			—			(6,715	)

Comprehensive loss																						(24,347	)

Preferred stock conversion		(5	)		5		—			—			—			—			—			—
Issuance of common stock		—			—		3			1,272			—			—			—			1,275
Stock-based compensation		—			—		—			4,112			—			—			—			4,112
Purchase price adjustment for acquisition of MemberHealth		—			—		(20	)		(34,521	)		—			—			—			(34,541	)
Treasury shares purchased, at cost		—			—		—			—			—			—			(50,067	)		(50,067	)
Treasury shares reissued		—			—		—			(156	)		—			—			1,417			1,261

Balance, June 30, 2008	$	42		$	133	$	733		$	861,589		$	(6,781	)	$	445,951		$	(52,908	)	$	1,248,759

*2009*
Balance, January 1, 2009	$	42		$	—	$	874		$	870,520		$	(36,422	)	$	558,675		$	(77,605	)	$	1,316,084
Net loss		—			—		—			—			—			(8,214	)		—			(8,214	)
Other comprehensive income		—			—		—			—			21,076			—			—			21,076

Comprehensive loss																						12,862

FSP FAS 115-2 implementation adjustment		—			—		—			—			(10,716	)		10,716			—			—
Issuance of common stock		—			—		1			146			—			—			—			147
Stock-based compensation		—			—		—			6,173			—			—			—			6,173
Treasury shares purchased, at cost		—			—		—			—			—			—			(27,156	)		(27,156	)
Treasury shares reissued		—			—		—			24			—			—			4,148			4,172

Balance, June 30, 2009	$	42		$	—	$	875		$	876,863		$	(26,062	)	$	561,177		$	(100,613	)	$	1,312,282

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2009 and 2008

(Unaudited)

(in thousands)

			2009			2008

Cash flows from operating activities:
Net loss			$	(8,214	)	$	(17,632	)
Adjustments to reconcile net loss to net cash used in operating activities, net of balances acquired:
Equity in earnings of unconsolidated subsidiary				(105	)		(31,333	)
Distribution from unconsolidated subsidiary				6,800			27,000
Deferred income taxes				(37,323	)		(1,656	)
Realized losses on investments				15,268			42,293
Amortization of intangible assets				11,899			11,826
Loss on reinsurance, net of tax				2,221			—
Net amortization of bond premium				1,219			898
Changes in operating assets and liabilities:
	Deferred policy acquisition costs			8,583			10,799
	Reserves for future policy benefits			3,345			6,001
	Policy and contract claims payable			(100,798	)		60,197
	Reinsurance balances			(5,484	)		30,558
	Due and unpaid advance premium, net			(187,903	)		(272,475	)
	Income taxes payable/receivable			47,589			(28,207	)
	Other Part D receivables			(45,766	)		12,392
	Other Part D liabilities			(45,085	)		(16,896	)
	Other, net			24,123			(31,794	)

		Cash used in operating activities		(309,631	)		(198,029	)

Cash flows from investing activities:
Proceeds from sale or redemption of fixed maturity investments				558,616			223,190
Cost of fixed maturity investments purchased				(382,956	)		(232,562	)
Assets transferred on life reinsurance				(454,487	)		—
Return of purchase price				—			40,990
Purchase of fixed assets				(14,063	)		(9,737	)
Other investing activities				(1,860	)		621

		Cash (used in) provided by investing activities		(294,750	)		22,502

Cash flows from financing activities:
Net proceeds from issuance of common and preferred stock, net of tax effect				2,717			1,913
Cost of treasury stock purchases				(27,156	)		(50,067	)
Receipts from CMS contract deposits				1,837,979			1,583,804
Withdrawals from CMS contract deposits				(1,373,418	)		(1,530,061	)
Deposits and interest credited to policyholder account balances				4,357			8,690
Surrenders and other withdrawals from policyholder account balances				(17,548	)		(26,970	)
Principal repayment on loan payable and other long term debt				(1,750	)		(26,750	)

		Cash provided by (used in) financing activities		425,181			(39,441	)

Net decrease in cash and cash equivalents				(179,200	)		(214,968	)
Cash and cash equivalents at beginning of period				511,032			667,685

Cash and cash equivalents at end of period			$	331,832		$	452,717

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Universal American Corp., which we refer to as "we," the "Company," or "Universal American," is a specialty health and life insurance holding company with an emphasis on providing a broad array of health insurance and managed care products and services to the growing senior population. Universal American was incorporated in the State of New York in 1981. Collectively, our insurance company subsidiaries are licensed to sell life, accident and health insurance and annuities in all fifty states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. We currently sell Medicare Advantage private fee-for-service plans, known as PFFS plans, Medicare coordinated care plans, which we call HMOs, Medicare coordinated care products built around contracted networks of providers, which we call PPOs, Medicare Part D prescription drug benefit plans, known as PDPs, Medicare supplement, fixed benefit accident and sickness disability insurance and senior life insurance. We distribute these products through career and independent general agency systems and on a direct to consumer basis.

On April 24, 2009 we completed the closing of the previously announced Life Insurance and Annuity Reinsurance transaction with the Commonwealth Annuity and Life Insurance Company, known as Commonwealth, and the First Allmerica Financial Life Insurance Company, Goldman Sachs Group, Inc. subsidiaries (NYSE:GS). Under this transaction, we reinsured substantially all of our in force life insurance and annuity business under a 100% coinsurance treaty. This transaction is discussed in more detail at Note 14 of Notes to the Consolidated Financial Statements.

We have prepared the accompanying consolidated financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, for interim reporting in accordance with Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, they do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America, or those normally made in an Annual Report on Form 10-K. For the insurance and health plan subsidiaries, U.S. GAAP differs from statutory accounting practices prescribed or permitted by regulatory authorities. We have eliminated all material intercompany transactions and balances. The interim financial information in this report is unaudited, but in the opinion of management, includes all adjustments, including normal, recurring adjustments necessary to present fairly the financial position and results of operations for the periods reported. For further information, the reader of this Quarterly Report on Form 10-Q should refer to our Annual Report on Form 10-K for the year ended December 31, 2008, that was filed with the Securities and Exchange Commission, or the SEC, on March 9, 2009. The results of operations for the three and six months ended June 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year. Subsequent events were evaluated through July 30, 2009, the date these consolidated financial statements were issued.

Unconsolidated Subsidiary: Part D Management Services, L.L.C., known as PDMS, is 50% owned by Universal American and 50% owned by Caremark. We do not control PDMS and therefore we do not consolidate PDMS in our financial statements. We account for our investment in PDMS on the equity basis and include it in other assets. During 2008, together with Caremark, we ended our strategic alliance which created PDMS. As such, effective January 1, 2009, PDMS will no longer manage the strategic alliance and will not earn revenue or incur expenses related to the 2009 Medicare Prescription Drug Plan (PDP) year. PDMS will continue to operate in 2009 solely to service the run-off activity

related to pharmacy claims, rebates, and revenue related to prior PDP years. Upon dissolution of PDMS in 2009, following the run-out of prior year PDP claims, the economic interest of PDMS would be split equally between us and Caremark to match the 50% voting and ownership rights held by each entity (see Note 12—Unconsolidated Subsidiary).

Use of Estimates: Our consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles, known as GAAP. The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported by us in our consolidated financial statements and the accompanying notes. Critical accounting policies are ones that require significant subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based on information available at the time the estimates are made, as well as anticipated future events. Actual results could differ materially from these estimates. We periodically evaluate our estimates, and as additional information becomes available or actual amounts become determinable, we may revise the recorded estimates and reflect them in operating results. In our judgment, the accounts involving estimates and assumptions that are most critical to the preparation of our financial statements are policy related liabilities and expense recognition, deferred policy acquisition costs, goodwill and other intangible assets, investment valuation, revenue recognition—Medicare Advantage products, and income taxes. There have been no changes in our critical accounting policies during the current quarter.

Reclassifications: We have made reclassifications to the December 31, 2008 balance sheet with respect to classification of assets and liabilities related to our Senior Managed Care—Medicare Advantage business. These reclassifications increased due and unpaid premiums by $18.0 million, and reduced other assets $26.5 million and amounts due to reinsurers $8.5 million. These reclassifications had no effect on net income or earnings per share as previously reported.

Significant Accounting Policies: For a description of significant accounting policies, see Note 2—Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Recognition of Premium Revenues and Policy Benefits—Medicare Products: Medicare is a federal program that provides persons age 65 and over and some disabled persons under the age of 65 certain hospital and medical insurance benefits. Hospitalization benefits are provided under Part A, without the payment of any premium, for up to 90 days per incident of illness plus a lifetime reserve aggregating 60 days. Eligible beneficiaries are required to pay an annually adjusted premium to the federal government to be eligible for physician care and other services under Part B. Beneficiaries eligible for Part A and Part B coverage under traditional Medicare are still required to pay out-of-pocket deductibles and coinsurance. Prescription drug benefits are provided under Part D. The Centers for Medicare and Medicaid Services, known as CMS, an agency of the United States Department of Health and Human Services, administers the Medicare program. We contract with CMS under the Medicare Advantage program to provide a comprehensive array of health insurance benefits including wellness programs to Medicare eligible persons under HMO, PPO, PFFS and stand-alone Part D plans in exchange for contractual payments received from CMS, usually a fixed payment per member per month.

We routinely monitor the collectability of specific accounts, the aging of receivables, historical retroactivity trends, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in the current period's revenue.

Premiums received pursuant to Medicare Advantage contracts with CMS for Medicare enrollees are recorded as revenue in the month in which members are entitled to receive service. Premiums collected in advance are deferred. Accounts receivable from CMS and health plan members for coordinating physician services and inpatient, outpatient and ancillary care are included in other assets and are recorded net of estimated bad debts. It is the Company's practice to accrue revenue in addition to the premiums received from CMS based upon changes to hierarchical condition categories (HCC) risk scores not then considered by CMS and based solely on the analysis of claims information and confirmed chart data that is in the possession of the Company. Certain commissions are deferred and amortized in relation to the corresponding revenues which is no longer than a one-year period. Policies and contract claims include actual claims reported but not paid and estimates of health care services incurred but not reported. The estimated claims incurred but not reported are based on historical data, current enrollment, health service utilization statistics and other related information. Although considerable variability is inherent in such estimates, management believes that the liability is adequate. Changes in assumptions for medical costs caused by changes in actual experience could cause these estimates to change in the near term.

CMS uses monthly rates per person for each county to determine the fixed monthly payments per member to pay to health benefit plans, including our HMO, PFFS and PPO plans. CMS has implemented a risk adjustment model which apportions premiums paid to all health plans according to health severity. The risk adjustment model uses health status indicators, or risk scores, to improve the accuracy of payment. The CMS risk adjustment model pays more for members with predictably higher costs. Under this risk adjustment methodology, diagnosis data from inpatient and ambulatory treatment settings are used to calculate the risk adjusted premium payment to us. All health benefit organizations must capture, collect, and submit the necessary diagnosis code information to CMS within prescribed deadlines. Accordingly, we collect, capture, and submit the necessary and available diagnosis data to CMS within prescribed deadlines. We estimate risk adjustment revenues based upon the diagnosis data submitted to CMS and ultimately accepted by CMS. The risk adjustment revenues are periodically reconciled by CMS and the settlement could result in adjustments to premium revenue. The stand-alone PDP payment methodology is based on the risk adjustment model. However, we do not have access to diagnosis data with respect to our stand-alone PDP members. We are reliant on CMS to capture and collect the necessary diagnosis information for these members. Changes in revenues from CMS for our Medicare products resulting from the periodic changes in risk adjustment scores for our membership are recognized when the amounts become determinable and the collectability is reasonably assured. Our monthly premium payment from CMS could change materially, either favorably or unfavorably, as a result of changes in the risk scores for the underlying membership of our plans.

We analyze the membership for our Medicare Part D, HMO, PFFS and PPO plans in our administrative system and reconcile to the enrollment provided by CMS. Our revenues and claims expense are based on the enrollment information provided by CMS. There are timing differences between the addition of members to our administrative system and the approval, or accretion, of the member by CMS before we are paid for that member by CMS. Additionally, the monthly payments from CMS include adjustments to reflect changes in membership as a result of retroactive terminations, additions or other changes. Current period revenues are adjusted to reflect retroactive changes in membership.

We provide prescription drug coverage in accordance with Medicare Part D as a stand-alone benefit to Medicare-eligible beneficiaries, known as Part D benefits, through our PDPs under multiple contracts with CMS. Our Medicare contracts with CMS renew annually.

In general, prescription drug benefits under Part D PDPs may vary in terms of coverage levels and out-of-pocket costs for beneficiary premiums, deductibles and co-insurance. However, all Part D PDPs must offer either "Standard Coverage" or its actuarial equivalent (with out-of-pocket threshold and deductible amounts that do not exceed those of standard coverage). These defined "standard" benefits represent the minimum level of benefits mandated by Congress. We also offer other PDPs containing benefits in excess of standard coverage limits for an additional beneficiary premium.

Our PDPs receive monthly payments from CMS and members which generally represent our bid amount for providing insurance coverage. The payments from CMS reflect the health status of the beneficiary and risk sharing provisions, as discussed below. We recognize premium revenue for providing this insurance coverage during each month in which members are entitled to benefits.

Our CMS payment is subject to risk sharing through the Medicare Part D risk corridor provisions. The risk corridor provisions permit our PDPs and CMS to share the risk associated with the ultimate costs of the Part D benefit. The risk corridor provisions compare a plan's actual prescription drug costs to their targeted costs, as reflected in their bids ("target amount') and could result in positive or negative adjustments to the CMS payment, that are reported through premium revenues. Variances exceeding, or below, certain thresholds may result in CMS making additional payments to us, or requiring us to refund to CMS a portion of the payments we received. Actual prescription drug costs subject to risk sharing with CMS are limited to the costs that are, or would have been, incurred under the CMS "Defined Standard" benefit plan. We estimate and recognize an adjustment to premium revenues related to the risk corridor payment, at the contract level, based upon prescription drug claims experience to date, net of manufacturer rebates and other Part D revenues, at the end of each reporting period. We record a receivable or payable in the consolidated balance sheets based on the expected settlement. The estimate of the settlement associated with risk corridor provisions requires us

to consider factors that may not be certain, including, among others, member eligibility differences with CMS.

Our CMS payments also include catastrophic reinsurance allowances and low income cost sharing subsidies (CMS contract deposits) for which we do not bear risk. These subsidies represent reimbursements from CMS for claims we pay for which we assume little or no risk. A large percentage of claims paid above the out-of-pocket or catastrophic threshold for which we are not at risk are reimbursed by CMS through the reinsurance subsidy. Low-income cost subsidies represent reimbursements from CMS for all or a portion of the deductible, the coinsurance and co-payment amounts above the out-of-pocket threshold for low-income beneficiaries. Monthly prospective payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with our annual bid. A reconciliation and related settlement of CMS's prospective subsidies against actual prescription drug costs we paid is made after the end of the year. We account for these subsidies as deposits in our consolidated balance sheets and as a financing activity in our consolidated statements of cash flows. We do not recognize premium revenues or claims expense for these subsidies. Receipt and payment activity is accumulated at the contract level and recorded in our consolidated balance sheets as a CMS contract deposit account asset or liability depending on the net contract balance at the end of the reporting period.

Settlement of the reinsurance and low-income cost subsidies as well as the risk corridor payment is based on a reconciliation made by CMS approximately 9 months after the close of each calendar year. This reconciliation process requires us to submit claims data necessary for CMS to administer the program.

At June 30, 2009 and December 31, 2008, the balance due from (to) CMS for the 2006 through 2009 Plan years were $281.4 million and $640.9 million, respectively, broken down as follows:

As membership information continues to be reconciled and refined by CMS with respect to the enrollment of members among all plans participating in the Part D program, we have paid Part D benefits for individuals who ultimately were determined to be members of other plans. Receivables for these claims are included in Other Part D receivables in the consolidated balance sheets and totaled $17.8 million and $17.4 million at June 30, 2009 and December 31, 2008, respectively. We also established liabilities for our estimate of claims paid by state Medicaid programs and other plans on behalf of members in our PDPs. These liabilities are included in Policy and contract claims-health in the consolidated balance sheets and totaled $4.5 million and $6.2 million at June 30, 2009 and December 31, 2008, respectively. As these membership differences are resolved, it is likely that the membership data upon which we based our results for prior plan years will change, with a corresponding change in the financial results for the segment. We are unable to precisely quantify the impact of any potential change until the membership data is fully reconciled with CMS; however, we do not believe that any change from the amounts reported as of June 30, 2009 or December 31, 2008 is likely to be material.

Recognition of Prior Plan Year Settlements under Medicare Part D and Private Fee-For-Service Plans: The Medicare Part D prescription drug benefit program is detail-oriented and relatively complex. The amount due from CMS is impacted by: membership; risk scores; prescription drug events ("PDEs"); rebates; deductibles; catastrophic reinsurance; and the risk corridor adjustment.

An extended period of time after the close of the annual coverage period (December 31^st) is required for the government to reconcile each member's PDEs and provide back to each plan the information the plans need to finalize the accounting for this coverage. The federal government has a stated time schedule for providing information back to the plans for, among other items, revenue adjustments based on risk scores, member eligibility by plan to reconcile the plan to plan reimbursements and the calculation of the final settlement with the federal government for low-income cost subsidies, reinsurance and risk corridor payments. Reconciliation and related settlement of CMS's prospective subsidies, including reinsurance payments and low-income cost subsidies, as well as the risk corridor is made after the end of each plan year. For the 2007 Plan year, we received risk score adjustment settlement data in the third quarter of 2008, and reconciliation settlement data in the fourth quarter of 2008. We expect a similar timetable in 2009 related to the 2008 Plan year risk score and reconciliation settlement data.

The reconciliation and settlement process with CMS for the Part D coverage within Medicare Advantage PFFS plans is similar to Medicare Part D plans with the two exceptions: (1) PFFS plans are ineligible for aggregate risk corridor payments; and (2) prospective monthly catastrophic reinsurance payments to PFFS plans are based on CMS estimated average reinsurance payments to other Medicare Advantage—Prescription Drug (MA-PD) plans for their Part D coverage. In the third quarter of 2008, we received notification from CMS of an adjustment to our catastrophic reinsurance reimbursement for the Part D coverage within our PFFS plans for the 2007 Plan year that lowered the reimbursement by $4.5 million. We expect a similar timetable in 2009 for 2008 plan year settlement data.

Fair Value Measurement and Other-than-Temporary Impairments: In April 2009, the Financial Accounting Standards Board, or FASB, issued two FASB Staff Positions, or FSPs, to address concerns about (1) measuring the fair value of financial instruments when the markets become inactive and quoted prices may reflect distressed transactions and (2) recording impairment charges on investments in debt securities. The FASB also issued a third FSP to require disclosures of fair values of certain financial instruments in interim financial statements.

FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance to highlight and expand on the factors that should be considered in estimating fair value when there has been a significant decrease in market activity for a financial asset. This FSP also requires new disclosures relating to fair value measurement inputs and valuation techniques (including changes in inputs and valuation techniques).

FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, replaces the requirement in FSP No. FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" for management to assert that it has the ability and intent to hold an impaired debt security until recovery with the requirement that management assert if it either has the intent to sell the debt security or if it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis. If management intends to sell the debt security or it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis, an other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the debt security's amortized cost basis and its fair value at the balance sheet date. After recognition of the OTTI, the debt security is accounted for as if it had been purchased on the measurement date of the OTTI, with an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings.

If management does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before recovery of its amortized cost basis, but the present value of the cash flows expected to be collected is less than the amortized cost basis of the debt security (referred to as the credit loss), an OTTI is considered to have occurred. In this instance, FAS 115-2 requires the bifurcation of the total OTTI into the amount related to the credit loss, which is recognized in earnings, with the remaining amount of the total OTTI attributed to other factors (referred to as the noncredit portion) and recognized as a separate component in other comprehensive loss. After the recognition of an OTTI, the debt security is accounted for as if it had been purchased on the measurement date of the OTTI, with an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. In addition, FAS 115-2 expands and increases the frequency of existing disclosures about OTTIs for debt and equity securities regarding expected cash flows, credit losses and an aging of securities with unrealized losses.

FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, increases the frequency of fair value disclosures from annual to quarterly to provide financial statement users with more timely information about the effects of current market conditions on their financial instruments.

We adopted the aforementioned FSPs effective April 1, 2009, as required. There was no impact from the adoption of FSP FAS 157-4 on our financial statements. The effect of adoption of FSP-FAS 115-2 and FAS 124-2 was to increase the opening balance of retained earnings by $10.7 million, with a corresponding increase to the accumulated other comprehensive loss on our consolidated statements of stockholders' equity and comprehensive income to reclassify the noncredit portion of previously impaired debt securities held as of April 1, 2009.

The adjustment was calculated for all debt securities held as of April 1, 2009, for which an OTTI was previously recognized, but as of April 1, 2009, we did not intend to sell the security and it was not more likely than not that we would be required to sell the security before recovery of its amortized cost, by comparing the present value of cash flows expected to be received as of April 1, 2009, to the amortized cost basis of the debt securities. The discount rate used to calculate the present value of the cash flows expected to be collected was the rate for each respective debt security in effect before recognizing any OTTI, except for on variable rate debt securities, on which the rate used was the current rate in effect as of the date the cash flow estimate was being made.

Following is a summary of the adjustment as of April 1, 2009, by asset class (in thousands):

In addition, we have enhanced our financial statement presentation, as required under FAS FSP 115-2, to separately present the total OTTI recognized in realized loss, with an offset for the amount of noncredit impairments recognized in accumulated other comprehensive loss, on the face of our consolidated statements of operations. The enhanced financial statement disclosures required under FAS FSP 115-2 and FAS FSP 107-1 are included in notes 4 and 5.

Disclosures about Derivative Instruments and Hedging Activities—On January 1, 2009, we adopted SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133" ("SFAS 161"). The adoption of SFAS 161 results in expanded disclosures related to derivative instruments and hedging activities.

	June 30, 2009

Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Gross Unrealized OTTI			Fair Value
	(in thousands)
U.S. Treasury securities and obligations of U.S. Government	$	37,053	$	819	$	(11	)	$	—		$	37,861
Government sponsored agencies		91,101		3,266		(37	)		—			94,330
Other political subdivisions		9,994		227		(147	)		—			10,074
Corporate debt securities		365,340		12,509		(8,655	)		—			369,194
Foreign debt securities		22,022		1,044		(478	)		—			22,588
Mortgage-backed and asset-backed securities		373,722		11,549		(19,152	)		(26,120	)		339,999

	$	899,232	$	29,414	$	(28,480	)	$	(26,120	)	$	874,046

	December 31, 2008

Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Gross Unrealized OTTI		Fair Value
	(in thousands)
U.S. Treasury securities and obligations of U.S. Government	$	33,963	$	1,372	$	—		$	—	$	35,335
Government sponsored agencies		90,030		4,999		—			—		95,029
Other political subdivisions		9,993		133		(241	)		—		9,885
Corporate debt securities		441,681		4,055		(25,453	)		—		420,283
Foreign debt securities		32,779		41		(1,930	)		—		30,890
Mortgage-backed and asset-backed securities		466,632		8,109		(33,770	)		—		440,971

	$	1,075,078	$	18,709	$	(61,394	)	$	—	$	1,032,393

At June 30, 2009, gross unrealized losses of $45.3 million on mortgage-backed and asset-backed securities reflect unrealized losses of $37.0 million on subprime residential mortgage loans, as discussed below, and $8.3 million related to obligations of commercial mortgage-backed securities and other asset-backed securities. The value of a majority of these securities is depressed due to the deterioration of value in the mortgage-backed securities market and related businesses. Corporate debt securities have gross unrealized losses of $8.7 million at June 30, 2009. These unrealized losses relate to corporate securities across all sectors, and reflect the general depressed market conditions that existed at June 30, 2009. The majority of the unrealized losses on corporate debt securities are in the financial sector, which has gross unrealized losses of $5.7 million and where the average market price of our holdings at June 30, 2009 was $92.6 per $100 of par value. Management and the Investment Committee have evaluated these holdings, with input from our investment managers, and do not believe them to be other-than-temporarily impaired.

The amortized cost and fair value of fixed maturity investments at June 30, 2009 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The fair value and unrealized loss as of June 30, 2009 and December 31, 2008 for fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below:

	Less than 12 Months					12 Months or Longer					Total

June 30, 2009	Fair Value		Gross Unrealized Losses and OTTI			Fair Value		Gross Unrealized Losses and OTTI			Fair Value		Gross Unrealized Losses and OTTI
	(in thousands)
U.S. Treasury securities and obligations of U.S. Government	$	4,079	$	(48	)	$	2,013	$	(147	)	$	6,092	$	(195	)
Corporate debt securities		20,385		(395	)		55,377		(8,260	)		75,762		(8,655	)
Foreign debt securities		25		—			2,034		(478	)		2,059		(478	)
Mortgage-backed and asset-backed securities		24,037		(22,839	)		38,415		(22,433	)		62,452		(45,272	)

Total fixed maturities at June 30, 2009	$	48,526	$	(23,282	)	$	97,839	$	(31,318	)	$	146,365	$	(54,600	)

Total number of securities in an unrealized loss position														116

	Less than 12 Months					12 Months or Longer					Total

December 31, 2008	Fair Value		Gross Unrealized Losses and OTTI			Fair Value		Gross Unrealized Losses and OTTI			Fair Value		Gross Unrealized Losses and OTTI
	(in thousands)
U.S. Treasury securities and obligations of U.S. Government	$	53	$	—		$	—	$	—		$	53	$	—
Corporate debt securities		183,289		(13,104	)		51,937		(12,590	)		235,226		(25,694	)
Foreign debt securities		26,803		(1,318	)		1,872		(612	)		28,675		(1,930	)
Mortgage-backed and asset-backed securities		79,877		(9,748	)		57,370		(24,022	)		137,247		(33,770	)

Total fixed maturities at December 31, 2008	$	290,022	$	(24,170	)	$	111,179	$	(37,224	)	$	401,201	$	(61,394	)

Total number of securities in an unrealized loss position														209

We hold securities with exposure to subprime residential mortgages. Subprime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. The slowing U.S. housing market, greater use of mortgage products with low introductory interest rates, generally referred to as "teaser rates," and relaxed underwriting standards for some originators of subprime loans have led to higher delinquency and loss rates, especially with regard to securities issued in 2006 and 2007 that are collateralized by interests in mortgages originated in 2006 and 2007. These factors have caused a significant reduction in market liquidity and repricing of risk, which has led to a decrease in the market valuation of these securities sector wide.

As of June 30, 2009, we held subprime securities with par values of $137.9 million, an amortized cost of $58.2 million and a market value of $21.2 million representing approximately 1.8% of our cash and invested assets, with collateral comprised substantially of first lien mortgages. The majority of these securities are in senior or senior mezzanine level tranches, which have preferential liquidation characteristics, and have an average rating of AA by Standard & Poors, a division of the McGraw Hill Companies, Inc., known as S&P, or equivalent.

The following table presents our exposure to subprime residential mortgages by vintage year.

We continuously review our subprime holdings stressing multiple variables, such as cash flows, prepayment speeds, default rates and loss severity, and comparing current base case loss expectations to the loss required to incur a principal loss, or breakpoint. We expect delinquency and loss rates in the subprime mortgage sector to continue to increase in the near term but at a decreasing rate. Those securities with a greater variance between the breakpoint and base case can withstand this further deterioration. However, holdings where the base case is closer to the breakpoint, principally holdings from the 2006 and 2007 vintage years, are more likely to incur a principal loss. We utilize third party pricing services to provide or estimate market prices. The major inputs used by third party pricing services include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, and estimated cash flows and prepayment speeds. If there are no recent reported trades, the third party pricing services may use matrix or model processes to develop a security price, as has recently been the case with many of our subprime holdings.

The following table summarizes, on a pre-tax basis, our other-than-temporary impairments recorded since the subprime deterioration began in 2007:

During the quarter ended June 30, 2009, we recognized an other-than temporary impairment on six previously impaired structured subprime securities. In addition, we impaired three structured securities that had not been impaired in the past.

Gross realized gains and gross realized losses included in the consolidated statements of operations are as follows:

		For the three months ended June 30,						For the six months ended June 30,

		2009			2008			2009			2008
		(in thousands)
Realized gains:
	Fixed maturities	$	4,732		$	165		$	6,078		$	1,589
	Other		175			—			175			1

			4,907			165			6,253			1,590

Realized losses:
	Fixed maturities, excluding OTTI		(8,428	)		(19	)		(8,922	)		(653	)
	OTTI on fixed maturities		(4,523	)		(13,156	)		(12,599	)		(42,955	)
	Other		—			(275	)					(275	)

			(12,951	)		(13,450	)		(21,521	)		(43,883	)

	Net realized losses	$	(8,044	)	$	(13,285	)	$	(15,268	)	$	(42,293	)

Changes in the amount of other-than-temporary impairments recognized in earnings on securities for which a portion of the other-than-temporary impairments related to other factors was recognized in other comprehensive income:

In addition, we recognized other-than-temporary impairments of approximately $1.0 million on securities for which the impairment was not split between earnings and other comprehensive income.

We carry fixed maturity investments, equity securities and interest rate swaps at fair value in our consolidated financial statements. These fair value disclosures consist of information regarding the valuation of these financial instruments, followed by the fair value measurement disclosure requirements of SFAS 157.

We applied the provisions of SFAS 157 prospectively to financial instruments that we record at fair value. Our adoption of SFAS 157 did not have an impact on opening retained earnings.

The following section applies the SFAS 157 fair value hierarchy and disclosure requirements to our financial instruments that we carry at fair value. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels, numbered 1, 2, and 3.

Level 1 observable inputs reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date. We currently have no Level 1 securities.

Level 2 observable inputs, other than quoted prices included in Level 1, reflect the asset or liability or prices for similar assets and liabilities. Most debt securities and some preferred stocks are model priced by vendors using observable inputs and we classify them within Level 2. Derivative instruments that are priced using models with observable market inputs, such as interest rate swap contracts, also fall into Level 2 category.

Level 3 valuations are derived from techniques in which one or more of the significant inputs, such as assumptions about risk, are unobservable. Generally, Level 3 securities are less liquid securities such as highly structured or lower quality asset-backed securities, known as ABS, and private placement equity securities. Because Level 3 fair values, by their nature, contain unobservable market inputs, as there is no observable market for these assets and liabilities, we must use considerable judgment to determine the SFAS 157 Level 3 fair values. Level 3 fair values represent our best estimate of an amount that we could realize in a current market exchange absent actual market exchanges.

The following table presents our assets and liabilities that are carried at fair value by SFAS 157 hierarchy levels, as of June 30, 2009 (in thousands):

In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, we will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value.

The valuation methodologies used to determine the fair values of assets and liabilities under the "exit price" notion of SFAS 157 reflect market participant objectives and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. We determine the fair value of our financial assets and liabilities based upon quoted market prices where available. Fair values of our interest rate swap liabilities reflect adjustments for counterparty credit quality, our credit standing, liquidity and, where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above table.

We determine the fair value of the majority of our fixed maturity and equity securities using third party pricing service market prices. The following are examples of typical inputs used by third party pricing services:

Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third party pricing services will normally derive the security prices through recent reported trades for

identical or similar securities making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recent reported trades, the third party pricing services may use matrix or model processes to develop a security price where the pricing services develop future cash flow expectations based upon collateral performance, discounted at an estimated market rate. The pricing for mortgage-backed and asset-backed securities reflects estimates of the rate of future prepayments of principal over the remaining life of the securities. The pricing services derive these estimates based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral.

We have analyzed the third party pricing services' valuation methodologies and related inputs, and have also evaluated the various types of securities in our investment portfolio to determine an appropriate SFAS 157 fair value hierarchy level based upon trading activity and the observability of market inputs. Based on the results of this evaluation and investment class analysis, we classified each price into Level 1, 2, or 3. We classified most prices provided by third party pricing services into Level 2 because the inputs used in pricing the securities are market observable.

Due to a general lack of transparency in the process that brokers use to develop prices, we have classified most valuations that are based on broker's prices as Level 3. We may classify some valuations as Level 2 if we can corroborate the price. We have also classified internal model priced securities, primarily consisting of private placement asset-backed securities, as Level 3 because this model pricing includes significant non-observable inputs. We have classified private placement equity securities as Level 3 due to the lack of observable inputs.

We report interest rate swaps in other assets and other liabilities on our consolidated balance sheets at fair value. Their fair value is based on the present value of cash flows as determined by the LIBOR forward rate curve and credit spreads, including our own credit.

We have classified interest rate swaps as Level 2. We have determined their valuations using pricing models with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

The following table provides a summary of changes in the fair value of our Level 3 financial assets:

We calculate earnings per common share using the two-class method. This method requires that we allocate net income between net income attributable to participating preferred stock and net income attributable to common stock, based on the dividend and earnings participation provisions of the preferred stock. Basic earnings per share excludes the dilutive effects of stock options outstanding during the periods and is equal to net income attributable to common stock divided by the weighted average number of common shares outstanding for the periods.

At June 30, 2009 and 2008, we allocated earnings between common and participating preferred stock as follows:

We have approved share repurchase plans that have authorized us to repurchase up to $125 million of shares of our common stock. Through June 30, 2009, we had repurchased 10.0 million shares of our common stock for an aggregate amount of $98.9 million, under these programs. Subsequent to quarter end, through July 28, 2009, we repurchased an additional 0.2 million shares for $1.9 million. As of July 28, 2009, we have $24.2 million that remains available to repurchase additional shares under these plans. We are not obligated to repurchase any specific number of shares under the programs or to make repurchases at any specific time or price.

The components of other comprehensive gain (loss), and the related tax effects for each component, are as follows:

		Three months ended June 30,

		2009									2008
		Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
		(in thousands)
Net unrealized gain (loss) arising during the period (net of deferred acquisition costs)		$	40,108		$	14,038		$	26,070		$	(20,402	)	$	(7,141	)	$	(13,261	)
Reclassification adjustment for (losses) gains included in net income			(8,046	)		(2,816	)		(5,230	)		13,285			4,650			8,635

Net unrealized gain (loss)			32,062			11,222			20,840			(7,117	)		(2,491	)		(4,626	)
Cash flow hedge			4,857			1,700			3,157			10,262			3,592			6,670
Foreign currency translation adjustment			(144	)		(51	)		(93	)		29			10			19

	Other comprehensive gain	$	36,775		$	12,871		$	23,904		$	3,174		$	1,111		$	2,063

		Six months ended June 30,

		2009									2008
		Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount			Before Tax Amount			Tax Expense (Benefit)			Net of Tax Amount
		(in thousands)
Net unrealized gain (loss) arising during the period (net of deferred acquisition costs)		$	42,634		$	14,922		$	27,712		$	(52,419	)	$	(18,347	)	$	(34,072	)
Reclassification adjustment for (losses) gains included in net income			(15,268	)		(5,344	)		(9,924	)		42,293			14,803			27,490

Net unrealized gain (loss)			27,366			9,578			17,788			(10,126	)		(3,544	)		(6,582	)
Cash flow hedge			5,226			1,829			3,397			(174	)		(60	)		(114	)
Foreign currency translation adjustment			(168	)		(59	)		(109	)		(30	)		(11	)		(19	)

	Other comprehensive gain (loss)	$	32,424		$	11,348		$	21,076		$	(10,330	)	$	(3,615	)	$	(6,715	)

We have various stock-based incentive plans for our employees, non-employee directors and agents. We issue new shares upon the exercise of options granted under these plans. Detailed information for activity in our stock-based incentive plans can be found in Note 9—Stock-Based Compensation to the financial statements in our annual report on Form 10-K for the year ended December 31, 2008.

Beginning January 1, 2006, we adopted FASB Statement of Financial Accounting Standards No. 123-Revised, "Share-Based Payment," known as FAS 123-R, using the modified prospective method, and began recognizing compensation cost for share-based payments to employees and non-employee directors based on the grant date fair value of the award, which we amortize over the grantees' service period. We elected to use the Black-Scholes valuation model to value employee stock options, as we had done for our previous pro forma stock compensation disclosures.

We estimated the fair value for these options at the date of grant using a Black-Scholes option pricing model with the following range of assumptions:

The weighted-average grant-date fair value was $3.93 for options granted during the first six months of 2009 and was $2.74 for options granted during the first six months of 2008.

We did not capitalize any cost of stock-based compensation for our employees or non-employee directors. Future expense may vary based upon factors such as the number of awards granted by us and the then-current fair market value of such awards.

A summary of option activity for the six months ended June 30, 2009 is set forth below:

The total intrinsic value of options exercised during the first six months of 2009 was $0.2 million and the total intrinsic value of options exercised during the first six months of 2008 was $3.5 million.

As of June 30, 2009, the total compensation cost related to non-vested awards not yet recognized was $13.0 million, which we expect to recognize over a weighted average period of 1.2 years.

We received cash of $0.1 million from the exercise of stock options during the first six months of 2009 and cash of $1.3 million from the exercise of stock options during first six months of 2008. FAS 123-R also requires us to report the benefits of tax deductions in excess of recognized compensation cost as a financing cash flow, rather than as an operating cash flow as required under the prior statement. We recognized less than $0.1 million of financing cash flows for these excess tax deductions for the six months ended June 30, 2009 and $1.1 million for the six months ended June 30, 2008.

In accordance with our 1998 Incentive Compensation Plan, we may grant restricted stock to our officers and non-officer employees and directors. We have issued restricted stock grants which vest ratably over three and four year periods, and some restricted stock grants have contained portions that vest immediately. We value restricted stock awards at an amount equal to the market price of our common stock on the date of grant and generally issue restricted stock out of treasury shares. We recognize compensation expense for restricted stock awards on a straight line basis over the vesting period. A summary of the status of our non-vested restricted stock awards is set forth below:

The total fair value of shares of restricted stock vested during the six months ended June 30, 2009 was $0.8 million and the total fair value of shares of restricted stock vested during the six months ended June 30, 2008 was $1.0 million.

On December 4, 2007, we entered into two separate interest rate swap agreements, one with Citibank, N.A. and one with Calyon Corporate and Investment Bank to hedge the variability of cash flows to be paid under our new credit facility described in Note 14—Loan Payable in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008. Pursuant to the swap agreement with Citibank, we agreed to swap our floating rate interest payment based on the floating three-month LIBOR base rate on a notional amount of $125 million in exchange for a fixed interest rate payment based on a 4.14% locked-in fixed rate. Pursuant to the swap agreement with Calyon, we agreed to swap our floating rate interest payment

based on the floating three-month LIBOR base rate on a notional amount of $125 million in exchange for a fixed interest rate payment based on a 4.13% locked-in fixed rate. The swap agreements provide a hedge against variability in interest payments on the a combined $250 million amount of the variable rate term loans under our new credit facility, which is due to changes in the LIBOR base rate, through September 2012. We expect changes in the cash flows of the interest rate swap to exactly offset the changes in cash flows from interest rate payments attributable to fluctuations in the LIBOR base rate on the $250 million portion of the variable rate term loan portion of our new credit facility. The combined fair value of these swaps was a $15.1 million liability at June 30, 2009 and a $20.3 million liability at December 31, 2008. We have reflected this fair value in other liabilities. In connection with the transaction executed with Citibank, N.A. we are required to post collateral when we are in a net liability position. The collateral amount required is based on the fair value of the swap including net accrued interest less a $1 million threshold amount as determined by our credit rating of BB+. Should we be downgraded or cease to be rated by S&P or Moody's, the threshold amount would be reduced to zero and we would need to post $1 million in additional collateral. This collateral is reflected in cash and cash equivalents and was $7.3 million as of June 30, 2009 and $9.3 million as of December 31, 2008. Based on the fact that, at inception, the critical terms of the hedging instrument and the hedged forecasted transaction were the same, we have concluded that we expect changes in cash flows attributable to the risk being hedged to be completely offset by the hedging derivative, and have designated these swaps as cash flow hedges. As a result, we reflected the unrealized loss on these hedges in accumulated other comprehensive loss. We will perform subsequent assessments of hedge effectiveness by verifying and documenting whether the critical terms of the hedging instrument and the forecasted transaction have changed during the period, rather than by quantifying the relevant changes in cash flows.

Plaintiff Arthur Tsutsui filed a shareholder derivative action on December 30, 2005, in the Supreme Court for New York State, Westchester County. The defendants in Tsutsui v. Barasch, et al., index no. 05-22523, are officers Richard A. Barasch, Robert A. Waegelein and Gary W. Bryant, as well as all of the directors sitting on our board of directors as of the time the complaint was filed. The Tsutsui action alleges that the same alleged misstatements that were the subject of earlier shareholder actions, which have now all been dismissed or voluntarily withdrawn, constituted a breach of fiduciary duty by the officer defendants and the directors that caused the Company to sustain damages. The Tsutsui action also seeks recovery of any proceeds derived by the officer and director defendants from the sale of our stock that the plaintiff claims was in breach of their fiduciary duties. The defendants filed a motion to dismiss the complaint for failure to state a claim, as well as on other grounds. The court granted this motion, and the plaintiff has appealed the dismissal. On December 26, 2008, the plaintiff filed its appeal brief, the defendants filed their responsive brief on February 26, 2009, and the plaintiff filed its reply brief on March 9, 2009. Oral argument has not yet been scheduled.

We have litigation in the ordinary course of our business asserting claims for medical, disability and life insurance benefits and other matters. In some cases, plaintiffs seek punitive damages. We

believe that after liability insurance recoveries, none of these actions will have a material adverse effect on our results of operations or financial condition.

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. We believe that we are in compliance with all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare, Medicaid and other federal healthcare programs. We are not aware of any material regulatory proceeding or investigation underway or threatened involving allegations of potential wrongdoing.

During 2005, we entered into a strategic alliance with Caremark and created PDMS, which is 50% owned by us and 50% owned by Caremark. PDMS principally performs marketing and risk management services on behalf of our Prescriba Rx^SM PDPs and Caremark, for which it receives fees and other remuneration from our Prescriba Rx^SM PDPs and Caremark. We do not control PDMS and therefore PDMS is not consolidated in our financial statements. Our investment in PDMS is accounted for on the equity basis and is included in other assets. Our investment in PDMS was $0.2 million at June 30, 2009 and $6.9 million at December 31, 2008. We reflect our share in the income or loss of PDMS in equity in earnings of unconsolidated subsidiary. Our share in the net income of PDMS was $0.1 million and $31.3 million for the six months ended June 30, 2009 and 2008, respectively. PDMS made distributions to its owners aggregating $13.6 million during the six months ended June 30, 2009. Our share of those distributions was $6.8 million.

On February 13, 2008, the Company and Caremark announced that the strategic alliance would end as of December 31, 2008, subject to regulatory approval. On July 31, 2008, PDMS received approval from the Centers for Medicare and Medicaid Services (CMS) of the Novation Agreement for Change of Ownership of a Medicare Prescription Drug Plan (PDP) Line of Business. As such, effective January 1, 2009, PDMS no longer manages the strategic alliance and does not earn revenue or incur expenses related to the 2009 PDP year. PDMS will continue to operate in 2009 solely to service the run-off activity related to pharmacy claims, rebates, and revenue related to prior PDP years. Upon dissolution of PDMS in 2009, following the run-out of prior year PDP claims, the economic interest of PDMS would be split equally between the Company and Caremark to match the 50% voting and ownership rights held by each entity.

We report intersegment revenues and expenses on a gross basis in each of the operating segments but eliminate them in the consolidated results. These intersegment revenues and expenses affect the amounts reported on the individual financial statement line items, but we eliminate them in consolidation and they do not change income before taxes. The most significant items eliminated are intersegment revenue and expense relating to services performed by the Senior Administrative Services segment for our other segments and interest on notes payable or receivable between the Corporate segment and the operating segments.

Financial data by segment, with a reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and net income in accordance with generally accepted accounting principles is as follows:

		Three months ended June 30,

		2009						2008
		Revenue			Income (Loss) Before Income Taxes			Revenue			Income (Loss) Before Income Taxes
		(in thousands)
Senior Managed Care—Medicare Advantage		$	661,222		$	28,965		$	623,150		$	33,365
Medicare Part D			506,666			13,595			527,013			10,647
Traditional Insurance			82,543			(10,407	)		113,608			2,151
Senior Administrative Services			10,156			2,285			22,144			6,385
Corporate			278			(18,422	)		1,435			(10,702	)
Intersegment revenues			(7,314	)		—			(16,743	)		—
Adjustments to segment amounts:
	Net realized losses(1)		(8,046	)		(8,046	)		(13,285	)		(13,285	)
	Equity in earnings of unconsolidated subsidiary(2)		(8	)		—			(15,281	)		—

Total		$	1,245,497		$	7,970		$	1,242,041		$	28,561

		Six months ended June 30,

		2009						2008
		Revenue			Income (Loss) Before Income Taxes			Revenue			Income (Loss) Before Income Taxes
		(in thousands)
Senior Managed Care—Medicare Advantage		$	1,307,468		$	75,207		$	1,189,869		$	33,736
Medicare Part D			1,122,405			(22,269	)		1,100,176			(18,987	)
Traditional Insurance			186,646			(25,896	)		235,577			3,169
Senior Administrative Services			22,160			5,710			44,714			12,409
Corporate			447			(30,057	)		2,104			(14,786	)
Intersegment revenues			(16,480	)		—			(31,988	)		—
Adjustments to segment amounts:
	Net realized losses(1)		(15,268	)		(15,268	)		(42,293	)		(42,293	)
	Equity in earnings of unconsolidated subsidiary(2)		(105	)		—			(31,333	)		—

Total		$	2,607,273		$	(12,573	)	$	2,466,826		$	(26,752	)

Income Taxes: Our effective tax rate was 38.1% for the second quarter of 2009, and 0.7% for the second quarter of 2008. The low effective tax rate in the second quarter of 2008 was due primarily to the release of a valuation allowance established in the first quarter of 2008, in connection with the investment impairment. For the six months ended June 30, 2009, our effective tax rate was 34.7%, compared with 34.1% for the same period of 2008.

Life Insurance and Annuity Reinsurance Transaction: On April 24, 2009 we completed the closing of the previously announced Life Insurance and Annuity Reinsurance transaction with the Commonwealth Annuity and Life Insurance Company, known as Commonwealth, and the First Allmerica Financial Life Insurance Company, Goldman Sachs Group, Inc. subsidiaries (NYSE:GS). Under this transaction, we reinsured substantially all of our in force life insurance and annuity business under a 100% coinsurance treaty. In accordance with Statement of Financial Accounting Standards (SFAS) No. 113, "Accounting and Reporting of Short-Duration and Long-Duration Contracts" (SFAS 113), reinsurance recoverables are to be reported as separate assets rather than as reductions of the related liabilities. Accordingly, we increased the amounts due from reinsurers by approximately $544 million as of the effective date of the transaction, April 1, 2009, representing the GAAP basis

liabilities reinsured. We transferred approximately $454 million of cash, net of the ceding commission of $77 million, and $22 million of policy loans, related to the reinsured policies, to the reinsurer. We had approximately $74 million of deferred acquisition costs and present value of future profits as of the effective date of the transaction that were reduced to zero as a result of the recovery of such costs through the initial ceding commission.

On a GAAP basis, the transaction resulted in a loss and other related costs of approximately $7.6 million, including approximately $2.8 million related to the transition of the administration of the business to the reinsurer.

Restructuring Charges: We have undertaken several initiatives to realign our organization and consolidate certain functions to increase efficiency and responsiveness to customers and reduce costs, in order to meet the challenges and opportunities presented by the current economic environment and anticipated Medicare reform. In 2009, we engaged a consultant and began a comprehensive review of our ongoing business with an emphasis on potential operating cost reductions. These efforts have taken on additional significance, in light of the reinsurance of the Life and Annuity business and the anticipated reductions in funding of Medicare Advantage plans announced during the first quarter of 2009. As a result of this review, in the second quarter of 2009, we have committed to a plan to reduce costs, including the in-sourcing of billing and enrollment for our health plan business, workforce reduction and consolidation of facilities. We anticipate that this plan will be substantially complete by the end of 2009.

We incurred total restructuring charges of $4.7 million during the quarter ended June 30, 2009. These charges are included in restructuring costs in our Consolidated Statements of Operations. A summary of our restructuring liability balance and restructuring activity for 2009 is as follows:

Agent Balances: In late 2006 we began recruiting career managers to develop offices for distribution of our products. We have opened a significant number of new "expansion" offices, since then. The Company has advanced much of the cost of the development of these new offices: however, these costs are the responsibility of the manager of the individual office, to be repaid from future profits of the office.

As a result of recent regulatory changes, the PFFS product will no longer be available as of January 1, 2011, except in areas that have approved CMS network access requirements or in certain designated rural areas. We have begun to develop provider network-based products in selected core markets to enable the migration of their PFFS membership to the new PPO products. Our PFFS membership is dispersed and our distribution was developed to have a presence in these areas.

We have considered the impact of these and other changes (the reinsurance of the Life and Annuity business and the overall cost savings initiatives associated with the 2010 bids) on our distribution. During the second quarter of 2009, we performed a review of our career offices. This review consisted of determining whether the office was in a "core" market, the level of expenses being incurred by the office, the level of in-force commission and the anticipated production. As a result of this review, we have identified a significant number of offices to be closed or restructured. We increased our reserve for agent balances by approximately $6.3 million to provide for the amounts that we anticipate will not be collectible.

Reinsurance: We evaluate the financial condition of our reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies. We are obligated to pay claims in the event that a reinsurer to whom we have ceded an insured claim fails to meet its obligations under the reinsurance agreement. As of June 30, 2009, all of our primary reinsurers were rated "A" or better by A.M. Best. We do not know of any instances where any of our reinsurers have been unable to pay any policy claims on any reinsured business.

In connection with the termination of our strategic alliance with CVS/Caremark on December 31, 2008, the agreement to reinsure the Prescription Pathway^SM PDPs sponsored by our subsidiaries on a 50% coinsurance funds withheld basis to PharmaCare Re ended. Net premiums under this agreement in the second quarter of 2008 amounted to $76.1 million. For the six months ended June 30, 2008, net premiums, net of reinsurance, under this agreement was $171.2 million.

On July 1, 2008, the agreements to provide an insured drug benefit for the employees of the State of Connecticut and to reinsure the risk with PharmaCare Re under a 100% quota-share contract was not renewed. Direct and ceded premium under this agreement in the second quarter of 2008 amounted to $86.2 million. For the six months ended June 30, 2008, direct and ceded premium under this agreement was $171.8 million.

Supplemental Cash Flow Information: Supplemental cash flow information for non-cash financing activities is as follows:

Statutory Financial Data: Effective September 30, 2009, the National Association of Insurance Commissioners, known as NAIC, is requiring adoption of SSAP No. 98, Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments. SSAP No. 98 effectively changes the impairment trigger from an undiscounted cash flow basis test to a fair value test. In addition, SSAP No. 98 changes the method of valuing the new cost basis of the impaired security from an undiscounted cash flow basis to a fair value basis. Had we adopted SSAP No. 98 on June 30, 2009, we would have

recognized an additional $56.1 million of realized losses, pre-tax, for other-than-temporary impairments of investments on a statutory basis. Of this amount, $49.9 million relates to securities with an NAIC rating of 6, which are, therefore, already marked to the lower of cost or market for statutory reporting purposes. Accordingly, the implementation of SSAP No. 98 would have reduced surplus by $6.2 million had we adopted on June 30, 2009. However, the actual impairment recorded will depend upon conditions at the measurement date.

ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents a review of our financial condition as of June 30, 2009 and our results of operations for the three and six months ended June 30, 2009 and 2008. You should read the following analysis of our consolidated results of operations and financial condition in conjunction with the consolidated financial statements and related consolidated footnotes included elsewhere in this quarterly report on Form 10-Q as well as the consolidated financial statements and related consolidated footnotes and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, 2008. You should also read the following analysis in conjunction with the Risk Factors contained in our annual report on Form 10-K for the year ended December 31, 2008, as supplemented by the risk factors set forth in Part II, Item 1A "Risk Factors" below.

The following table presents our membership in Medicare Advantage and Part D products as of June 30, 2009 and 2008.

There have been no changes in our critical accounting policies during the current quarter. For a description of significant accounting policies, see Note 2—Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

The following table illustrates the sensitivity of our accident and health IBNR payable at June 30, 2009 to identified reasonably possible changes to the estimated weighted average completion factors and health care cost trend rates. However, it is possible that the actual completion factors and health

care cost trend rates will develop differently from our historical patterns and therefore could be outside of the ranges illustrated below.


Completion Factor(1):		Claims Trend Factor(2):
(Decrease) Increase in Factor		Increase (Decrease) in Net Accident & Health IBNR		(Decrease) Increase in Factor		(Decrease) Increase in Net Accident & Health IBNR
($ in thousands)
	(3	)%	$	1,813			(3	)%	$	(13,045	)
	(2	)%	$	1,205			(2	)%	$	(8,697	)
	(1	)%	$	602			(1	)%	$	(4,348	)
	1	%	$	(602	)		1	%	$	4,362
	2	%	$	(1,203	)		2	%	$	8,723
	3	%	$	(1,804	)		3	%	$	13,085

The following table reflects income before taxes from each of our segments and contains a reconciliation to reported net income:

		Three months ended June 30,						Six Months ended June 30,

		2009			2008			2009			2008
		(in thousands)
Senior Managed Care—Medicare Advantage(1)		$	28,965		$	33,365		$	75,207		$	33,736
Medicare Part D(1)			13,595			10,647			(22,269	)		(18,987	)
Traditional Insurance(1)			(10,407	)		2,151			(25,896	)		3,169
Senior Administrative Services(1)			2,285			6,385			5,710			12,409
Corporate(1)			(18,422	)		(10,702	)		(30,057	)		(14,786	)
Net realized gains (losses) on investments			(8,046	)		(13,285	)		(15,268	)		(42,293	)

Income (losses) before provision for income taxes(1)			7,970			28,561			(12,573	)		(26,752	)
	(Benefit) provision for income taxes		3,036			193			(4,359	)		(9,120	)

Net income (loss)		$	4,934		$	28,368		$	(8,214	)	$	(17,632	)

Earnings (loss) per common share (diluted)		$	0.06		$	0.32		$	(0.10	)	$	(0.20	)

Net income for the three months ended June 30, 2009 was $4.9 million, or $0.06 per diluted share, compared to net income of $28.4 million, or $0.32 per diluted share for the three months ended June 30, 2008. The net income for the second quarter of 2009 includes realized investment losses, net of taxes, of $5.2 million, or $0.06 per diluted share, of which $2.9 million relates to the recognition of other-than-temporary impairments on investments. Net income for the second quarter of 2008 includes realized investment losses, net of taxes, of $1.8 million, or $0.02 per diluted share, related primarily to the recognition of other-than-temporary impairments on investments. Our effective tax rate was 38.1% for the second quarter of 2009, and 0.1% for the second quarter of 2008. The low effective tax rate in the second quarter of 2008 was due primarily to release of a $10.4 million valuation allowance established in the first quarter of 2008 in connection with certain investment impairments.

Our Senior Managed Care—Medicare Advantage segment generated income before taxes of $29.0 million in the three months ended June 30, 2009, a decrease of $4.4 million compared to the three months ended June 30, 2008. The decrease in earnings was driven by certain restructuring costs incurred during the quarter, higher expenses to support the continued investment in the development of provider networks of our expansion PPO markets and a 116 basis point increase in the benefit ratio from the prior year period.

Our Medicare Part D income for the second quarter of 2009 increased by $2.9 million compared to the second quarter of 2008. The increase in Part D income was primarily attributable to lower operating expenses which resulted from restructuring the Medicare Part D call center and other member services, as well as the elimination of certain third party administrative fees as the respective services are being performed internally during 2009.

Results for our Traditional Insurance segment decreased by $12.6 million compared to the three months ended June 30, 2008. The transaction with Commonwealth to reinsure substantially all of the net retained life and annuity business resulted in a loss and other related costs of approximately $7.6 million. Additionally, a $1.2 million restructuring charge was recorded as a result of re-alignment of operations with the lower level of net retained business. Excluding these impacts, the decrease to net income was primarily caused by a $9.1 million decrease in net investment income caused by a lower average invested asset base due to the transfer of assets in conjunction with the reinsurance transaction noted above, offset by a $4.4 million decline in net commissions and expenses due to a lower level of business in-force.

Segment income before taxes for our Senior Administrative Services segment declined by $4.1 million, or 64%, to $2.3 million for the second quarter of 2009, as compared to the same period of 2008. This decrease is primarily the result of a reduction in service fee revenues, net of a corresponding decrease in general expenses.

The loss from our Corporate segment increased by $7.7 million, or 72%, for the second quarter of 2009 compared to the second quarter of 2008. This was due primarily to a $6.3 million charge related to the proposed closing and restructuring of certain career sales offices in 2009, along with higher stock-based compensation costs for equity awards to employees and directors as well as higher levels of expense, partially offset by lower borrowing costs.

Net loss for the six months ended June 30, 2009 was $8.2 million, or $0.10 per diluted share, compared to net loss of $17.6 million, or $0.20 per diluted share for the six months ended June 30, 2008. The net loss for the first half of 2009 includes realized investment losses, net of taxes, of $9.9 million, or $0.12 per diluted share, relating primarily to the recognition of other-than-temporary impairments on investments. Net income for the first half of 2008 includes realized investment losses,

net of taxes, of $27.5 million, or $0.31 per diluted share, also related primarily to the recognition of other-than-temporary impairments on investments. Our effective tax rate was 34.7% for the first half of 2009, and 34.1% for the first half of 2008.

Our Senior Managed Care—Medicare Advantage segment generated income before taxes of $75.2 million for the six months ended June 30, 2009, an increase of $41.5 million compared to the six months ended June 30, 2008. The increase in earnings was driven by higher medical operating income in our PFFS and HMO businesses partially offset by the restructuring costs incurred during the second quarter and continued investment in the development of provider networks for our expansion PPO markets. The improvement in medical operating income was driven by higher premiums and an improvement in the benefit ratio of 255 basis points.

Our Medicare Part D loss for the six months ended June 30, 2009 increased by $3.3 million versus the comparable period in 2008. This increase was principally attributable to a $9.1 million decline in investment and other income, largely offset by a decrease in operating expenses.

Results for our Traditional Insurance segment decreased by $29.1 million compared to the six months ended June 30, 2008. The transaction with Commonwealth to reinsure substantially all of the net retained life and annuity business resulted in a loss and other related costs of approximately $7.6 million. Additionally, a $1.2 million restructuring charge was recorded as a result of re-alignment of operations with the lower level of net retained business. Excluding these one-time impacts, the decrease to net income was primarily caused by a $16.2 million decrease of net investment income caused by lower average yields and a lower invested asset base due to the transfer of assets in conjunction with the reinsurance transaction noted above.

Segment income before taxes for our Senior Administrative Services segment declined by $6.7 million, or 54%, to $5.7 million for the six months ended June 30, 2009, as compared to the same period of 2008. This decrease is primarily the result of expected reductions in service fee revenues, net of a corresponding decrease in general expenses.

The loss from our Corporate segment increased by $15.3 million, or 103%, for the six months ended June 30, 2009 compared to the same period of 2008. This was due primarily to a $6.3 million charge related to the proposed closing and restructuring of certain career sales offices in 2009, a significant non-recurring release of a bonus accrual in the first quarter of 2008, higher stock-based compensation costs for equity awards to employees and directors, higher levels of expense and lower net investment income, partially offset by lower borrowing costs.

		Three months ended June 30,				Six months ended June 30,

		2009		2008		2009		2008
		(in thousands)
Net premiums		$	653,986	$	619,443	$	1,294,871	$	1,181,128
Net investment and other income			7,236		3,707		12,597		8,741

	Total revenue		661,222		623,150		1,307,468		1,189,869

Medical expenses			551,116		514,797		1,068,887		1,005,087
Amortization of intangible assets			1,146		1,014		2,292		2,028
Restructuring costs			3,500		—		3,500		—
Commissions and general expenses			76,495		73,974		157,582		149,018

	Total benefits, claims and other deductions		632,257		589,785		1,232,261		1,156,133

Segment income before taxes		$	28,965	$	33,365	$	75,207	$	33,736

Our Senior Managed Care—Medicare Advantage segment includes the operations of our private fee-for-service business, known as PFFS, which offers coverage to Medicare beneficiaries in approximately 3,100 counties across 47 states, and our Medicare coordinated care plans including PPOs and HMOs. Our HMOs offer coverage to Medicare beneficiaries in southeastern Texas, north Texas, Oklahoma and Wisconsin. The PPO plans offer coverage in 15 markets in 9 states. These businesses provide managed care for seniors under a contract with CMS.

Membership. For a discussion of the accounting for Medicare Advantage policies, see Note 2 of the notes to the consolidated financial statements in our annual report on Form 10-K. There are timing differences between the addition of members to our administrative system and the approval, or accretion, of the member by CMS before we are paid for the member by CMS. We analyze the membership in our administrative system and the enrollment provided by CMS. Although we are unable to precisely quantify the impact of any potential member change from that used in our consolidated financial results, we do not believe that any change from the amounts reported as of June 30, 2009 is likely to be material.

Revenues. Net premiums for the Senior Managed Care—Medicare Advantage segment increased by $34.5 million compared to the three months ended June 30, 2008, primarily due to an increase in the amount of premium resulting from increased member premium rates as well as growth in HMO membership and higher net investment income.

Benefits, Claims and Expenses. Medical expenses increased by $36.3 million compared to the second quarter of 2008, consistent with the higher level of earned premium. The Medicare Advantage medical benefit ratio increased to 84.3% for the second quarter of 2009 from 83.1% for the same period in 2008. Adjusting both periods' benefit ratio for prior period development, the benefit ratio for the second quarter of 2009 was 85.9% compared to 86.9% in 2008, or an improvement of 100 bases points. In the second quarter of 2009 we recorded a $3.5 million restructuring charge related to the

in-sourcing of billing and enrollment for our health plan business. The ratio of commissions and general expenses to premiums decreased 11.7% in the second quarter of 2009 from 11.9% in second quarter of 2008 due to higher expenses to support the continued investment in the development of provider networks for our expansion PPO markets.

Our Senior Managed Care—Medicare Advantage segment generated income before taxes of $75.2 million for the six months ended June 30, 2009, an increase of $41.5 million compared to the six months ended June 30, 2008. The increase in earnings was driven by higher medical operating income generated by an improvement in the medical benefit ratio of 255 basis points, partially offset by the restructuring costs incurred during the second quarter and continued investment in the development of provider networks for our expansion PPO markets.

Revenues. Net premiums for the Senior Managed Care—Medicare Advantage segment increased by $113.8 million compared to the six months ended June 30, 2008, primarily due to an increase in the amount of premium from an increase higher overall premium rates per member and higher net investment income. Total membership in our Medicare Advantage plans remains stable from prior year with gains in membership in our HMO plans being offset by lapses in our PFFS plans.

Benefits, Claims and Expenses. Medical expenses increased by $63.8 million compared to the six months ended June 30, 2008, consistent with the higher level of earned premium. The Medicare Advantage medical benefit ratio decreased to 82.5% for the six months ended June 30, 2009 from 85.1% for the same period in 2008. Adjusting both periods' benefit ratio for prior period development, the benefit ratio for the first six months of 2009 was 84.0% compared to 85.3% in 2008, or an improvement of 125 bases points. Improvement in both periods adjusted medical benefit ratio was the result of positive prior year development recognized in the each period. In the second quarter of 2009 we recorded a $3.5 million restructuring charge related to the in-sourcing of billing and enrollment for our health plan business. Commissions and general expenses increased by $8.6 million compared to the first half of 2008 primarily as the result of an increase in commissions and general expenses related to higher expenses to support the continued investment in the development of provider networks for our expansion PPO markets. However, the ratio of commissions and general expenses to premiums decreased to 12.1% for the six months ended June 30, 2009 from 12.6% in 2008.

		Three months ended June 30,						Six months ended June 30,

		2009			2008			2009			2008
		(in thousands)
Direct and assumed premium		$	511,605		$	530,615		$	1,008,274		$	1,054,157
Risk corridor adjustment/government reinsurance			(6,046	)		56,613			111,683			182,924

Direct and assumed premium after risk corridor adjustment			505,559			587,228			1,119,957			1,237,081
Ceded premiums			155			(80,326	)		288			(179,413	)

	Net premiums		505,714			506,902			1,120,245			1,057,668
Other Part D income (loss)—PDMS			8			15,281			105			31,333

Total Part D revenue			505,722			522,183			1,120,350			1,089,001
Net investment and other income			944			4,830			2,055			11,175

	Total revenue		506,666			527,013			1,122,405			1,100,176

Pharmacy benefits			445,208			455,144			1,038,993			999,595
Amortization of intangibles			4,011			7,999			8,022			7,999
Commissions and general expenses			43,852			53,223			97,659			111,569

	Total benefits, claims and other deductions		493,071			516,366			1,144,674			1,119,163

Segment income (loss) before taxes		$	13,595		$	10,647		$	(22,269	)	$	(18,987	)

Reported results for Medicare Part D business is subject to anticipated seasonality during a given calendar year. This is due to the uneven nature of the standard benefit design under Medicare Part D. Consequently, this business generally sees higher claims experience in the first two quarters of the year while beneficiaries are in the deductible and initial coverage phases of the benefit design. As the beneficiary reaches the coverage gap and catastrophic phases of the benefit design, the plan experiences lower claims liability which is generally in the last two quarters of the year, resulting in a pattern of increasing reported net income attributable to the Part D business.

For a discussion of the accounting for Part D see Notes 2 and 3 of the notes to the consolidated financial statements in our Annual Report on Form 10-K. Our revenues and claims expense are based on earned premium and incurred pharmacy benefits for the reported enrolled membership. The membership information is subject to reconciliation and refinement with CMS with respect to the allocation among all plans participating in the Part D program and is an on-going process. As a result of the on-going reconciliation process, it is likely that the membership data upon which we based our results will change, with a corresponding change in the financial results for the segment. We are unable to precisely quantify the impact of any potential change until the membership data for specific time periods is fully reconciled with CMS, however, based upon our past experience, we do not believe that the effect of any change from the amounts reported as of June 30, 2009 is likely to be material.

Other Part D income—PDMS represented our equity in the earnings of PDMS. We report this as revenue for segment reporting purposes in analyzing the ratio of net pharmacy benefits incurred because the amount is incorporated in the calculation of the risk corridor adjustment. For consolidated reporting, we reflect this amount as a separate line following income from continuing operations. See the reconciliation of segment revenues in Note 13 of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Our strategic alliance with CVS/Caremark was terminated effective December 31, 2008. Upon termination of this strategic alliance, CVS and Universal American were each assigned responsibility for the drug benefit of specific Prescription Pathway's plan members in a manner to achieve an

approximately equal distribution of the value of business that had been generated by the strategic alliance. Universal American has continued to operate PDPs derived from this business under the name PrescribaRx. Effective January 1, 2009, PDMS will no longer manage the strategic alliance and will not earn revenue or incur expenses related to the 2009 Medicare PDP year. The historical net earnings of PDMS were not subject to any seasonality patterns during the year, and as such, we anticipate that the results of our Part D plan for 2009 will have more seasonality.

The Prescription Pathway business was reinsured on a 50% coinsurance basis with PharmaCare Re, a subsidiary of CVS/Caremark. As a result, we retained a 50% share in that business. For 2009 there is no reinsurance for the PrescribaRx business therefore we retain a 100% share.

Our Medicare Part D income for the second quarter of 2009 increased by $2.9 million compared to the second quarter of 2008. The increase in Part D income was primarily attributable to lower operating expenses which resulted from restructuring the Medicare Part D call center and other member services, and the elimination of certain third party administrative fees as the respective services are being performed internally during 2009.

Membership. At June 30, 2009, total membership for Medicare Part D, based on enrollment information provided by CMS, was approximately 1,694,000 members compared to net retained membership of 1,575,000 members at June 30, 2008. Net retained membership at June 30, 2008 excludes members that were assigned to CVS/Caremark upon termination of the strategic alliance effective December 31, 2008. The increase in membership is principally attributable to growth from open enrollment and dual eligible members automatically assigned to our plans in 2009.

Revenues. Net premium for the second quarter of 2009 decreased by $1.2 million, or 0.2% versus the comparable period in 2008. The decline in net premium was primarily attributable to the government risk corridor adjustment which was a decrease in revenue of $6.0 million for the second quarter of 2009 compared to an increase in revenue of $56.6 million for the second quarter of 2008. The change in the government risk corridor adjustment was attributable to the elimination of PDMS effective January 1, 2009, and the improvement in pharmacy benefits which is described under "Benefits, Claims and Expenses" below. In addition, premium revenue for the second quarter of 2008 included approximately $9.8 million in amortization of a below market contract liability that was recorded in connection with the MemberHealth acquisition (described in the Annual Report on Form 10K for the year ended December 31, 2008). These declines were largely offset by growth in premium revenue attributable to an increase in net retained membership by approximately 119,000 members.

Other Part D income—PDMS for the second quarter of 2009 decreased by $15.3 million versus the second quarter of 2008, as a result of the termination of our strategic alliance with CVS/Caremark. Net investment and other income decreased by $3.9 million principally as a result of lower rates of return on investments and lower cash flow related to timing.

Benefits, Claims and Expenses. Pharmacy benefits for the second quarter of 2009 decreased by $9.9 million or 2% compared to the second quarter of 2008, and the ratio of incurred prescription drug benefits to net premium was 88.0% and 89.8% for the second quarters of 2009 and 2008, respectively. The improvement in pharmacy benefits was attributable to more competitive network rates available through our 2009 claims processor, combined with higher rebates that resulted from the consolidation of our Medicare Part D contracts with pharmaceutical manufacturers. In addition, a lower percentage of our total membership completed the deductible phase of the benefit design as of as of June 30, 2009 versus the comparable period in 2008. Medicare Part D plans do not incur pharmacy benefits for a member until after they have completed the deductible phase.

Commissions and general expenses for the second quarter of 2009 decreased by $9.4 million versus the second quarter of 2008 and the decrease was largely attributable to the restructuring of our Medicare Part D call center and other member services which began during 2008 and was completed in 2009. In addition, certain third party administrative fees decreased versus the second quarter of 2008, as these services are being performed internally during 2009.

Revenues. Net premium increased by $62.6 million, or 6% for the six months ended June 30, 2009 versus the comparable period in 2008. The growth in premium revenue was attributable to an increase in Medicare Part D net retained membership by approximately 119,000 members, and was partially offset by a decrease in the government risk corridor adjustment which was an addition to revenue of $111.7 million and $182.9 million for the six months ended June 30, 2009 and 2008, respectively. The change in the government risk corridor adjustment was attributable to the elimination of PDMS effective January 1, 2009, and the improvement in pharmacy benefits which is described under "Benefits, Claims and Expenses" below. In addition, premium revenue for the six months ended June 30, 2008 included approximately $19.8 million in amortization of a below market contract liability that was recorded in connection with the MemberHealth acquisition (described in the Annual Report on Form 10K for the year ended December 31, 2008).

Other Part D income—PDMS for the six months ended June 30, 2009 decreased by $31.2 million versus the comparable period in 2008, as a result of the termination of our strategic alliance with CVS/Caremark. Net investment and other income decreased by $9.1 million principally as a result of lower rates of return on investments and lower cash flow related to timing.

Benefits, Claims and Expenses. Pharmacy benefits for the six months ended June 30, 2009, increased by $39.4 million or 4% compared to the six months ended June 30, 2008, and the ratio of incurred prescription drug benefits to net premium was 92.7% and 94.5% for the six months ended June 30, 2009 and 2008, respectively. The improvement in the ratio of incurred prescription drug benefits to net premium was attributable to more competitive network rates available through our 2009 claims processor, combined with higher rebates that resulted from the consolidation of our Medicare Part D contracts with pharmaceutical manufacturers. In addition, a lower percentage of our total membership completed the deductible phase of the benefit design as of June 30, 2009 versus the comparable period in 2008. Medicare Part D plans do not incur pharmacy benefits for a member until after they have completed the deductible phase.

Commissions and general expenses for the six months ended June 30, 2009 decreased by $13.9 million versus the comparable period in 2008 and the decrease was largely attributable to our restructuring of the Medicare Part D call center and other member services which began during 2008 and was completed in 2009. In addition, third party administrative fees decreased versus the six months ended June 30, 2008, as these services are being performed internally during 2009.

			Three months ended June 30,						Six months ended June 30,

			2009			2008			2009			2008
			(In thousands)
Premiums:
	Direct and assumed		$	118,137		$	218,631		$	243,516		$	445,742
	Ceded			(41,696	)		(120,051	)		(73,346	)		(241,953	)

		Net premiums		76,441			98,580			170,170			203,789
Net investment income				5,652			14,767			14,953			31,189
Other income				450			261			1,523			599

		Total revenue		82,543			113,608			186,646			235,577
Policyholder benefits				59,275			76,489			137,039			157,642
Interest credited to policyholders				—			3,382			4,284			7,522
Change in deferred acquisition costs				884			3,268			8,583			10,799
Amortization of intangible assets				796			811			1,480			1,615
Loss on reinsurance and other related costs				7,624			—			7,624			—
Restructuring costs				1,228			—			1,228			—
Commissions and general expenses, net of allowances				23,143			27,507			52,304			54,830

		Total benefits, claims and other deductions		92,950			111,457			212,542			232,408

Segment (losses) income before taxes			$	(10,407	)	$	2,151		$	(25,896	)	$	3,169

Results for our Traditional Insurance segment decreased by $12.6 million compared to the three months ended June 30, 2008. The transaction with Commonwealth to reinsure substantially all of the net retained life and annuity business resulted in a loss and other related costs of approximately $7.6 million. Additionally, a $1.2 million restructuring charge was recorded as a result of re-alignment of operations with the lower level of net retained business. Excluding these impacts, the decrease to net income was primarily caused by a $9.1 million decrease in net investment income caused by lower average yields and a lower average invested asset base due to the transfer of assets in conjunction with the reinsurance transaction noted above, offset by a $4.4 million decline in net commissions and expenses due to a lower level of business in-force. The following tables detail premium for the segment by major lines of business:

Revenues. Net premium declined by $22.1 million, or 22.5%. As a result of the reinsurance transaction with Commonwealth, life and annuity premium ceded increased by $12.3 million. The continued effect of lapsation of our Medicare supplement in-force business resulted in a decrease of

$7.9 million. Gross and ceded premium for specialty health declined in the second quarter of 2009 compared to the same period of 2008 as the result of the termination of the reinsurance arrangement with PharmaCare Re for the state of Connecticut employees.

Benefits, Claims and Expenses. Policyholder benefits incurred declined by $17.2 million, or 22.5%, compared to the second quarter of 2008. This decline was principally due to the reinsurance transaction with Commonwealth, which resulted in a decrease in net Life and Annuity benefits retained of $9.8 million, and a net reduction in Medicare supplement benefits of $7.7 million. The reduction in Medicare supplement benefits is mainly a result of a decline in the business and a decrease in the loss ratio to 74.2% for the second quarter of 2009 from 76.9% for the same period last year. Individual loss ratios for the three months ended June 30, 2009 were 74.2% for Medicare supplement, compared with 76.9% for the same period last year, and 99.5% for specialty health, compared with 88.0% for the same period last year. The increase in the Specialty loss ratio was caused by an increase in frequency of long term care claims. Interest credited to policyholders also declined $3.4 million or 100% due to the reinsurance transaction with Commonwealth. The change in deferred acquisition cost decreased $2.4 million or 72.9%. This was primarily caused by the elimination of the deferred acquisition costs and the related amortization on the life and annuity business reinsured to Commonwealth.

The following table details the components of commission and general expenses, net of allowances:

Commissions and general expenses, net of allowances, decreased by $4.4 million compared to the second quarter of 2008. The lower level of commissions is associated with the continued aging of our in-force renewal premium and less new business production that has higher commission rates. Other operating costs decreased $2.6 million for the quarter ended June 30, 2009, compared to the second quarter of 2008. This is primarily due to the lower levels of business in-force. Allowances received from reinsurers decreased $0.4 million for the second quarter of 2009 from the second quarter of 2008, primarily due to the termination of the reinsurance arrangement with PharmaCare Re offset by an increase in allowances received on life and annuity business reinsured to Commonwealth.

Results for our Traditional Insurance segment decreased by $29.1 million compared to the six months ended June 30, 2008. The reinsurance transaction with Commonwealth to reinsure substantially all of the net retained life and annuity business resulted in a loss and other related costs of approximately $7.6 million. Additionally, a $1.2 million restructuring charge was recorded as a result of re-alignment of operations with the lower level of net retained business. Excluding these impacts, the decrease to net income was primarily caused by a $16.2 million decrease in net investment income caused by lower average yields and a lower invested asset base due to the transfer of assets in conjunction with the reinsurance transaction noted above.

Revenues. Net premium declined by $33.6 million, or 16.5%. As a result of the reinsurance transaction with Commonwealth, life and annuity premium ceded increased by $12.5 million. The continued effect of lapsation of our Medicare supplement in-force business resulted in a decrease of $17.5 million. Gross and ceded premium for specialty health declined in the six months ended June 30, 2009 compared to the same period of 2008 as the result of the termination of the reinsurance arrangement with PharmaCare Re for the state of Connecticut employees.

Benefits, Claims and Expenses. Policyholder benefits incurred declined by $20.6 million, or 13.1%, compared to the six months ended June 30, 2008. This decline was principally due to the reinsurance transaction with Commonwealth, which resulted in a decrease in net life and annuity benefits retained of $7.2 million, and a net reduction in Medicare supplement benefits of $13.3 million. The reduction in Medicare supplement benefits is mainly a result of a decline in the business. Individual loss ratios for the six months ended June 30, 2009 were 76.6% for Medicare supplement, compared with 76.5% for the same period last year, and 99.0% for specialty health, compared with 90.3% for the same period last year. The increase in the Specialty loss ratio was primarily caused by an increase in frequency of long term care claims. Interest credited to policyholders also declined $3.2 million or 43.0% due to the reinsurance transaction with Commonwealth during the second quarter of 2009. The change in deferred acquisition cost decreased $2.2 million or 20.5%. This was primarily caused by the elimination of the deferred acquisition costs and the related amortization on the life and annuity business reinsured to Commonwealth.

The following table details the components of commission and general expenses, net of allowances:

Commissions and general expenses, net of allowances, decreased by $2.5 million compared to the six months ended June 30, 2008. The lower level of commissions is associated with the continued aging of our in-force renewal premium and less new business production that has higher commission rates. Other operating costs decreased $1.2 million for the six months ended June 30, 2009, compared to the six months ended June 30, 2008. This is primarily due to the lower levels of business in-force. Allowances received from reinsurers decreased $2.6 million for the six months ended June 30, 2009 from the six months ended June 30, 2008, primarily due to the termination of the reinsurance arrangement with PharmaCare Re.

			Three months ended June 30,				Six months ended June 30,

			2009		2008		2009		2008
			(in thousands)
Affiliated fee revenue
	Medicare supplement		$	3,052	$	5,198	$	6,608	$	10,379
	Part D			—		6,995		—		14,021
	Long term care			1,031		582		2,132		1,127
	Life insurance			1,084		1,088		3,136		1,742
	Other			1,632		1,507		3,315		3,599

		Total affiliated revenue		6,799		15,370		15,191		30,868

Unaffiliated fee revenue
	Medicare Advantage			1,010		3,675		1,995		7,213
	Medicare supplement			1,042		1,384		2,249		2,877
	Long term care			1,176		1,382		2,462		2,997
	Non-insurance products			112		226		225		478
	Part D			—		64		—		200
	Other			17		43		38		81

		Total unaffiliated revenue		3,357		6,774		6,969		13,846

		Total revenue		10,156		22,144		22,160		44,714

Amortization of present value of future profits				52		101		104		183
General expenses				7,819		15,658		16,346		32,122

		Total expenses		7,871		15,759		16,450		32,305

Segment income before taxes			$	2,285	$	6,385	$	5,710	$	12,409

In 2008, we performed administrative functions for the affiliated Part D line that the affiliated entities perform directly in 2009. We eliminated these fees, together with affiliated revenue, in consolidation.

Revenue declined by $12.0 million, or 54%, during the second quarter of 2009 compared to the second quarter of 2008. Affiliated service fee revenue decreased by $8.6 million primarily as a result of the loss of fee income associated with the administration of our Part D business that is performed directly by the affiliated entities in 2009 as well as a decrease in services performed for affiliated Medicare supplement business. Unaffiliated service fee revenue decreased by $3.4 million, due primarily to a decrease in services performed for unaffiliated Medicare Advantage, long term care and Medicare supplement business. General expenses for the segment decreased by $7.8 million, or 50%, primarily due to the decline in the business discussed above.

Segment income before taxes for our Senior Administrative Services segment declined by $6.7 million, or 54%, to $5.7 million for the six months ended June 30, 2009, as compared to the same

period of 2008. This decrease is primarily the result of a reduction in service fee revenues, net of a corresponding decrease in general expenses.

Revenue declined by $22.6 million, or 50%, during the six months ended June 30, 2009 compared to the same period of 2008. Affiliated service fee revenue decreased by $15.7 million primarily as a result of the loss of fee income associated with the administration of our Part D business that is performed directly by the affiliated entities in 2009 as well as a decrease in services performed for affiliated Medicare supplement business. Unaffiliated service fee revenue decreased by $6.9 million, due primarily to a decrease in services performed for unaffiliated Medicare Advantage, long term care and Medicare supplement business. General expenses for the segment decreased by $15.8 million, or 49%, primarily due to the decline in the business discussed above.

The following table presents the primary components comprising the loss from the segment:

The decrease in interest expense of $1.0 million is due primarily to a reduction in the interest rates charged on the debt, as compared to the second quarter of 2008. The weighted average interest rate on our loan payable was 3.9% for the second quarter of 2009 compared to 4.5% for the second quarter of 2008. The weighted average interest rate on our other long term debt was 6.3% for the second quarter of 2009 compared to 7.3% for the second quarter of 2008. See "Liquidity and Capital Resources" for additional information regarding our loan payable and other long term debt.

The increase in stock-based compensation expense resulted primarily from option and stock awards, in the second half of 2008 and the first half of 2009, to directors, officers and other employees approved by the compensation committee.

Other parent company expenses, net of revenues, increased $7.9 million. In the second quarter of 2009, primarily in relation to a management decision to close or restructure under-performing field offices in connection with a company-wise cost reduction effort, we recorded a $6.3 million charge to earnings. The remaining variance was primarily due to increased staffing and outside service costs. In addition, net investment income decreased $0.4 million as a result of lower invested assets as a lower rate.

The decrease in interest expense of $2.0 million is due primarily to a reduction in the interest rates charged on the debt, as compared to the first half of 2008. The weighted average interest rate on our loan payable was 4.0% for the first half of 2009 compared to 4.6% for the same period of 2008. The weighted average interest rate on our other long term debt was 6.5% for the first half of 2009 compared to 7.5% for the same period of` 2008. See "Liquidity and Capital Resources" for additional information regarding our loan payable and other long term debt.

Other parent company expenses, net of revenues, increased $16.3 million. In the second quarter of 2009, primarily in relation to a management decision to close or restructure under-performing field offices in connection with a company-wise cost reduction effort, we recorded a $6.3 million charge to earnings. The remaining variance was primarily due to the release in the first quarter of 2008 of a 2007 bonus accrual that was $5.6 million in excess of the final amounts approved by the compensation committee and paid in 2008, compared with a $0.5 million release for similar reasons in the first quarter of 2009 as well as increased staffing and outside service costs. In addition, net investment income decreased $1.8 million as a result of lower invested assets as a lower rate.

We require cash at our parent company to support the growth of our insurance subsidiaries and HMO affiliates, meet our obligations under our credit facility, fund potential growth through acquisitions of other companies or blocks of business, and pay the operating expenses necessary to function as a holding company, as applicable insurance department regulations require us to bear our own expenses.

The parent company's sources and uses of liquidity are derived from the following:

Unregulated subsidiary cash flows. The primary sources of liquidity for our unregulated subsidiaries are fees collected from clients for performing administrative, marketing and management services. The uses are the payments for salaries and expenses associated with providing these services. We believe the sources of cash for the unregulated subsidiaries will exceed scheduled uses of cash and result in amounts available to dividend to our parent holding company.

Insurance subsidiaries and HMO affiliates—Surplus note, Dividends and Capital Contributions. Cash generated by our insurance company subsidiaries will be made available to our holding company, through dividends by American Exchange and payments of principal and interest on the surplus notes owed to our holding company by American Exchange and Pyramid Life.

As of June 30, 2009, American Exchange made $5.6 million in principal payments on the surplus note during the quarter ended June 30, 2009 resulting in the note being paid in full. Prior to repayment, this note had bore interest at LIBOR plus 250 basis points.

In 2007, Pyramid issued $60.0 million of surplus notes payable to our holding company, which bears interest at an average fixed rate of 7.5%. The notes are repayable beginning March 29, 2009 provided that capital and surplus are sufficient to maintain risk-based capital levels of 450% or greater in the immediate prior year end. However, at December 31, 2008, Pyramid's risk-based capital ratio was below 450%, thus no payments of principal or interest were made in the six months ended June 30, 2009.

Our parent holding company did not make capital contributions to American Exchange and American Exchange did not make capital contributions to its subsidiaries during the six months ended June 30, 2008 and 2009. Further, no dividends were declared nor paid to American Exchange from its subsidiaries during the first half of 2008 and 2009.

Capital contributions to and dividends from for our HMO affiliates are made through our managed care holding company, Heritage Health Systems, Inc. ("HHSI"). HHSI made capital contributions totaling $3.1 million to its HMO subsidiaries for the six months ended June 30, 2009. Further, no dividends were declared nor paid to HHSI from its subsidiaries during the first half of 2009. HHSI made no capital contributions and did not receive any dividends during the first half of 2008.

Debt principal and interest—Credit Facility, Swaps and Other Long Term Debt. We currently have a credit facility consisting of a $350 million term loan and a $150 million revolver. As of June 30, 2009, $318.9 million was outstanding under the term loan agreement. As of June 30, 2009, the interest rate on the term loan portion of the credit facility was 1.56% and we pay a commitment fee on the unutilized revolving loan facility at an annualized rate of 10 basis points. We had not drawn on the revolving loan facility as of the date of this report. We made regularly scheduled principal payments totaling $1.8 million and interest payments totaling $5.1 million during the six months ended June 30, 2009.

On December 4, 2007, we entered into two separate interest rate swap agreements on a total notional amount of $250 million, where we pay an average locked-in fixed rate of 4.14% and receive a floating rate based on LIBOR. In the first half of 2009, we paid a net amount of $2.1 million in association with these swap agreements.

We formed statutory business trusts, in order to issue a combined $125.0 million in thirty year trust preferred securities, with $110 million currently outstanding. $60 million of these securities have floating interest rates based on LIBOR and are currently at an average rate of 4.99%. The remaining $50 million is fixed at 7.68% until March 2012. We made interest payments on the trust preferred securities totaling $3.8 million during the first half of 2009.

Insurance subsidiaries and HMO affiliates—Liquidity. At June 30, 2009, we held cash and cash equivalents totaling $249 million and fixed maturity securities that could readily be converted to cash with carrying values of $874 million. The net yields on our cash and invested assets decreased to 4.4% for the six months ended June 30, 2009, from 5.4% for the six months ended June 30, 2008.

Our insurance subsidiaries are required to maintain minimum amounts of statutory capital and surplus as required by regulatory authorities and each currently exceeds its respective minimum requirement at levels we believe are sufficient to support their current levels of operation.

Our HMO affiliates are also required by regulatory authorities to maintain minimum amounts of capital and surplus and each currently exceeds this minimum requirement.

Investments. We invest primarily in fixed maturity securities of the U.S. Government and its agencies, mortgage back securities and in corporate fixed maturity securities with investment grade ratings of BBB- or higher by S&P or Baa3 or higher by Moody's Investor Service. As of June 30, 2009, approximately 99% of our fixed maturity investments had investment grade ratings from S&P or Moody's.

We have recently adopted a more conservative approach to our investment portfolio, which focuses more on capital preservation than on generation of investment yield. As a result, as of June 30, 2009, approximately 30% of our portfolio is in cash equivalents, largely in government money market funds, and, in the aggregate, approximately 57% of our portfolio is securities backed by the US government or its agencies.

For additional information on Liquidity and Capital Resources, please refer to our annual report on Form 10-K for the year ended December 31, 2008.

A summary of other recent and pending accounting pronouncements is provided in Note 3 of the consolidated financial statements in the Quarterly Report on Form 10-Q under the caption "Recently Issued and Pending Accounting Pronouncements." We do not anticipate any material impact from the future adoption of the pending accounting pronouncements discussed in that note.

In general, market risk to which we are subject relates to changes in interest rates that affect the market prices of our fixed income securities as well as the cost of our variable rate debt.

Our profitability could be affected if we were required to liquidate fixed income securities during periods of rising and/or volatile interest rates. However, we attempt to mitigate our exposure to adverse interest rate movements through a combination of active portfolio management and by staggering the maturities of our fixed income investments to assure sufficient liquidity to meet our obligations and to address reinvestment risk considerations. Our investment policy is to attempt to balance our portfolio duration to achieve investment returns consistent with the preservation of capital and to meet payment obligations of policy benefits and claims.

Some classes of mortgage-backed securities are subject to significant prepayment risk due to the fact that in periods of declining interest rates, individuals may refinance higher rate mortgages to take advantage of the lower rates then available. We monitor and adjust our investment portfolio mix to mitigate this risk.

We regularly conduct various analyses to gauge the financial impact of changes in interest rate on our financial condition. The ranges selected in these analyses reflect our assessment as being reasonably possible over the succeeding twelve-month period. The magnitude of changes modeled in the accompanying analyses should not be construed as a prediction of future economic events, but rather, be treated as a simple illustration of the potential impact of such events on our financial results.

The sensitivity analysis of interest rate risk assumes an instantaneous shift in a parallel fashion across the yield curve, with scenarios of interest rates increasing and decreasing 100 and 200 basis points from their levels as of June 30, 2009, and with all other variables held constant. The following table summarizes the impact of the assumed changes in market interest rates.

We pay interest on our term loan and a portion of our trust preferred securities based on the London Inter Bank Offering Rate, known as LIBOR, over one, two, three or six month interest periods. Due to the variable interest rate, we would be subject to higher interest costs if short-term interest rates rise. We have attempted to mitigate our exposure to adverse interest rate movements by fixing the rate on $65.0 million of our trust preferred securities for a five year period through the contractual terms of the security at inception, of which $15 million is currently based on a floating rate and $50 million remains at a fixed rate.

The sensitivity analysis of interest rate risk assumes scenarios involving increases or decreases in LIBOR of 100 and 200 basis points from their levels as of and for the six months ended June 30, 2009,

and with all other variables held constant. The following table summarizes the impact of changes in LIBOR.

As noted above, we have fixed the interest rate on $300 million of our $429 million of total debt outstanding, leaving $129 million of the debt exposed to rising interest rates, as of June 30, 2009. We had approximately $332 million of cash and cash equivalents as of June 30, 2009. We anticipate that any increase or decrease in the interest cost of our debt as a result of an increase in interest rates will be mitigated by an increase or decrease in the net investment income from our cash and cash equivalents.

The magnitude of changes reflected in the above analysis regarding interest rates should not be construed as a prediction of future economic events, but rather as a simple illustration of the potential impact of such events on our financial results.

We maintain disclosure controls and procedures that are designed to ensure that we record, process, summarize and report the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 within the time periods specified in the SEC's rules and forms, and that we accumulate this information and communicate it to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our disclosure controls and procedures and our internal controls over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and we must consider the benefits of controls relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that we have detected all control issues and instances of fraud, if any, within Universal American. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The individual acts of some persons or collusion of two or more people can also circumvent controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all

potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2009. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2009, at a reasonable assurance level, to timely alert management to material information required to be included in our periodic filings with the Securities and Exchange Commission.

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

For information relating to litigation affecting us, please see Note 11—Commitments and Contingencies of the notes to the consolidated financial statements in Part I—Item 1 of this report, which is incorporated into this Part II—Item 1—Legal Proceedings by reference.

Information concerning certain risks and uncertainties appears in Part I, Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. You should carefully consider these risks and uncertainties, which could materially affect our business, financial position and results of operations.

The Company has identified the following additional risk factors to supplement those set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008:

As a government contractor, we are exposed to risks that could adversely affect our business or our willingness to participate in government health care programs, including and as a result of the new 2010 Medicare Advantage payment rates released by CMS.

Reductions in payments under Medicare or the other programs under which we offer health plans could reduce our profitability. The Medicare Modernization Act of 2003, or MMA, permits premium levels for certain Medicare plans to be established through competitive bidding, with Congress retaining the ability to limit increases in premium levels established through bidding from year to year. On April 6, 2009, CMS released final 2010 Medicare Advantage payment rates which represent an effective rate decrease of 4 to 5 percent for the industry. Reduced Medicare Advantage rates will require us to consider changes to our current plans including possible increases to member premiums, reduction of the benefits that we offer under our Medicare Advantage plans, or some combination thereof, thereby making them potentially less attractive to members. Congress is considering other reductions to rates or other changes to the Medicare reimbursement system which could also have a material adverse effect on our results of operations, financial position, and cash flows.

Measures of the new administration and U.S. Congress to expand covered health insurance and/or implement changes within the health care system, including the American Recovery and Reinvestment Act, could increase our cost of doing business and could adversely affect our profitability.

Although the new administration and U.S. Congress have expressed some support for measures intended to expand the number of citizens covered by health insurance and other changes within the health care system, the costs of implementing any of these proposals could be financed, in part, by reductions in the payments made under Medicare Advantage and other government programs. In addition, in February 2009, President Obama signed the American Recovery and Reinvestment Act that provides funding for, among other things: state Medicaid programs; the modernization of health information technology systems and aid to states to help defray budget cuts. Because of the unsettled nature of these initiatives and the numerous steps required to implement them we remain uncertain as to the ultimate impact they will have on our business.

In addition, we are subject to potential changes in the political environment that can affect public policy and can adversely affect the markets for our products.

The securities and credit markets recently have been experiencing extreme volatility and disruption, which could adversely affect our business.

Given the current economic climate, our stock and the stocks of other companies in the insurance industry may be increasingly subject to stock price and trading volume volatility. Also, downgrades in our debt ratings, should they occur, may adversely affect our business, results of operations, and financial condition.

We make cash advances to our agents to assist in the development of agency offices and recruitment of agents.

We historically invested in our career distribution agencies to provide monetary assistance in the development of offices and recruitment of agents to build a controlled distribution force for our various products. Collectability of these advances generally comes from the commissions earned from the production of these offices or personal guarantees of the office managers. No assurance can be given that production levels or personal assets of the managers will be sufficient to repay the obligation and may result in future write-off of these advances. During the second quarter of 2009, we wrote off $6.3 million of agents' advances.

We held our annual meeting of shareholders on June 4, 2009. The following describes the actions taken at the annual meeting.

Election of Directors. At the annual meeting, our shareholders elected the fourteen nominees to serve as members of our board of directors until our 2010 annual meeting of shareholders or until their successors are duly elected and qualified. The tabulation of votes for each of the nominees was as follows:

	Number of Votes

Nominee	For		Withheld
Barry W. Averill		82,852,967		412,321
Richard A. Barasch		81,817,724		1,447,564
Sally W. Crawford		82,401,224		864,064
Matthew W. Etheridge		82,838,076		427,212
Mark K. Gormley		81,961,182		1,304,106
Mark M. Harmeling		82,637,302		627,986
Linda H. Lamel		82,859,667		405,621
Eric W. Leathers		81,918,008		1,347,280
Patrick J. McLaughlin		82,637,585		627,703
Richard C. Perry		82,852,867		412,421
Thomas A. Scully		81,980,249		1,285,039
Robert A. Spass		81,977,165		1,288,123
Sean M. Traynor		81,980,249		1,285,039
Robert F. Wright		82,203,933		1,061,355

Ratification of the Election of Independent Auditors. At our annual meeting our shareholders approved the proposal to ratify the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2009. Tabulation of the votes for the proposal was as follows:

All references below to our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K share the Securities and Exchange Commission File No. 0-11321. These reports and our other Securities and Exchange Commission filings are available on the Commission's EDGAR web site at http://www.sec.gov/edgar/searchedgar/companysearch.html.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file Number: 0-11321


New York		11-2580136
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Class of Common Stock		Outstanding at July 28, 2009

$0.01 par value		77,153,015 shares

	Item	Description

PART I		Financial Information
	1	Financial Statements (unaudited):
		Consolidated Balance Sheets	4
		Consolidated Statements of Operations—Three Months	5
		Consolidated Statements of Operations—Six Months	6
		Consolidated Statements of Stockholders' Equity and Comprehensive Income	7
		Consolidated Statements of Cash Flows	8
		Notes to Consolidated Financial Statements	9
	2	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
	3	Quantitative and Qualitative Disclosures About Market Risk	54
	4	Controls and Procedures	55
PART II		Other Information
	1	Legal Proceedings	57
	1A	Risk Factors	57
	2	Unregistered Sales of Equity Securities and Use of Proceeds	58
	3	Defaults Upon Senior Securities	58
	4	Submission of Matters to a Vote of Security Holders	58
	5	Other Information	59
	6	Exhibits	59
		Signatures	61

		June 30, 2009								December 31, 2008

Plan Year		Reinsurance/ Low-income Cost Subsidy(1)			Risk Corridor(2)		Total Due from (to) CMS(3)			Reinsurance/ Low-income Cost Subsidy(1)			Risk Corridor(2)			Total Due from (to) CMS(3)
		(in thousands)
2009		$	(397,555	)	$	111,930	$	(285,625	)	$	—		$	—		$	—
2008			525,799			16,550		542,349			528,993			16,551			545,544
2007			15,615			7,401		23,016			85,909			16,917			102,826
2006			873			828		1,701			(5,609	)		(1,815	)		(7,424	)

	Total due from CMS	$	144,732		$	136,709	$	281,441		$	609,293		$	31,653		$	640,946

	Unrealized OTTI

Increase in amortized cost	$	16,487
Income Tax		(5,771	)

Net cumulative effect adjustment	$	10,716

	Amortized Cost		Fair Value

	(in thousands)
Due in 1 year or less	$	41,186	$	42,113
Due after 1 year through 5 years		355,681		368,866
Due after 5 years through 10 years		99,237		98,775
Due after 10 years		29,406		24,293
Mortgage and asset-backed securities		373,722		339,999

	$	899,232	$	874,046

Vintage Year	Amortized Cost		Fair Value		Unrealized Gain (Loss)

	(in thousands)
2003	$	4,654	$	3,261	$	(1,393	)
2004		2,624		1,998		(626	)
2005		24,048		11,041		(13,007	)
2006		21,465		3,400		(18,065	)
2007		5,427		1,562		(3,865	)

Totals	$	58,218	$	21,262	$	(36,956	)

			2009 Quarter Ended				Year Ended December 31,

	Cumulative		June 30		March 31		2008		2007
	(in thousands)
Subprime	$	95,471	$	2,135	$	4,375	$	47,964	$	40,997
Other structured		10,734		2,388		3,701		4,645		—
Corporate		7,177		—		—		7,177		—

	$	113,382	$	4,523	$	8,076	$	59,786	$	40,997

		Three months ended June 30, 2009		Six months ended June 30, 2009

		(in thousands)
Balance, April 1, 2009 (implementation date)		$	390	$	390
Credit related impairments recognized in current period earnings on securities:
	With credit related impairments previously recognized		—		—
	With credit related impairments not previously recognized		3,508		3,508

Cumulative credit related impairments as of June 30, 2009		$	3,898	$	3,898

		Total		Level 1		Level 2		Level 3

Assets:
Fixed maturities, available-for-sale		$	874,046	$	—	$	871,578	$	2,468
Equity securities			490		—		—		490

	Total assets	$	874,536	$	—	$	871,578	$	2,958

Liabilities:
Interest rate swaps		$	15,072	$	—	$	15,072	$	—

	Fixed Maturities			Equity Securities		Total

	(in thousands)
Fair value as of December 31, 2008	$	3,944		$	490	$	4,434
Net purchases and sales		(157	)		—		(157	)
Net transfers out		(464	)		—		(464	)
Unrealized losses included in AOCL(1),(2)		7			—		7

Fair value as of March 31, 2009	$	3,330		$	490	$	3,820
Net purchases and sales		(57	)		—		(57	)
Net transfers out		(95	)		—		(95	)
Unrealized losses included in AOCL(1),(2)		(710	)		—		(710	)

Fair value as of June 30, 2009	$	2,468		$	490	$	2,958

	For the six months ended June 30,

	2009								2008
	Shares			Amount			Weighted Average Cost Per Share		Shares			Amount			Weighted Average Cost Per Share
Treasury stock beginning of year		7,194,387		$	77,605		$	10.79		285,545		$	4,258		$	14.91
Shares repurchased		3,257,174			27,116			8.32		4,446,955			50,067			11.26
Shares distributed in the form of employee bonuses		(383,610	)		(4,108	)		10.71		(114,312	)		(1,417	)		12.39

Treasury stock, end of period		10,067,951		$	100,613		$	9.99		4,618,188		$	52,908		$	11.46

		June 30, 2009			December 31, 2008

		(in thousands)
Net unrealized gains (losses) on investments		$	934		$	(42,685	)
Gross unrealized OTTI			(26,120	)		—
Deferred acquisition cost adjustment			—			6,617
Foreign currency translation gains			162			332
Fair value of cash flow swap on debt			(15,072	)		(20,298	)
Deferred income taxes			14,034			19,612

	Total accumulated other comprehensive loss	$	(26,062	)	$	(36,422	)


Subprime	$	15,689
Non-agency RMBS		798

	$	16,487

	For options granted in:

	2009	2008 and Prior
Risk free interest rates	1.28% – 3.04%	1.33% – 3.15%
Dividend yields	0.0%	0.0%
Expected volatility	40.61% – 55.63%	35.60% – 49.31
Expected lives of options (in years)	3.5 – 3.8	3.5 – 5.0

			Weighted Average Exercise Price

Outstanding, January 1, 2009	5,640		$	14.85
Granted	1,017			10.07
Exercised	(35	)		3.75
Forfeited or expired	(297	)		16.29

Outstanding, June 30, 2009	6,325		$	14.07
Exercisable, June 30, 2009	3,653		$	12.44

	Six Months Ended June 30, 2009

Non-vested Restricted Stock	Shares (in thousands)			Weighted Average Grant-Date Fair Value
Non-vested at beginning of period		471		$	18.89
Granted		397			10.29
Vested		(94	)		15.50
Forfeited		(42	)		17.64

Non-vested at end of period		732		$	15.03

	Segment	January 1, Balance		Charge to Earnings		Cash Paid			Non-Cash			June 30, Balance

		(in thousands)
2009
Contract termination costs	Medicare Advantage	$	—	$	3,500	$	—		$	—		$	3,500
Workforce reduction	Traditional				608		(293	)		—			315
Facility consolidation	Traditional		—		619		—			(14	)		605

Total		$	—	$	4,727	$	(293	)	$	(14	)	$	4,420

			As of June 30,

Membership by Segment			2009		2008
			(in thousands)
Medicare Advantage
	PFFS			175		188
	Network-based (HMO and PPO)			63		54

		Total Medicare Advantage		238		242

Part D
	CCRx			1,268		1,295
	PRx(1)			426		280

		Total Part D		1,694		1,575

Total Membership				1,932		1,817

		Three months ended June 30,

		2009							2008
		Gross		Ceded			Net		Gross		Ceded			Net
		(in thousands)
Medicare supplement		$	80,700	$	(20,782	)	$	59,918	$	92,628	$	(24,844	)	$	67,784
Specialty health			18,357		(2,872	)		15,485		106,682		(89,431	)		17,251
Life insurance and annuity			19,080		(18,042	)		1,038		19,321		(5,776	)		13,545

	Total premium	$	118,137	$	(41,696	)	$	76,441	$	218,631	$	(120,051	)	$	98,580

	Effect of Change in Market Interest Rates on Market Value of Fixed Income Portfolio as of June 30, 2009

June 30, 2009
June 30, 2009	200 Basis Point Decrease	100 Basis Point Decrease	100 Basis Point Increase	200 Basis Point Increase
Market Value of Fixed Income Portfolio	200 Basis Point Decrease	100 Basis Point Decrease	100 Basis Point Increase	200 Basis Point Increase
	(in millions)
$874.0	$50.5	$26.6	$(26.6)	$(55.5)

						Effect of Change in LIBOR on Pre-tax Income for the six months ended June 30, 2009

				Weighted Average Balance Outstanding
Description of Floating Rate Debt	Weighted Average Interest Rate			Weighted Average Balance Outstanding		200 Basis Point Decrease(1)		100 Basis Point Decrease		100 Basis Point Increase			200 Basis Point Increase
	(in millions)
Loan payable		1.48	%	$	70.2	$	0.2	$	0.2	$	(0.4	)	$	(0.7	)
Other long term debt		5.47	%	$	60.0		0.4		0.3		(0.3	)		(0.6	)

Total						$	0.6	$	0.5	$	(0.7	)	$	(1.3	)

Period		Average Price Paid Per Share			Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in Thousands)(1)

April 1, 2009 — April 30, 2009	445,295	$	9.12	445,295	$	2,215
May 1, 2009 — May 31, 2009	—		—	—		2,215
June 1, 2009 — June 30, 2009	137,600	$	8.22	137,600		26,084

Total	582,895			582,895


3.1		Restated Certificate of Incorporation of Universal American Financial Corp. (filed as Exhibit 3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form S-3 filed on July 11, 2001, and incorporated by reference herein).
3.2		Certificate of Amendment of the Certificate of Incorporation of Universal American Financial Corp. (filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, filed August 9, 2004, and incorporated by reference herein).
3.3		Amended and Restated By-Laws of Universal American Corp. (filed as Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 12, 2008, and incorporated by reference herein).


3.4		Certificate of Amendment to the Certificate of Incorporation of Universal American Financial Corp. for the Series A Preferred Stock (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed May 11, 2007, and incorporated by reference herein).
3.5		Certificate of Amendment of the Certificate of Incorporation of Universal American Financial Corp. for the Registrant's Series B Preferred Stock (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed May 11, 2007, and incorporated by reference herein).
3.6		Certificate of Amendment to Certificate of Incorporation changing the name of Universal American Financial Corp. to Universal American Corp. (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed December 3, 2007, and incorporated by reference herein).
31.1*		Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*		Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1*		Certification of the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		UNIVERSAL AMERICAN CORP.
July 30, 2009		/s/ RICHARD A. BARASCH
		Richard A. Barasch Chief Executive Officer
July 30, 2009		/s/ ROBERT A. WAEGELEIN
		Robert A. Waegelein Executive Vice President and Chief Financial Officer (Principal Accounting Officer)