10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2007

Commission File Number: 001-32739

HealthSpring, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	20-1821898 (I.R.S. Employer Identification No.)
44 Vantage Way, Suite 300
Nashville, Tennessee (Address of Principal Executive Offices)	37228 (Zip Code)

(615) 291-7000
(Registrant’s Telephone Number, Including Area 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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

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

	Outstanding at May 10, 2007
Common Stock, Par Value $0.01 Per Share	57,340,132 Shares

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2007 and December 31, 2006		1
Condensed Consolidated Statements of Income for the three months ended March 31, 2007 and 2006		2
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006		3
Notes to Condensed Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3. Quantitative and Qualitative Disclosures About Market Risk		22
Item 4. Controls and Procedures		22
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		23
Item 1A. Risk Factors		23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3. Defaults Upon Senior Securities		25
Item 4. Submission of Matters to a Vote of Security Holders		25
Item 5. Other Information		25
Item 6. Exhibits		25
Ex-10.1 2006 Equity Incentive Plan, As Amended
Ex-10.2 Form of Non-Qualified Stock Option Agreement
Ex-10.3 Form of Incentive Stock Option Agreement
Ex-10.4 Form of Restricted Stock Award Agreement (Employees and Officers)
Ex-10.5 Form of Restricted Stock Award Agreement (Directors)
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.1 Section 906 Certification of the CFO

Part I – FINANCIAL INFORMATION

Item 1: Financial Statements

HEALTHSPRING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

	March 31,			December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	473,943		$	338,443
Accounts receivable, net of allowance for doubtful accounts of $3,087 and $3,524 at March 31, 2007 and December 31, 2006, respectively		31,764			17,588
Investment securities available for sale		7,816			7,874
Current portion of investment securities held to maturity		25,877			10,566
Deferred income tax asset		3,608			3,644
Prepaid expenses and other assets		6,287			4,047
Total current assets		549,295			382,162
Investment securities held to maturity, less current portion		18,817			19,560
Property and equipment, net		12,048			8,831
Goodwill		341,619			341,619
Intangible assets, net		79,292			81,175
Investment in and receivable from unconsolidated affiliate		1,322			1,301
Deferred financing costs		748			802
Restricted investments		8,070			7,195
Total assets	$	1,011,211		$	842,645
Liabilities and Stockholders’ Equity
Current liabilities:
Medical claims liability	$	113,143		$	122,778
Accounts payable and accrued expenses		22,310			25,149
Deferred revenue		109,757			64
Funds held for the benefit of members		114,666			62,125
Risk corridor payable to CMS		29,220			27,587
Other current liabilities		293			835
Total current liabilities		389,389			238,538
Deferred income tax liability		28,050			28,444
Other long-term liabilities		2,060			381
Total liabilities		419,499			267,363
Stockholders’ equity:
Common stock, $0.01 par value, 180,000,000 shares authorized, 57,540,132 shares issued and 57,249,198 outstanding at March 31, 2007, 57,527,549 shares issued and 57,261,157 outstanding at December 31, 2006		575			575
Additional paid in capital		487,347			485,002
Retained earnings		103,848			89,758
Treasury stock, at cost, 290,934 shares March 31, 2007 and 266,392 shares at December 31, 2005		(58	)		(53	)
Total stockholders’ equity		591,712			575,282
Total liabilities and stockholders’ equity	$	1,011,211		$	842,645

See accompanying notes to condensed consolidated financial statements.

1

HEALTHSPRING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(unaudited)

	Three Months Ended
	March 31,
	2007			2006
Revenue:
Premium:
Medicare	$	331,780		$	266,687
Commercial		13,240			32,234
Total premium revenue		345,020			298,921
Management and other fees		6,049			5,635
Investment income		5,248			2,066
Total revenue		356,317			306,622
Operating expenses:
Medicare		273,640			220,433
Commercial		10,055			26,939
Total medical expense		283,695			247,372
Selling, general and administrative		47,506			34,609
Depreciation and amortization		2,948			2,423
Interest expense		115			8,361
Total operating expenses		334,264			292,765
Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes		22,053			13,857
Equity in earnings of unconsolidated affiliate		21			107
Income before minority interest and income taxes		22,074			13,964
Minority interest		—			(303	)
Income before income taxes		22,074			13,661
Income tax expense		(7,984	)		(5,088	)
Net income		14,090			8,573
Preferred dividends		—			(2,021	)
Net income available to common stockholders	$	14,090		$	6,552
Net income per common share available to common stockholders:
Basic	$	0.25		$	0.14
Diluted	$	0.25		$	0.14
Weighted average common shares outstanding:
Basic		57,233,712			46,640,074
Diluted		57,330,365			46,740,643

See accompanying notes to condensed consolidated financial statements.

2

HEALTHSPRING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Three Months			Three Months
	Ended			Ended
	March 31, 2007			March 31, 2006
Cash from operating activities:
Net income	$	14,090		$	8,573
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		2,948			2,423
Stock-based compensation expense		2,121			851
Amortization of deferred financing cost		54			112
Paid-in-kind (PIK) interest on subordinated notes		—			116
Equity in earnings of unconsolidated affiliate		(21	)		(107	)
Minority interest		—			303
Deferred tax (benefit) expense		(358	)		(4,170	)
Write-off of deferred financing fee		—			5,375
Increase (decrease) in cash equivalents due to change in:
Accounts receivable		(14,176	)		(12,747	)
Prepaid expenses and other current assets		(2,240	)		(1,552	)
Medical claims liability		(9,635	)		17,123
Accounts payable, accrued expenses, and other current liabilities		(3,381	)		6,120
Risk corridor payable to CMS		1,633			—
Other long-term liabilities		1,679			(8	)
Deferred revenue		109,693			87,059
Net cash provided by operating activities		102,407			109,471
Cash flows from investing activities:
Purchase of property and equipment		(4,282	)		(513	)
Purchase of investment securities held-to-maturity		(16,747	)		(2,600	)
Maturity of investment securities held-to-maturity		2,237			2,165
Purchase of restricted investments		(875	)		(1,074	)
Net cash used in investing activities		(19,667	)		(2,022	)
Cash flows from financing activities:
Funds received for the benefit of the members, net		52,541			46,922
Payments on long-term debt		—			(188,642	)
Proceeds from issuance of common stock		224			188,897
Purchase of treasury stock		(5	)		(4	)
Net cash provided by financing activities		52,760			47,173
Net increase in cash and cash equivalents		135,500			154,622
Cash and cash equivalents at beginning of period		338,443			110,085
Cash and cash equivalents at end of period	$	473,943		$	264,707

See accompanying notes to condensed consolidated financial statements.

3

HEALTHSPRING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
(in thousands)
(unaudited)

	Three Months		Three Months
	Ended		Ended
	March 31, 2007		March 31, 2006
Supplemental disclosures:
Cash paid for interest	$	62	$	2,840
Cash paid for taxes	$	2,039	$	19
Non-cash transaction:
Issuance of common shares in exchange for all preferred stock and cumulative dividends	$	—	$	244,782
Issuance of common shares in exchange for minority shares	$	—	$	39,784

See accompanying notes to condensed consolidated financial statements.

4

HEALTHSPRING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) Organization and Basis of Presentation

     HealthSpring, Inc, a Delaware corporation (the “Company”), was organized in October 2004 and began operations in March 2005 in connection with a recapitalization transaction accounted for as a purchase. The Company is a managed care organization that focuses primarily on Medicare, the federal government sponsored health insurance program for U.S. citizens aged 65 and older, qualifying disabled persons, and persons suffering from end-stage renal disease. Through its health maintenance organization (“HMO”) subsidiaries, the Company operates Medicare Advantage health plans and stand-alone Medicare prescription drug plans in the states of Tennessee, Texas, Alabama, Illinois and Mississippi. Effective January 1, 2007, the Company began offering Medicare Part D prescription drug plans on a nationwide basis. In addition, the Company also utilizes its infrastructure and provider networks in Tennessee and Alabama to offer commercial health plans to employer groups. The Company also provides management services to healthcare plans and physician partnerships.

Basis of Presentation

     The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto of HealthSpring, Inc. as of and for the year ending December 31, 2006, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2007 (“2006 Form 10-K”). The financial statements are presented in a comparative format.

     The accompanying unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2007 and 2006 reflect the financial position, results of operations and cash flows of the Company. Certain 2006 amounts have been reclassified in these condensed consolidated financial statements to conform to the 2007 presentation.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Act of 1934. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations applicable to interim financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normally recurring accruals) necessary to present fairly the Company’s financial position at March 31, 2007 and results of operations and cash flows for the three months ended March 31, 2007 and 2006. The results of operations for the 2007 interim period are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2007.

     The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The most significant item subject to estimates and assumptions is the actuarial calculation for obligations related to medical claims. Other significant items subject to estimates and assumptions include our estimated risk adjustment payments receivable from CMS, the allowance for doubtful accounts receivable, and certain amounts recorded related to the Part D program. Actual results could differ from those estimates.

     Net income and comprehensive income are the same for all periods presented.

     The Company’s health plans are restricted from making distributions without appropriate regulatory notifications and approvals or to the extent such distributions would put them out of compliance with

5

HEALTHSPRING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

statutory net worth requirements. At March 31, 2007, $453.4 million of the Company’s $534.5 million of cash, cash equivalents, investment securities and restricted investments were held by the Company’s HMO subsidiaries and subject to these dividend restrictions.

(2) Accounts Receivable

     Accounts receivable at March 31, 2007 and December 31, 2006 consisted of the following (in thousands):

	March 31,			December 31,
	2007			2006
Rebates	$	12,111		$	9,432
Commercial HMO premium receivables		1,020			4,696
Medicare premium receivables		4,785			4,907
Estimated risk adjustment premium payment		8,044			—
Other		8,891			2,077
	$	34,851		$	21,112
Allowance for doubtful accounts		(3,087	)		(3,524	)
Total	$	31,764		$	17,588

     Rebates for drug costs represent estimated rebates owed to the Company from prescription drug companies. The Company has entered into contracts with certain drug manufacturers which provide for rebates to the Company based on the utilization of prescription drugs by the Company’s members. Accounts receivable relating to unpaid health plan enrollee premiums are recorded during the period the Company is obligated to provide services to enrollees and do not bear interest. The Company does not have any off-balance sheet credit exposure related to its health plan enrollees. Prior to 2007, the Company did not have the historical data to estimate the risk adjustment premium payment from CMS. Other receivables include management fees receivable as well as amounts owed the Company from other health plans and the Company’s pharmacy benefits manager for the refund of certain medical expenses paid by the Company.

     The allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses in the Company’s existing accounts receivable and is based on a number of factors, including a review of past due balances, with a particular emphasis on past due balances greater than 90 days old. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

(3) Accounting for Prescription Drug Benefits under Part D

     In 2006, we began offering prescription drug benefits in accordance with Medicare Part D to our Medicare Advantage plan members, in addition to continuing to provide other medical benefits. We also began offering prescription drug benefits on a stand-alone basis in accordance with Medicare Part D in each of our markets. Currently, we operate Medicare health plans in Tennessee, Texas, Alabama, Illinois, and Mississippi. We expanded our stand-alone PDP program on a national basis in 2007 and currently offer Medicare Part D prescription drug plans to persons in all 50 states. We sometimes refer to our Medicare Advantage plans (including plans providing Part D prescription drug benefits, or MA-PD plans) after January 1, 2006 collectively as “Medicare Advantage” plans. We refer to our stand-alone prescription drug plans as “stand-alone PDPs” or “PDPs.”

     Prescription drug benefits under Medicare Advantage and PDP plans vary in terms of coverage levels and out-of-pocket costs for premiums, deductibles, and co-insurance. All Part D plans are required by law to offer either standard coverage or its actuarial equivalent (with out-of-pocket threshold and deductible amounts that do not exceed those of standard coverage). In addition to standard coverage plans, the Company offers supplemental benefits in excess of the standard coverage.

6

HEALTHSPRING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     To participate in Part D, the Company was required to provide written bids to CMS that included, among other items, the estimated costs of providing prescription drug benefits. Payments from CMS are based on these estimated costs. The monthly Part D payments the Company receives from CMS for Part D plans generally represent the Company’s bid amount for providing insurance coverage, both standard and supplemental, and is recognized monthly as premium revenue. The amount of CMS payments relating to the Part D standard coverage for MA-PD and PDP plans is subject to adjustment, positive or negative, based upon the application of risk corridors that compare the Company’s prescription drug costs in its bids to the Company’s actual prescription drug costs. Variances exceeding certain thresholds may result in CMS making additional payments to the Company or the Company’s refunding to CMS a portion of the premium payments it previously received. The Company estimates and recognizes an adjustment to premium revenue related to estimated risk corridor payments based upon its actual prescription drug cost for each reporting period as if the annual contract were to end at the end of each reporting period. Risk corridor adjustments do not take into account estimated future prescription drug costs. Net liabilities to CMS of approximately $29.2 million related to estimated risk corridor adjustments (of which $28.1 million pertains to 2006) are included on the Company’s March 31, 2007 balance sheet. This net liability arises as a result of the Company’s actual costs to date in providing Part D benefits being lower than its bids. The amount was also recognized in the statement of income as a reduction of premium revenue.

     Certain Part D payments from CMS represent payments for claims the Company pays for which it assumes no risk, including reinsurance and low-income cost subsidies. The Company accounts for these subsidies as funds held for the benefit of members on its balance sheet and as a financing activity in its statements of cash flows. Such amounts equaled $52.5 million and $46.9 million as of and for the three months ended March 31, 2007 and 2006, respectively. The Company does not recognize premium revenue or claims expense for these subsidies as these amounts represent pass-through payments from CMS to fund deductibles, co-payments, and other member benefits. The Company anticipates settling amounts from 2006 with CMS in 2007 as part of the final settlement of Part D for the 2006 plan year.

     The Company recognizes prescription drug costs as incurred, net of rebates from drug companies. The Company has subcontracted the prescription drug claims administration to a third party pharmacy benefit manager.

     The Company and its pharmacy benefits vendor continue to experience difficulties in coordinating and processing a significant number of enrollment and claims files with CMS’s information systems. Although the Company believes these circumstances are improving, certain of our data files continue to be rejected by CMS for failure to conform to prescribed CMS formats. As of May 11, 2007, the Company and its pharmacy benefits manager were continuing to process approximately 125,000 files for 2006 prescription drug claims (representing approximately 1.7% of all claims submitted for 2006), which claims aggregated approximately $5.2 million. Although the Company and its pharmacy benefits manager continue to work diligently to correct the formatting errors and reprocess the files, there can be no assurance that such errors will be reconciled in the prescribed CMS format prior to CMS deadlines. Failure to reconcile these files could result in a reversal of previously recorded Part D premium revenue or the recognition of additional claims expense and, depending upon the number of files unreconciled, could have a material adverse impact on the Company’s results of operations for the quarter in which such reversal or charge occurs.

(4) Income Taxes

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes– an interpretation of FASB Statement 109”. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007.

7

HEALTHSPRING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     The adoption of FIN 48 did not have a material effect on the Company’s consolidated financial position or results of operations. As a result, no additional accruals for uncertain income tax positions have been recorded. During the three months ended March 31, 2007, subsequent to the adoption of FIN 48, the Company reclassified $0.7 million of tax contingencies recorded in current liabilities at December 31, 2006 to other long-term liabilities.

     In many cases the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The Company files U.S. federal income tax returns as well as income tax returns in various state jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2003 through 2006. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. Generally, for state tax purposes, the Company’s 2002 through 2006 tax years remain open for examination by the tax authorities under a four year statute of limitations. There are currently no federal or state audits in process.

     The Company’s continuing accounting policy is to recognize interest and/or penalties related to income tax matters as a component of tax expense in the Consolidated Statement of Income. Accrued interest and penalties were $0.1 million as of January 1, 2007 and March 31, 2007. As of the adoption date, the Company had net unrecognized tax benefits of $0.6 million, all of which, if recognized, would favorably affect the Company’s effective income tax rate in any future periods.

(5) Stock Based Compensation

Stock Options

     The Company granted nonqualified options to purchase 285,000 shares of common stock pursuant to the 2006 Equity Incentive Plan during the three months ended March 31, 2007, and options for the purchase of 3,444,125 shares of common stock were outstanding under this plan at March 31, 2007. The outstanding options vest and become exercisable based on time, generally over a four-year period, and expire ten years from their grant dates. Upon exercise, options are settled with authorized but unissued Company common stock.

     The fair value for all options granted during the three months ended March 31, 2007 and 2006 were determined on the date of grant and were estimated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended
	March 31,
	2007			2006
Expected dividend yield		0.0	%		0.0	%
Expected volatility		45.0	%		45.0	%
Expected term	5 years			5 years
Risk-free interest rates		4.48-4.84	%		4.57-4.72	%

     The weighted average fair value of stock options granted during the three months ended March 31, 2007 and 2006 was $10.00 and $8.88, respectively. As of January 1, 2007, the Company changed its forfeiture rate, on a cumulative compounded basis, to 13.7% from 8.5%, based upon forfeiture experience since the inception of its option plan. Cash received from stock option exercises for the three months ended March 31, 2007 totaled $0.2 million. The actual tax benefit realized from stock options exercised during the three months ended March 31, 2007 was nominal.

     Total compensation expenses related to nonvested options not yet recognized was $21.9 million at March 31, 2007. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize this compensation expense over a weighted average period of 3.2 years

8

HEALTHSPRING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Restricted Stock

     Total compensation expense related to nonvested restricted stock awards not yet recognized was $1.6 million at March 31, 2007. The Company expects to recognize this compensation expense over a weighted average period of approximately 2.7 years. Nonvested restricted stock at March 31, 2007 total 877,123 shares. No such awards were granted in the quarter then ended.

Stock-based Compensation

     Total stock-based compensation for the three months ended March 31, 2007 was $2.1 million, including $1.9 million relating to stock options and $0.2 million relating to restricted stock. Stock-based compensation for the three months ended March 31, 2006 was $0.9 million, including $0.8 million relating to stock options and $0.1 million relating to restricted stock. Stock-based compensation is included in selling, general and administrative expense.

(6) Net Income Per Common Share

     The following table presents the calculation of the Company’s net income per common share available to common shareholders — basic and diluted (in thousands, except share data):

	Three Months Ended
	March 31,
	2007		2006
Numerator:
Net income available to common stockholders	$	14,090	$	6,552
Denominator:
Weighted average common shares outstanding – basic		57,233,712		46,640,074
Dilutive effect of stock options		87,147		100,569
Dilutive effect of unvested director shares		9,506		—
Weighted average common shares outstanding – diluted		57,330,365		46,740,643
Net income per common share available to common stockholders:
Basic	$	0.25	$	0.14
Diluted	$	0.25	$	0.14

     Options for the purchase of 3,357,000 shares and 2,137,000 shares of common stock were not included in the calculation of diluted net income per common share available to common stockholders for the three months ended March 31, 2007 and 2006, respectively, because the effect would be anti-dilutive.

(7) Goodwill and Intangible Assets

     Goodwill and intangible assets at March 31, 2007 and December 31, 2006 consisted of the following (in thousands):

	March 31,		December 31,
	2007		2006
Goodwill	$	341,619	$	341,619
Intangible assets, net		79,292		81,175
Total	$	420,911	$	422,794

9

HEALTHSPRING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     A breakdown of the identifiable intangible assets, their assigned value and accumulated amortization at March 31, 2007 is as follows (in thousands):

	Gross Carrying		Accumulated
	Amount		Amortization		Net
Trade name	$	24,500	$	—	$	24,500
Noncompete agreements		800		333		467
Provider network		7,100		986		6,114
Medicare member network		49,528		8,520		41,008
Customer relationships		10,300		4,470		5,830
Management contract right		1,554		181		1,373
	$	93,782	$	14,490	$	79,292

     Amortization expense on identifiable intangible assets for each of the quarters ended March 31, 2007 and 2006 was approximately $1.9 million.

     During the second quarter of 2007, the Company decided to discontinue offering commercial plan benefits to individuals and small group employers in Tennessee effective November 1, 2007. Prior to November 1, 2007, small employer groups currently enrolled in the Company’s commercial plans may elect to renew participation in the plans. As of March 31, 2007, there were 1,250 commercial members participating in the Company’s individual and small employer group plans in Tennessee. The Company believes that additional declines in commercial membership are probable as a result of its decision made in the second quarter of 2007 to increase the premiums upon renewal for large group plans in order to maintain the Company’s commercial margins. At March 31, 2007, the Company had $5.6 million of unamortized intangible assets for customer relationships related to its Tennessee commercial business. The Company will continue to monitor changes in its Tennessee commercial business and to evaluate the impact of these changes, if any, on the book value of the associated related remaining intangible assets.

10

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report and our audited consolidated financial statements and the notes thereto for the year ended December 31, 2006 appearing in our Annual Report on Form 10-K that was filed with the SEC on March 14, 2007 (the “2006 Form 10-K”). This discussion contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, based on our current expectations that by their nature involve risks and uncertainties. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements. Moreover, past financial and operating performance are not necessarily reliable indicators of future performance and you are cautioned in using our historical results to anticipate future results or to predict future trends. In evaluating any forward-looking statement, you should specifically consider the information set forth under the captions “Special Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” in the 2006 Form 10-K as supplemented herein by Part II, Item 1A: “Risk Factors,” as well as other cautionary statements contained elsewhere in this report, including the matters discussed in “Critical Accounting Policies and Estimates” below.

Overview

     HealthSpring, Inc. is a managed care organization whose primary focus is Medicare, the federal government-sponsored health insurance program for U.S. citizens aged 65 and older, qualifying disabled persons, and persons suffering from end-stage renal disease.

     Currently, we operate Medicare Advantage plans in Tennessee, Texas, Alabama, Illinois, and Mississippi. In 2006, we began offering prescription drug benefits in accordance with Medicare Part D to our Medicare Advantage plan members, in addition to continuing to provide other medical benefits. We also began offering prescription drug benefits on a stand-alone basis in accordance with Medicare Part D in each of our markets. We expanded our stand-alone PDP program on a national basis in 2007 and currently offer Medicare Part D prescription drug plans to persons in all 50 states. We sometimes refer to our Medicare Advantage plans (including plans providing prescription drug benefits, or MA-PD) after January 1, 2006 collectively as “Medicare Advantage” plans. We refer to our stand-alone prescription drug plans as “stand-alone PDPs” or “PDPs.” For purposes of additional analysis, the Company provides membership and certain financial information, including premium revenue and medical expense, for our Medicare Advantage (including MA-PD) and PDP plans. Although we concentrate on Medicare plans, we also utilize our infrastructure and provider networks in Alabama and Tennessee to offer commercial health plans to employer groups.

Basis of Presentation

     The consolidated results of operations include the accounts of HealthSpring, Inc. and all of its subsidiaries.

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Results of Operations

     The following tables set forth the consolidated statements of income data expressed in dollars (in thousands) and as a percentage of revenues for each period indicated.

	Three Months Ended March 31,
	2007					2006
Revenue:
Premium:
Medicare premiums	$	331,780		93.1	%	$	266,687		87.0	%
Commercial premiums		13,240		3.7			32,234		10.5
Total premium revenue		345,020		96.8			298,921		97.5
Management and other fees		6,049		1.7			5,635		1.8
Investment income		5,248		1.5			2,066		0.7
Total Revenue		356,317		100.0			306,622		100.0
Operating expenses:
Medical expense:
Medicare expense		273,640		76.8			220,433		71.9
Commercial expense		10,055		2.8			26,939		8.8
Total medical expense		283,695		79.6			247,372		80.7
Selling, general and administrative		47,506		13.3			34,609		11.3
Depreciation and amortization		2,948		0.9			2,423		0.8
Interest expense		115		—			8,361		2.7
Total operating expenses		334,264		93.8			292,765		95.5
Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes		22,053		6.2			13,857		4.5
Equity in earnings of unconsolidated affiliate		21		—			107		—
Income before minority interest and income taxes		22,074		6.2			13,964		4.5
Minority interest		—		—			(303	)	(0.1	)
Income before income taxes		22,074		6.2			13,661		4.4
Income tax expense		(7,984	)	(2.2	)		(5,088	)	(1.6	)
Net income		14,090		4.0			8,573		2.8
Preferred dividends		—		—			(2,021	)	(0.7	)
Net income available to common stockholders	$	14,090		4.0	%	$	6,552		2.1	%

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Membership

     Our primary source of revenue is monthly premium payments we receive based on membership enrolled in our managed care plans. The following table summarizes our Medicare Advantage (including MA-PD), stand-alone PDP, and commercial plan membership as of the dates indicated.

	March 31,			December 31,		March 31,
	2007			2006		2006
Medicare Advantage Membership
Tennessee		48,309			46,261		43,521
Texas		35,810			34,638		30,470
Alabama		29,078			27,307		24,820
Illinois		7,614			6,284		4,900
Mississippi		716			642		395
Total		121,527			115,132		104,106
Medicare Stand-Alone PDP Membership		110,692			88,753		74,985
Commercial Membership(1)
Tennessee		14,374			29,341		29,454
Alabama		744			2,629		10,096
Total		15,118	(2)		31,970		39,550

(1)	Does not include members of commercial PPOs owned and operated by unrelated third parties that pay us a fee for access to our contracted provider network.
(2)	Several large employers in Tennessee and Alabama did not renew their commercial contracts for 2007.

     Medicare Advantage. Our Medicare Advantage membership increased by 16.7% to 121,527 members at March 31, 2007 as compared to 104,106 members at March 31, 2006, reflecting increases in each of our markets and flat disenrollment rates quarter-over-quarter.

     Stand-Alone PDP. Stand-alone PDP membership increased by 47.6% to 110,692 members at March 31, 2007 as compared to 74,985 at March 31, 2006. In May 2006 we received an auto-assignment from CMS of approximately 20,000 members. Since December 31, 2006 CMS has assigned the Company approximately 21,000 additional PDP members for the 2007 plan year primarily relating to expansion of our plans on a national basis. We do not actively market our PDPs and have relied on CMS auto-assignments of dual-eligible beneficiaries for membership.

     Commercial. Our commercial HMO membership declined from 39,550 members at March 31, 2006 to 15,118 members at March 31, 2007, or by 61.8%, primarily as a result of the non-renewal by several large employer groups in Tennessee and Alabama. During the second quarter of 2007, we decided to discontinue offering commercial plan benefits to individuals and small group employers in Tennessee effective November 1, 2007. Prior to November 1, 2007, small employer groups currently enrolled in our commercial plans may elect to renew participation in our plans. As of March 31, 2007, there were 1,250 commercial members participating in our individual and small employer group plans in Tennessee. In additon, we believe that additional declines in commercial membership are probable as a result of our decision in the second quarter of 2007 to increase the premiums upon renewal for large group plans in order to maintain our commercial margins. At March 31, 2007, we had $5.6 million of unamortized intangible assets for customer relationships related to our Tennessee commercial business. We will continue to monitor changes in our Tennessee commercial business and to evaluate the impact, if any, of these changes on the book value of the associated related remaining intangible assets.

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Risk Adjustment Payments

     Under risk adjustment payment methodology, managed care plans must capture, collect, and submit diagnosis code information to CMS. After reviewing the respective submissions, CMS adjusts the payments to Medicare plans generally at the beginning of the calendar year and during the third quarter (representing the updating of risk scores for the current year based on the prior years’ dates of service) and then issues a final settlement payment in the following year. During 2005 and 2006 we were not able to estimate the impact of these risk adjustments and as such recorded them on an as-received basis. Our retroactivity adjustments in both 2005 and 2006 were positive. Beginning January 2007, we are estimating and recording on a monthly basis the anticipated risk adjustment payment amounts for the payment from CMS made within the same year (typically received in the third quarter). We will continue to record the risk adjustment payment representing the final CMS settlement payment for the prior year (typically received in the fourth quarter of the subsequent year) on an as-received basis.

     The table below includes pro-forma adjustments to reflect the estimated allocation of the CMS risk adjustment payment, received and recognized in the third quarter of 2006, as if it had been recorded in the applicable earlier quarter in which it was earned, which in the case below was the first quarter of 2006. Medicare Advantage premiums for the three months ended March 31, 2007 in the table below include the estimated risk adjustment payment as reported of $8.0 million. Medicare Advantage medical expenses for the 2007 period include as reported expenses of $1.9 million for risk sharing payments payable to providers related to the accrual for the estimated risk adjustment payment.

	Three Months Ended
	March 31,
($ in millions)	2007			2006
Premiums:
Medicare Advantage Premiums	$	298.8		$	239.6
Pro-forma Adjustment for the CMS Risk Adjustment Payment		—			6.1
Medicare Advantage Premiums — as adjusted	$	298.8		$	245.7
Medical Expense:
Medical Expense	$	242.6		$	189.9
Pro-forma Adjustment for the CMS Risk Adjustment Payment		—			1.1
Medical Expense — as adjusted	$	242.6		$	191.0
Medical Loss Ratios (MLRs):
Medicare Advantage		81.2	%		79.3	%
Medicare Advantage — as adjusted		81.2	%		77.7	%

     Because the Company did not estimate and accrue for the risk adjustment payment in the preparation of its 2006 financial statements, this pro-forma adjustment is not in accordance with GAAP. The Company believes that these non-GAAP measures are useful to investors in analyzing financial trends regarding the Company’s quarterly operating and financial performance. These non-GAAP measures should be considered in addition to, but not as a substitute for, the GAAP items.

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Comparison of the Three-Month Period Ended March 31, 2007 to the Three-Month Period Ended March 31, 2006

Revenue

     Total revenue was $356.3 million in the three-month period ended March 31, 2007 as compared with $306.6 million for the same period in 2006, representing an increase of $49.7 million, or 16.2%. The components of revenue were as follows:

     Premium Revenue: Total premium revenue for the three months ended March 31, 2007 was $345.0 million as compared with $298.9 million in the same period in 2006, representing an increase of $46.1 million, or 15.4%. The components of premium revenue and the primary reasons for changes were as follows:

Medicare Advantage: Medicare Advantage (including MA-PD) premiums were $298.8 million for the three months ended March 31, 2007 versus $239.6 million in the first quarter of 2006, representing an increase of $59.2 million, or 24.7%. The increase in Medicare Advantage (including MA-PD) premiums in 2007 is attributable to increases in membership (which we measure in member months) and per member per month, or PMPM, premium rates. In addition, premium revenue increased as a result of our accruing $8.0 million of estimated risk adjustment payments in the first quarter of 2007 (see “Risk Adjustment Payments” above). No similar amounts were accrued in prior periods. Member months increased 16.4% to 359,059 for the 2007 quarter from 308,516 for the 2006 quarter. PMPM premiums increased 7.2% to $832.25 for 2007 from $776.59 for 2006, primarily as a result of increases in rates. Of the 7.2% rate increase, 2.9% resulted from the accrual of the risk adjustment payment in 2007.

PDP: PDP premiums (after risk corridor adjustments) were $33.0 million in the three months ended March 31, 2007 compared to $27.1 million in the same period of 2006, an increase of $5.9 million or 21.6%. Our average PMPM premiums received from CMS (after risk corridor adjustments) decreased 14.6% to $100.68 in the current quarter versus $117.89 during the 2006 quarter. The decrease in rates was industry-wide and was an expected consequence of the financial results experienced by many Part D providers in 2006 being substantially better than anticipated in their initial bids. The impact of the rate decrease in the current quarter was offset, in part, by a 47.6% increase in membership in the first quarter of 2007 versus the same quarter last year.

Commercial: Commercial premiums were $13.2 million in the three months ended March 31, 2007 as compared with $32.2 million in the 2006 comparable period, reflecting a decrease of $19.0 million, or 58.9%. The decrease was primarily attributable to the 61.7% decline in membership, primarily as a result of the non-renewal by several large employer groups in Tennessee and Alabama. PMPM rates were relatively unchanged for the first quarter of 2007 compared to the first quarter of 2006. We expect commercial premium revenue as a percentage of total revenue to continue to decline in the future and to represent less than 4% of total revenue in 2007.

     Fee Revenue. Fee revenue was $6.0 million in the first quarter of 2007 as compared with $5.6 million in the comparable period of 2006, representing an increase of $0.4 million, or 7.1%.

     Investment Income. Investment income was $5.2 million for the first quarter of 2007 versus $2.1 million for the comparable period of 2006, reflecting an increase of $3.1 million, or 154.0%. The increase is attributable to an increase in average invested and cash balances, coupled with a higher average yield on these balances.

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Medical Expense

     Medicare Advantage. Medicare Advantage (including MA-PD) medical expense for the three months ended March 31, 2007 increased $52.8 million, or 27.8%, to $242.6 million from $189.9 million for the comparable period of 2006, as a result of increased membership and utilization. For the three months ended March 31, 2007, the Medicare Advantage (including MA-PD) medical loss ratio, or MLR, was 81.2% versus 79.3% for the same period of 2006. Adjusting revenue for the 2006 first quarter to include the estimated impact of the risk adjustment payment (see “Risk Adjustment Payments” above), the comparable MLR for the first quarter of 2006 would have been 77.7%. The deterioration in the MLR in the first quarter of 2007 as compared to the same quarter of 2006 resulted primarily from increased inpatient utilization, which we believe was the result of, among other things, an extended season in our markets for flu and other related upper-respiratory diagnoses this year, compared to a flu season last year that was less severe.

     Under the Part D benefit design, a disproportionate amount of drug costs for MA-PD members are incurred in the first half of the year, which contributed unfavorably to the MLR in the first quarter of 2007. Our Medicare Advantage (including MA-PD) medical expense calculated on a PMPM basis was $675.76 for the three months ended March 31, 2007, compared with $615.40 for the comparable 2006 quarter, reflecting an increase of 9.8%, primarily as a result of the factors discussed previously regarding the deterioration in the MLR during the 2007 first quarter along with medical cost inflation.

     PDP. PDP medical expense for the three months ended March 31, 2007 increased $0.4 million to $31.0 million, compared to $30.6 million in the same period last year. PDP MLR for the 2007 quarter equaled 94.1% compared to 112.8% in the 2006 quarter. The decrease in the first quarter 2007 MLR compared to the 2006 quarter was primarily the result of the inclusion of approximately $8.1 million of drug costs for non-members in the first quarter of 2006, substantially all of which was recovered during the balance of the year under CMS’s plan-to-plan reconciliation process. Because of the Part D product benefit design, the Company incurs prescription drug costs unevenly throughout the year, including a disproportionate amount of prescription drug costs in the first half of the year.

     Commercial. Commercial medical expense decreased by $16.9 million, or 62.7%, to $10.0 million for the first quarter of 2007 as compared to $26.9 million for the same period of 2006. The decrease in the current quarter was primarily attributable to the reduction in membership versus the prior year quarter. The commercial MLR was 75.9% for the first quarter of 2007 as compared with 83.6% in the same period in 2006. The improvement in the MLR for 2007 was primarily the result of fewer catastrophic cases in the current quarter as compared to the same quarter of last year.

Selling, General, and Administrative Expense

     Selling, general, and administrative, or SG&A, expense for the three months ended March 31, 2007 was $47.5 million as compared with $34.6 million for the same prior year period, an increase of $12.9 million, or 37.3%. As a percentage of revenue, SG&A expense was 13.3% for the three months ended March 31, 2007 as compared with 11.3% for the same prior year quarter. The increase in SG&A expense was attributable, in part, to a 32% increase in the number of personnel, increases in selling expenses of $2.0 million in connection with the limited enrollment season for 2007, and a $1.3 million increase in stock compensation expense during the current quarter. As a result of the shortened selling season, the Company expects the majority of its marketing expenses to be incurred in the first and fourth quarters of each year. The Company expects that throughout the remainder of 2007, comparative increases versus the prior year should decline.

Depreciation and Amortization Expense

     Depreciation and amortization expense was $2.9 million in the three months ended March 31, 2007 as compared with $2.4 million in the same period of 2006, representing an increase of $0.5 million, or 21.6%. The increase in the current quarter was the result of depreciation on property and equipment additions made in 2006 and 2007.

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Interest Expense

     Interest expense was $0.1 million in the three-month period ended March 31, 2007 as compared with $8.4 million in the same period of 2006. The Company’s interest expense in the 2006 quarter related to interest on outstanding borrowings, the write-off of deferred financing costs of $5.4 million, and an early payment premium of $1.1 million related to the payoff of all the Company’s outstanding indebtedness and related accrued interest in February 2006 with proceeds from the IPO.

Minority Interest

     The Company recorded no minority interest in the three months ended March 31, 2007 as compared with $0.3 million in the same period of 2006. The change is attributable to the inclusion of minority interest ownership in our Texas HMO subsidiary in 2006. In conjunction with the IPO in February 2006, all minority interest ownership in the Texas HMO subsidiary was exchanged for Company common stock.

Income Tax Expense

     For the three months ended March 31, 2007, income tax expense was $8.0 million, reflecting an effective tax rate of 36.2%, versus $5.1 million, reflecting an effective tax rate of 37.2%, for the same period of 2006. The higher effective tax rate in 2006 was the result of the estimated impact of changes in tax status and tax rates associated with certain subsidiaries that were formerly pass-through entities for tax purposes. The Company expects the effective tax rate for the full 2007 year will approximate 36.0%.

Preferred Dividends

     In the three months ended March 31, 2006, the Company accrued $2.0 million of dividends payable on preferred stock. In February 2006, in connection with the IPO, the preferred stock and all accrued and unpaid dividends were converted into common stock.

Liquidity and Capital Resources

     We finance our general operations primarily through internally generated funds. We also have an available credit facility, pursuant to which we may borrow up to $75.0 million. As of March 31, 2007, there was no indebtedness for borrowed money outstanding under the credit facility.

     We generate cash primarily from premium revenue and our primary use of cash is the payment of medical and SG&A expenses. We anticipate that our current level of cash on hand, internally generated cash flows, and borrowings available under the credit facility will be sufficient to fund our working capital needs and anticipated capital expenditures over the next twelve months.

     The reported changes in cash and cash equivalents for the three-month period ended March 31, 2007, compared to 2006, were as follows:

	Three Months Ended
	March 31,
	2007			2006
	(in thousands)
Net cash provided by operating activities	$	102,407		$	109,471
Net cash used in investing activities		(19,667	)		(2,022	)
Net cash provided by financing activities		52,760			47,173
Net increase in cash and cash equivalents	$	135,500		$	154,622

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Cash Flows from Operating Activities

     Our primary sources of liquidity are cash flows provided by our operations and available cash on hand. We generated cash from operating activities of $102.4 million during the three months ended March 31, 2007, compared to $109.5 during the three months ended March 31, 2006.

     Our reported cash flows are significantly influenced by the timing of the Medicare premium remittance from CMS, which is payable to us normally on the first day of each month. This payment is from time to time received in the month prior to the month of medical coverage. When this happens, we record the receipt in deferred revenue and recognize it as premium revenue in the month of medical coverage. In 2007 and 2006 the April payments were received in March which had the effect of increasing operating cash flows in that month with a corresponding decrease in April. Adjusting our operating cash flows in the first three months for the effect of the timing of this payment, our operating cash flows would have been as follows:

	Three months ended
	March 31,
	2007			2006
	(in thousands)
Net cash provided by operating activities, as reported	$	102,407		$	109,471
Timing effect of CMS payment		(109,333	)		(87,424	)
Adjusted net cash (used in) provided by operating activities	$	(6,926	)	$	22,047

The primary reasons for the $29.0 million negative variance in the cash flows from operations for the first quarter of 2007 compared to the first quarter of 2006 related to the following:

• Approximately $18.3 million of the variance results from positive cash flows in 2006 of $14.5 million as a result of the initial buildup of claims payable in connection with our entry into the Part D business and the negative cash flows of $3.8 million in 2007 resulting from the timing of payments to pharmacies for prescription drug claims.

• The negative cash flows of approximately $5.2 million resulting from the runoff of commercial claims payments on commercial groups that did not renew for 2007, primarily commercial groups in Tennessee.

• Negative cash flows of $9.1 million as a result of the timing of incentive compensation payments and income tax payments made in the 2007 quarter.

Cash Flows from Investing and Financing Activities

     For the three months ended March 31, 2007, the primary investing activities consisted of $4.3 million in property and equipment additions, $16.7 million used to purchase investments, and $2.2 million in proceeds from the sale and maturity of investment securities. During the three months ended March 31, 2007, the Company’s financing activities consisted primarily of $52.5 million of funds received from CMS for the benefit of members. The financing activity in the prior year quarter consisted primarily of proceeds received from the issuance of common stock related to the IPO in February 2006 of $188.6 million, which was used in its entirety to pay off all outstanding indebtedness, and $46.9 million of funds received from CMS for the benefit of members. Funds from CMS received for the benefit of members are recorded as a liability on our balance sheet at March 31, 2007. We anticipate settling these amounts relating to 2006 with CMS during 2007 as part of the final settlement of Part D for the 2006 plan year. We expect cash flows in the subsequent quarters of 2007 to include inflows for similar subsidies (or funds) from CMS related to the 2007 Medicare year.

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Statutory Capital Requirements

     Our HMO subsidiaries are required to maintain satisfactory minimum net worth requirements established by their respective state departments of insurance. State departments of insurance can require our HMO subsidiaries to maintain minimum levels of statutory capital in excess of amounts required under the applicable state laws if they determine that maintaining additional statutory capital is in the best interests of our members. At March 31, 2007, our Texas (minimum $7.6 million; actual $39.5 million), Tennessee (minimum $13.1 million; actual $30.4 million) and Alabama (minimum $1.1 million; actual $32.4 million) HMO subsidiaries were in compliance with statutory minimum net worth requirements.

     The HMOs are restricted from making distributions without appropriate regulatory notifications and approvals and to the extent such distributions would cause them to be in violation of statutory capital requirements. At March 31, 2007, $453.4 million of the Company’s $534.5 million of cash, cash equivalents, investment securities, and restricted investments were held by the Company’s HMO subsidiaries and subject to these restrictions.

Indebtedness

     On April 21, 2006, HealthSpring, Inc. and certain of its non-HMO subsidiaries as guarantors entered into a revolving credit facility, which provides up to a maximum aggregate principal amount outstanding of $75.0 million, including a $2.5 million swingline subfacility and a maximum of $5.0 million in outstanding letters of credit. The Company may request an expansion of the aggregate commitments under the facility to a maximum of $125.0 million, subject to certain conditions precedent including the consent of the lenders providing the increased credit availability. No borrowings were outstanding under the facility as of March 31, 2007.

Off-Balance Sheet Arrangements

     At March 31, 2007, we did not have any off-balance sheet arrangement requiring disclosure.

Commitments and Contingencies

     We have not experienced any material changes to contractual obligations outside the ordinary course of business during the quarter ended March 31, 2007.

Critical Accounting Policies and Estimates

     The preparation of our consolidated financial statements requires our management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Changes in estimates are recorded if and when better information becomes available. Actual results could significantly differ from those estimates under different assumptions and conditions. The following provides a summary of our accounting policies and estimates relating to medical expense and the related medical claims liability and premium revenue recognition. For a more complete discussion of these and other critical accounting policies and estimates of the Company, see our 2006 Form 10-K.

Medical Expense and Medical Claims Liability

     Medical expense is recognized in the period in which services are provided and includes an estimate of the cost of medical expense that has been incurred but not yet reported, or IBNR. Medical expense includes claim payments, capitation payments, and pharmacy costs, net of rebates, as well as estimates of future payments of claims incurred, net of reinsurance. Capitation payments represent monthly contractual fees disbursed to physicians and other providers who are responsible for providing medical care to members.

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Pharmacy costs represent payments for members’ prescription drug benefits, net of rebates from drug manufacturers. Rebates are recognized when earned, according to the contractual arrangements with the respective vendors. Premiums we pay to reinsurers are reported as medical expenses and related reinsurance recoveries are reported as deductions from medical expenses.

     The IBNR component of total medical claims liability is based on our historical claims data, current enrollment, health service utilization statistics, and other related information. Estimating IBNR is complex and involves a significant amount of judgment. Accordingly, it represents our most critical accounting estimate. Changes in this estimate can materially affect, either favorably or unfavorably, our consolidated operating results and overall financial position.

     Our policy is to record each plan’s best estimate of medical expense IBNR. Using actuarial models, we calculate a minimum amount and maximum amount of the IBNR component. To most accurately determine the best estimate, our actuaries determine the point estimate within their minimum and maximum range by similar medical expense categories within lines of business. The medical expense categories we use are: in-patient facility, outpatient facility, all professional expense, and pharmacy. The lines of business are Medicare and commercial. The development of the IBNR estimate generally considers favorable and unfavorable prior period developments and uses standard actuarial developmental methodologies, including completion factors, claims trends, and provisions for adverse claims developments.

     The completion and claims trend factors are the most significant factors impacting the IBNR estimate. The following table illustrates the sensitivity of these factors and the impact on our operating results caused by changes in these factors that management believes are reasonably likely based on our historical experience and March 31, 2007 data:

Completion Factor(a)				Claims Trend Factor(b)
	Increase						Increase
Increase	(Decrease)			Increase			(Decrease)
(Decrease)	in Medical			(Decrease)			in Medical
in Factor	Claims			in Factor			Claims
(Dollars in thousands)
3%	$	(3,348	)		(3	)%	$	(1,506	)
2		(2,257	)		(2	)		(1,003	)
1		(1,142	)		(1	)		501
(1)		1,169			1			500

(a)	Impact due to change in completion factor for the most recent three months. Completion factors indicate how complete claims paid to date are in relation to estimates for a given reporting period. Accordingly, an increase in completion factor results in a decrease in the remaining estimated liability for medical claims.
(b)	Impact due to change in annualized medical cost trends used to estimate PMPM costs for the most recent three months.

     We believe that our provision for adverse claims development is appropriate because our hindsight analysis indicates this additional provision is needed to cover additional unknown adverse claims not anticipated by the standard assumptions used to produce the IBNR estimates that were incurred prior to but paid after a period end. For the years ended December 31, 2006 and 2005, our provision for adverse claims development was relatively consistent, varying as of the end of each annual period by less than 1.0% of the medical claims liability. Fluctuations within those periods and as of the period ends are primarily attributable to differences in membership mix between Medicare and commercial plans and differences in services (such as in-patient or outpatient services) provided by our plans. For the three months ended March 31, 2007, our provision for adverse claims decreased by slightly more than 1.0% as a percentage of medical claims liability, primarily as a result of continued favorable development of prior period IBNR estimates and the growth and stabilizing trends experienced in our Medicare business.

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     Our medical claims liability also considers premium deficiency situations and evaluates the necessity for additional related liabilities. Premium deficiency accruals were approximately $0.6 million and $0.7 million as of March 31, 2007 and December 31, 2006, respectively.

Premium Revenue Recognition

     We generate revenues primarily from premiums we receive from CMS and, to a lesser extent our commercial customers, to provide healthcare benefits to our members. We receive premium payments on a PMPM basis from CMS to provide healthcare benefits to our Medicare members, which premiums are fixed on an annual basis by contracts with CMS. Although the amount we receive from CMS for each member is fixed, the amount varies among Medicare plans according to, among other things, demographics, geographic location, age, gender, and the relative risk score of the plan’s membership.

     We generally receive premiums on a monthly basis in advance of providing services. Premiums collected in advance are deferred and reported as deferred revenue. We recognize premium revenue during the period in which we are obligated to provide services to our members. Any amounts that have not been received are recorded on the balance sheet as accounts receivable.

     Our Medicare premium revenue is adjusted periodically to give effect to a risk component. Risk adjustment uses health status indicators to improve the accuracy of payments and establish incentives for plans to enroll and treat less healthy Medicare beneficiaries. CMS initially phased in this payment methodology in 2003 whereby the risk adjusted payment represented 10% of the payment to Medicare health plans, with the remaining 90% being based on demographic factors. In 2007, the portion of risk adjusted payments was increased to 100%. The PDP payment methodology is based 100% on the risk adjustment model.

     Under risk adjustment payment methodology, managed care plans must capture, collect, and submit diagnosis code information to CMS. After reviewing the respective submissions, CMS adjusts the payments to Medicare plans generally at the beginning of the calendar year and during the third quarter (representing the updating of risk scores for the current year based on the prior year’s dates of service) and then issues a final settlement payment in the following year. During 2006 we were not able to estimate the impact of these risk adjustments and as such recorded them on an as-received basis. Beginning January 2007, we are estimating and recording on a monthly basis the risk adjustment payment amounts for the payment from CMS made within the same year (typically received in the third quarter). We continue to record the risk adjustment payment representing the final CMS settlement payment for the prior year (typically received in the fourth quarter of the subsequent year) on an as-received basis.

Recently Issued Accounting Pronouncements

     In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. SFAS No. 157 is effective for us beginning with the first quarter of 2008. We do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position or results of operations.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required to be reported in earnings in the current period. SFAS No. 159 also establishes presentation and disclosure requirements for similar types of assets and

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liabilities measured at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the effect of implementing this guidance, which directly depends on the nature and extent of eligible items elected to be measured at fair value, upon initial application of the standard on January 1, 2008.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

     No material changes have occurred in our assets exposed to interest rate risk since the information previously reported as of year end under the caption “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2006 Form 10-K, other than an increase in our cash and cash equivalents in the ordinary course of business, the sensitivity of which to changes in interest rates we would not consider material to our business.

Item 4: Controls and Procedures

     Our senior management carried out an evaluation required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”). Based on the evaluation, our senior management, including our CEO and CFO, concluded that, subject to the limitations noted herein, as of March 31, 2007, our Disclosure Controls are effective in timely alerting them to material information required to be included in our reports filed with the SEC.

     There has been no change in our internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

     The design of any system of controls also is based in part upon 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; over time, a control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

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Part II – OTHER INFORMATION

Item 1: Legal Proceedings

     We are not currently involved in any pending legal proceedings that we believe are material. We are, however, involved from time to time in routine legal matters and other claims incidental to our business, including employment-related claims, claims relating to our HMO subsidiaries’ contractual relationships with providers and members, and claims relating to marketing practices of sales agents that are employed by, or independent contractors to, our HMO subsidiaries. Although there can be no assurances, the Company believes that the resolution of existing routine matters and other incidental claims will not have a material adverse effect on our financial condition or results of operation.

     Item 1A: Risk Factors

     In addition to the other information set forth in this report, you should consider carefully the risks and uncertainties described under the caption “Part I — Item 1A. Risk Factors” in the 2006 Form 10-K, the occurrence of any of which could materially and adversely affect our business, prospects, financial condition, and operating results. The risks described in the 2006 Form 10-K are not the only risks facing our business. Additional risks and uncertainties not currently known to us or that we currently consider to be immaterial also could materially and adversely affect our business, prospects, financial condition, and operating results.

     The following risk factors are new or are updated or otherwise revised from the 2006 Form 10-K to reflect new or additional risks and uncertainties.

     The Failure to Correct Information Systems Issues with respect to Submission of Part D Claims Files Could Adversely Affect Our Results of Operations.

     We and our pharmacy benefits vendor continue to experience difficulties in coordinating and processing a significant number of enrollment and claims files with CMS’s information systems. Although we believe these circumstances are improving, certain of our data files continue to be rejected by CMS for failure to conform to prescribed CMS formats. As of May 11, 2007, we and our pharmacy benefits manager were continuing to process approximately 125,000 files for 2006 prescription drug claims (representing approximately 1.7% of all claims submitted for 2006), which claims aggregated approximately $5.2 million. Although we and our pharmacy benefits manager continue to work diligently to correct the formatting errors and reprocess the files, there can be no assurance that such errors will be reconciled in the prescribed CMS format prior to CMS deadlines. Failure to reconcile these files could result in a reversal of previously recorded Part D premium revenue or the recognition of additional claims expense and, depending upon the number of files unreconciled, could have a material adverse impact on the Company’s results of operations for the quarter in which such reversal or charge occurs.

     If We Are Unable to Maintain Effective Internal Controls Over Financial Reporting, We may be Unable to Meet Our Periodic Financial Statement Filing Deadlines and Investors Could Lose Confidence in the Reliability of Our Financial Statements.

     Because of our status as a public company, we are required to make periodic filings of quarterly and annual reports with the SEC. We are also required to enhance and test our financial, internal, and management control systems to meet obligations imposed by the Sarbanes-Oxley Act of 2002. We are working with our independent legal, accounting, and financial advisors to identify those areas in which changes should be made to our financial and management control systems. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures, and financial reporting and accounting systems. Consistent with the Sarbanes-Oxley Act and the rules and regulations of the SEC, management’s assessment of our internal controls over financial reporting and the audit opinion of the Company’s independent registered accounting firm as to the effectiveness of our controls will be first required in connection with the Company’s filing of its Annual Report on Form 10-K for the year ending December 31, 2007. If we are unable to timely identify, implement, and conclude that we have effective internal controls over financial reporting or if our independent auditors are unable to conclude that our internal controls over financial reporting are effective, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock. Our

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assessment of our internal controls over financial reporting may also uncover weaknesses or other issues with these controls that could also result in adverse investor reaction. These results may also subject us to adverse regulatory consequences.

     On April 1, 2007, we implemented a conversion of our general ledger, accounting, and financial reporting systems. Although we have not experienced any significant unanticipated problems in connection with the conversion, there can be no assurance that the conversion will not have an adverse impact on our ability to timely meet our financial reporting obligations under SEC regulations and our internal controls obligations under the Sarbanes-Oxley Act.

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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

     Issuer Purchases of Equity Securities

     During the quarter ended March 31, 2007, the Company repurchased the following shares of its common stock:

ISSUER PURCHASES OF EQUITY SECURITIES

					Total Number of	Approximate Dollar Value
	Total				Shares Purchased as	of Shares that May Yet Be
	Number of		Average		Part of Publicly	Purchased Under the
	Shares		Price Paid		Announced Plans	Plans or Programs
Period	Purchased		per Share		or Programs	($000)
1/1/07 – 1/31/07		3,417	$	0.20	Inapplicable	Inapplicable
2/1/07 – 2/28/07		21,125	$	0.20	Inapplicable	Inapplicable
3/1/07 – 3/31/07		—		—	—	—
Total		24,542	$	0.20	Inapplicable	Inapplicable

     The shares reflected in the table above were repurchased pursuant to the terms of restricted stock purchase agreements between three former employees and the Company. The shares were repurchased at the Company’s option at a price of $.20 per share, the former employees’ cost for such shares.

Item 3: Defaults Upon Senior Securities

     Inapplicable.

Item 4: Submission of Matters to a Vote of Security Holders

     Inapplicable.

Item 5: Other Information

     Inapplicable.

Item 6: Exhibits

10.1	HealthSpring, Inc. 2006 Equity Incentive Plan, as amended
10.2	Form of Non-Qualified Stock Option Agreement (Equity Incentive Plan)
10.3	Form of Incentive Stock Option Agreement (Equity Incentive Plan)
10.4	Form of Restricted Stock Award Agreement (Employees and Officers) (Equity Incentive Plan)
10.5	Form of Restricted Stock Award Agreement (Directors) (Equity Incentive Plan)
31.1	Certification of the President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements 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.

	HEALTHSPRING, INC.
Date: May 14, 2007	By:	/s/ Kevin M. McNamara
		Kevin M. McNamara
		Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer)

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EXHIBIT INDEX

10.1	HealthSpring, Inc. 2006 Equity Incentive Plan, as amended
10.2	Form of Non-Qualified Stock Option Agreement (Equity Incentive Plan)
10.3	Form of Incentive Stock Option Agreement (Equity Incentive Plan)
10.4	Form of Restricted Stock Award Agreement (Employees and Officers) (Equity Incentive Plan)
10.5	Form of Restricted Stock Award Agreement (Directors) (Equity Incentive Plan)
31.1	Certification of the President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10.1

EXHIBIT 10.1

HEALTHSPRING, INC.

2006 EQUITY INCENTIVE PLAN, as amended

TABLE OF CONTENTS

	Tab
Section 1. Purpose		1
Section 2. Definitions		1
Section 3. Administration		4
Section 4. Shares Available For Awards		5
Section 5. Eligibility		6
Section 6. Stock Options And Stock Appreciation Rights		6
Section 7. Restricted Shares And Restricted Share Units		8
Section 8. Performance Awards		9
Section 9. Other Stock-Based Awards		10
Section 10. Non-Employee Director Awards		10
Section 11. Provisions Applicable To Covered Officers And Performance Awards		10
Section 12. Termination Of Employment		12
Section 13. Change In Control		12
Section 14. Amendment And Termination		12
Section 15. General Provisions		13
Section 16. Term Of The Plan		15

HEALTHSPRING, INC.
2006 EQUITY INCENTIVE PLAN

Section 1. Purpose.

     This plan shall be known as the “HealthSpring, Inc. 2006 Equity Incentive Plan” (the “Plan”). The purpose of the Plan is to promote the interests of HealthSpring, Inc., a Delaware corporation (the “Company”), its Subsidiaries and its stockholders by (i) attracting and retaining key officers, employees, and directors of, and consultants to, the Company and its Subsidiaries and Affiliates; (ii) motivating such individuals by means of performance-related incentives to achieve long-range performance goals; (iii) enabling such individuals to participate in the long-term growth and financial success of the Company; (iv) encouraging ownership of stock in the Company by such individuals; and (v) linking their compensation to the long-term interests of the Company and its stockholders. With respect to any awards granted under the Plan that are intended to comply with the requirements of “performance-based compensation” under Section 162(m) of the Code, the Plan shall be interpreted in a manner consistent with such requirements.

Section 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

     (a) “Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest, (iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any entity in which the Company has at least twenty percent (20%) of the combined voting power of the entity’s outstanding voting securities, in each case as designated by the Board as being a participating employer in the Plan.

     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Share Award, Restricted Share Unit, Performance Award, Other Stock-Based Award or other award granted under the Plan, whether singly, in combination or in tandem, to a Participant by the Committee (or the Board) pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee (or the Board) may establish.

     (c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award, which may, but need not, be executed or acknowledged by a Participant.

     (d) “Board” shall mean the Board of Directors of the Company.

     (e) “Cause” shall mean, unless otherwise defined in the applicable Award Agreement, (i) the engaging by the Participant in willful misconduct that is injurious to the Company or its Subsidiaries or Affiliates, or (ii) the embezzlement or misappropriation of funds or property of the Company or its Subsidiaries or Affiliates by the Participant. For purposes of this paragraph, no act, or failure to act, on the Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s action or omission was in the best interest of the Company. Any determination of Cause for purposes of the Plan or any Award shall be made by the Committee in its sole discretion. Any such determination shall be final and binding on a Participant.

     (f) “Change in Control” shall mean, unless otherwise defined in the applicable Award Agreement, any of the following events:

     (i) any person on entity, including a “group” as defined in Section 13(d)(3) of the Exchange Act, other than investment funds affiliated with GTCR Golder Rauner II, L.L.C., the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its Subsidiaries, becomes the beneficial owner of the Company’s securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business);

     (ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor company or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction are held in the aggregate by the holders of the Company’s securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction;

     (iii) during any period of two (2) consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s shareholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds (2/3rds) of the directors of the Company then still in office who were (i) directors of the Company at the beginning of any such period, and (ii) not initially (a) appointed or elected to office as result of either an actual or threatened election and/or proxy contest by or on behalf of a Person other than the Board, or (b) designated by a Person who has entered into an agreement with the Company to effect a transaction described in (i) or (ii) above or (iv) or (v) below;

     (iv) a complete liquidation or dissolution of the Company; or

     (v) the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary).

     (g) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

     (h) “Committee” shall mean the Board, and following an initial public offering by the Company, shall mean a committee of the Board composed of not less than two Non-Employee Directors, at least two of whom shall be (i) a “non-employee director” for purposes of Exchange Act Section 16 and Rule 16b-3 thereunder, (ii) an “outside director” for purposes of Section 162(m) and the regulations promulgated under the Code, and each of whom shall be, subject to any applicable transitional rules for newly public issuers, “independent” within the meaning of the listing standards of the New York Stock Exchange.

     (i) “Consultant” shall mean any consultant to the Company or its Subsidiaries or Affiliates.

     (j) “Covered Officer” shall mean at any date (i) any individual who, with respect to the previous taxable year of the Company, was a “covered employee” of the Company within the meaning of Section 162(m); provided, however, that the term “Covered Officer” shall not include any such individual who is designated by the Committee, in its discretion, at the time of any Award or at any subsequent time,

2

as reasonably expected not to be such a “covered employee” with respect to the current taxable year of the Company and (ii) any individual who is designated by the Committee, in its discretion, at the time of any Award or at any subsequent time, as reasonably expected to be such a “covered employee” with respect to the current taxable year of the Company or with respect to the taxable year of the Company in which any applicable Award will be paid or vested.

     (k) “Director” shall mean a member of the Board.

     (l) “Disability” shall mean, unless otherwise defined in the applicable Award Agreement, a disability that would qualify as a total and permanent disability under the Company’s then current long-term disability plan.

     (m) “Employee” shall mean a current or prospective officer or employee of the Company or of any Subsidiary or Affiliate.

     (n) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

     (o) “Fair Market Value” with respect to the Shares, shall mean, for purposes of a grant of an Award as of any date, (i) the closing sales price of the Shares on the New York Stock Exchange, or any other such exchange on which the shares are traded, on such date, or in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported or (ii) in the event there is no public market for the Shares on such date, the fair market value as determined, in good faith, by the Board or Committee in its sole discretion, and for purposes of a sale of a Share as of any date, the actual sales price on that date.

     (p) “Incentive Stock Option” shall mean an option to purchase Shares from the Company that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

     (q) “Non-Qualified Stock Option” shall mean an option to purchase Shares from the Company that is granted under Sections 6 or 10 of the Plan and is not intended to be an Incentive Stock Option.

     (r) “Non-Employee Director” shall mean a member of the Board who is not an officer or employee of the Company or any Subsidiary or Affiliate; provided, however, that employees of GTCR, Golder Rauner II, L.L.C., or its Affiliates, shall not for these purposes be deemed to be employees of an Affiliate of the Company.

     (s) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

     (t) “Option Price” shall mean the purchase price payable to purchase one Share upon the exercise of an Option.

     (u) “Other Stock-Based Award” shall mean any Award granted under Sections 9 or 10 of the Plan.

     (v) “Participant” shall mean any Employee, Director, Consultant or other person who receives an Award under the Plan.

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     (w) “Performance Award” shall mean any Award granted under Section 8 of the Plan.

     (x) “Person” shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.

     (y) “Restricted Share” shall mean any Share granted under Sections 7 or 10 of the Plan.

     (z) “Restricted Share Unit” shall mean any unit granted under Sections 7 or 10 of the Plan.

     (aa) “Retirement” shall mean, unless otherwise defined in the applicable Award Agreement, retirement of a Participant from the employ or service of the Company or any of its Subsidiaries or Affiliates in accordance with the terms of the applicable Company retirement plan or, if a Participant is not covered by any such plan, retirement on or after such Participant’s 65th birthday.

     (bb) “SEC” shall mean the Securities and Exchange Commission or any successor thereto.

     (cc) “Section 16” shall mean Section 16 of the Exchange Act and the rules promulgated thereunder and any successor provision thereto as in effect from time to time.

     (dd) “Section 162(m)” shall mean Section 162(m) of the Code and the regulations promulgated thereunder and any successor provision thereto as in effect from time to time.

     (ee) “Shares” shall mean shares of the common stock, $0.01 par value, of the Company.

     (ff) “Stock Appreciation Right” or “SAR” shall mean a stock appreciation right granted under Sections 6 or 10 of the Plan that entitles the holder to receive, with respect to each Share encompassed by the exercise of such SAR, the amount determined by the Committee and specified in an Award Agreement. In the absence of such a determination, the holder shall be entitled to receive, with respect to each Share encompassed by the exercise of such SAR, the excess of the Fair Market Value on the date of exercise over the Fair Market Value on the date of grant.

     (gg) “Subsidiary” shall mean any Person (other than the Company) of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company.

     (hh) “Substitute Awards” shall mean Awards granted solely in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines.

Section 3. Administration.

     3.1 Authority of Committee. The Plan shall be administered by the Committee, which shall be appointed by and serve at the pleasure of the Board; provided, however, with respect to Awards to Non-Employee Directors, all references in the Plan to the Committee shall be deemed to be references to the Board. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority in its discretion to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights or other matters are to be calculated in connection with Awards; (iv) determine the timing, terms, and conditions of any Award; (v) accelerate the time at which all or any part of an Award

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may be settled or exercised; (vi) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vii) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) except to the extent prohibited by Section 6.2, amend or modify the terms of any Award at or after grant with the consent of the holder of the Award; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan, subject to the exclusive authority of the Board under Section 14 hereunder to amend or terminate the Plan. The exercise of an Option or receipt of an Award shall be effective only if an Award Agreement shall have been duly executed and delivered on behalf of the Company following the grant of the Option or other Award.

     3.2 Committee Discretion Binding. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Subsidiary or Affiliate, any Participant and any holder or beneficiary of any Award.

     3.3 Delegation. Subject to the terms of the Plan, the Committee’s charter and applicable law, the Committee may delegate to one or more officers or managers of the Company or of any Subsidiary or Affiliate, or to a Committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend or terminate Awards held by Participants who are not officers or directors of the Company for purposes of Section 16 or who are otherwise not subject to such Section.

Section 4. Shares Available For Awards.

     4.1 Shares Available. Subject to the provisions of Section 4.2 hereof, the stock to be subject to Awards under the Plan shall be the Shares of the Company and the maximum number of Shares with respect to which Awards may be granted under the Plan shall be 6,250,000, no more than 50% of which Shares may be granted as Incentive Stock Options. If, after the effective date of the Plan, any Shares covered by an Award granted under this Plan, or to which such an Award relates, are forfeited, or if such an Award is settled for cash or otherwise terminates, expires unexercised or is canceled without the delivery of Shares, then the Shares covered by such Award, or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such settlement, forfeiture, termination, expiration or cancellation, shall again become Shares with respect to which Awards may be granted. In the event that any Option or other Award granted hereunder is exercised through the delivery of Shares or in the event that withholding tax liabilities arising from such Award are satisfied by the withholding of Shares by the Company, the number of Shares available for Awards under the Plan shall be increased by the number of Shares so surrendered or withheld. Notwithstanding the foregoing and subject to adjustment as provided in Section 4.2 hereof, no Participant may receive Options or SARs under the Plan in any calendar year that, taken together, relate to more than 625,000 Shares.

     4.2 Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or

5

other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares, then the Committee shall in an equitable and proportionate manner (and, with respect to Incentive Stock Options, in such equitable and proportionate manner as is consistent with Section 422 of the Code and the regulations thereunder and with respect to Non-Qualified Stock Options, in such equitable and proportionate manner as is consistent with Section 409A of the Code and the regulations thereunder, and with respect to Awards to Covered Officers, in such equitable and proportionate manner as is consistent with Section 162(m)): (i) adjust any or all of (1) the aggregate number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted under the Plan; (2) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards under the Plan, provided that the number of shares subject to any Award shall always be a whole number; (3) the grant or exercise price with respect to any Award under the Plan; and (4) the limits on the number of Shares that may be granted to Participants under the Plan in any calendar year; (ii) provide for an equivalent award in respect of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect; or (iii) make provision for a cash payment to the holder of an outstanding Award.

     4.3 Substitute Awards. Any Shares issued by the Company as Substitute Awards in connection with the assumption or substitution of outstanding grants from any acquired corporation shall not reduce the Shares available for Awards under the Plan.

     4.4 Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of issued Shares which have been reacquired by the Company.

Section 5. Eligibility.

     Any Employee, Director or Consultant shall be eligible to be designated a Participant; provided, however, that Non-Employee Directors shall only be eligible to receive Awards granted consistent with Section 10.

Section 6. Stock Options And Stock Appreciation Rights.

     6.1 Grant. Subject to the provisions of the Plan, including, without limitation, Section 3.3 above, the Committee shall have sole and complete authority to determine the Participants to whom Options and SARs shall be granted, the number of Shares subject to each Award, the exercise price and the conditions and limitations applicable to the exercise of each Option and SAR. An Option may be granted with or without a related SAR. An SAR may be granted with or without a related Option. The Committee shall have the authority to grant Incentive Stock Options, and to grant Non-Qualified Stock Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing such statute. A person who has been granted an Option or SAR under this Plan may be granted additional Options or SARs under the Plan if the Committee shall so determine; provided, however, that to the extent the aggregate Fair Market Value (determined at the time the Incentive Stock Option is granted) of the Shares with respect to which all Incentive Stock Options are exercisable for the first time by an Employee during any calendar year (under all plans described in subsection (d) of Section 422 of the Code of the Employee’s employer corporation and its parent and Subsidiaries) exceeds $100,000 such Options shall be treated as Non-Qualified Stock Options.

     6.2 Price. The Committee in its sole discretion shall establish the Option Price at the time each Option is granted. Except in the case of Substitute Awards, the Option Price of an Option may not be less

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than one hundred percent (100%) of the Fair Market Value of the Shares with respect to which the Option is granted on the date of grant of such Option. Notwithstanding the foregoing and except as permitted by the provisions of Section 4.2 and Section 14 hereof, the Committee shall not have the power to (i) amend the terms of previously granted Options to reduce the Option Price of such Options, or (ii) cancel such Options and grant substitute Options with a lower Option Price than the cancelled Options. Except with respect to Substitute Awards, SARs may not be granted at a price less than the Fair Market Value of a Share on the date of grant.

     6.3 Term. Subject to the Committee’s authority under Section 3.1 and the provisions of Section 6.6, each Option and SAR and all rights and obligations thereunder shall expire on the date determined by the Committee and specified in the Award Agreement. The Committee shall be under no duty to provide terms of like duration for Options or SARs granted under the Plan. Notwithstanding the foregoing, no Option or SAR shall be exercisable after the expiration of ten (10) years from the date such Option or SAR was granted.

     6.4 Exercise.

     (a) Each Option and SAR shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter. The Committee shall have full and complete authority to determine, subject to Section 6.6 herein, whether an Option or SAR will be exercisable in full at any time or from time to time during the term of the Option or SAR, or to provide for the exercise thereof in such installments, upon the occurrence of such events and at such times during the term of the Option or SAR as the Committee may determine.

     (b) The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal, state or foreign securities laws or the Code, as it may deem necessary or advisable. The exercise of any Option granted hereunder shall be effective only at such time as the sale of Shares pursuant to such exercise will not violate any state or federal securities or other laws.

     (c) An Option or SAR may be exercised in whole or in part at any time, with respect to whole Shares only, within the period permitted thereunder for the exercise thereof, and shall be exercised by written notice of intent to exercise the Option or SAR, delivered to the Company at its principal office, and payment in full to the Company at the direction of the Committee of the amount of the Option Price for the number of Shares with respect to which the Option is then being exercised.

     (d) Payment of the Option Price shall be made in cash or cash equivalents, or, at the discretion of the Committee, (i) by transfer, either actually or by attestation, to the Company of Shares that have been held by the Participant for at least six (6) months (or such lesser period as may be permitted by the Committee), valued at the Fair Market Value of such Shares on the date of exercise (or next succeeding trading date, if the date of exercise is not a trading date), together with any applicable withholding taxes, such transfer to be upon such terms and conditions as determined by the Committee, or (ii) by a combination of such cash (or cash equivalents) and such Shares; provided, however, that the optionee shall not be entitled to tender Shares pursuant to successive, substantially simultaneous exercises of an Option or any other stock option of the Company. Subject to applicable securities laws, an Option may also be exercised by delivering a notice of exercise of the Option and simultaneously selling the Shares thereby acquired, pursuant to a brokerage or similar agreement approved in advance by proper officers of the Company, using the proceeds of such sale as payment of the Option Price, together with any applicable withholding

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taxes. Until the optionee has been issued the Shares subject to such exercise, he or she shall possess no rights as a stockholder with respect to such Shares.

     (e) At the Committee’s discretion, the amount payable as a result of the exercise of an SAR may be settled in cash, Shares or a combination of cash and Shares. A fractional Share shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu thereof.

     6.6 Ten Percent Stock Rule. Notwithstanding any other provisions in the Plan, if at the time an Option is otherwise to be granted pursuant to the Plan, the optionee or rights holder owns directly or indirectly (within the meaning of Section 424(d) of the Code) Shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company or its parent or Subsidiary or Affiliate corporations (within the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee or rights holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the Option Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of the Shares of the Company, and such Option by its terms shall not be exercisable after the expiration of five (5) years from the date such Option is granted.

Section 7. Restricted Shares And Restricted Share Units.

     7.1 Grant.

     (a) Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Restricted Shares and Restricted Share Units shall be granted, the number of Restricted Shares and/or the number of Restricted Share Units to be granted to each Participant, the duration of the period during which, and the conditions under which, the Restricted Shares and Restricted Share Units may be forfeited to the Company, and the other terms and conditions of such Awards. The Restricted Share and Restricted Share Unit Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the terms and conditions provided hereunder and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan.

     (b) Each Restricted Share and Restricted Share Unit Award made under the Plan shall be for such number of Shares as shall be determined by the Committee and set forth in the Award Agreement containing the terms of such Restricted Share or Restricted Share Unit Award. Such agreement shall set forth a period of time during which the grantee must remain in the continuous employment of the Company in order for the forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions may lapse during such restricted period in installments with respect to specified portions of the Shares covered by the Restricted Share or Restricted Share Unit Award. The Award Agreement may also, in the discretion of the Committee, set forth performance or other conditions that will subject the Shares to forfeiture and transfer restrictions. The Committee may, at its discretion, waive all or any part of the restrictions applicable to any or all outstanding Restricted Share and Restricted Share Unit Awards.

     7.2 Delivery of Shares and Transfer Restrictions. At the time of a Restricted Share Award, a certificate representing the number of Shares awarded thereunder shall be registered in the name of the grantee. Such certificate shall be held by the Company or any custodian appointed by the Company for the account of the grantee subject to the terms and conditions of the Plan, and shall bear such a legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may determine. Unless otherwise provided in the applicable Award Agreement, the grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the right to receive dividends and the right to vote such Shares, subject to

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the following restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of the restricted period and the fulfillment of any other restrictive conditions set forth in the Award Agreement with respect to such Shares; (ii) none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such restricted period or until after the fulfillment of any such other restrictive conditions; and (iii) except as otherwise determined by the Committee at or after grant, all of the Shares shall be forfeited and all rights of the grantee to such Shares shall terminate, without further obligation on the part of the Company, unless the grantee remains in the continuous employment of the Company for the entire restricted period in relation to which such Shares were granted and unless any other restrictive conditions relating to the Restricted Share Award are met. Unless otherwise provided in the applicable Award Agreement, any Shares, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Shares subject to Restricted Share Awards shall be subject to the same restrictions, terms and conditions as such restricted Shares.

     7.3 Termination of Restrictions. At the end of the restricted period and provided that any other restrictive conditions of the Restricted Share Award are met, or at such earlier time as otherwise determined by the Committee, all restrictions set forth in the Award Agreement relating to the Restricted Share Award or in the Plan shall lapse as to the restricted Shares subject thereto, and a stock certificate for the appropriate number of Shares, free of the restrictions and restricted stock legend, shall be delivered to the Participant or the Participant’s beneficiary or estate, as the case may be.

     7.4 Payment of Restricted Share Units. Each Restricted Share Unit shall have a value equal to the Fair Market Value of a Share. Restricted Share Units shall be paid in cash, Shares, other securities or other property, as determined in the sole discretion of the Committee, upon the lapse of the restrictions applicable thereto, or otherwise in accordance with the applicable Award Agreement. Unless otherwise provided in the applicable Award Agreement, a Participant shall receive dividend rights in respect of any vested Restricted Stock Units at the time of any payment of dividends to stockholders on Shares. The amount of any such dividend right shall equal the amount that would be payable to the Participant as a stockholder in respect of a number of Shares equal to the number of vested Restricted Stock Units then credited to the Participant. Any such dividend right shall be paid in accordance with the Company’s payment practices as may be established from time to time and as of the date on which such dividend would have been payable in respect of outstanding Shares. Unless otherwise provided in the applicable Award Agreement, dividend equivalents shall be paid in respect of Restricted Share Units that are not yet vested. Except as otherwise determined by the Committee at or after grant, Restricted Share Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of, and all Restricted Share Units and all rights of the grantee to such Restricted Share Units shall terminate, without further obligation on the part of the Company, unless the grantee remains in continuous employment of the Company for the entire restricted period in relation to which such Restricted Share Units were granted and unless any other restrictive conditions relating to the Restricted Share Unit Award are met.

Section 8. Performance Awards.

     8.1 Grant. The Committee shall have sole and complete authority to determine the Participants who shall receive a Performance Award, which shall consist of a right that is (i) denominated in cash or Shares (including but not limited to Restricted Shares and Restricted Share Units), (ii) valued, as determined by the Committee, in accordance with the achievement of such performance goals during such performance periods as the Committee shall establish, and (iii) payable at such time and in such form as the Committee shall determine.

     8.2 Terms and Conditions. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the performance goals to be achieved during any performance

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period, the length of any performance period, the amount of any Performance Award and the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and may amend specific provisions of the Performance Award; provided, however, that such amendment may not adversely affect existing Performance Awards made within a performance period commencing prior to implementation of the amendment.

     8.3 Payment of Performance Awards. Performance Awards may be paid in a lump sum or in installments following the close of the performance period or, in accordance with the procedures established by the Committee, on a deferred basis. Termination of employment prior to the end of any performance period, other than for reasons of death or Disability, will result in the forfeiture of the Performance Award, and no payments will be made. A Participant’s rights to any Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of in any manner, except by will or the laws of descent and distribution, and/or except as the Committee may determine at or after grant.

Section 9. Other Stock-Based Awards.

     The Committee shall have the authority to determine the Participants who shall receive an Other Stock-Based Award, which shall consist of any right that is (i) not an Award described in Sections 6 or 7 above and (ii) an Award of Shares or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of any such Other Stock-Based Award.

Section 10. Non-Employee Director Awards.

     10.1 The Board may provide that all or a portion of a Non-Employee Director’s annual retainer, meeting fees and/or other awards or compensation as determined by the Board, be payable (either automatically or at the election of a Non-Employee Director) in the form of Non-Qualified Stock Options, Restricted Shares, Restricted Share Units and/or Other Stock-Based Awards, including unrestricted Shares. The Board shall determine the terms and conditions of any such Awards, including the terms and conditions which shall apply upon a termination of the Non-Employee Director’s service as a member of the Board, and shall have full power and authority in its discretion to administer such Awards, subject to the terms of the Plan and applicable law.

     10.2 The Board may also grant Awards to Non-Employee Directors pursuant to the terms of the Plan, including any Award described in Sections 6, 7 or 9 above.

Section 11. Provisions Applicable To Covered Officers And Performance Awards.

     11.1 Notwithstanding anything in the Plan to the contrary, unless the Committee determines that a Performance Award to be granted to a Covered Officer should not qualify as “performance-based compensation” for purposes of Section 162(m), Performance Awards granted to Covered Officers shall be subject to the terms and provisions of this Section 11.

     11.2 The Committee may grant Performance Awards to Covered Officers based solely upon the attainment of performance targets related to one or more performance goals selected by the Committee from among the goals specified below. For the purposes of this Section 11, performance goals shall be limited to one or more of the following Company, Subsidiary, operating unit, business segment or division financial performance measures:

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(a)	earnings before interest, taxes, depreciation and/or amortization;
(b)	operating income or profit;
(c)	operating efficiencies;
(d)	return on equity, assets, capital, capital employed or investment;
(e)	net income;
(f)	earnings per Share;
(g)	utilization management;
(h)	membership;
(i)	gross profit;
(j)	medical loss ratios;
(k)	stock price or total stockholder return;
(l)	provider network growth;
(m)	debt reduction;
(n)	strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals and goals relating to acquisitions or divestitures; or
(o)	any combination thereof.

Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or any Subsidiary, operating unit, business segment or division of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, stockholders’ equity and/or Shares outstanding, or to assets or net assets. The Committee may appropriately adjust any evaluation of performance under criteria set forth in this Section 11.2 to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs and (v) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year.

     11.3 With respect to any Covered Officer, the maximum annual number of Shares in respect of which all Performance Awards may be granted under Section 8 of the Plan is 250,000 and the maximum amount of all Performance Awards that are settled in cash and that may be granted under Section 8 of the Plan in any year is $5,000,000.00.

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     11.4 To the extent necessary to comply with Section 162(m), with respect to grants of Performance Awards, no later than 90 days following the commencement of each performance period (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (1) select the performance goal or goals applicable to the performance period, (2) establish the various targets and bonus amounts which may be earned for such performance period, and (3) specify the relationship between performance goals and targets and the amounts to be earned by each Covered Officer for such performance period. Following the completion of each performance period, the Committee shall certify in writing whether the applicable performance targets have been achieved and the amounts, if any, payable to Covered Officers for such performance period. In determining the amount earned by a Covered Officer for a given performance period, subject to any applicable Award Agreement, the Committee shall have the right to reduce (but not increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant in its sole discretion to the assessment of individual or corporate performance for the performance period.

     11.5 Unless otherwise expressly stated in the relevant Award Agreement, each Award granted to a Covered Officer under the Plan is intended to be performance-based compensation within the meaning of Section 162(m). Accordingly, unless otherwise determined by the Committee, if any provision of the Plan or any Award Agreement relating to such an Award does not comply or is inconsistent with Section 162(m), such provision shall be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer upon the Committee discretion to increase the amount of compensation otherwise payable to a Covered Officer in connection with any such Award upon the attainment of the performance criteria established by the Committee.

Section 12. Termination Of Employment.

     The Committee shall have the full power and authority to determine the terms and conditions that shall apply to any Award upon a termination of employment with the Company, its Subsidiaries and Affiliates, including a termination by the Company with or without Cause, by a Participant voluntarily, or by reason of death, Disability or Retirement, and may provide such terms and conditions in the Award Agreement or in such rules and regulations as it may prescribe.

Section 13. Change In Control.

     The Committee may specify in the applicable Award Agreement, or otherwise by resolution prior to a Change in Control, that all or a portion of the outstanding Awards shall vest, become immediately exercisable or payable and have all restrictions lifted upon a Change in Control.

Section 14. Amendment And Termination.

     14.1 Amendments to the Plan. The Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to comply.

     14.2 Amendments to Awards. Subject to the restrictions of Section 6.2, the Committee may waive any conditions or rights under, amend any terms of or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect

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the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.

     14.3 Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company, any Subsidiary or Affiliate, or the financial statements of the Company or any Subsidiary or Affiliate, or of changes in applicable laws, regulations or accounting principles in accordance with the Plan.

Section 15. General Provisions.

     15.1 Limited Transferability of Awards. Except as otherwise provided in the Plan, no Award shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution and/or as may be provided by the Committee in its discretion, at or after grant, in the Award Agreement. No transfer of an Award by will or by laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary or appropriate to establish the validity of the transfer.

     15.2 Dividend Equivalents. In the sole and complete discretion of the Committee, an Award may provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other securities or other property on a current or deferred basis. All dividend or dividend equivalents which are not paid currently may, at the Committee’s discretion, accrue interest, be reinvested into additional Shares, or, in the case of dividends or dividend equivalents credited in connection with Performance Awards, be credited as additional Performance Awards and paid to the Participant if and when, and to the extent that, payment is made pursuant to such Award. The total number of Shares available for grant under Section 4 shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as Performance Awards.

     15.3 No Rights to Awards. No Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards need not be the same with respect to each Participant.

     15.4 Share Certificates. All certificates for Shares or other securities of the Company or any Subsidiary or Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the SEC or any state securities commission or regulatory authority, any stock exchange or other market upon which such Shares or other securities are then listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

     15.5 Withholding. A Participant may be required to pay to the Company or any Subsidiary or Affiliate and the Company or any Subsidiary or Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan, or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding or other tax-related obligations in respect of an Award, its exercise or any other transaction involving an Award, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The Committee may provide for additional cash

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payments to holders of Options to defray or offset any tax arising from the grant, vesting, exercise or payment of any Award.

     15.6 Award Agreements. Each Award hereunder shall be evidenced by an Award Agreement that shall be delivered to the Participant and may specify the terms and conditions of the Award and any rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award Agreement, the terms of the Plan shall prevail. The Committee shall, subject to applicable law, determine the date an Award is deemed to be granted. The Committee or, except to the extent prohibited under applicable law, its delegate(s) may establish the terms of agreements or other documents evidencing Awards under this Plan and may, but need not, require as a condition to any such agreement’s or document’s effectiveness that such agreement or document be executed by the Participant, including by electronic signature or other electronic indication of acceptance, and that such Participant agree to such further terms and conditions as specified in such agreement or document. The grant of an Award under this Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such conditions, as are specified in this Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in the agreement or other document evidencing such Award.

     15.7 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary or Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of Options, Restricted Shares, Restricted Share Units, Other Stock-Based Awards or other types of Awards provided for hereunder.

     15.8 No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Subsidiary or Affiliate. Further, the Company or a Subsidiary or Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in an Award Agreement.

     15.9 No Rights as Stockholder. Subject to the provisions of the Plan and the applicable Award Agreement, no Participant or holder or beneficiary of any Award shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until such person has become a holder of such Shares. Notwithstanding the foregoing, in connection with each grant of Restricted Shares hereunder, the applicable Award Agreement shall specify if and to what extent the Participant shall not be entitled to the rights of a stockholder in respect of such Restricted Shares.

     15.10 Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

     15.11 Severability. If any provision of the Plan or any Award is, or becomes, or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

     15.12 Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Award if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation (including applicable non-U.S. laws or regulations) or entitle the Company to recover the same under Exchange Act Section 16(b), and any payment tendered to the Company by a Participant, other holder or beneficiary in

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connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or beneficiary.

     15.13 No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary or Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Subsidiary or Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Subsidiary or Affiliate.

     15.14 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

     15.15 Headings. Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

Section 16. Term Of The Plan.

     16.1 Effective Date. The Plan shall be effective as of February 2, 2006 provided it has been approved by the Board and by the Company’s stockholders.

     16.2 Expiration Date. No new Awards shall be granted under the Plan after the tenth anniversary of the Effective Date. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the tenth anniversary of the Effective Date.

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EX-10.2

EXHIBIT 10.2

HEALTHSPRING, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT

     THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is made and entered into as of this ___ day of                     , 2007 (the “Grant Date”), by and between HealthSpring, Inc., a Delaware corporation (together with its Subsidiaries and Affiliates, the “Company”), and                      (the “Optionee”). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the HealthSpring, Inc. 2006 Equity Incentive Plan (the “Plan”).

     WHEREAS, the Company has adopted the Plan, which permits the issuance of stock options for the purchase of shares of the common stock, par value $0.01 per share, of the Company (the “Shares”); and

     WHEREAS, the Company desires to afford the Optionee an opportunity to purchase Shares as hereinafter provided in accordance with the provisions of the Plan;

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Option.

          (a) The Company grants as of the date of this Agreement the right and option (the “Option”) to purchase                      Shares, in whole or in part (the “Option Stock”), at an exercise price of                                                               and No/100 Dollars ($                       ) per Share, on the terms and conditions set forth in this Agreement and subject to all provisions of the Plan. The Optionee, holder or beneficiary of the Option shall not have any of the rights of a shareholder with respect to the Option Stock until such person has become a holder of such Shares by the due exercise of the Option and payment of the Option Payment (as defined in Section 3 below) in accordance with this Agreement.

          (b) The Option shall be a non-qualified stock option. In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the Option, and in order to comply with all applicable federal or state tax laws or regulations, the Company may take such action as it deems appropriate to insure that, if necessary, all applicable federal, state or other taxes are withheld or collected from the Optionee.

     2. Exercise of Option. Except as otherwise provided herein, your Option shall become vested and exercisable as follows:                     , if and only if you have been continuously employed by the Company or any of its Subsidiaries from the date of this Agreement through and including such dates. Notwithstanding the above, each outstanding Option shall vest and become exercisable in full upon the event of Optionee’s death, Disability or Normal Retirement (as defined below). If Optionee elects Early Retirement (as defined below), this Option shall vest as though Optionee had elected Normal Retirement, provided that the

Optionee’s Early Retirement is with the consent of the Committee. “Early Retirement” means retirement, for purposes of the Plan with the express consent of the Company at or before the time of such retirement, from active employment with the Company prior to age sixty-five (65), in accordance with any applicable early retirement policy of the Company then in effect. “Normal Retirement” means retirement from active employment with the Company on or after age sixty-five (65). For purposes of this Agreement, “Disabled” means that the Optionee is permanently unable to perform the essential duties of the Optionee’s occupation.

     3. Manner of Exercise. The Option may be exercised in whole or in part at any time within the period permitted hereunder for the exercise of the Option, with respect to whole Shares only, by serving written notice of intent to exercise the Option delivered to the Company at its principal office (or to the Company’s designated agent), stating the number of Shares to be purchased, the person or persons in whose name the Shares are to be registered and each such person’s address and social security number. Such notice shall not be effective unless accompanied by payment in full of the Option Price for the number of Shares with respect to which the Option is then being exercised (the “Option Payment”) and cash equal to the required withholding taxes as set forth by Internal Revenue Service and applicable State tax guidelines for the employer’s minimum statutory withholding. The Option Payment shall be made in cash or cash equivalents or in whole Shares that have been held by the Optionee for at least six (6) months prior to the date of exercise valued at the Shares’ Fair Market Value on the date of exercise (or next succeeding trading date if the date of exercise is not a trading date) or the actual sales price of such Shares, together with any applicable withholding taxes, or by a combination of such cash (or cash equivalents) and Shares. The Optionee shall not be entitled to tender Shares pursuant to successive, substantially simultaneous exercises of the Option or any other stock option of the Company. Subject to applicable securities laws, the Optionee may also exercise the Option by delivering a notice of exercise of the Option and by simultaneously selling the Shares of Option Stock thereby acquired pursuant to a brokerage or similar agreement approved in advance by proper officers of the Company, using the proceeds of such sale as payment of the Option Payment, together with any applicable withholding taxes. For purposes of this Agreement, “Fair Market Value” means the closing sales price of the Shares on the New York Stock Exchange or the actual sales price of such Shares.

     4. Termination of Option. The Option will expire ten (10) years from the date of grant of the Option (the “Term”) with respect to any then unexercised portion thereof, unless terminated earlier as set forth below:

          (a) Termination by Death. If the Optionee’s employment by the Company terminates by reason of death, or if the Optionee dies within three (3) months after termination of such employment for any reason other than Cause, this Option may thereafter be exercised by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of one (1) year from the date of death or until the expiration of the Term of the Option, whichever period is the shorter.

          (b) Termination by Reason of Disability. If the Optionee’s employment by the Company terminates by reason of Disability, this Option may thereafter be exercised by the Optionee or personal representative or guardian of the Optionee, as applicable, for a period of

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three (3) years from the date of such termination of employment or until the expiration of the Term of the Option, whichever period is the shorter.

          (c) Termination by Normal Retirement or Early Retirement. If Optionee’s employment by the Company terminates by reason of Normal Retirement or Early Retirement, this Option may thereafter be exercised by the Optionee for a period of three (3) years from the date of such termination of employment or until the expiration of the Term of the Option, whichever period is the shorter.

          (d) Termination for Cause. If the Optionee’s employment by the Company is terminated for Cause, this Option shall terminate immediately and become void and of no effect.

          (e) Other Termination. If the Optionee’s employment by the Company is terminated for any reason other than for Cause, death, Disability or Normal Retirement or Early Retirement, this Option may be exercised, to the extent the Option was exercisable at the time of such termination, by the Optionee for a period of three (3) months from the date of such termination of employment or the expiration of the Term of the Option, whichever period is the shorter.

     5. No Right to Continued Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of the Company, and the Company may at any time dismiss Optionee from employment, free from any liability or any claim under the Plan.

     6. Adjustment to Option Stock. The Committee shall make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, this Option in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 of the Plan) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principals in accordance with the Plan.

     7. Amendments to Option. Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Option, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Optionee or any holder or beneficiary of the Option shall not to that extent be effective without the consent of the Optionee, holder or beneficiary affected.

     8. Limited Transferability. During the Optionee’s lifetime, this Option can be exercised only by the Optionee. This Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by Optionee other than by will or the laws of descent and distribution. Any attempt to otherwise transfer this Option shall be void. No transfer of this Option by the Optionee by will or by laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary or appropriate to establish the validity of the transfer.

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     9. Reservation of Shares. At all times during the term of this Option, the Company shall use its best efforts to reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of this Agreement.

     10. Plan Governs. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.

     11. Severability. If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.

     12. Notices. All notices required to be given under this Option shall be deemed to be received if delivered or mailed as provided for herein to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

If to the Company:	If to the Optionee:
HealthSpring, Inc.	The address then maintained
44 Vantage Way, Suite 300	with respect to the Optionee
Nashville, Tennessee 37228	in the Company’s records.
Attn: Corporate Secretary

     13. Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

     14. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and the Company for all purposes.

     15. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Optionee’s legal representative and assignees. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be binding upon the Optionee’s heirs, executors, administrators, successors and assignees.

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     IN WITNESS WHEREOF, the parties have caused this Non-Qualified Stock Option Agreement to be duly executed effective as of the day and year first above written.

HEALTHSPRING, INC.

By:

Optionee:

Please Print

Optionee:

Signature

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EX-10.3

EXHIBIT 10.3

HEALTHSPRING, INC.
INCENTIVE STOCK OPTION AGREEMENT

     THIS INCENTIVE STOCK OPTION AGREEMENT (this “Agreement”) is made and entered into as of this ___ day of                     , 2007 (the “Grant Date”), by and between HealthSpring, Inc., a Delaware corporation (together with its Subsidiaries and Affiliates, the “Company”), and                                          (the “Optionee”). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the HealthSpring, Inc. 2006 Equity Incentive Plan (the “Plan”).

     WHEREAS, the Company has adopted the Plan, which permits the issuance of stock options for the purchase of shares of the common stock, par value $0.01 per share, of the Company (the “Shares”); and

     WHEREAS, the Company desires to afford the Optionee an opportunity to purchase Shares as hereinafter provided in accordance with the provisions of the Plan;

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Option.

          (a) The Company grants as of the date of this Agreement the right and option (the “Option”) to purchase                      Shares, in whole or in part (the “Option Stock”), at an exercise price of                      and No/100 Dollars ($                    ) per Share, on the terms and conditions set forth in this Agreement and subject to all provisions of the Plan. The Optionee, holder or beneficiary of the Option shall not have any of the rights of a shareholder with respect to the Option Stock until such person has become a holder of such Shares by the due exercise of the Option and payment of the Option Payment (as defined in Section 3 below) in accordance with this Agreement.

          (b) The Option shall be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and this Agreement shall be interpreted in a manner consistent therewith. In order to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it upon the exercise of the Option and in order to comply with all applicable federal or state tax laws or regulations, the Company may take such action as it deems appropriate to insure that, if necessary, all applicable federal, state or other taxes are withheld or collected from the Optionee.

     2. Exercise of Option. Except as otherwise provided herein, your Option shall become vested and exercisable as follows:                     , if and only if you have been continuously employed by the Company or any of its Subsidiaries from the date of this Agreement through and including such dates. Notwithstanding the above, each outstanding Option shall vest and become exercisable in full upon the event of Optionee’s death, Disability

or Normal Retirement (as defined below). If Optionee elects Early Retirement (as defined below), this Option shall vest as though Optionee had elected Normal Retirement, provided that the Optionee’s Early Retirement is with the consent of the Committee. “Early Retirement” means retirement, for purposes of the Plan with the express consent of the Company at or before the time of such retirement, from active employment with the Company prior to age sixty-five (65), in accordance with any applicable early retirement policy of the Company then in effect. “Normal Retirement” means retirement from active employment with the Company on or after age sixty-five (65).

     3. Manner of Exercise. The Option may be exercised in whole or in part at any time within the period permitted hereunder for the exercise of the Option, with respect to whole Shares only, by serving written notice of intent to exercise the Option delivered to the Company at its principal office (or to the Company’s designated agent), stating the number of Shares to be purchased, the person or persons in whose name the Shares are to be registered and each such person’s address and social security number. Such notice shall not be effective unless accompanied by payment in full of the Option Price for the number of Shares with respect to which the Option is then being exercised (the “Option Payment”) and cash equal to the required withholding taxes is as set forth by Internal Revenue Service and applicable State tax guidelines for the employer’s minimum statutory withholding. The Option Payment shall be made in cash or cash equivalents or in whole Shares that have been held by the Optionee for at least six (6) months prior to the date of exercise valued at the Shares’ Fair Market Value on the date of exercise (or next succeeding trading date if the date of exercise is not a trading date) or the actual sales price of such Shares, together with any applicable withholding taxes, or by a combination of such cash (or cash equivalents) and Shares. The Optionee shall not be entitled to tender Shares pursuant to successive, substantially simultaneous exercises of the Option or any other stock option of the Company. Subject to applicable securities laws, the Optionee may also exercise the Option by delivering a notice of exercise of the Option and by simultaneously selling the Shares of Option Stock thereby acquired pursuant to a brokerage or similar agreement approved in advance by proper officers of the Company, using the proceeds of such sale as payment of the Option Payment, together with any applicable withholding taxes. The Optionee shall notify the Company of any disposition of shares acquired under this Agreement if such disposition occurs within two years after the date of grant or one (1) year after the date of exercise of the Option. For purposes of this Agreement, “Fair Market Value” means the closing sales price of the Shares on the New York Stock Exchange or the actual sales price of such Shares.

     4. Termination of Option. The Option will expire ten years from the date of grant of the Option (the “Term”) with respect to any then unexercised portion thereof, unless terminated earlier as set forth below:

          (a) Termination by Death. If the Optionee’s employment by the Company terminates by reason of death, this Option may thereafter be exercised, to the extent the Option was exercisable at the time of such termination, by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of one (1) year from the date of death or until the expiration of the Term of the Option, whichever period is the shorter.

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          (b) Termination by Reason of Disability. If the Optionee’s employment by the Company terminates by reason of Disability, this Option may thereafter be exercised, to the extent the Option was exercisable at the time of such termination, by the Optionee or personal representative or guardian of the Optionee, as applicable, for a period of one (1) year from the date of such termination of employment or until the expiration of the Term of the Option, whichever period is the shorter; provided, however, that if the Option is exercised following the one (1) year anniversary of the date of termination, the Option shall thereafter be treated as a Non-Qualified Stock Option.

          (c) Termination by Normal Retirement or Early Retirement. If Optionee’s employment by the Company terminates by reason of Normal Retirement or Early Retirement, this Option may thereafter be exercised by the Optionee, to the extent the Option was exercisable at the time of such termination, for a period of three (3) years from the date of such termination of employment or until the expiration of the Term of the Option, whichever period is the shorter; provided, however, that if the Option is exercised following the three (3) month anniversary of the date of termination, the Option shall thereafter be treated as a Non-Qualified Stock Option.

          (d) Termination for Cause. If the Optionee’s employment by the Company is terminated for Cause, this Option shall terminate immediately and become void and of no effect.

          (e) Other Termination. If the Optionee’s employment by the Company is terminated for any reason other than for Cause, death, Disability or Normal Retirement or Early Retirement, this Option may be exercised, to the extent the Option was exercisable at the time of such termination, by the Optionee for a period of three (3) months from the date of such termination of employment or the expiration of the Term of the Option, whichever period is the shorter.

     5. No Right to Continued Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of the Company, and the Company may at any time dismiss Optionee from employment, free from any liability or any claim under the Plan.

     6. Adjustment to Option Stock. The Committee shall make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, this Option in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 of the Plan) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principals in accordance with the Plan.

     7. Amendments to Option. Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Option, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Optionee or any holder or beneficiary of the Option shall not to that extent be effective without the consent of the Optionee, holder or beneficiary affected.

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     8. Limited Transferability. During the Optionee’s lifetime, this Option can be exercised only by the Optionee. This Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by Optionee other than by will or the laws of descent and distribution. Any attempt to otherwise transfer this Option shall be void. No transfer of this Option by the Optionee by will or by laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary or appropriate to establish the validity of the transfer.

     9. Reservation of Shares. At all times during the term of this Option, the Company shall use its best efforts to reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of this Agreement.

     10. Plan Governs. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.

     11. Severability. If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.

     12. Notices. All notices required to be given under this Option shall be deemed to be received if delivered or mailed as provided for herein to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

If to the Company:	If to the Grantee:
HealthSpring, Inc.	The address then maintained
44 Vantage Way, Suite 300	with respect to the Grantee
Nashville, Tennessee 37228	in the Company’s records.
Attn: General Counsel

     13. Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

     14. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and the Company for all purposes.

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     15. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Optionee’s legal representative and assignees. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be binding upon the Optionee’s heirs, executors, administrators, successors and assignees.

     16. Excessive Shares. In the event that the number of Shares subject to this Option exceeds any maximum established under the Code for Incentive Stock Options that may be granted to Optionee, or in the event that any part of this Option (as aggregated with all other Incentive Stock Options held by the Grantee) becomes first exercisable in any calendar year to obtain Common Stock having a Fair Market Value (determined at the time of grant) in excess of One Hundred Thousand and No/100 Dollars ($100,000.00), this Option shall be treated as a Non-Qualified Stock Option to the extent of such excess. The proceeding sentence shall be interpreted consistently with the provisions of Section 422(d) of the Code.

     IN WITNESS WHEREOF, the parties have caused this Incentive Stock Option Agreement to be duly executed effective as of the day and year first above written.

HEALTHSPRING, INC.

By:

OPTIONEE:

Please Print

OPTIONEE:

Signature

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EX-10.4

EXHIBIT 10.4

HEALTHSPRING, INC.
RESTRICTED SHARE AWARD AGREEMENT
(Officer and Employee)

     THIS RESTRICTED SHARE AWARD AGREEMENT (this “Agreement”) is made and entered into as of the ___ day of                     , 2007 (the “Grant Date”), between HealthSpring, Inc., a Delaware corporation, together with its subsidiaries (the “Company”), and                                          (the “Grantee”). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the HealthSpring, Inc. 2006 Equity Incentive Plan (the “Plan”).

     WHEREAS, the Company has adopted the Plan, which permits the issuance of restricted shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”); and

     WHEREAS, pursuant to the Plan, the Committee responsible for administering the Plan has granted an award of restricted shares to the Grantee as provided herein;

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Restricted Shares.

          (a) The Company hereby grants to the Grantee an award (the “Award”) of                      shares of Common Stock (the “Shares” or the “Restricted Shares”) on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan.

          (b) The Grantee’s rights with respect to the Award shall remain forfeitable at all times prior to the dates on which the restrictions shall lapse in accordance with Sections 2 and 3 hereof.

     2. Terms and Rights as a Stockholder.

          (a) Except as provided herein and subject to such other exceptions as may be determined by the Committee in its discretion, the “Restricted Period” for twenty five (25%) of the Restricted Shares granted herein shall expire on the each anniversary of the date hereof.

          (b) The Grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the right to receive dividends and the right to vote such Shares, subject to the following restrictions:

               (i) the Grantee shall not be entitled to delivery of the stock certificate for any Shares until the expiration of the Restricted Period as to such Shares;

               (ii) none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during the Restricted Period as to such Shares; and

               (iii) except as otherwise determined by the Committee at or after the grant of the Award hereunder, any Restricted Shares as to which the applicable “Restricted Period” has not expired shall be forfeited, and all rights of the Grantee to such Shares shall terminate, without further obligation on the part of the Company, unless the Grantee remains in the continuous employment of the Company for the entire Restricted Period.

          (c) Notwithstanding the foregoing, the Restricted Period shall automatically terminate as to all Restricted Shares awarded hereunder (as to which such Restricted Period has not previously terminated) upon the occurrence of termination of the Grantee’s employment from the Company, a Subsidiary or Affiliate which results from Grantee’s death or Disability (to be determined in the sole discretion of the Committee).

     Any Shares, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Restricted Shares shall be subject to the same restrictions, terms and conditions as such Restricted Shares.

     3. Termination of Restrictions. Following the termination of the Restricted Period, all restrictions set forth in this Agreement or in the Plan relating to such portion or all, as applicable, of the Restricted Shares shall lapse as to such portion or all, as applicable, of the Restricted Shares, and a stock certificate for the appropriate number of Shares, free of the restrictions and restrictive stock legend, shall, upon request, be delivered to the Grantee pursuant to the terms of this Agreement.

     4. Delivery of Shares.

          (a) As of the date hereof, certificates representing the Restricted Shares shall be registered in the name of the Grantee and held by the Company or transferred to a custodian appointed by the Company for the account of the Grantee subject to the terms and conditions of the Plan and shall remain in the custody of the Company or such custodian until their delivery to the Grantee as set forth in Section 4(b) hereof or their reversion to the Company as set forth in Section 2(b) hereof.

          (b) Certificates representing Restricted Shares in respect of which the applicable Restricted Period has lapsed pursuant to this Agreement shall be delivered to the Grantee upon request following the date on which the restrictions on such Restricted Shares lapse.

          (c) Each certificate representing Restricted Shares shall bear a legend in substantially the following form or substance:

THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING

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FORFEITURE AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE HEALTHSPRING, INC. 2006 EQUITY INCENTIVE PLAN (THE “PLAN”) AND THE RESTRICTED SHARE AWARD AGREEMENT (THE “AGREEMENT”) BETWEEN THE OWNER OF THE RESTRICTED SHARES REPRESENTED HEREBY AND HEALTHSPRING, INC. (THE “COMPANY”). THE RELEASE OF SUCH SHARES FROM SUCH TERMS AND CONDITIONS SHALL BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN AND THE AGREEMENT AND ALL OTHER APPLICABLE POLICIES AND PROCEDURES OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE COMPANY.

     5. Effect of Lapse of Restrictions. To the extent that the Restricted Period applicable to any Restricted Shares shall have lapsed, the Grantee may receive, hold, sell or otherwise dispose of such Shares free and clear of the restrictions imposed under the Plan and this Agreement.

     6. No Right to Continued Employment. This Agreement shall not be construed as giving Grantee the right to be retained in the employ of the Company, and the Company may at any time dismiss Grantee from employment, free from any liability or any claim under the Plan but subject to the terms of the Grantee’s Employment Agreement.

     7. Adjustments. The Committee shall make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, this Award in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 of the Plan) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principals in accordance with the Plan.

     8. Amendment to Award. Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate the Award, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Grantee or any holder or beneficiary of the Award shall not to that extent be effective without the consent of the Grantee, holder or beneficiary affected.

     9. Withholding of Taxes. If the Grantee makes an election under Section 83(b) of the Code with respect to the Award, the Award made pursuant to this Agreement shall be conditioned upon the prompt payment to the Company of any applicable withholding obligations or withholding taxes by the Grantee (“Withholding Taxes”). Failure by the Grantee to pay such Withholding Taxes will render this Agreement and the Award granted hereunder null and void ab initio and the Restricted Shares granted hereunder will be immediately cancelled. If the Grantee does not make an election under Section 83(b) of the Code with respect to the Award, upon the lapse of the Restricted Period with respect to any portion of Restricted Shares (or property distributed with respect thereto), the Company shall satisfy the required Withholding Taxes as set forth by Internal Revenue Service guidelines for the employer’s minimum statutory withholding with respect to Grantee and issue vested shares to the Grantee without Restriction. The Company shall satisfy the required Withholding Taxes by withholding from the Shares

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included in the Award that number of whole shares necessary to satisfy such taxes as of the date the restrictions lapse with respect to such Shares based on the Fair Market Value of the Shares.

     10. Plan Governs. The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.

     11. Severability. If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.

     12. Notices. All notices required to be given under this Grant shall be deemed to be received if delivered or mailed as provided for herein, to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

To the Company:	HealthSpring, Inc.
	44 Vantage Way, Suite 300
	Nashville, Tennessee 37228
	Attn: General Counsel
To the Grantee:	The address then maintained with respect to the Grantee in the Company’s records.

     13. Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

     14. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

     15. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.

(Remainder of Page Intentionally Left Blank.)

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     IN WITNESS WHEREOF, the parties have caused this Restricted Share Award Agreement to be duly executed effective as of the day and year first above written.

HEALTHSPRING, INC.

By:

GRANTEE:

Please Print

GRANTEE:

Signature

5

EX-10.5

EXHIBIT 10.5

HEALTHSPRING, INC.
RESTRICTED SHARE AWARD AGREEMENT
(Directors)

     THIS RESTRICTED SHARE AWARD AGREEMENT (this “Agreement”) is made and entered into as of the ___ day of                     , 2007 (the “Grant Date”), between HealthSpring, Inc., a Delaware corporation (the “Company”), and                                          , the “Grantee”). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the HealthSpring, Inc. 2006 Equity Incentive Plan (the “Plan”).

     WHEREAS, the Company has adopted the Plan, which permits the issuance of restricted shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”); and

     WHEREAS, pursuant to the Plan, the Committee responsible for administering the Plan has granted an award of restricted shares to the Grantee as provided herein;

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Restricted Shares.

          (a) The Company hereby grants to the Grantee an award (the “Award”) of                      shares of Common Stock of the Company (the “Shares” or the “Restricted Shares”) on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan.

          (b) The Grantee’s rights with respect to the Award shall remain forfeitable at all times prior to the dates on which the restrictions shall lapse in accordance with Section 3 hereof.

     2. Terms and Rights as a Stockholder.

          (a) Except as provided herein and subject to such other exceptions as may be determined by the Committee in its discretion, the “Restricted Period” for Restricted Shares granted herein shall expire on the first anniversary of the date hereof.

          (b) The Grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the right to receive dividends and the right to vote such Shares, subject to the following restrictions:

               (i) the Grantee shall not be entitled to delivery of the stock certificate for any Shares until the expiration of the Restricted Period as to such Shares;

               (ii) none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during the Restricted Period as to such Shares; and

               (iii) except as otherwise determined by the Committee at or after the grant of the Award hereunder, all of the Restricted Shares shall be forfeited, and all rights of the Grantee to such Shares shall terminate, without further obligation on the part of the Company, unless the Grantee continues his/her service as a director of the Company, a Subsidiary or Affiliate for the entire Restricted Period.

               (iv) Notwithstanding the foregoing, the Restricted Period shall automatically terminate as to all Restricted Shares awarded hereunder (as to which such Restricted Period has not previously terminated) upon the termination of the Grantee’s service as a director of the Company, a Subsidiary or Affiliate which results from the Grantee’s death or Disability.

Any Shares, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Restricted Shares shall be subject to the same restrictions, terms and conditions as such Restricted Shares.

     3. Termination of Restrictions. Following the termination of the Restricted Period, all restrictions set forth in this Agreement or in the Plan relating to the Restricted Shares shall lapse and a stock certificate for the appropriate number of Shares, free of the restrictions and restrictive stock legend, shall, upon request, be delivered to the Grantee or the Grantee’s beneficiary or estate, as the case may be, pursuant to the terms of this Agreement.

     4. Delivery of Shares.

          (a) As of the date hereof, certificates representing the Restricted Shares shall be registered in the name of the Grantee and held by the Company or transferred to a custodian appointed by the Company for the account of the Grantee subject to the terms and conditions of the Plan and shall remain in the custody of the Company or such custodian until their delivery to the Grantee or Grantee’s beneficiary or estate as set forth in Sections 4(b) and (c) hereof or their reversion to the Company as set forth in Section 2(b) hereof.

          (b) Certificates representing Restricted Shares in respect of which the Restricted Period has lapsed pursuant to this Agreement shall be delivered to the Grantee upon request following the date on which the restrictions on such Restricted Shares lapse.

          (c) Certificates representing Restricted Shares in respect of which the Restricted Period lapsed upon the Grantee’s death shall be delivered to the executors or administrators of the Grantee’s estate as soon as practicable following the receipt of proof of the Grantee’s death satisfactory to the Company.

          (d) Each certificate representing Restricted Shares shall bear a legend in substantially the following form or substance:

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THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE HEALTHSPRING, INC. 2006 EQUITY INCENTIVE PLAN (THE “PLAN”) AND THE RESTRICTED SHARE AWARD AGREEMENT (THE “AGREEMENT”) BETWEEN THE OWNER OF THE RESTRICTED SHARES REPRESENTED HEREBY AND HEALTHSPRING, INC. (THE “COMPANY”). THE RELEASE OF SUCH SHARES FROM SUCH TERMS AND CONDITIONS SHALL BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN AND THE AGREEMENT AND ALL OTHER APPLICABLE POLICIES AND PROCEDURES OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE COMPANY.

     5. Effect of Lapse of Restrictions. To the extent that the Restricted Period applicable to any Restricted Shares shall have lapsed, the Grantee may receive, hold, sell or otherwise dispose of such Shares free and clear of the restrictions imposed under the Plan and this Agreement.

     6. No Right to Continued Service. This Agreement shall not be construed as giving Grantee the right to continue to service as a director of the Company or any Subsidiary or Affiliate, and the Company or any Subsidiary or Affiliate may at any time dismiss Grantee from service as a director, free from any liability or any claim under the Plan.

     7. Adjustments. The Committee shall make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, this Award in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 of the Plan) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principals in accordance with the Plan.

     8. Amendment to Award. Subject to the restrictions contained in the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Award, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Grantee or any holder or beneficiary of the Award shall not to that extent be effective without the consent of the Grantee, holder or beneficiary affected.

     9. Withholding of Taxes. If the Grantee makes an election under Section 83(b) of the Code with respect to the Award, the Award made pursuant to this Agreement shall be conditioned upon the prompt payment to the Company of any applicable withholding obligations or withholding taxes by the Grantee (“Withholding Taxes”). Failure by the Grantee to pay such Withholding Taxes will render this Agreement and the Award granted hereunder null and void ab initio and the Restricted Shares granted hereunder will be immediately cancelled. If the Grantee does not make an election under Section 83(b) of the Code with respect to the Award, upon the lapse of the Restricted Period with respect to any portion of Restricted Shares (or property distributed with respect thereto), the Company shall satisfy the required Withholding

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Taxes as set forth by Internal Revenue Service guidelines for the employer’s minimum statutory withholding with respect to Grantee and issue vested shares to the Grantee without restriction. The Company shall satisfy the required Withholding Taxes by withholding from the Shares included in the Award that number of whole shares necessary to satisfy such taxes as of the date the restrictions lapse with respect to such Shares based on the Fair Market Value of the Shares.

     10. Plan Governs. The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.

     11. Severability. If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.

     12. Notices. All notices required to be given under this Grant shall be deemed to be received if delivered or mailed as provided for herein, to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

To the Company:	HealthSpring, Inc.
	44 Vantage Way, Suite 300
	Nashville, Tennessee 37228
	Attn: General Counsel
To the Grantee:	The address then maintained with respect to the Grantee in the Company’s records.

     13. Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

     14. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.

     15. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.

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(remainder of page left blank intentionally)

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     IN WITNESS WHEREOF, the parties have caused this Restricted Share Award Agreement to be duly executed effective as of the day and year first above written.

HEALTHSPRING, INC.

By:

GRANTEE:

Please Print

GRANTEE:

Signature

6

EX-31.1

Exhibit 31.1

I, Herbert A. Fritch, President and Chief Executive Officer of HealthSpring, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of HealthSpring, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2007	/s/ Herbert A. Fritch
	Herbert A. Fritch
	Chairman of the Board of Directors, President, and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Kevin M. McNamara, Chief Financial Officer of HealthSpring, Inc., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of HealthSpring, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2007	/s/ Kevin M. McNamara
	Kevin M. McNamara
	Executive Vice President, Chief Financial Officer, and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of HealthSpring, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Herbert A. Fritch, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Herbert A. Fritch Herbert A. Fritch
Chairman of the Board of Directors, President,
and Chief Executive Officer
May 14, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of HealthSpring, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kevin M. McNamara, Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kevin M. McNamara Kevin M. McNamara
Executive Vice President, Chief Financial Officer, and Treasurer
May 14, 2007