10-Q

Use these links to rapidly review the document
TABLE OF CONTENTS

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

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to

Commission file number: 001-35149

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

Delaware
(State or other jurisdiction of
incorporation or organization) 27-4683816
(I.R.S. Employer
Identification No.)

44 South Broadway, Suite 1200, White Plains, New York 10601
(Address of principal executive offices and zip code)

(914) 934-5200
(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 ý    No o

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

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

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

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

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

Class of Common Stock	Outstanding at November 3, 2016
Voting, par value $0.01 per share	58,735,918 shares

TABLE OF CONTENTS

	Item	Description	Page
PART I		Financial Information
	1	Financial Statements (unaudited):		3
		Consolidated Balance Sheets		3
		Consolidated Statements of Operations		4
		Consolidated Statements of Comprehensive Income (Loss)		5
		Consolidated Statements of Stockholders' Equity		6
		Consolidated Statements of Cash Flows		7
		Notes to Consolidated Financial Statements		8
	2	Management's Discussion and Analysis of Financial Condition and Results of Operations		32
	3	Quantitative and Qualitative Disclosures About Market Risk		49
	4	Controls and Procedures		50
PART II		Other Information
	1	Legal Proceedings		51
	1A	Risk Factors		51
	2	Unregistered Sales of Equity Securities and Use of Proceeds		51
	3	Defaults Upon Senior Securities		51
	4	Mine Safety Disclosures		51
	5	Other Information		51
	6	Exhibits		52
		Signatures		53

1

        As used in this quarterly report on Form 10-Q, except as otherwise indicated, references to the "Company," "we," "our," and "us" are to Universal American Corp., a Delaware corporation and its subsidiaries.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

        This report, including, without limitation, the information set forth or incorporated by reference under Part II, Item 1A "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other risks and uncertainties set forth in this report and oral statements made from time to time by our executive officers contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. Statements in this report that are not historical facts are hereby identified as forward-looking statements and are intended to be covered by the safe harbor provisions of the PSLRA. They can be identified by the use of the words "believe," "expect," "predict," "project," "potential," "estimate," "anticipate," "should," "intend," "may," "will" and similar expressions or variations of such words, or by discussion of future financial results and events, strategy or risks and uncertainties, trends and conditions in the Company's business and competitive strengths, all of which involve risks and uncertainties.

        Where, in any forward-looking statement, we or our management expresses an expectation or belief as to future results or actions, there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Our actual results may differ materially from our expectations, plans or projections. We warn you that forward-looking statements are only predictions and estimates, which are inherently subject to risks, trends and uncertainties, many of which are beyond our ability to control or predict with accuracy and some of which we might not even anticipate. We give no assurance that we will achieve our expectations and we do not assume responsibility for the accuracy and completeness of the forward-looking statements. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements as a result of many factors, including the risk factors described or incorporated by reference in Part II, Item 1A of this report. We caution readers not to place undue reliance on these forward-looking statements that speak only as of the date made.

        We undertake no obligation, other than as may be required under the federal securities laws, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in these forward-looking statements are reasonable at the time made, any or all of the forward-looking statements contained in this report and in any other public statements that are made may prove to be incorrect. This may occur as a result of inaccurate assumptions as a consequence of known or unknown risks and uncertainties. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed or incorporated by reference under the caption "Risk Factors" under Part II, Item 1A of this report. We caution that these risk factors may not be exhaustive. We operate in a continually changing business environment that is highly complicated, regulated and competitive and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the impact, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur. You should carefully read this report and the documents that we incorporate by reference in this report in its entirety. It contains information that you should consider in making any investment decision in any of our securities.

2

PART I

ITEM 1—FINANCIAL STATEMENTS

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	September 30, 2016			December 31, 2015
	(Unaudited)
ASSETS
Investments:
Fixed maturities available for sale, at fair value (amortized cost: 2016, $215,761; 2015, $279,277)	$	221,009		$	281,776
Other invested assets		9,717			9,734
Total investments		230,726			291,510
Cash and cash equivalents		264,046			70,546
Accrued investment income		2,147			2,307
Reinsurance recoverables		279			406
Due and unpaid premiums		14,816			25,518
Goodwill and intangible assets		71,078			71,423
Deferred income tax asset		21,840			48,704
Income taxes receivable		10,220			5,885
Other healthcare receivables		27,355			34,127
Other assets		34,434			29,866
Assets of discontinued operations		238,246			1,150,570
Total assets	$	915,187		$	1,730,862
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policy and contract claims	$	82,904		$	86,976
Premiums received in advance		113,183			953
Convertible Senior Notes due 2021, net of fees		91,645			—
Series A mandatorily redeemable preferred shares, net of fees		39,893			39,755
Net amounts payable to discontinued operations		37			44,289
Accounts payable and other liabilities		59,994			60,455
Liabilities of discontinued operations		236,072			1,116,039
Total liabilities		623,728			1,348,467
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock (Authorized: 40 million shares)		—			—
Common stock—voting (Authorized: 400 million shares; issued and outstanding: 2016, 58.8 million shares; 2015, 81.3 million shares)		588			813
Common stock—non-voting (Authorized: 60 million shares; issued and outstanding: 2015, 3.3 million shares)		—			33
Additional paid-in capital		443,323			608,804
Accumulated other comprehensive income		3,671			2,748
Retained deficit		(156,123	)		(230,003	)
Total stockholders' equity		291,459			382,395
Total liabilities and stockholders' equity	$	915,187		$	1,730,862

See Notes to unaudited Consolidated Financial Statements.

3

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016		2015
Revenues:
Net premiums	$	340,643		$	304,178		$	1,029,158	$	924,242
Net investment income		1,926			4,112			6,289		9,754
Fee and other income		963			1,749			1,932		4,204
Net realized (losses) gains		(143	)		29,751			1,385		33,625
Total revenues		343,389			339,790			1,038,764		971,825
Benefits, claims and expenses:
Claims and other benefits		290,982			267,652			868,148		801,848
Amortization of intangible assets		237			537			696		1,583
Commissions		5,265			4,826			14,593		13,131
Interest expense		3,046			1,142			4,825		3,849
Affordable Care Act fee		5,513			6,419			16,293		19,117
Other operating costs and expenses		42,437			38,772			122,086		117,657
Total benefits, claims and expenses		347,480			319,348			1,026,641		957,185
(Loss) income before equity in (losses) earnings of unconsolidated subsidiaries		(4,091	)		20,442			12,123		14,640
Equity in (losses) earnings of unconsolidated subsidiaries		(5,170	)		(7,446	)		14,504		(1,134	)
(Loss) income from continuing operations before income taxes		(9,261	)		12,996			26,627		13,506
(Benefit from) provision for income taxes		(504	)		13,045			15,473		7,618
(Loss) income from continuing operations		(8,757	)		(49	)		11,154		5,888
Discontinued operations:
Income (loss) from discontinued operations before income taxes		56,959			3,514			68,024		(15,097	)
Provision for (benefit from) income taxes		(2,679	)		657			5,298		(6,796	)
Income (loss) from discontinued operations		59,638			2,857			62,726		(8,301	)
Net income (loss)	$	50,881		$	2,808		$	73,880	$	(2,413	)
Income (loss) per common share:
Basic:
Continuing operations	$	(0.14	)	$	—		$	0.15	$	0.07
Discontinued operations		0.97			0.03			0.83		(0.10	)
Net income (loss)	$	0.83		$	0.03		$	0.98	$	(0.03	)
Diluted:
Continuing operations	$	(0.14	)	$	—		$	0.15	$	0.07
Discontinued operations		0.97			0.03			0.82		(0.10	)
Net income (loss)	$	0.83		$	0.03		$	0.97	$	(0.03	)
Weighted average shares outstanding:
Basic weighted average shares outstanding		61,329			82,516			75,400		82,337
Effect of dilutive securities		—			—			739		1,199
Diluted weighted average shares outstanding		61,329			82,516			76,139		83,536

See Notes to unaudited Consolidated Financial Statements.

4

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016		2015
Comprehensive income (loss):
Net income (loss)	$	50,881		$	2,808		$	73,880	$	(2,413	)
Other comprehensive (loss) income, net of income taxes:
Unrealized (loss) gain on investments		(9,355	)		(26	)		1,064		(5,025	)
Less: reclassification adjustment for gains included in net income (loss)		(6	)		68			1,020		2,552
Change in net unrealized (loss) gain on investments		(9,349	)		(94	)		44		(7,577	)
Change in long-term claim reserve adjustment		2,940			10			879		1,809
Total other comprehensive (loss) income, net of income taxes		(6,409	)		(84	)		923		(5,768	)
Comprehensive income (loss)	$	44,472		$	2,724		$	74,803	$	(8,181	)

See Notes to unaudited Consolidated Financial Statements.

5

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)

	Common Stock									Accumulated Other Comprehensive Income
							Additional Paid-in Capital						Retained Deficit
	Voting			Non-Voting												Total
2015
Balance at January 1, 2015	$	804		$	33		$	667,026		$	12,648		$	(66,046	)	$	614,465
Net loss		—			—			—			—			(2,413	)		(2,413	)
Other comprehensive loss		—			—			—			(5,768	)		—			(5,768	)
Net issuance of common stock		3			—			186			—			—			189
Stock-based compensation		—			—			3,459			—			—			3,459
Dividends to stockholders		—			—			216			—			9			225
Balance at September 30, 2015	$	807		$	33		$	670,887		$	6,880		$	(68,450	)	$	610,157
2016
Balance at January 1, 2016	$	813		$	33		$	608,804		$	2,748		$	(230,003	)	$	382,395
Net income		—			—			—			—			73,880			73,880
Other comprehensive income		—			—			—			923			—			923
Net issuance of common stock		6			—			(948	)		—			—			(942	)
Stock-based compensation		—			—			1,623			—			—			1,623
Dividends to stockholders		—			—			1,656			—			—			1,656
Share buyback/cancellation		(231	)		(33	)		(180,657	)		—			—			(180,921	)
Equity component of convertible senior notes, net of deferred tax		—			—			12,845			—			—			12,845
Balance at September 30, 2016	$	588		$	—		$	443,323		$	3,671		$	(156,123	)	$	291,459

See Notes to unaudited Consolidated Financial Statements.

6

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	For the nine months ended September 30,
	2016			2015
Operating activities:
Net income (loss)	$	73,880		$	(2,413	)
(Income) loss from discontinued operations		(62,726	)		8,301
Income from continuing operations		11,154			5,888
Adjustments to reconcile net income (loss) to cash used for operating activities:
Deferred income taxes		18,967			3,730
Net realized gains on investments		(1,385	)		(33,625	)
Amortization of intangible assets		696			1,583
Amortization of debt issuance costs		348			1,825
Amortization of debt discount on convertible notes		1,081			—
Net amortization of bond premium		1,072			1,328
Depreciation expense		2,139			2,575
Stock based compensation expense		5,022			7,623
Changes in operating assets and liabilities:
Prepaid ACA fee		(5,431	)		(5,484	)
Policy and contract claims		(4,072	)		(9,177	)
Reinsurance recoverables		127			340
Due and unpaid/advance premiums		122,932			18,228
Net amounts payable to discontinued operations		11,062			68,748
Income taxes receivable		(4,335	)		21,335
Other healthcare receivables		6,772			(5,464	)
Other, net		(1,908	)		(62,063	)
Cash provided by operating activities of continuing operations		164,241			17,390
Cash used for operating activities of discontinued operations		(12,947	)		(60,066	)
Cash provided by operating activities		151,294			(42,676	)
Investing activities:
Proceeds from sale, maturity, call, paydown or redemption of fixed maturity investments		67,802			65,523
Cost of fixed maturity investments acquired		(57,373	)		(5,203	)
Change in short-term investments		—			5,496
Proceeds of sale of cost method investments		—			35,620
Purchase of fixed assets		(534	)		(5,011	)
Other investing activities		(2,807	)		(296	)
Cash provided by investing activities of continuing operations		7,088			96,129
Cash provided by investing activities of discontinued operations		72,241			93,799
Cash provided by investing activities		79,329			189,928
Financing activities:
Net proceeds from issuance of common and preferred stock, net of tax effect		(2,113	)		105
Share repurchase		(151,271	)		—
Dividends paid to stockholders		898			(664	)
Principal payment on loan payable		—			(58,567	)
Proceeds from the issuance of convertible senior notes		115,000			—
Payment of issue costs—convertible senior notes		(4,877	)		—
Distributions from discontinued operations		64,534			23,409
Cash provided by financing activities of continuing operations		22,171			(35,717	)
Cash used for financing activities of discontinued operations		(64,534	)		(23,409	)
Cash used for financing activities		(42,363	)		(59,126	)
Net increase in cash and cash equivalents		188,260			88,126
Less: decrease (increase) in cash and cash equivalents from discontinued operations		5,240			(10,324	)
Net increase in cash and cash equivalents from continuing operations		193,500			77,802
Cash and cash equivalents of continuing operations at beginning of period		70,546			94,376
Cash and cash equivalents of continuing operations at end of period	$	264,046		$	172,178

See Notes to unaudited Consolidated Financial Statements.

7

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND COMPANY BACKGROUND

        Except as otherwise indicated, references to the "Company," "Universal American," "we," "our," and "us" are to Universal American Corp., a Delaware corporation, and its subsidiaries.

        Universal American, through our family of healthcare companies, provides health benefits to people covered by Medicare. We are dedicated to working collaboratively with healthcare professionals, especially primary care physicians, in order to improve the health and well-being of those we serve and reduce healthcare costs.

        Through our health plans and insurance subsidiary, we sell Medicare Coordinated Care Plan products in Texas, which we call HMOs, and sell Medicare Coordinated Care products in New York and Maine that are built around contracted networks of providers, which we call PPOs and Medicare Advantage Network private fee-for-service products, known as PFFS Plans. Our Medicare Advantage plans currently serve approximately 114,400 members, including 68,800 members in our Texas HMOs and 45,600 members in upstate New York and Maine.

        Our subsidiary, Collaborative Health Systems, LLC, also known as CHS, works with physicians and other healthcare professionals to operate Accountable Care Organizations, or ACOs, under the Medicare Shared Savings Program, or MSSP and Next Generation ACO model. We currently have twenty-two MSSP ACOs in eleven states previously approved for participation in the program by the Centers for Medicare & Medicaid Services, known as CMS and one Next Generation ACO operating in Houston, Texas. Based on data provided by CMS, these ACOs currently include approximately 5,200 participating providers with approximately 236,800 assigned Medicare fee-for-service beneficiaries, both within and outside our current Medicare Advantage footprint. CHS provides these ACOs with care coordination, analytics and reporting, technology and other administrative capabilities to enable participating providers to deliver better care and lower healthcare costs for their Medicare fee-for-service beneficiaries. The Company provides funding to CHS to support the operating activities of CHS and the ACOs.

        On August 3, 2016 we completed the sale of our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. ("Nassau Re"), known as the Traditional Sale. Under the terms of the agreement, Nassau Re acquired all of the shares of Constitution Life Insurance Company ("Constitution Life") and The Pyramid Life Insurance Company ("Pyramid"), as well as the Traditional Insurance business written by American Progressive Life & Health Insurance Company of New York ("Progressive") on a 100% coinsurance basis. As of December 31, 2015, we determined that our Traditional Insurance business should be classified as held for sale and reported as discontinued operations. Consequently, the related assets and liabilities were adjusted to fair value as of December 31, 2015 based on the estimated net amounts realizable upon sale and for all periods presented were classified as assets and liabilities of discontinued operations in our consolidated balance sheets. The related operating results and cash flows are reported in discontinued operations in our consolidated financial statements. See Note 12—Discontinued Operations for further details.

        On August 1, 2016, we completed the sale of our subsidiary, Today's Options of New York, Inc., ("TONY") which operates the Total Care Medicaid plan, to Molina Healthcare, Inc. ("Molina"). As of June 30, 2016, we determined that our Medicaid business should be classified as held for sale and reported as discontinued operations. Consequently, the related assets and liabilities were reclassified as assets and liabilities of discontinued operations in our consolidated balance sheets for all periods

8

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

1. ORGANIZATION AND COMPANY BACKGROUND (Continued)

presented. The related operating results and cash flows are reported in discontinued operations in our consolidated financial statements. See Note 12—Discontinued Operations for further details.

        On May 1, 2015, we sold our APS Healthcare domestic subsidiaries and we sold our APS Healthcare Puerto Rico subsidiaries on February 4, 2015 and these businesses are reported as discontinued operations. As a result, the related assets and liabilities for APS Healthcare have been reclassified as assets and liabilities of discontinued operations in our consolidated balance sheets. The related operating results and cash flows are reported in discontinued operations in our consolidated financial statements. See Note 12—Discontinued Operations for further details.

2. BASIS OF PRESENTATION

        We have prepared the accompanying Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles, known as GAAP, for interim reporting in accordance with Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, the Consolidated Financial Statements do not include all of the disclosures normally required by U.S. GAAP or those normally made in an Annual Report on Form 10-K. We have eliminated all material intercompany transactions and balances. The interim financial information in this report is unaudited, but in the opinion of management, includes all adjustments, including normal, recurring adjustments necessary to present fairly the financial position and results of operations for the periods reported. The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year.

        Unconsolidated Subsidiaries:    We have entered into agreements with various healthcare providers to establish ACOs. These ACOs were generally formed as Limited Liability Companies. We own a majority interest in our ACOs but do not consolidate them because we share the power to direct the activities that most significantly impact the ACOs. Our share of the income of an ACO is generally 50% and our share of losses of an ACO is generally 100%. In the event of losses, we generally have the right to receive 100% of subsequent profits until our losses are recovered. Any remaining revenues are generally shared at 50%.

        The ACOs are considered variable interest entities, known as VIEs, under GAAP as these entities do not have sufficient equity to finance their own operations without additional financial support. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. The power to direct the activities of the ACOs that most significantly impact their performance is shared between us and the healthcare providers that we have joined with to establish the ACOs pursuant to the structure of the Management Committee of each of the ACOs. Accordingly, we have determined that we are not the primary beneficiary of the ACOs, and therefore we cannot consolidate them. We account for our participation in the ACOs using the equity method. Gains and losses from our participation in the ACOs are reported as equity in (losses) earnings of unconsolidated subsidiaries in the consolidated statements of operations. Our net investment in the ACOs is reported in other assets in our consolidated balance sheets.

9

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2. BASIS OF PRESENTATION (Continued)

        ACO Revenue:    On July 29, 2016, CMS informed us that our MSSP ACOs generated $97 million in gross savings for program year 2015. This compares to $80 million in gross savings for program year 2014, which we reported in the second quarter of 2015. Ten of our ACO's qualified for shared savings payments, compared to nine in program year 2014, and received payments of $39.8 million, compared to $26.9 million in program year 2014. Our share of these payments for 2016, after payments to our physician partners of $11.3 million, is $28.5 million, compared to $20.9 million in 2015, and is reflected in equity in (losses) earnings of unconsolidated subsidiaries in our consolidated statements of operations.

        Statutory Accounting Practices:    For our insurance and HMO subsidiaries, U.S. GAAP differs from statutory accounting practices prescribed or permitted by regulatory authorities. See Note 2—Basis of Presentation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information on these differences.

        Use of Estimates:    The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Critical accounting policies require significant subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based on information available at the time the estimates are made, as well as anticipated future events. We periodically evaluate our estimates, and as additional information becomes available or actual amounts become determinable, we may revise the recorded estimates and reflect the revisions in our operating results. In our judgment, the accounts involving estimates and assumptions that are most critical to the preparation of our financial statements are policy related liabilities and expense recognition, goodwill and other intangible assets, investment valuation, revenue recognition and income taxes. All unamortized deferred acquisition costs, or DAC, were written off at December 31, 2015, in connection with the fair value adjustment on our Traditional Insurance business. As a result, we no longer consider accounting for DAC to be a critical accounting policy.

        Reclassifications:    In accordance with the provisions of Accounting Standards Codification, known as ASC, 205-20, Presentation of Financial Statements—Discontinued Operations, effective June 30, 2016, we determined that our Total Care business should be classified as held for sale and reported in discontinued operations. Also, effective December 31, 2015, we determined that our Traditional Insurance business should be classified as held for sale and reported in discontinued operations. Effective with the sale of the APS Healthcare domestic operations on May 1, 2015, we determined that our APS Healthcare businesses should be reported as discontinued operations. As a result, the results of operations and cash flows related to our Total Care, Traditional Insurance and APS Healthcare businesses are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and presented separately in our consolidated balance sheets. Unless otherwise noted, all disclosures in the notes accompanying our consolidated financial statements reflect only continuing

10

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2. BASIS OF PRESENTATION (Continued)

operations. For additional information on our discontinued operations, see Note 12—Discontinued Operations.

        We adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, effective January 1, 2016. Under this ASU, debt issuance costs related to a recognized debt liability are to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result, we have reclassified unamortized deferred loan fees related to our Series A mandatorily redeemable preferred shares, or MRPS, from other assets to be offset against the MRPS liability balance. The unamortized costs amounted to $0.1 million at September 30, 2016 and $0.2 million at December 31, 2015.

        Change in Accounting Estimate:    CMS uses risk-adjusted rates per member to determine the monthly payments to Medicare Plans. CMS has implemented a risk adjustment model which apportions premiums paid to all health plans according to health diagnoses. The risk adjustment model uses health status indicators, or risk scores, to improve the accuracy of payment. The CMS risk adjustment model pays more for members with increasing health severity. Under this risk adjustment methodology, diagnosis data from inpatient and ambulatory treatment settings are used by CMS to calculate the risk adjusted premium payment to Medicare Plans. The monthly risk-adjusted premium per member is determined by CMS based on normalized risk scores of each member from the prior year. Annually, CMS provides the updated risk scores to the Plans and revises premium rates prospectively, beginning with the July remittance for current Plan year members. CMS will also calculate the retroactive adjustments to premium related to the revised risk scores for the current year for current Plan year members and for the prior year for prior Plan year members.

        Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, based on health diagnoses for our Medicare Advantage business. Under our previous methodology, we estimated changes in CMS premiums related to revenue adjustments based upon the diagnosis data submitted to CMS and ultimately accepted by CMS. We believe this method resulted in a lag in recognizing revenue for changes in our members' medical condition that will ultimately be included in the final risk adjusted premium paid by CMS. During the first quarter of 2016, we completed the development and validation of a model that allows us to better estimate the risk-adjusted premiums that will ultimately be realized based upon our historical experience for members that have a full year of experience and members that have joined during the annual enrollment period or special election period. We believe this change serves to better reflect risk-adjusted premiums in the period in which they are earned and is considered a change in estimate under ASC 250, Accounting Changes. This change in estimate resulted in the accelerated recognition of $7.7 million and $26.5 million of additional current year premium revenue, or $0.08 and $0.23 per share after tax for the three months and nine months ended September 30, 2016, respectively. Under our previous estimation process, this revenue would not have been recognized until the related diagnosis data was submitted to and accepted by CMS, typically in the third and fourth quarters of the current year and the first and second quarters of the subsequent year.

        Significant Accounting Policies:    For a description of existing significant accounting policies, see Note 3—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements

11

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2. BASIS OF PRESENTATION (Continued)

included in our Annual Report on Form 10-K for the year ended December 31, 2015 and Note 3—Recently Issued and Pending Accounting Pronouncements herein.

3. RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

        Statement of Cash Flows:    In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on classification in the statement of cash flows for eight specific cash flow reporting issues and clarifies application of the predominance principle in determining classification within the statement of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Retrospective application is required unless impracticable. We are currently evaluating the impact of adoption on our consolidated statements of cash flows.

4. INVESTMENTS

        The amortized cost and fair value of fixed maturity investments are as follows:

	September 30, 2016
Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	21,321	$	58	$	(5	)	$	21,374
Government sponsored agencies		514		13		—			527
Other political subdivisions		26,760		657		(43	)		27,374
Corporate debt securities		89,233		4,518		(1,034	)		92,717
Foreign debt securities		28,444		434		(751	)		28,127
Residential mortgage-backed securities		22,300		1,154		(3	)		23,451
Commercial mortgage-backed securities		22,797		350		(103	)		23,044
Other asset-backed securities		4,392		35		(32	)		4,395
	$	215,761	$	7,219	$	(1,971	)	$	221,009

12

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS (Continued)

	December 31, 2015
Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	8,481	$	5	$	(8	)	$	8,478
Government sponsored agencies		516		—		(9	)		507
Other political subdivisions		35,253		771		(98	)		35,926
Corporate debt securities		144,772		4,076		(2,425	)		146,423
Foreign debt securities		28,287		471		(1,159	)		27,599
Residential mortgage-backed securities		34,973		1,254		(258	)		35,969
Commercial mortgage-backed securities		21,264		68		(181	)		21,151
Other asset-backed securities		5,731		33		(41	)		5,723
	$	279,277	$	6,678	$	(4,179	)	$	281,776

        At September 30, 2016, gross unrealized losses were primarily driven by corporate debt securities and foreign debt securities. The fair values of certain callable, hybrid securities in these groups are depressed due to the expectation that these securities will not be called at their respective call dates, thus being extended and priced to their final maturity dates. However, we have evaluated these holdings with our investment managers and do not believe any individual holdings to be other-than-temporarily impaired. For additional information regarding our process for evaluating investments for potential other-than-temporary impairment see Note 3—Summary of Significant Accounting Policies—Investments of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

        The amortized cost and fair value of fixed maturity investments at September 30, 2016 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in 1 year or less	$	8,100	$	8,208
Due after 1 year through 5 years		79,073		81,434
Due after 5 years through 10 years		57,515		60,133
Due after 10 years		21,584		20,344
Mortgage and asset-backed securities		49,489		50,890
	$	215,761	$	221,009

13

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS (Continued)

        The fair value and unrealized loss as of September 30, 2016 and December 31, 2015 for fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below:

	Less than 12 Months					12 Months or Longer					Total
September 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	11,957	$	(5	)	$	—	$	—		$	11,957	$	(5	)
Other political subdivisions		—		—			1,536		(43	)		1,536		(43	)
Corporate debt securities		7,334		(53	)		5,321		(981	)		12,655		(1,034	)
Foreign debt securities		6,992		(13	)		8,089		(738	)		15,081		(751	)
Residential mortgage-backed securities		—		—			579		(3	)		579		(3	)
Commercial mortgage-backed securities		8,015		(96	)		2,181		(7	)		10,196		(103	)
Other asset-backed securities		—		—			2,171		(32	)		2,171		(32	)
Total fixed maturities	$	34,298	$	(167	)	$	19,877	$	(1,804	)	$	54,175	$	(1,971	)
Total number of securities in an unrealized loss position														35

	Less than 12 Months					12 Months or Longer					Total
December 31, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	5,210	$	(8	)	$	—	$	—		$	5,210	$	(8	)
Government sponsored agencies		507		(9	)		—		—			507		(9	)
Other political subdivisions		3,162		(98	)		—		—			3,162		(98	)
Corporate debt securities		48,819		(2,392	)		1,396		(33	)		50,215		(2,425	)
Foreign debt securities		6,528		(382	)		5,085		(777	)		11,613		(1,159	)
Residential mortgage-backed securities		3,021		(41	)		6,701		(217	)		9,722		(258	)
Commercial mortgage-backed securities		7,422		(151	)		2,108		(30	)		9,530		(181	)
Other asset-backed securities		1,467		(22	)		928		(19	)		2,395		(41	)
Total fixed maturities	$	76,136	$	(3,103	)	$	16,218	$	(1,076	)	$	92,354	$	(4,179	)
Total number of securities in an unrealized loss position														96

14

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS (Continued)

Realized Gains and Losses

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

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016			2015
	(in thousands)
Realized gains:
Fixed maturities	$	—		$	359		$	1,563		$	4,175
Realized gain on sale of equity investment(1)		—			29,620			—			29,620
Other		—			—			119			120
		—			29,979			1,682			33,915
Realized Losses:
Fixed maturities		—			(228	)		(154	)		(290	)
Other		(143	)		—			(143	)		—
		(143	)		(228	)		(297	)		(290	)
Net realized (losses) gains	$	(143	)	$	29,751		$	1,385		$	33,625

(1)

Represents a gain on the sale of our cost-method investment in naviHealth in the third quarter of 2015.

5. FAIR VALUE MEASUREMENTS

        We carry fixed maturity investments and equity securities at fair value in our Consolidated Financial Statements. These fair value disclosures consist of information regarding the valuation of these financial instruments followed by the fair value measurement disclosure requirements of Fair Value Measurements and Disclosures Topic, ASC 820-10. For further discussion, see Note 6—Fair Value Measurements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

15

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5. FAIR VALUE MEASUREMENTS (Continued)

        The following table presents our recurring fair value measurements by ASC-820-10 hierarchy levels (in thousands):

September 30, 2016	Total		Level 1		Level 2		Level 3(1)
Assets:
Fixed maturities, available for sale	$	221,009	$	—	$	220,958	$	51
Equity securities		6,404		—		6,404		—
Total assets	$	227,413	$	—	$	227,362	$	51

December 31, 2015
Assets:
Fixed maturities, available for sale	$	281,776	$	—	$	281,674	$	102
Equity securities		6,352		—		6,352		—
Total assets	$	288,128	$	—	$	288,026	$	102

(1)

Level 3 securities are all mortgage-backed and asset-backed securities at September 30, 2016 and December 31, 2015 and represent private-placement securities that are thinly traded and priced using an internal model or modeled by independent brokers.

16

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6. ACCUMULATED OTHER COMPREHENSIVE INCOME

        The components of accumulated other comprehensive income are as follows (in thousands):

	Net Unrealized Gains on Investments Available for Sale			Long-Term Claim Reserve Adjustment			Accumulated Other Comprehensive Income
Three months ended September 30, 2016
Balance as of July 1, 2016	$	15,483		$	(5,403	)	$	10,080
Other comprehensive loss before reclassifications		(9,355	)		2,940			(6,415	)
Less: Amounts reclassified from other comprehensive loss(1)		(6	)		—			(6	)
Net current-period other comprehensive loss		(9,349	)		2,940			(6,409	)
Balance as of September 30, 2016	$	6,134		$	(2,463	)	$	3,671
Three months ended September 30, 2015
Balance as of July 1, 2015	$	11,605		$	(4,641	)	$	6,964
Other comprehensive loss before reclassifications		(26	)		10			(16	)
Less: Amounts reclassified from other comprehensive loss(1)		68			—			68
Net current-period other comprehensive loss		(94	)		10			(84	)
Balance as of September 30, 2015	$	11,511		$	(4,631	)	$	6,880
Nine months ended September 30, 2016
Balance as of January 1, 2016	$	6,090		$	(3,342	)	$	2,748
Other comprehensive income before reclassifications		1,064			879			1,943
Less: Amounts reclassified from other comprehensive income(1)		1,020			—			1,020
Net current-period other comprehensive loss		44			879			923
Balance as of September 30, 2016	$	6,134		$	(2,463	)	$	3,671
Nine months ended September 30, 2015
Balance as of January 1, 2015	$	19,088		$	(6,440	)	$	12,648
Other comprehensive loss before reclassifications		(5,025	)		1,809			(3,216	)
Less: Amounts reclassified from other comprehensive loss(1)		2,552			—			2,552
Net current-period other comprehensive loss		(7,577	)		1,809			(5,768	)
Balance as of September 30, 2015	$	11,511		$	(4,631	)	$	6,880

Table amounts are presented net of tax at a rate of 35%.

(1)

Reclassed from net realized gains in the Consolidated Statements of Operations.

17

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. STOCK-BASED COMPENSATION

        In April 2011, we established the Universal American Corp. 2011 Omnibus Equity Award Plan, known as the 2011 Equity Plan. The 2011 Equity Plan is the sole active plan for providing equity compensation to eligible employees, directors and other third parties. We issue shares upon the exercise of options granted under the 2011 Equity Plan. Detailed information for activity in our stock-based incentive plan can be found in Note 15—Stock-Based Compensation in our Annual Report on Form 10-K for the year ended December 31, 2015.

        Compensation expense, included in other operating costs and expenses, and the related tax benefit were as follows:

	Three Months ended September 30,					Nine Months ended September 30,
	2016			2015		2016		2015
	(in thousands)
Stock options	$	433		$	734	$	1,623	$	3,459
Restricted stock awards		1,083			1,166		3,508		5,420
Total stock-based compensation expense		1,516			1,900		5,131		8,879
Less: stock-based compensation expense—discontinued operations		(22	)		72		109		1,256
Stock-based compensation expense—continuing operations		1,538			1,828		5,022		7,623
Tax benefit recognized		538			640		1,757		2,668
Stock-based compensation expense—continuing operations, net of tax	$	1,000		$	1,188	$	3,265	$	4,955

Stock Option Awards

        We recognize compensation cost for share-based payments to employees, directors and other third parties based on the grant date fair value of the award, which we amortize over the grantees' service period in accordance with the provisions of Compensation—Stock Compensation Topic, ASC 718-10. We use the Black-Scholes valuation model to value stock options, except in the case of performance-based stock options, where we use a Monte Carlo valuation approach.

        We estimated the fair value for options granted during the period at the date of grant with the following range of assumptions:

	For options granted
	2016
Weighted-average grant date fair value	$1.54 - $2.04
Risk free interest rates	0.65% - 1.09%
Dividend yields	0.00%
Expected volatility	33.15% - 33.86%
Expected lives of options (in years)	3.75 - 4.00

18

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. STOCK-BASED COMPENSATION (Continued)

        We did not capitalize any cost of stock-based compensation. Future expense may vary based upon factors such as the number of awards granted by us and the then-current fair value of such awards.

        A summary of option activity for the nine months ended September 30, 2016 is set forth below:

Options	Options (in thousands)			Weighted Average Exercise Price
Outstanding at January 1, 2016		4,871		$	6.80
Granted		755			6.13
Exercised		(1,324	)		6.09
Forfeited or expired		(208	)		7.34
Outstanding at September 30, 2016		4,094		$	6.89

        Options granted during 2016 included 358,000 performance options which vest ratably over a four-year period, but only if our stock price meets specified targets at the vesting dates. Vesting is cumulative, such that if a stock price target is missed on a vesting date, but a subsequent stock price target is met on a future vesting date, all previously unvested options would then vest. In addition, in the event of a Change in Control (as defined in the 2011 Equity Plan), all performance options will no longer vest in accordance with the performance-based criteria but instead shall vest as if such grants were originally granted as four-year time vested grants where 25% of such awards would vest on each of the first four anniversaries of the date of grant. These options were determined to contain a market condition for vesting under ASC 718—Compensation—Stock Compensation, and were valued using a Monte Carlo valuation approach.

        The total intrinsic value of stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised was $1.6 million and $3.4 million for the nine months ended September 30, 2016 and 2015, respectively.

        As of September 30, 2016, the total compensation cost related to non-vested option awards not yet recognized was $2.5 million, which we expect to recognize over a weighted average period of 2.5 years.

Restricted Stock Awards

        In accordance with our 2011 Equity Plan, we may grant restricted stock to employees, directors and other third parties. These awards generally vest ratably over a four-year period. We generally value restricted stock awards at an amount equal to the market price of our common stock on the date of grant, except in the case of performance-based awards, which we value using a Monte Carlo valuation approach. We recognize compensation expense for restricted stock awards on a straight line basis over the vesting period.

19

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. STOCK-BASED COMPENSATION (Continued)

        A summary of non-vested restricted stock award activity for the nine months ended September 30, 2016 is set forth below:

Non-Vested Restricted Stock	Shares (in thousands)			Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2016		2,012		$	5.66
Granted		805			4.84
Vested		(443	)		8.41
Forfeited		(149	)		6.43
Non-vested at Setpember 30, 2016		2,225		$	4.76

        The fair value of restricted stock vested during the nine months ended September 30, 2016 was $2.6 million.

        Shares granted during 2016 included 382,000 performance shares which vest in the same manner as the performance options discussed above. These shares were determined to contain a market condition for vesting under ASC 718—Compensation—Stock Compensation, and were valued using a Monte Carlo valuation approach.

Tax Benefits of Stock-Based Compensation

        ASC 718-10 requires us to report the benefits of tax deductions in excess of recognized compensation cost of equity awards as a financing cash flow. We recognized ($2.1) million and $0.1 million of financing cash flows for these excess tax deductions for the nine months ended September 30, 2016 and 2015, respectively.

8. CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE

        On June 27, 2016, we completed an offering of $115.0 million of our 4.00% Convertible Senior Notes due 2021 (the "Convertible Notes"). The Convertible Notes are senior unsecured obligations of the Company. Interest on the Convertible Notes is payable on June 15 and December 15 of each year, commencing on December 15, 2016 until their maturity date of June 15, 2021. We may not redeem the Convertible Notes prior to the maturity date.

        Prior to the close of the business day immediately preceding December 15, 2020, the Convertible Notes will be convertible only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2016 (and only during such calendar quarter), if the daily volume-weighted average price, or VWAP, of the common stock for at least 20 trading days (whether or not consecutive) during a period of thirty consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the daily VWAP of our common stock and the conversion rate on each such trading day; or

20

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE (Continued)

(3) upon the occurrence of specified corporate events. The Convertible Notes were not convertible at any time during the three month or nine month periods ended September 30, 2016 and did not result in any dilution in our calculation of earnings per share.

        On or after December 15, 2020 until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we may satisfy our conversion obligation by paying or delivering, as applicable, cash, shares of our voting common stock or a combination of cash and shares of voting common stock, at our election.

        The Convertible Notes will be convertible at an initial conversion rate of 105.8890 shares of our voting common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $9.44. The conversion rate will be subject to adjustment in certain events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances, including customary conversion rate adjustments in connection with a "make-whole fundamental change."

        We allocated the principal amount of the Convertible Notes between its liability and equity components (see table below). The carrying amount of the liability component was determined by measuring the fair value of a similar debt instrument of similar credit quality and maturity that did not have the conversion feature. The carrying amount of the equity component, representing the embedded conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Convertible Notes as a whole. The equity component was recorded to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the Convertible Notes over the carrying amount of the liability component was recorded as a debt discount, and is being amortized to interest expense using an effective interest rate of 8.5% over the term of the Convertible Notes. We allocated the total amount of transaction costs incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the liability component of the Convertible Notes, and are being amortized and recorded in other operating expenses using the effective interest method through the maturity date. Transaction costs attributable to the equity component were netted with the equity component of the Convertible Notes in additional paid-in capital.

21

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE (Continued)

        The Convertible Notes consist of the following components (in thousands):

	September 30, 2016
Liability component:
Principal	$	115,000
Conversion feature		(20,637	)
Amortization		1,081
Principal balance in liabilities		95,444
Liability portion of debt issuance costs		(3,799	)
Net carrying amount	$	91,645
Equity component:
Conversion feature	$	20,637
Equity portion of debt issuance costs		(875	)
Deferred taxes		(6,917	)
Net carrying amount	$	12,845

        We used the net proceeds from the Convertible Notes, together with cash on hand, to (i) repurchase all (a)11,011,515 shares of our common stock held by certain affiliates of Perry Capital ("Perry") and (b) 7,098,775 shares of our common stock held by certain affiliates of Welsh, Carson, Anderson & Stowe ("WCAS"), at a purchase price of $6.80 per share, for an aggregate purchase price of approximately $123.0 million, and (ii) repurchase 2,082,800 shares of our common stock for an aggregate purchase price of approximately $15.1 million from purchasers of the convertible notes in privately negotiated transactions. Richard C. Perry, Chief Executive Officer of Perry Corp., and Sean M. Traynor, General Partner at WCAS, each resigned from our Board of Directors in connection with the repurchase of common stock from Perry and WCAS.

        We recognized interest expense on the Convertible Notes issued June 27, 2016 of $2.2 million for the three months ended September 30, 2016 and $2.3 million for the nine months ended September 30, 2016, which included $1.0 million and $1.1 million, respectively, of non-cash interest expense, representing amortization of the discount on the carrying amount of the Convertible Notes.

9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

        In addition to the matters discussed below, we are also subject to a variety of legal proceedings, arbitrations, governmental investigations, including SEC investigations, audits, claims and litigation, including claims under the False Claims Act and claims for benefits under insurance policies and claims by members, providers, customers, employees, regulators and other third parties. In some cases, plaintiffs seek punitive damages. It is not possible to accurately predict the outcome or estimate the resulting penalty, fine or other remedy that may result from any current or future legal proceeding, investigation, audit, claim or litigation. Nevertheless, the range of outcomes and losses could be significant and could have a material adverse effect on our consolidated financial statements.

22

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. COMMITMENTS AND CONTINGENCIES (Continued)

        On October 22, 2013, we filed a lawsuit in the United States District Court for the District of Delaware against funds affiliated with the private equity firm GTCR, known as GTCR, David Katz, a former managing director of GTCR, and former senior management of APS Healthcare (Gregory Scott, Jerome Vaccaro and John McDonough). The lawsuit arose out of our acquisition of APS Healthcare from GTCR in March 2012.

        On September 9, 2016, we entered into a Settlement Agreement with funds affiliated with GTCR and the other individual defendants to fully resolve all of the parties' respective outstanding claims arising from the Company's acquisition of APS Healthcare from GTCR in 2012.

        Pursuant to the Settlement Agreement:

•

We acquired all of the 6,272,104 shares of common stock held by the funds affiliated with GTCR and the other individuals for an aggregate payment of $13.0 million. In addition, we received $1.6 million that was held in an escrow account relating to the acquisition. GTCR received $749,000 that was held in such escrow account.

•

George Sperzel, GTCR's designee on our board of directors, resigned from the Company's board of directors and the Letter Agreement dated as of March 2, 2012 between the Company and GTCR regarding board representation was terminated.

Governmental Regulation

        Laws and regulations governing Medicare, Medicaid and other state and federal healthcare and insurance programs are complex and subject to significant interpretation. As part of the Affordable Care Act, known as ACA, CMS, State regulatory agencies and other regulatory agencies have been exercising increased oversight and regulatory authority over our Medicare and other businesses. Compliance with such laws and regulations is subject to CMS audit, other governmental review and investigation, including SEC investigations and significant and complex interpretation. CMS audits our Medicare Advantage plans with regularity to ensure we are in compliance with applicable laws, rules, regulations and CMS instructions. Our Medicare Advantage plans will likely be subject to audit in 2016 or 2017. There can be no assurance that we will be found to be in compliance with all such laws, rules and regulations in connection with these audits, reviews and investigations, and at times we have been found to be out of compliance. Failure to be in compliance can subject us to significant regulatory action including significant fines, penalties, cancellation of contracts with governmental agencies or operating restrictions on our business, including, without limitation, suspension of our ability to market to and enroll new members in our Medicare plans, termination of our contracts with CMS, exclusion from Medicare and other state and federal healthcare programs and inability to expand into new markets or add new products within existing markets.

        Certain of our subsidiaries provide products and services to various government agencies. As a government contractor, we are subject to the terms of the contracts we have with those agencies and applicable laws governing government contracts. As such, we may be subject to False Claim Act litigation (also known as qui tam litigation) brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government. In 2014 and 2015, Innovative Resources Group, LLC ("IRG"), a subsidiary of APS Healthcare, resolved three False Claims Act matters relating to IRG's historical contracts in Missouri, Tennessee and Nevada.

23

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. COMMITMENTS AND CONTINGENCIES (Continued)

During 2015, we sold our APS Healthcare business. However, it is possible that we could be the subject of additional False Claims Act investigations and litigation in the future that could have a material adverse effect on our business and results of operations.

10. BUSINESS SEGMENT INFORMATION

        Our business segments are based on product and consist of

•

Medicare Advantage; and

•

Management Services Organization, or MSO.

Our remaining segment, Corporate & Other, reflects the activities of our holding company and other ancillary operations.

        We report intersegment revenues and expenses on a gross basis in each of the operating segments but eliminate them in the consolidated results. These intersegment revenues and expenses affect the amounts reported on the individual financial statement line items, but we eliminate them in consolidation and they do not change income before taxes. The most significant intersegment activity relates to interest on intercompany loans between segments.

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

	Three months ended September 30,
	2016						2015
	Revenues			Pre-tax Income (Loss) from Continuing Operations			Revenues			Pre-tax Income (Loss) from Continuing Operations
	(in thousands)
Medicare Advantage	$	342,887		$	7,624		$	306,807		$	(72	)
MSO		—			(8,594	)		—			(9,320	)
Corporate & Other		841			(8,148	)		3,406			(7,363	)
Intersegment revenues		(196	)		—			(174	)		—
Adjustments to segment amounts:
Net realized (losses) gains(1)		(143	)		(143	)		29,751			29,751
Total	$	343,389		$	(9,261	)	$	339,790		$	12,996

24

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. BUSINESS SEGMENT INFORMATION (Continued)

	Nine months ended September 30,
	2016						2015
	Revenues			Pre-tax Income (Loss) from Continuing Operations			Revenues			Pre-tax Income (Loss) from Continuing Operations
	(in thousands)
Medicare Advantage	$	1,036,489		$	47,664		$	931,906		$	18,628
MSO		—			4,072			—			(9,409	)
Corporate & Other		1,410			(26,494	)		6,895			(29,338	)
Intersegment revenues		(520	)		—			(601	)		—
Adjustments to segment amounts:
Net realized gains(1)		1,385			1,385			33,625			33,625
Total	$	1,038,764		$	26,627		$	971,825		$	13,506

(1)

We evaluate the results of operations of our segments based on income (loss) before realized gains and losses and income taxes. Management believes that realized gains and losses are not indicative of overall operating trends.

11. OTHER DISCLOSURES

        Income Taxes:    For interim financial reporting, except in circumstances as described in the following paragraph, we estimate our annual effective tax rate based on projected taxable income for the full year and record a quarterly tax provision based on that estimated annual effective tax rate.

        In situations where uncertainty surrounding possible future events or transactions precludes our ability to make a reliable estimate of pre-tax income for the full year, projected pre-tax income for the full year is close to break-even, or permanent differences are significant when compared to projected pre-tax income, our estimated annual effective tax rate may become volatile and could distort the income tax provision for an interim period. When this happens, we calculate our interim income tax provision using actual year-to-date financial results.

        As the year progresses, we refine our estimate of full year pre-tax income as new information becomes available, including actual year-to-date financial results. This continual estimation process could result in a change to our estimated annual effective tax rate, or cause us to change between use of an estimated annual effective tax rate and actual year-to-date financial results in calculating our year-to-date income tax provision. When this occurs, we adjust the income tax provision during the quarter in which the change occurs so that the year-to-date income tax provision reflects the current estimates and methodology used. In both cases, the tax effect of realized gains and losses as well as non-recurring tax differences are reported in the interim period in which they occur. Significant judgment is required in determining our annual estimated effective tax rate and in evaluating our tax positions.

        For the three and nine months ended September 30, 2016 and 2015, due to the significance of permanent differences compared to projected pre-tax income for 2016, we determined our income tax provision using actual year-to-date financial results from continuing operations.

25

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. OTHER DISCLOSURES (Continued)

        For the quarter ended September 30, 2016, our effective tax rate on continuing operations was 5.5%, resulting in an income tax benefit of $0.5 million. For the same period in 2015, our effective tax rate on continuing operations exceeded 100%, resulting in an income tax provision of $13.0 million. The difference in the effective tax rate from the statutory rate in both periods was driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rate.

        For the nine months ended September 30, 2016, our effective tax rate on continuing operations was 58.1%, resulting in an income tax provision of $15.5 million. For the same period in 2015, our effective tax rate on continuing operations was 56.4%, resulting in an income tax provision of $7.6 million. The effective tax rate for the nine months ended September 30, 2016 was driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates. For the nine months ended September 30, 2015, the tax benefit included $5.1 million in foreign tax credit carryforwards created in connection with the February 2015 sale of APS Puerto Rico. Excluding the foreign tax credit carryforwards, the effective tax rate was 94.4%, driven by permanent items, including the non-deductible ACA Fee and non-deductible interest expense. State and foreign income taxes also contributed to the variance in the effective tax rate.

        The significance of non-deductible permanent differences (primarily ACA fee and interest on our preferred stock) in relation to our pre-tax income results in a high effective tax rate, which may continue.

        Unconsolidated Subsidiaries:    We account for our participation in the ACOs using the equity method. Gains and losses from our participation in the ACOs are reported as equity in losses of unconsolidated subsidiaries in the consolidated statements of operations. Our net investment in the ACOs is reported in other assets in the consolidated balance sheets. We recognized equity in losses of our unconsolidated ACOs of $5.2 million and 7.4 million for the three months ended September 30, 2016 and 2015, respectively, and equity in earnings (losses) of $14.5 million and $(1.1) million for the nine months ended September 30, 2016 and 2015, respectively.

        The condensed financial information for 100% of our unconsolidated ACOs is as follows:

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016		2015
	(in thousands)
Total revenue	$	70		$	—		$	41,057	$	26,924
Total expenses		5,093			7,446			15,948		22,018
Net (loss) income	$	(5,023	)	$	(7,446	)	$	25,109	$	4,906

        During the second quarter ended June 30, 2016, we recognized $41.0 million of gross shared savings revenue from our ACOs. $39.8 million related to program year 2015 shared savings from 10 of our MSSP ACOs and $1.2 million of program year 2016 shared savings revenue for our new Next

26

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. OTHER DISCLOSURES (Continued)

Generation ACO. During the quarter ended September 30, 2016, we adjusted MSSP program year 2015 revenues by $0.1 million, reflecting a true up to the actual cash received from CMS during the quarter. We also determined that no change in the program year 2016 shared savings revenue accrual for the Next Generation ACO was required. This compares with $26.9 million of program year 2014 gross shared savings revenue recognized from 9 of our MSSP ACOs during the second quarter ended June 30, 2015. For additional information on our ACOs, see Note 1—Organization and Company Background and Note 2—Basis of Presentation.

        Common Stock:    In connection with the stock purchase agreements and the stock repurchase discussed in Note 8, and the litigation settlement discussed in Note 9, we retired 23.2 million shares of our voting common stock and all 3.3 million shares of our non-voting common stock. Changes in the number of shares of voting common stock issued and outstanding for the nine months ended September 30, 2016 were as follows (in thousands):

Balance at January 1, 2016	81,312
Issuance of common stock	472
Exercise of stock options	137
Share buyback/cancellation	(23,165	)
Balance at September 30, 2016	58,756

        Earnings Per Common Share Computation:    Under ASC 260, Earnings Per Share, income (loss) from continuing operations is the trigger for determining whether potential common stock equivalents are dilutive or anti-dilutive when calculating diluted earnings per share. Diluted EPS includes the dilutive effect of the unvested restricted stock and stock options outstanding during the period. For the three months ended September 30, 2016 and 2015, we had losses from continuing operations and accordingly, excluded common stock equivalents of 0.7 million from the calculation of diluted earnings per share for both periods.

12. DISCONTINUED OPERATIONS

        Sale of Traditional Insurance Business:    On August 3, 2016 we completed the sale of our Traditional Insurance business to Nassau Re. Under the terms of the agreement, Nassau Re acquired all of the shares of Constitution Life and Pyramid, as well as the Traditional Insurance business written by Progressive on a 100% coinsurance basis. At closing, we received approximately $30.5 million in cash, which, under the terms of the agreement, is subject to post-closing price adjustments based on actual capital and surplus of Constitution Life and Pyramid compared to the target statutory capital and surplus of $68.5 million. We were also entitled to receive potential earn-out payments through June 30, 2018 that we agreed to settle currently for $11.4 million in cash, which we received in October 2016.

        As of December 31, 2015, in accordance with ASC 360-10, Property, Plant and Equipment and ASC 205-20, Presentation of Financial Statements—Discontinued Operations, we determined that our Traditional Insurance business should be classified as held for sale and reported in discontinued operations. Under ASC 360-10-35, a long-lived asset classified as held for sale shall be measured at the lower of its carrying amount or fair value less cost to sell. We determined fair value at the balance sheet date, by calculating estimated net proceeds, using actual statutory surplus, estimating the

27

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. DISCONTINUED OPERATIONS (Continued)

likelihood of receiving any earn-out and estimating closing costs. Estimated net proceeds were compared to the GAAP book value of the entities being sold and the business being reinsured. At December 31, 2015, our analysis indicated a pre-tax loss of $149.2 million, generating a deferred tax benefit of $40.9 million, against which we recorded a $25.6 million valuation allowance, resulting in an after-tax loss of $133.8 million. We adjusted the carrying value to estimated fair value at September 30, 2016, which resulted in an after tax gain of $3.9 million and $0.4 million for three months and nine months ended September 30, 2016, respectively. The gain recorded in the third quarter included the reclassification of $4.8 million, after tax, of AOCI related to the sale of the Traditional Insurance business to the cumulative loss on the transaction. This was partially offset by a $1.0 million after-tax adjustment to reflect the early cash settlement of the earn-out. Additionally, discontinued operations treatment requires that the related assets and liabilities for the current period and all historical periods presented are reclassified as assets and liabilities held for sale in our consolidated balance sheets, and the related operating results and cash flows for the current period and all historical periods presented have been reclassified as discontinued operations in our consolidated financial statements.

        In connection with the sale of our Traditional Insurance business, we agreed to provide certain support services to Nassau Re under a transition service agreement, or TSA. During the three and nine months ending September 30, 2016, we recognized fee income of $0.4 million.

        Sale of Total Care Medicaid Plan:    On August 1, 2016, we completed the sale of TONY, which operates the Total Care Medicaid plan, to Molina for an adjusted purchase price of $38.0 million, subject to closing date balance sheet adjustments, resulting in a pre-tax gain of $20.4 million.

        As of June 30, 2016, in accordance with ASC 360-10 and ASC 205-20, we determined that our Total Care business should be classified as held for sale and reported in discontinued operations. Additionally, discontinued operations treatment requires that the related assets and liabilities for all historical periods presented are reclassified as assets and liabilities held for sale in our consolidated balance sheets, and the related operating results and cash flows for the current period and all historical periods presented have been reclassified as discontinued operations in our consolidated financial statements.

        In connection with the sale of the Total Care business, we agreed to provide certain support services to Molina under a TSA. During the three and nine months ending September 30, 2016, we recognized fee income of $0.2 million.

        Sale of APS Healthcare:    On February 4, 2015, we sold our APS Healthcare Puerto Rico subsidiaries to an affiliate of the Metro Pavia Health System. APS Puerto Rico provides managed behavioral health services under the Government Health Plan Medicaid program under a contract that terminated on March 31, 2015. The purchase price at closing was $26.5 million, which was settled in cash, subject to a balance sheet true-up. The transaction resulted in a pre-tax realized loss of approximately $0.4 million. The transaction also generated an additional foreign tax credit carryforward of $5.4 million that was recorded as a deferred tax asset.

        On May 1, 2015, we sold our remaining APS Healthcare operating subsidiaries to KEPRO, Inc., a company that provides quality improvement and care management services to both government clients and the private sector. The purchase price was $5.0 million, which was settled in cash at closing, subject

28

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. DISCONTINUED OPERATIONS (Continued)

to a working capital true up, which was finalized during the quarter ended September 30, 2015. The transaction resulted in a pre-tax realized loss of $17.0 million in 2015, including the working capital true up.

        In addition, the transaction included a potential earn-out based on certain contract renewals. Due to the variability in the length of time over which the contract renewals could occur and the difficulty of estimating the success of such renewals, we considered the potential earn-out to be a contingent gain which was recorded only if and when we determined it to be realizable. We recorded earn-out revenue of $4.4 million and $12.1 million based on amounts received from the buyer during the three and nine months ended September 30, 2016, respectively. The amounts received in the third quarter of 2016 represented the final settlement of earn-out revenue.

        In connection with the sales of the APS businesses, we agreed to provide certain support services to the buyers under TSA's. During the three and nine months ending September 30, 2015, we recognized fee income of $1.2 million and $2.9 million respectively. All APS-related TSA services were completed as of December 31, 2015.

        Effective with the sale of our APS Healthcare businesses, in accordance with ASC 205-20, the results of operations and cash flows related to APS Healthcare are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and are presented separately in our consolidated balance sheets as of September 30, 2016 and December 31, 2015, respectively.

29

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. DISCONTINUED OPERATIONS (Continued)

        Discontinued Operations Summary Financial Information:    Summarized financial information for our discontinued operations is presented below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016		2015
	(in thousands)
Revenues:
Net premiums	$	28,575		$	89,525		$	198,194	$	285,627
Net investment income		1,324			4,038			9,145		13,532
Fee and other income		140			403			914		32,127
Net realized (losses) gains		(11	)		(27	)		160		41
Total revenues		30,028			93,939			208,413		331,327
Benefits, claims and expenses:
Claims and other benefits		25,324			75,976			172,427		242,269
Change in deferred policy acquisition costs		—			2,621			—		8,489
Amortization of intangible assets		67			267			470		1,191
Affordable Care Act fee		279			891			1,919		2,551
Other operating costs and expenses		4,651			12,036			30,518		74,621
Total benefits, claims and expenses		30,321			91,791			205,334		329,121
Operating income		(293	)		2,148			3,079		2,206
Non-operating results:
Total Care—gain on sale		20,407			—			20,407		—
APS Healthcare(1)		34,069			1,366			41,746		(17,303	)
Traditional Insurance—gain on sale		2,776			—			2,792		—
Income (loss) from discontinued operations before income taxes		56,959			3,514			68,024		(15,097	)
Provision for (benefit from) income taxes		(2,679	)		657			5,298		(6,796	)
Income (loss) from discontinued operations	$	59,638		$	2,857		$	62,726	$	(8,301	)

(1)

2016 amounts include earn-out revenues and litigation settlement, while 2015 amounts represent initial gain (loss) on Sale of APS Healthcare. See Note 9—Commitments and Contingencies for additional information.

30

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. DISCONTINUED OPERATIONS (Continued)

        Total assets and liabilities of discontinued operations are as follows:

	September 30, 2016		December 31, 2015
	(in thousands)
Assets
Fixed maturities available for sale, at fair value	$	53,425	$	427,690
Other invested assets		—		12,800
Total investments		53,425		440,490
Cash and cash equivalents		1,388		6,628
Accrued investment income		501		3,196
Reinsurance recoverables—life		109,361		476,863
Reinsurance recoverables—health		57,157		130,501
Due and unpaid premiums		443		27,565
Goodwill and intangible assets		—		4,197
Deferred income tax asset		3,696		—
Income taxes receivable		—		10,194
Other healthcare receivables		—		2,045
Net amounts receivable from continuing operations		37		44,289
Other assets		12,238		4,602
Total assets	$	238,246	$	1,150,570
Liabilities
Reserves and other policy liabilities—life	$	109,526	$	495,518
Reserves for future policy benefits—health		54,493		539,307
Policy and contract claims—health		2,867		38,482
Premiums received in advance		399		2,000
Amounts due to reinsurers		1,665		2,325
Deferred income tax liability		—		7,491
Other liabilities		67,122		30,916
Total liabilities	$	236,072	$	1,116,039

31

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

Introduction

        The following discussion and analysis presents a review of our financial condition as of September 30, 2016 and our results of operations for the three months and nine months ended September 30, 2016 and 2015. As used in this quarterly report, except as otherwise indicated, references to the "Company," "Universal American," "we," "our," and "us" are to Universal American Corp., a Delaware corporation and its subsidiaries.

        You should read the following analysis of our consolidated results of operations and financial condition in conjunction with the consolidated financial statements and related consolidated footnotes included elsewhere in this Quarterly Report on Form 10-Q as well as the Consolidated Financial Statements and related consolidated footnotes and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2015. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from management's expectations. Factors that could cause such differences include those set forth or incorporated by reference in our Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 10, 2016 under Part II, Item 1A—Risk Factors, as modified by the changes to those risk factors included in our first and second quarter Form 10-Qs we filed with the SEC subsequent to March 10, 2016.

Overview

        Universal American, through our family of healthcare companies, provides health benefits to people covered by Medicare. Our core strength is our ability to partner with providers, especially primary care physicians, to improve health outcomes while reducing cost in the Medicare population. We currently are focused on two main businesses:

•

Medicare Advantage:  We serve the growing Medicare population by providing Medicare Advantage products to approximately 114,400 members as of September 30, 2016. Approximately 32% of the Medicare population in the United States is currently enrolled in Medicare Advantage plans; a type of Medicare health plan offered by private companies that contract with the federal government to provide enrollees with health insurance. Our current focus is to grow our Medicare Advantage business in Texas (primarily Houston/Beaumont), upstate New York and Maine, regions in which we have meaningful market positions.

•

Management Services Organization (MSO):  We believe there is a significant opportunity to address the high cost and lack of coordination of health care for the majority of the Medicare fee-for-service population and have joined with provider groups to operate Accountable Care Organizations, or ACOs, that participate in the Medicare Shared Savings Program, known as the MSSP and the Next Generation ACO model. We currently operate twenty-two MSSP ACOs and one Next Generation ACO, including approximately 5,200 participating providers with approximately 236,800 assigned Medicare fee-for-service beneficiaries.

Recent Developments

        ACO Revenue:    On July 29, 2016, CMS informed us that our MSSP ACOs generated $97 million in gross savings for program year 2015. This compares to $80 million in gross savings for program year 2014, which we reported in the second quarter of 2015. 10 of our ACO's qualified for shared savings payments, compared to 9 in program year 2014, and received payments of $39.8 million, compared to $26.9 million in program year 2014. Our share of these payments for 2016, after payments to our

32

physician partners of $11.3 million, is $28.5 million, compared to $20.9 million in 2015, and is reflected in equity in earnings (losses) of unconsolidated subsidiaries in our consolidated statements of operations. We received these payments during the third quarter of 2016. In addition, during the second quarter ended June 30, 2016, we recorded $1.2 million of program year 2016 shared savings revenue for our new Next Generation ACO. We determined that no change in the program year 2016 shared savings revenue accrual for the Next Generation ACO was required during the quarter ended September 30, 2016.

        Sale of Traditional Insurance Business:    On August 3, 2016 we completed the sale of our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. ("Nassau Re"). Under the terms of the agreement, Nassau Re acquired all of the shares of Constitution Life Insurance Company ("Constitution Life") and The Pyramid Life Insurance Company ("Pyramid"), as well as the Traditional Insurance business written by American Progressive Life & Health Insurance Company of New York ("Progressive") on a 100% coinsurance basis. See Note 12—Discontinued Operations in the Notes to Consolidated Financial Statements for further details.

        Sale of Total Care Medicaid Plan:    On August 1, 2016, we completed the sale of all the outstanding equity interests of Today's Options of New York, Inc., ("TONY"), which operates the Total Care Medicaid plan to Molina Healthcare, Inc. ("Molina"). For further discussion of this transaction, see Note 12—Discontinued Operations in the Notes to Consolidated Financial Statements.

Membership/Beneficiaries

        The following table presents our membership in Medicare Advantage products:

	September 30, 2016		December 31, 2015
	(in thousands)
Houston/Beaumont		65.5		63.0
Dallas		3.0		3.6
SETX dSNP		0.3		—
Texas		68.8		66.6
Upstate New York/Maine		45.6		40.5
Medicare Advantage		114.4		107.1

Results of Operations—Consolidated Overview

        The following table reflects (loss) income before income taxes from each of our segments and contains a reconciliation to reported net income (loss) in accordance with U.S. GAAP. We evaluate the results of operations of our segments based on income (loss) before realized gains and income taxes. We believe that realized gains are not indicative of overall operating trends. This differs from

33

U.S. GAAP, which includes the effect of realized gains and income taxes in the determination of net income.

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
	(in thousands, except per share amounts)
Medicare Advantage	$	7,624		$	(72	)	$	47,664		$	18,628
MSO		(8,594	)		(9,320	)		4,072			(9,409	)
Corporate & Other		(8,148	)		(7,363	)		(26,494	)		(29,338	)
Net realized (losses) gains		(143	)		29,751			1,385			33,625
(Loss) income before income taxes		(9,261	)		12,996			26,627			13,506
(Benefit from) provision for income taxes		(504	)		13,045			15,473			7,618
(Loss) income from continuing operations		(8,757	)		(49	)		11,154			5,888
Income (loss) from discontinued operations		59,638			2,857			62,726			(8,301	)
Net income (loss)	$	50,881		$	2,808		$	73,880		$	(2,413	)
Income (loss) per common share (diluted):
(Loss) income from continuing operations	$	(0.14	)	$	—		$	0.15		$	0.07
Income (loss) from discontinued operations		0.97			0.03			0.82			(0.10	)
Net income (loss)	$	0.83		$	0.03		$	0.97		$	(0.03	)

Three months ended September 30, 2016 and 2015

        Loss from continuing operations was $8.8 million, or $0.14 per diluted share, for the quarter ended September 30, 2016 compared to a loss of less than $0.1 million, or less than $0.01 per diluted share for the quarter ended September 30, 2015.

        Our Medicare Advantage segment generated income before income taxes of $7.6 million for the quarter ended September 30, 2016; an increase of $7.7 million compared to the quarter ended September 30, 2015. The increase in earnings was driven primarily by higher premium per member, membership growth, lower MBR, a decrease in unfavorable prior period items and lower ACA fee expense; partially offset by lower net investment income and a membership-driven increase in commissions and general expenses. The quarter ended September 30, 2016 included $2.1 million of net unfavorable prior period items compared to $3.3 million of net unfavorable items for the quarter ended September 30, 2015. Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, which resulted in the accelerated recognition of approximately $7.7 million of additional current year premium revenue in third quarter 2016 compared to third quarter 2015.

        Our MSO segment generated a loss before income taxes of $8.6 million for the three months ended September 30, 2016, compared to a loss of $9.3 million for the same period of 2015, a decrease of $0.7 million. We also determined that no change in the program year 2016 shared savings revenue accrual for the Next Generation ACO was required. Operating expenses for the quarter were $8.5 million compared to $9.3 million for the quarter ended September 30, 2015, reflecting fewer active ACOs in 2016.

        Our Corporate & Other segment reported a loss of $8.1 million for the three months ended September 30, 2016 compared to a loss of $7.4 million in the same period in 2015. This was primarily due to lower net investment income and higher debt service costs due to the convertible notes issued in June 2016, partially offset by lower legal and consulting costs. Fee and other income and commissions

34

and general expenses both declined in 2016 due to the elimination of TSA fees and related expenses related to APS Healthcare.

        For the quarter ended September 30, 2016, our effective tax rate on continuing operations was 5.5%, resulting in an income tax benefit of $0.5 million. For the same period in 2015, our effective tax rate on continuing operations exceeded 100%, resulting in an income tax provision of $13.0 million. The difference in the effective tax rate from the statutory rate in both periods was driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rate.

        Income from discontinued operations, after tax, was $59.6 million and $2.9 million for the three months ended September 30, 2016 and 2015, respectively. Discontinued Operations includes the results of our Total Care Medicaid Plan and Traditional Insurance business which were sold in August 2016 and APS Healthcare, which was sold during 2015. For further information on these businesses, see Note 12—Discontinued Operations in the Notes to Consolidated Financial Statements.

Nine months ended September 30, 2016 and 2015

        Income from continuing operations was $11.2 million, or $0.15 per diluted share, for the nine months ended September 30, 2016 compared to income of $5.9 million, or $0.07 per diluted share for the nine months ended September 30, 2015.

        Our Medicare Advantage segment generated income before income taxes of $47.7 million for the nine months ended September 30, 2016; an increase of $29.0 million compared to the nine months ended September 30, 2015. The increase in earnings was driven primarily by higher premium per member, membership growth, lower MBR, an increase in favorable prior period items and lower ACA fee expense; partially offset by lower net investment income, and a membership-driven increase in commissions and general expenses. The nine months ended September 30, 2016 included $7.9 million of net favorable prior period items compared to $6.2 million of net favorable items for the nine months ended September 30, 2015. Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, which resulted in the accelerated recognition of approximately $26.5 million of additional current year premium revenue in the first nine months of 2016.

        Our MSO segment generated income before income taxes of $4.1 million for the nine months ended September 30, 2016, compared to a loss of $9.4 million for the nine months ended September 30, 2015, an increase of $13.5 million. During the nine months ended September 30, 2016, we recognized $29.6 million of net shared savings revenue from our ACOs. $27.7 million related to program year 2015 shared savings from 10 of our MSSP ACOs and $1.2 million related to program year 2016 shared savings revenue for our new Next Generation ACO. 2016 revenue also includes additional program year 2014 revenue of $0.7 million recognized in the first quarter of 2016 as a result of the restructuring of the program year 2014 shared savings distribution for two ACOs during the first quarter of 2016. This compares with $20.9 million of program year 2014 net shared savings revenue recognized from 9 of our MSSP ACOs during the nine months ended September 30, 2015. Operating expenses for the nine months ended September 30, 2016 were $26.4 million compared to $30.3 million for the nine months ended September 30, 2015, reflecting fewer active ACOs in 2016.

        Our Corporate & Other segment reported a loss of $26.5 million for the nine months ended September 30, 2016 compared to a loss of $29.3 million in the same period in 2015. This was primarily due to continuation of our expense reduction initiatives and lower legal and consulting costs partially offset by lower net investment income and higher debt service. Fee and other income and commissions and general expenses both declined in 2016 due to the elimination of TSA fees and related expenses related to APS Healthcare.

35

        For the nine months ended September 30, 2016, our effective tax rate on continuing operations was 58.1%, resulting in an income tax provision of $15.5 million. For the same period in 2015, our effective tax rate on continuing operations was 56.4%, resulting in an income tax provision of $7.6 million. The effective tax rate for the nine months ended September 30, 2016 was driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates. For the nine months ended September 30, 2015, the tax benefit included $5.1 million in foreign tax credit carryforwards created in connection with the February 2015 sale of APS Puerto Rico. Excluding the foreign tax credit carryforwards, the effective tax rate was 94.4%, driven by permanent items, including the non-deductible ACA Fee and non-deductible interest expense. State and foreign income taxes also contributed to the variance in the effective tax rate.

        Income from discontinued operations, after tax, was $62.7 million for the nine months ended September 30, 2016 compared to a loss of $8.3 million for the nine months ended September 30, 2015. Discontinued Operations includes the results of our Total Care Medicaid Plan and Traditional Insurance business, which were sold in August 2016 and APS Healthcare, which was sold during 2015. For further information on these businesses, see Note 12—Discontinued Operations in the Notes to Consolidated Financial Statements.

Segment Results—Medicare Advantage

        The following table presents the results of our Medicare Advantage segment:

	Three months ended September 30,					Nine months ended September 30,
	2016		2015			2016		2015
	(in thousands)
Net premiums	$	340,643	$	304,311		$	1,029,158	$	923,925
Net investment and other income		2,244		2,496			7,331		7,981
Total revenue		342,887		306,807			1,036,489		931,906
Medical expenses		290,982		267,652			868,150		801,981
ACA fee		5,516		6,413			16,293		19,098
Commissions and general expenses		38,765		32,814			104,382		92,199
Total benefits, claims and other deductions		335,263		306,879			988,825		913,278
Segment income (loss) before income taxes	$	7,624	$	(72	)	$	47,664	$	18,628

        Our Medicare Advantage segment includes the operations of our Medicare coordinated care HMO, PPO and Network PFFS Plans (collectively known as the Plans). Our HMOs offer coverage to Medicare members primarily in Southeastern Texas (primarily Houston/Beaumont) and the Dallas area. Our PPO and Network PFFS Plans offer coverage primarily in upstate New York and Maine.

Three months ended September 30, 2016 and 2015

        Our Medicare Advantage segment generated income before income taxes of $7.6 million for the quarter ended September 30, 2016; an increase of $7.7 million compared to the quarter ended September 30, 2015. The increase in earnings was driven primarily by higher premium per member, membership growth, lower MBR, a decrease in unfavorable prior period items and lower ACA fee expense; partially offset by lower net investment income and a membership-driven increase in commissions and general expenses. The quarter ended September 30, 2016 included $2.1 million of net unfavorable prior period items compared to $3.3 million of net unfavorable items for the quarter ended September 30, 2015. Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, which resulted in the accelerated recognition of

36

approximately $7.7 million of additional current year premium revenue in third quarter 2016 compared to third quarter 2015.

        Net premiums.    Net premiums for the Medicare Advantage segment increased by $36.3 million for the quarter ended September 30, 2016 compared with the same period in 2015, due to membership growth, an increase in premium per member driven by the change in revenue recognition policy in 2016 described above and an increase in favorable prior period items. The quarter ended September 30, 2016 included $2.4 million of net favorable prior period items recognized in Net premiums. There were no prior period items recognized during the quarter ended September 30, 2015.

        Medical expenses.    Medical expenses increased by $23.3 million for the quarter ended September 30, 2016 compared to the quarter ended September 30, 2015. The increase was driven by membership growth, an increase in utilization and an increase in unfavorable prior period items. Medical expenses for the quarter ended September 30, 2016 included $4.5 million of net unfavorable items related to prior periods, compared to $3.3 million of net unfavorable items related to prior periods for the quarter ended September 30, 2015.

        Quality improvement initiative costs are included in medical expenses in connection with the reporting of minimum medical loss ratios under the ACA. The following table provides a breakdown of medical expenses and the related medical benefits ratios:

	Three months ended September 30,
	2016				2015
	($ in thousands)
Quality Initiatives	$	6,011	1.7	%	$	5,791	1.9	%
Medical Benefits		284,971	83.7	%		261,861	86.1	%
Total Benefits	$	290,982	85.4	%	$	267,652	88.0	%

        Adjusting for the prior year items discussed above in net premiums and medical expenses, for the quarter ended September 30, 2016, our medical benefit ratio MBR, excluding quality initiative costs, was 82.9%. Our medical benefit MBRs for the quarter ended September 30, 2016, as reported and recast to exclude prior period items, are summarized in the table below:

	Reported			Recast
Texas HMOs		84.5	%		83.3	%
Upstate New York/Maine		82.8	%		82.2	%
Total Medicare Advantage		83.7	%		82.9	%

        ACA fee.    The ACA fee for the three months ended September 30, 2016 amounted to $5.5 million or 1.8% of 2015 net premiums compared to $6.4 million or 1.9% of 2014 net premiums. The ACA fee is based on prior year premiums and is included in the calculation of minimum medical loss ratios under the ACA. The decrease in the ACA fee is due to lower full year premiums in 2015 compared to 2014, which was the result of lower membership in 2015 due to service area reductions effective January 1, 2015.

        Commissions and general expenses.    Commissions and general expenses for the three months ended September 30, 2016 increased $6.0 million compared to the same period in 2015, primarily due to higher membership and current period expenses. Our administrative expense ratio increased to 11.4% for the three months ended September 30, 2016 compared to 10.8% for the three months ended September 30, 2015.

37

Nine months ended September 30, 2016 and 2015

        Our Medicare Advantage segment generated income before income taxes of $47.7 million for the nine months ended September 30, 2016; an increase of $29.0 million compared to the nine months ended September 30, 2015. The increase in earnings was driven primarily by higher premium per member, membership growth, lower MBR, an increase in favorable prior period items and lower ACA fee expense; partially offset by lower net investment income, and a membership-driven increase in commissions and general expenses. The nine months ended September 30, 2016 included $7.9 million of net favorable prior period items compared to $6.2 million of net favorable items for the nine months ended September 30, 2015. Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, which resulted in the accelerated recognition of approximately $26.5 million of additional current year premium revenue in the first nine months of 2016.

        Net premiums.    Net premiums for the Medicare Advantage segment increased by $105.2 million for the nine months ended September 30, 2016 compared with the same period in 2015, due to membership growth and an increase in premium per member driven by the change in our revenue recognition policy in 2016 described above; partially offset by a $2.7 million reduction in favorable prior period items. The nine months ended September 30, 2016 included $12.4 million of net favorable prior period items recognized in net premiums as compared to $15.1 million of net favorable prior period items recognized for the nine months ended September 30, 2015.

        Medical expenses.    Medical expenses increased by $66.2 million for the nine months ended September 30, 2016 compared to the same period ended September 30, 2015. The increase was driven by membership growth and increased utilization; partially offset by lower unfavorable prior period items. Medical expenses for the nine months ended September 30, 2016 included $4.5 million of net unfavorable items related to prior periods, compared to $8.9 million of net unfavorable items related to prior periods for the nine months ended September 30, 2015.

        Quality improvement initiative costs are included in medical expenses in connection with the reporting of minimum medical loss ratios under the ACA. The following table provides a breakdown of medical expenses and the related medical benefits ratios:

	Nine months ended September 30,
	2016				2015
	($ in thousands)
Quality Initiatives	$	17,250	1.7	%	$	18,777	2.0	%
Medical Benefits		850,900	82.7	%		783,204	84.8	%
Total Benefits	$	868,150	84.4	%	$	801,981	86.8	%

        Adjusting for the prior year items discussed above in net premiums and medical expenses, for the nine months ended September 30, 2016, our medical benefit ratio MBR, excluding quality initiative costs, was 83.3%. Our medical benefit MBRs for the nine months ended September 30, 2016, as reported and recast to exclude prior year items, are summarized in the table below:

	Reported			Recast
Texas HMOs Medical Benefit Ratio		82.8	%		83.4	%
Upstate New York/Maine Medical Benefit Ratio		83.1	%		83.1	%
Total Medicare Advantage		82.7	%		83.3	%

        ACA fee.    The ACA fee for the nine months ended September 30, 2016 amounted to $16.3 million or 1.8% of 2015 net premiums compared to $19.1 million or 1.8% of 2014 net premiums. The ACA fee is based on prior year premiums and is included in the calculation of minimum medical loss ratios

38

under the ACA. The decrease in the ACA fee is due to lower full year premiums in 2015 compared to 2014, which was the result of lower membership in 2015 due to service area reductions effective January 1, 2015.

        Commissions and general expenses.    Commissions and general expenses for the nine months ended September 30, 2016 increased $12.2 million compared to the same period in 2015, primarily due to higher membership and current period expenses. Our administrative expense ratio increased to 10.1% for the nine months ended September 30, 2016 compared to 10.0% for the nine months ended September 30, 2015.

Segment Results—Management Services Organization

        The following table represents the operating results of our MSO segment, consolidating the ACOs in which we participate with the operations of our Collaborative Health Systems (CHS) subsidiary:

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
	(in thousands)
Shared Savings Revenue:
Gross Shared Savings(1)	$	70		$	—		$	41,057		$	26,924
ACO Partner Share(2)		(147	)		—			(10,606	)		(6,040	)
Net Shared Savings Revenue		(77	)		—			30,451			20,884
Operating expenses		8,517			9,320			26,379			30,293
(Loss) income before income taxes	$	(8,594	)	$	(9,320	)	$	4,072		$	(9,409	)

(1)

2016 represents shared savings revenues recorded in 2016 related to program year 2015 as well as estimated program year 2016 shared savings revenue for our new Next Generation ACO for the three and nine month periods ended September 30, 2016. 2015 represents shared savings revenues recorded in 2015 related to program year 2014.

(2)

2016 revenue includes our ACO partners' share of program year 2015 shared savings as well as additional program year 2014 revenue due to CHS as a result of the restructuring of the program year 2014 shared savings distribution for two ACOs during the first quarter of 2016.

        Our MSO segment supports our healthcare provider partnerships in the development of value-based healthcare models, such as ACOs, with a variety of capabilities and resources including technology, analytics, clinical care coordination, regulatory compliance and program administration. This segment includes our CHS subsidiary and affiliated ACOs. CHS works with physicians and other healthcare professionals to operate ACOs under the MSSP and Next Generation ACO model. CHS provides these ACOs with care coordination, analytics and reporting, technology and other administrative capabilities to enable participating providers to deliver better care and lower healthcare costs for their Medicare fee-for-service beneficiaries. The Company provides funding to CHS to support the operating activities of CHS and the ACOs.

        We have determined that we cannot consolidate the ACOs and therefore, include our share of their operating results in Equity in losses of unconsolidated subsidiaries in our Consolidated Statements of Operations. In the table above, we have presented our share of the results of the ACOs combined with the results of CHS to provide a better understanding of our MSO segment's results of operations.

        The MSSP is relatively new and therefore has limited historical experience. This impacts our ability to accurately accumulate and interpret the data available for calculating the ACOs' shared savings. Therefore, during 2016 and 2015, we recognized our portion of ACO shared savings revenue when

39

notified by CMS. Such notification lags the Program Year to which the revenue relates by six to nine months. Revenue for the 2015 Program Year, which ended on December 31, 2015, was recorded in the quarter ended June 30, 2016, and trued up in the quarter ended September 30, 2016. Revenue for the 2014 Program Year, which ended on December 31, 2014, was recorded in the quarter ended June 30, 2015. Based on the ACO operating agreements, we bear all costs of the ACO operations until revenue is recognized. At that point, we generally share in up to 100% of the revenue to recover our costs incurred. Any remaining revenue is generally shared equally with our ACO provider partners.

        Effective January 1, 2016, we commenced ACO operations in Houston, Texas under CMS' new Next Generation ACO model, which operates differently from our MSSP ACOs. Based on the year-to-date June 30, 2016 financial report received from CMS during the third quarter and current quarter claims information, we are able to estimate and record shared savings revenue related to ACO operations. Based on our analysis, we determined that no change in the program year 2016 shared savings revenue accrual for the Next Generation ACO was required during the quarter ended September 30, 2016.

Three months ended September 30, 2016 and 2015

        Our MSO segment generated a loss before income taxes of $8.6 million for the three months ended September 30, 2016, compared to a loss of $9.3 million for the same period of 2015, a decrease of $0.7 million. We also determined that no change in the program year 2016 shared savings revenue accrual for the Next Generation ACO was required. Operating expenses for the quarter were $8.5 million compared to $9.3 million for the quarter ended September 30, 2015, reflecting fewer active ACOs in 2016.

Nine months ended September 30, 2016 and 2015

        Our MSO segment generated income before income taxes of $4.1 million for the nine months ended September 30, 2016, compared to a loss of $9.4 million for the nine months ended September 30, 2015, an increase of $13.5 million. During the nine months ended September 30, 2016, we recognized $29.6 million of net shared savings revenue from our ACOs. $27.7 million related to program year 2015 shared savings from 10 of our MSSP ACOs and $1.2 million related to program year 2016 shared savings revenue for our new Next Generation ACO. 2016 revenue also includes additional program year 2014 revenue of $0.7 million recognized in the first quarter of 2016 as a result of the restructuring of the program year 2014 shared savings distribution for two ACOs during the first quarter of 2016. This compares with $20.9 million of program year 2014 net shared savings revenue recognized from 9 of our MSSP ACOs during the nine months ended September 30, 2015. Operating expenses for the nine months ended September 30, 2016 were $26.4 million compared to $30.3 million for the nine months ended September 30, 2015, reflecting fewer active ACOs in 2016.

40

Segment Results—Corporate & Other

        The following table presents the operating results of our Corporate & Other segment:

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
	(in thousands)
Net investment income	$	49		$	1,974		$	216		$	2,967
Fee and other income		792			1,432			1,194			3,928
Total revenue		841			3,406			1,410			6,895
Interest expense		3,087			1,260			5,093			4,277
Commissions and general expenses		5,902			9,509			22,811			31,956
Total benefits, claims and other deductions		8,989			10,769			27,904			36,233
Segment loss before income taxes	$	(8,148	)	$	(7,363	)	$	(26,494	)	$	(29,338	)

        Corporate & Other reflects the activities of our holding company and other ancillary operations.

Three months ended September 30, 2016 and 2015

        Our Corporate & Other segment reported a loss of $8.1 million for the three months ended September 30, 2016 compared to a loss of $7.4 million in the same period in 2015. This was primarily due to lower net investment income and higher debt service costs due to the convertible note issued in June 2016, partially offset by lower legal and consulting costs. Fee and other income and commissions and general expenses both declined in 2016 due to the elimination of TSA fees and related expenses related to APS Healthcare.

        Net investment income.    Net investment income decreased by $1.9 million. In 2015, we received a distribution of $1.9 million on a cost-method minority investment that was subsequently sold.

        Fee and other income.    Fee and other income decreased by $0.6 million for the three months ended September 30, 2016 compared to the same period in 2015. In 2015, the segment recognized income for transition services provided to the acquirers of our APS Healthcare subsidiaries which were sold during the first half of 2015. These revenues are offset by expenses recognized in commissions and general expenses as noted below.

        Interest expense.    Interest expense increased by $1.8 million, as a result of the convertible notes issued in June 2016, which resulted in $2.2 million of interest expense, compared with the term loan paid off in October 2015, which had interest expense of $0.3 million.

        Commissions and general expenses.    Commissions and general expenses decreased by $3.6 million for the three months ended September 30, 2016 compared to the same period in 2015. The decrease was primarily due to lower legal and consulting costs, and expenses incurred in 2015 in connection with transition services provided to the acquirers of our APS Healthcare subsidiary, which are largely offset by fee and other income as noted above.

Nine months ended September 30, 2016 and 2015

        Our Corporate & Other segment reported a loss of $26.5 million for the nine months ended September 30, 2016 compared to a loss of $29.3 million in the same period in 2015. This was primarily due to continuation of our expense reduction initiatives and lower legal and consulting costs partially offset by lower net investment income and higher debt service. Fee and other income and commissions

41

and general expenses both declined in 2016 due to the elimination of TSA fees and related expenses related to APS Healthcare.

        Net investment income.    Net investment income decreased by $2.8 million for the nine months ended September 30, 2016 compared to the same period in 2015. In 2015, we received a distribution of $1.9 million on a cost-method minority investment that was subsequently sold and the segment received investment income on a loan to our APS Healthcare subsidiary which is reported in discontinued operations and was sold in 2015.

        Fee and other income.    Fee and other income decreased by $2.7 million for the nine months ended September 30, 2016 compared to the same period in 2015. In 2015, the segment recognized income for transition services provided to the acquirers of our APS Healthcare subsidiaries which were sold during the first half of 2015. These revenues are offset by expenses recognized in commissions and general expenses as noted below.

        Interest expense.    Interest expense increased by $0.8 million for the nine months ended September 30, 2016 compared to the same period in 2015 primarily as a result of the convertible notes issued in June 2016, which resulted in $2.3 million of interest expense, compared with the term loan paid off in October 2015, which had interest expense of $1.3 million.

        Commissions and general expenses.    Commissions and general expenses decreased by $9.1 million for the nine months ended September 30, 2016 compared to the same period in 2015. The decrease was primarily due to reduced amortization of deferred financing costs, continuation of our expense reduction initiatives, lower legal and consulting costs and expenses incurred in 2015 in connection with our transition services provided to the acquirers of our APS Healthcare subsidiary in 2015, partially offset by decreased recoveries of agent receivables that were previously written off.

Discontinued Operations

        The following table presents the primary components comprising income (loss) from discontinued operations:

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
	(in thousands)
Medicaid:
Operating results	$	168		$	510		$	(4,134	)	$	(906	)
Gain on sale		20,407			—			20,407			—
		20,575			510			16,273			(906	)
Traditional Insurance:
Operating results		122			1,815			9,282			7,448
Realized gains		(11	)		(27	)		160			41
Gain on sale		2,776			—			2,792			—
		2,887			1,788			12,234			7,489
APS Healthcare		33,497			1,216			39,517			(21,680	)
Income (loss) before income taxes	$	56,959		$	3,514		$	68,024		$	(15,097	)

42

        Discontinued Operations includes the results of our Medicaid business, Traditional Insurance business and APS Healthcare. For further discussion of these businesses and our determination of their reporting as discontinued operations, see Note 12—Discontinued Operations in the Notes to Consolidated Financial Statements.

Three months ended September 30, 2016 and 2015

        Universal American reported income from discontinued operations of $60.1 million for the quarter ended September 30, 2016 compared to $3.5 million for the quarter ended September 30, 2015.

        Medicaid—Gain on Sale:    On August 1, 2016, we completed the sale of TONY, which operates the Total Care Medicaid plan, to Molina for an adjusted purchase price of $38.0 million, subject to closing date balance sheet adjustments, resulting in a pre-tax gain of $20.4 million.

        Traditional Insurance—Operating Results:    Traditional Insurance had operating income of $0.1 million for the three months ended September 30, 2016 compared to $1.8 million for the same period in 2015. 2016 results only reflect one month of operations, as this business was sold on August 3, 2016.

        Traditional Insurance—Gain on Sale:    The gain recorded in the third quarter included the reclassification of $4.8 million of AOCI related to the sale of the Traditional Insurance business to adjust the cumulative loss on the transaction. This was partially offset by a $1.6 million adjustment to reflect the early cash settlement of the earn-out.

        APS Healthcare—    2016 amounts include earn-out revenues and litigation settlement, while 2015 amounts represent initial gain (loss) on sale of APS Healthcare. See Note 9—Commitments and Contingencies for additional information.

Nine months ended September 30, 2016 and 2015

        Universal American reported income from discontinued operations of $71.2 million for the nine months ended September 30, 2016 compared to a loss of $15.1 million for the nine months ended September 30, 2015.

        Medicaid—Operating Results:    Medicaid had an operating loss of $4.1 million for the nine months ended September 30, 2016 compared to a loss of $0.9 million for the same period in 2015. This decrease was primarily due to higher claims costs, including unfavorable prior period items and higher expenses during 2016.

        Medicaid—Gain on Sale:    On August 1, 2016, we completed the sale of TONY, which operates the Total Care Medicaid plan, to Molina for an adjusted purchase price of $38.0 million, subject to closing date balance sheet adjustments, resulting in a pre-tax gain of $20.4 million.

        Traditional Insurance—Operating Results:    Traditional Insurance had operating income of $9.3 million for the nine months ended September 30, 2016 compared to $7.4 million for the same period in 2015. The increase was primarily driven by the absence of DAC amortization in 2016, since all DAC was written off at December 31, 2015 in connection with the Traditional Insurance fair value adjustment as well as lower levels of operating expenses, partially offset by lower earnings from a smaller block of in-force business.

        Traditional Insurance—Gain on Sale:    The gain recorded in the third quarter included the reclassification of $4.8 million of AOCI related to the sale of the Traditional Insurance business to adjust the cumulative loss on the transaction. This was partially offset by a $1.6 million adjustment to reflect the early cash settlement of the earn-out.

43

        APS Healthcare—Operating Results:    APS Healthcare had an operating gain of $27.4 million for the nine months ended September 30, 2016 compared with a loss of $4.4 million for the same period in 2015. Operating results for 2016 include the litigation settlement with GTCR. See Note 9—Commitments and Contingencies in the Notes to Consolidated Financial Statements for further details. .2015 results included one month of operating results for Puerto Rico and four months of results for the domestic business, which were both sold in 2015.

        APS Healthcare—    2016 amounts include earn-out revenues and litigation settlement, while 2015 amounts represent initial gain (loss) on sale of APS Healthcare. See Note 9—Commitments and Contingencies for additional information.

Liquidity and Capital Resources

        Sources and Uses of Liquidity to the Parent Company, Universal American Corp.    We require cash at our parent company to support the operations and growth of our HMO, insurance, MSO and other subsidiaries, fund new business opportunities through acquisitions or otherwise, fund debt service and pay the operating expenses necessary to function as a holding company, as applicable insurance department regulations require us to bear our own expenses.

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

•

dividends from and capital contributions to our Insurance and HMO subsidiaries—During the nine months ended September 30, 2016, SelectCare of Texas, Inc. ("SCOT") declared a $9.6 million dividend which was paid on July 21, 2016. No other dividends were declared or paid during 2016. In the third quarter of 2016, we made a capital contribution of $0.6 million to our Medicaid subsidiary, TONY, and a $0.1 million of capital contribution to our Texas-based dual-eligible special needs plan ("dSNP"), Today's Options of Texas, Inc. ("TOTX").

•

loans from and interest payments to our Insurance subsidiaries to support investments in our ACO business—During 2013, our Insurance subsidiaries loaned $22.0 million to our parent company. The parent company repaid $9.0 million of this loan in April 2015. The remaining $13.0 million loan payable was paid in August 2016. During the nine months ended September 30, 2016, the parent company paid interest totaling $0.3 million to our Insurance subsidiaries on such loans.

•

the cash flows of our other subsidiaries, including our Medicare Advantage management service organization—Net cash flows available to our parent company amounted to approximately $18.7 million during the nine months ended September 30, 2016.

•

the cash flows of our ACO business and other growth initiatives—For the nine months ended September 30, 2016, we funded expenses of approximately $26.4 million, pre-tax, related to our ACO business. Additionally, in September 2016, we received $39.8 million of gross proceeds from CMS for the 2015 program year. Distributions from these proceeds to our physician partners are expected to be completed in the fourth quarter of 2016.

•

payment of dividends to holders of our mandatorily redeemable preferred shares—In the nine months ended September 30, 2016, we paid $2.6 million of dividends to holders of our mandatorily redeemable preferred shares. The $40 million face value of those shares cannot be redeemed prior to 2017, unless there is a change in control of the Company.

•

payment of debt principal, interest and fees related to our convertible senior notes.

•

working capital loans to our Medicaid health plan—Prior to the sale of our Medicaid business, our parent company periodically provided loans to our Medicaid subsidiary, TONY, to bridge the timing difference between claims payments and premium receipts from New York State Department of Health. These loans were immediately repaid upon receipt of premiums. Upon

44

closing of the sale of TONY to Molina Healthcare on August 1, 2016, TONY had no outstanding loan balance or unpaid accrued interest due to the parent company and the agreement was terminated.

•

payment of certain corporate overhead costs and public company expenses, net of revenues, which amounted to $18.6 million for the nine months ended September 30, 2016.

        In addition, the parent company from time-to-time engages in corporate finance activities that generate the following sources and uses of liquidity:

•

issuance of convertible senior notes—On June 27, 2016, we completed an offering of $115.0 million of our 4.00% Convertible Senior Notes due 2021 (the "Convertible Notes"). The Convertible Notes are senior unsecured obligations of the Company. Interest on the Convertible Notes is payable on June 15 and December 15 of each year, commencing on December 15, 2016 until their maturity date of June 15, 2021. We may not redeem the Convertible Notes prior to the maturity date. The notes are convertible, subject to certain conditions, into cash, shares of Universal American's common stock or a combination of cash and shares of Universal American's common stock, at Universal American's option. The initial conversion rate per $1,000 principal amount of notes is equivalent to 105.8890 shares of common stock, which is equivalent to a conversion price of approximately $9.44 per share, subject to adjustment in certain circumstances.

•

repurchases of our common stock—We used the net proceeds from the Convertible Notes, together with cash on hand, to (i) repurchase all (a)11,011,515 shares of our common stock held by certain affiliates of Perry Capital ("Perry") and (b) 7,098,775 shares of our common stock held by certain affiliates of Welsh, Carson, Anderson & Stowe ("WCAS"), at a purchase price of $6.80 per share, for an aggregate purchase price of approximately $123.0 million, and (ii) repurchase 2,082,800 shares of our common stock for an aggregate purchase price of approximately $15.1 million from purchasers of the convertible notes in privately negotiated transactions.

•

payment of dividends to shareholders—We do not currently pay a regular dividend to our shareholders, however, on October 26, 2015, we paid a special cash dividend of $0.75 per share. Payment of any future dividends would be dependent upon an evaluation of excess capital, as discussed below.

•

proceeds from the sale of subsidiaries—During the first quarter of 2015, we completed the sale of our APS Healthcare Puerto Rico subsidiaries for $26.5 million in cash. During the second quarter of 2015, we completed the sale of our domestic APS subsidiaries for $5.0 million in cash. On August 3, 2016 we completed the sale of our Traditional Insurance business to Nassau Re. At closing, we received approximately $30.5 million in cash, which, under the terms of the agreement, is subject to post-closing price adjustments based on actual capital and surplus of Constitution Life and Pyramid compared to the target statutory capital and surplus of $68.5 million. In October 2016, we received $11.4 million representing final settlement of all potential earn-out payments from this sale. On August 1, 2016, we completed the sale of all the outstanding equity interests of TONY, which operates the Total Care Medicaid plan to Molina for an adjusted purchase price of $38.0 million, subject to closing date balance sheet adjustments.

•

proceeds from the sale of and distributions received on investments—In August 2015, we sold our interest in our cost-basis investment in naviHealth for $35.6 million and received cash proceeds of $33.1 million, with the balance of $2.5 million held in escrow until fourth quarter 2016, and recorded a pre-tax realized gain of $29.6 million. In November 2015, we sold our interest in our cost-basis investment in DDDS for $6.6 million and received cash proceeds of $3.1 million, with the balance of $3.4 million representing the discounted fair value of a put

45

option, exercisable in November 2018, and recorded a pre-tax realized gain of $6.1 million. Subsequently, in October 2016, we negotiated and received final settlement of this put option for $3.3 million. In addition, in 2015, we received a total of $2.0 million in cash distributions from DDDS.

•

As of September 30, 2016, we had approximately $119.6 million of cash and investments in our parent company and unregulated subsidiaries.

        We continually evaluate the potential use of any excess capital, which may include the following:

•

reinvestment in existing businesses;

•

acquisitions, investments or other strategic transactions;

•

return to shareholders through share repurchase, dividend or other means;

•

paydown of debt (as applicable); or

•

other appropriate uses.

        Any such use is dependent upon a variety of factors and there can be no assurance that any one or more of these uses will occur.

Sources and Uses of Liquidity of Our Subsidiaries

        Insurance and HMO subsidiaries.    We require cash at our insurance and HMO subsidiaries to meet our plan-related obligations and to pay operating expenses, including the cost of administration of the policies, and to maintain adequate capital levels. The primary sources of liquidity are premiums received from CMS and members and investment income generated by our invested assets.

        The National Association of Insurance Commissioners, known as the NAIC, imposes regulatory risk-based capital, known as RBC, requirements on insurance companies. The level of RBC is calculated and reported annually. A number of remedial actions could be enforced if a company's total adjusted capital is less than 200% of authorized control level RBC. However, we generally consider target surplus to be 350% of authorized control level RBC. At December 31, 2015, all of our insurance and HMO subsidiaries had total adjusted capital in excess of our target of 350% of authorized control level RBC except for SCOT which had approximately 300%. Excess capital can be used by the insurance and HMO subsidiaries to make dividend payments to their respective holding companies, subject to certain restrictions, and from there to our parent company.

        At September 30, 2016, we held cash and invested assets of approximately $374 million at our insurance and HMO subsidiaries that could readily be converted to cash. We believe that this level of liquidity is sufficient to meet our obligations and pay expenses.

        During the nine months ended September 30, 2016, SCOT declared a $9.6 million dividend which was paid on July 21, 2016. No other dividends were declared or paid during 2016. During 2015, our Insurance subsidiaries, Pyramid, Constitution, and Marquette (which was merged into Constitution Life in May 2015) declared and paid dividends totaling approximately $92 million. These subsidiaries were sold as part of the sale of our Traditional Insurance subsidiaries to Nassau. See Note 12—Discontinued Operations in the Notes to Consolidated Financial Statements. In June 2015, SCOT declared a $9.0 million ordinary dividend, which was subsequently paid to the holding company in July 2015. No other dividends were declared or paid by our other Insurance and HMO subsidiaries in 2015.

        In the third quarter of 2016, we made a capital contribution of $0.6 million to our Medicaid subsidiary, TONY, and a $0.1 million of capital contribution to TOTX, in order to maintain its $5.0 million minimum capital requirement. No capital contributions were made to our Insurance or HMO subsidiaries in the first half of 2016. In the first half of 2015, we funded a total of $17.1 million in capital contributions to one of our Insurance subsidiaries, which was merged into Constitution Life, one of the entities included in the sale of our Traditional Insurance business. During 2015, we made a

46

total of $8.3 million in capital contributions to TONY in support of our Total Care Medicaid health plan; $3.2 million of which was done in the form of a surplus note, bearing interest at a rate of 5.0%. This note was converted to capital effective June 30, 2016 and all accrued and unpaid interest was settled in cash in July 2016. Additionally, in the fourth quarter of 2015, we made a $3.5 million capital contribution to TOTX.

        Medicare Advantage Management Service Organizations.    The primary sources of liquidity for these subsidiaries are fees collected from affiliates for performing administrative, marketing and management services for our Medicare Advantage business. The primary uses of liquidity are the payments for salaries and expenses associated with providing these services. We believe the sources of cash for these subsidiaries will exceed scheduled uses of cash and result in amounts available to dividend to our parent company.

        Investments.    We invest primarily in fixed maturity securities of the U.S. Government and its agencies, U.S. state and local governments, mortgage-backed securities and corporate fixed maturity securities with investment grade ratings of BBB– or higher by S&P or Baa3 or higher by Moody's Investor Service. As of September 30, 2016, approximately 99% of our fixed income investment portfolio had investment grade ratings from S&P or Moody's.

        At September 30, 2016, cash and cash equivalents represent approximately 53% of our total cash and invested assets. The increase from 14% at June 30, 2016 is primarily driven by the early receipt of our October 2016 CMS payment on September 30, 2016 plus cash payments received from our asset sales. Approximately 67% of cash and invested assets were held in securities backed by the U.S. government or its agencies. The increase from 21% at June 30, 2016, is due to the larger cash balances held as a result of the transactions mentioned previously, plus the conversion of our "prime" money market fund holdings to U.S. government money market funds, which was driven by the money market fund reforms going into effect in October 2016. The average credit quality of our total investment portfolio was AA, up from A+ due to an increase in our AAA rated cash balances.

        The average book yield of our investment portfolio decreased to 1.7% at September 30, 2016 from 2.9% December 31, 2015, which was driven by the significant increase in our lower yielding cash balances at September 30, 2016 vs. December 31, 2015.

Critical Accounting Policies

        In our judgment, the accounts involving estimates and assumptions that are most critical to the preparation of our financial statements are policy related liabilities and expense recognition, goodwill and other intangible assets, investment valuation, revenue recognition and income taxes. All unamortized deferred acquisition costs, or DAC, were written off at December 31, 2015, in connection with the fair value adjustment on our Traditional Insurance business. As a result, we no longer consider accounting for DAC to be a critical accounting policy. For a description of our significant accounting policies, see Note 3—Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2015.

47

Policy and Contract Claims—Accident and Health Policies

        The following table presents the components of the change in our liability for policy and contract claims:

	Nine months ended September 30,
	2016
	(in thousands)
Balance at beginning of period	$	86,976
Incurred related to:
Current year		868,493
Prior year development		(345	)
Total incurred		868,148
Paid related to:
Current year		811,626
Prior year		60,594
Total paid		872,220
Balance at end of period	$	82,904

        The liability for policy and contract claims at September 30, 2016 decreased by $4.1 million during the nine months ended September 30, 2016. The decrease in the liability was primarily attributable to faster claims processing times.

        The prior year development incurred in the table above represents favorable adjustments as a result of prior year claim estimates being settled or currently expected to be settled, for amounts that are different than originally anticipated. This prior year development occurs due to differences between the actual medical utilization and other components of medical cost trends, and actual claim processing and payment patterns compared to the assumptions for claims trend and completion factors used to estimate our claim liabilities.

        During the nine months ended September 30, 2016, claim reserves settled, or are currently expected to be settled, for $0.3 million less than estimated at December 31, 2015. Prior period development represents less than 0.1% of the incurred claims recorded in 2015.

Sensitivity Analysis

        The following table illustrates the sensitivity of our accident and health IBNR payable at September 30, 2016 to identified reasonably possible changes to the estimated weighted average completion factors and health care cost trend rates. However, it is possible that the actual completion

48

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

Completion Factor(1):						Claims Trend Factor(2):
(Decrease) Increase in Factor			Increase (Decrease) in Net Health IBNR			(Decrease) Increase in Factor			(Decrease) Increase in Net Health IBNR
($ in thousands)
	–3	%	$	130			–3	%	$	(4,779	)
	–2	%		87			–2	%		(3,186	)
	–1	%		43			–1	%		(1,593	)
	1	%		(43	)		1	%		1,593
	2	%		(87	)		2	%		3,186
	3	%		(130	)		3	%		4,779

(1)

Reflects estimated potential changes in medical and other expenses payable, caused by changes in completion factors for incurred months prior to the most recent three months.

(2)

Reflects estimated potential changes in medical and other expenses payable, caused by changes in annualized claims trend used for the estimation of per member per month incurred claims for the most recent three months.

Effects of Recently Issued and Pending Accounting Pronouncements

        A summary of recent and pending accounting pronouncements is provided in Note 3—Recently Issued and Pending Accounting Pronouncements.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Investment Interest Rate Sensitivity

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

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

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

        The sensitivity analysis of interest rate risk assumes an instantaneous shift in a parallel fashion across the yield curve, with scenarios of interest rates increasing and decreasing 100 and 200 basis

49

points from their levels as of September 30, 2016, and with all other variables held constant. The following table summarizes the impact of the assumed changes in market interest rates at September 30, 2016. Due to the current low interest rate environment, when estimating the effect of market interest rate decreases on fair value we have set an interest rate floor of 0% and have not allowed interest rates to go negative.

September 30, 2016		Effect of Change in Market Interest Rates on Fair Value of Fixed Income Portfolio as of September 30, 2016
Fair Value of Fixed Income Portfolio		200 Basis Point Decrease		100 Basis Point Decrease		100 Basis Point Increase			200 Basis Point Increase
(in millions)
$	221.0	$	11.1	$	8.4	$	(8.5	)	$	(16.8	)

ITEM 4—CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Inherent Limitations on Effectiveness of Controls

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

Evaluation of Effectiveness of Controls

        We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2016. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016, at a reasonable assurance level, to timely alert management to material information required to be included in our periodic filings with the Securities and Exchange Commission.

Changes in Internal Control over Financial Reporting

        There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

50

PART II

ITEM 1—LEGAL PROCEEDINGS

        For information relating to litigation affecting us, see Note 9—Commitments and Contingencies in Part I—Item 1 of this report, which is incorporated into this Part II—Item 1—Legal Proceedings by reference.

ITEM 1A—RISK FACTORS

        There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on March 10, 2016, as modified by the changes to those risk factors included in our first and second quarter Form 10-Qs we filed with the SEC subsequent to March 10, 2016.

ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        None.

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4—MINE SAFETY DISCLOSURES

        None.

ITEM 5—OTHER INFORMATION

        None.

51

ITEM 6—EXHIBITS

        Each exhibit identified below is filed as a part of this report.

31.1	Certification of Chief Executive Officer, as required by Rule 13a- 14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer, as required by Rule 13a- 14(a) of the Securities Exchange Act of 1934.
31.3	Certification of Chief Accounting Officer, as required by Rule 13a- 14(a) of the Securities Exchange Act of 1934.
32.1	Certification of the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
101.INS—XBRL	Instance Document.
101.SCH—XBRL	Taxonomy Extension Schema Document.
101.CAL—XBRL	Taxonomy Extension Calculation Linkbase Document.
101.LAB—XBRL	Taxonomy Extension Label Linkbase Document.
101.PRE—XBRL	Taxonomy Extension Presentation Linkbase Document.
101.DEF—XBRL	Taxonomy Extension Definition Linkbase Document.

52

SIGNATURES

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

	UNIVERSAL AMERICAN CORP.
November 8, 2016	/s/ RICHARD A. BARASCH Richard A. Barasch Chief Executive Officer
November 8, 2016	/s/ ADAM C. THACKERY Adam C. Thackery Chief Financial Officer
November 8, 2016	/s/ DAVID R. MONROE David R. Monroe Chief Accounting Officer

53

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

CERTIFICATION

I, Richard A. Barasch, Chief Executive Officer of the registrant, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 of Universal American Corp.;

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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

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

d)

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 officers 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: November 8, 2016 /s/ RICHARD A. BARASCH
Richard A. Barasch
Chief Executive Officer

QuickLinks

Exhibit 31.1

CERTIFICATION

EX-31.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

CERTIFICATION

I, Adam C. Thackery, Chief Financial Officer of the registrant, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 of Universal American Corp.;

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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

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

d)

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 officers 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: November 8, 2016 /s/ ADAM C. THACKERY
Adam C. Thackery
Chief Financial Officer

QuickLinks

Exhibit 31.2

CERTIFICATION

EX-31.3

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.3

CERTIFICATION

I, David R. Monroe, Chief Accounting Officer of the registrant, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 of Universal American Corp.;

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 officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

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

d)

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 officers 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: November 8, 2016 /s/ DAVID R. MONROE
David R. Monroe
Chief Accounting Officer

QuickLinks

Exhibit 31.3

CERTIFICATION

EX-32.1

QuickLinks -- Click here to rapidly navigate through this document

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 on Form 10-Q of Universal American Corp. (the "Registrant") for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Richard A. Barasch, Chief Executive Officer of the Registrant, Adam C. Thackery, Chief Financial Officer of the Registrant and David R. Monroe, Chief Accounting Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 8, 2016	/s/ RICHARD A. BARASCH Richard A. Barasch Chief Executive Officer
Date: November 8, 2016	/s/ ADAM C. THACKERY Adam C. Thackery Chief Financial Officer
Date: November 8, 2016	/s/ DAVID R. MONROE David R. Monroe Chief Accounting Officer

A signed original of this written statement required by Rule 13a- 14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that Section. This certification is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language contained in such filing.

QuickLinks

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

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 03, 2016
Document and Entity Information
Entity Registrant Name	UNIVERSAL AMERICAN CORP.
Entity Central Index Key	0001514128
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		58,735,918
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investments:
Fixed maturities available for sale, at fair value (amortized cost: 2016, $215,761; 2015, $279,277)	$ 221,009	$ 281,776
Other invested assets	9,717	9,734
Total investments	230,726	291,510
Cash and cash equivalents	264,046	70,546
Accrued investment income	2,147	2,307
Reinsurance recoverables	279	406
Due and unpaid premiums	14,816	25,518
Goodwill and intangible assets	71,078	71,423
Deferred income tax asset	21,840	48,704
Income taxes receivable	10,220	5,885
Other healthcare receivables	27,355	34,127
Other assets	34,434	29,866
Assets of discontinued operations	238,246	1,150,570
Total assets	915,187	1,730,862
LIABILITIES
Policy and contract claims	82,904	86,976
Premiums received in advance	113,183	953
Convertible Senior Notes due 2021, net of fees	91,645
Series A mandatorily redeemable preferred shares, net of fees	39,893	39,755
Net amounts payable to discontinued operations	37	44,289
Accounts payable and other liabilities	59,994	60,455
Liabilities of discontinued operations	236,072	1,116,039
Total liabilities	623,728	1,348,467
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock (Authorized: 40 million shares)
Additional paid-in capital	443,323	608,804
Accumulated other comprehensive income	3,671	2,748
Retained deficit	(156,123)	(230,003)
Total stockholders' equity	291,459	382,395
Total liabilities and stockholders' equity	915,187	1,730,862
Common stock - voting
STOCKHOLDERS' EQUITY
Common stock	$ 588	813
Common stock - non-voting
STOCKHOLDERS' EQUITY
Common stock		$ 33

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fixed maturities available for sale, amortized cost (in dollars)	$ 215,761	$ 279,277
Preferred stock, Authorized shares	40,000	40,000
Common stock, issued shares	58,756	81,312
Common stock - voting
Common stock, Authorized shares	400,000	400,000
Common stock, issued shares	58,800	81,300
Common stock, outstanding shares	58,800	81,300
Common stock - non-voting
Common stock, Authorized shares	60,000	60,000
Common stock, issued shares		3,300
Common stock, outstanding shares		3,300

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Net premiums	$ 340,643	$ 304,178	$ 1,029,158	$ 924,242
Net investment income	1,926	4,112	6,289	9,754
Fee and other income	963	1,749	1,932	4,204
Net realized (losses) gains	(143)	29,751	1,385	33,625
Total revenues	343,389	339,790	1,038,764	971,825
Benefits, claims and expenses:
Claims and other benefits	290,982	267,652	868,148	801,848
Amortization of intangible assets	237	537	696	1,583
Commissions	5,265	4,826	14,593	13,131
Interest expense	3,046	1,142	4,825	3,849
Affordable Care Act fee	5,513	6,419	16,293	19,117
Other operating costs and expenses	42,437	38,772	122,086	117,657
Total benefits, claims and expenses	347,480	319,348	1,026,641	957,185
(Loss) income before equity in (losses) earnings of unconsolidated subsidiaries	(4,091)	20,442	12,123	14,640
Equity in (losses) earnings of unconsolidated subsidiaries	(5,170)	(7,446)	14,504	(1,134)
(Loss) income from continuing operations before income taxes	(9,261)	12,996	26,627	13,506
(Benefit from) provision for (benefit from) income taxes	(504)	13,045	15,473	7,618
Income from continuing operations	(8,757)	(49)	11,154	5,888
Discontinued operations:
Income (loss) from discontinued operations before income taxes	56,959	3,514	68,024	(15,097)
Provision for (benefit from) income taxes	(2,679)	657	5,298	(6,796)
Income (loss) from discontinued operations	59,638	2,857	62,726	(8,301)
Net income (loss)	$ 50,881	$ 2,808	$ 73,880	$ (2,413)
Basic:
Continuing operations (in dollars per share)	$ (0.14)		$ 0.15	$ 0.07
Discontinued operations (in dollars per share)	0.97	$ 0.03	0.83	(0.10)
Net income (loss) (in dollars per share)	0.83	0.03	0.98	(0.03)
Diluted:
Continuing operations (in dollars per share)	(0.14)		0.15	0.07
Discontinued operations (in dollars per share)	0.97	0.03	0.82	(0.10)
Net income (loss) (in dollars per share)	$ 0.83	$ 0.03	$ 0.97	$ (0.03)
Weighted average shares outstanding:
Basic weighted average shares outstanding (in shares)	61,329	82,516	75,400	82,337
Effect of dilutive securities (in shares)			739	1,199
Diluted weighted average shares outstanding (in shares)	61,329	82,516	76,139	83,536

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Comprehensive income (loss):
Net income (loss)	$ 50,881	$ 2,808	$ 73,880	$ (2,413)
Other comprehensive (loss) income, net of income taxes:
Unrealized (loss) gain on investments	(9,355)	(26)	1,064	(5,025)
Less: reclassification adjustment for gains included in net income (loss)	(6)	68	1,020	2,552
Change in net unrealized (loss) gain on investments	(9,349)	(94)	44	(7,577)
Change in long-term claim reserve adjustment	2,940	10	879	1,809
Total other comprehensive (loss) income, net of income taxes	(6,409)	(84)	923	(5,768)
Comprehensive income (loss)	$ 44,472	$ 2,724	$ 74,803	$ (8,181)

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock Common stock - voting	Common Stock Common stock - non-voting	Additional Paid-in Capital	Accumulated Other Comprehensive Income.	Retained Deficit	Total
Balance at Dec. 31, 2014	$ 804	$ 33	$ 667,026	$ 12,648	$ (66,046)	$ 614,465
Increase (Decrease) in Stockholders' Equity
Net income (loss)					(2,413)	(2,413)
Other comprehensive income (loss)				(5,768)		(5,768)
Net issuance of common stock	3		186			189
Stock-based compensation			3,459			3,459
Dividends to stockholders			216		9	225
Balance at Sep. 30, 2015	807	33	670,887	6,880	(68,450)	610,157
Balance at Dec. 31, 2015	813	33	608,804	2,748	(230,003)	382,395
Increase (Decrease) in Stockholders' Equity
Net income (loss)					73,880	73,880
Other comprehensive income (loss)				923		923
Net issuance of common stock	6		(948)			(942)
Stock-based compensation			1,623			1,623
Dividends to stockholders			1,656			1,656
Share buy back/cancellation	(231)	$ (33)	(180,657)			(180,921)
Equity component of convertible senior notes, net of deferred tax			12,845			12,845
Balance at Sep. 30, 2016	$ 588		$ 443,323	$ 3,671	$ (156,123)	$ 291,459

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Operating activities:
Net income (loss)	$ 73,880	$ (2,413)
(Income) loss from discontinued operations	(62,726)	8,301
Income from continuing operations	11,154	5,888
Adjustments to reconcile net income (loss) to cash used for operating activities:
Deferred income taxes	18,967	3,730
Net realized gains on investments	(1,385)	(33,625)
Amortization of intangible assets	696	1,583
Amortization of debt issuance costs	348	1,825
Amortization of debt discount on convertible notes	1,081
Net amortization of bond premium	1,072	1,328
Depreciation expense	2,139	2,575
Stock based compensation expense	5,022	7,623
Changes in operating assets and liabilities:
Prepaid ACA fee	(5,431)	(5,484)
Policy and contract claims	(4,072)	(9,177)
Reinsurance recoverables	127	340
Due and unpaid/advance premiums	122,932	18,228
Net amounts payable to discontinued operations	11,062	68,748
Income taxes receivable	(4,335)	21,335
Other healthcare receivables	6,772	(5,464)
Other, net	(1,908)	(62,063)
Cash provided by operating activities of continuing operations	164,241	17,390
Cash used for operating activities of discontinued operations	(12,947)	(60,066)
Cash provided by operating activities	151,294	(42,676)
Investing activities:
Proceeds from sale, maturity, call, paydown or redemption of fixed maturity investments	67,802	65,523
Cost of fixed maturity investments acquired	(57,373)	(5,203)
Change in short-term investments		5,496
Proceeds from sale of cost method investments		35,620
Purchase of fixed assets	(534)	(5,011)
Other investing activities	(2,807)	(296)
Cash provided by investing activities of continuing operations	7,088	96,129
Cash provided by investing activities of discontinued operations	72,241	93,799
Cash provided by investing activities	79,329	189,928
Financing activities:
Net proceeds from issuance of common and preferred stock, net of tax effect	(2,113)	105
Share repurchase	(151,271)
Dividends paid to stockholders	898	(664)
Principal payment on loan payable		(58,567)
Proceeds from the issuance of convertible senior notes	115,000
Payment of issue costs - convertible senior notes	(4,877)
Distributions from discontinued operations	64,534	23,409
Cash used for financing activities of continuing operations	22,171	(35,717)
Cash used for financing activities of discontinued operations	(64,534)	(23,409)
Cash used for financing activities	(42,363)	(59,126)
Net increase in cash and cash equivalents	188,260	88,126
Less: decrease (increase) in cash and cash equivalents from discontinued operations	5,240	(10,324)
Net increase in cash and cash equivalents from continuing operations	193,500	77,802
Cash and cash equivalents of continuing operations at beginning of period	70,546	94,376
Cash and cash equivalents of continuing operations at end of period	$ 264,046	$ 172,178

XML

ORGANIZATION AND COMPANY BACKGROUND

9 Months Ended

Sep. 30, 2016

ORGANIZATION AND COMPANY BACKGROUND

ORGANIZATION AND COMPANY BACKGROUND

1. ORGANIZATION AND COMPANY BACKGROUND

        Except as otherwise indicated, references to the "Company," "Universal American," "we," "our," and "us" are to Universal American Corp., a Delaware corporation, and its subsidiaries.

        Universal American, through our family of healthcare companies, provides health benefits to people covered by Medicare. We are dedicated to working collaboratively with healthcare professionals, especially primary care physicians, in order to improve the health and well-being of those we serve and reduce healthcare costs.

        Through our health plans and insurance subsidiary, we sell Medicare Coordinated Care Plan products in Texas, which we call HMOs, and sell Medicare Coordinated Care products in New York and Maine that are built around contracted networks of providers, which we call PPOs and Medicare Advantage Network private fee-for-service products, known as PFFS Plans. Our Medicare Advantage plans currently serve approximately 114,400 members, including 68,800 members in our Texas HMOs and 45,600 members in upstate New York and Maine.

        Our subsidiary, Collaborative Health Systems, LLC, also known as CHS, works with physicians and other healthcare professionals to operate Accountable Care Organizations, or ACOs, under the Medicare Shared Savings Program, or MSSP and Next Generation ACO model. We currently have twenty-two MSSP ACOs in eleven states previously approved for participation in the program by the Centers for Medicare & Medicaid Services, known as CMS and one Next Generation ACO operating in Houston, Texas. Based on data provided by CMS, these ACOs currently include approximately 5,200 participating providers with approximately 236,800 assigned Medicare fee-for-service beneficiaries, both within and outside our current Medicare Advantage footprint. CHS provides these ACOs with care coordination, analytics and reporting, technology and other administrative capabilities to enable participating providers to deliver better care and lower healthcare costs for their Medicare fee-for-service beneficiaries. The Company provides funding to CHS to support the operating activities of CHS and the ACOs.

        On August 3, 2016 we completed the sale of our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. ("Nassau Re"), known as the Traditional Sale. Under the terms of the agreement, Nassau Re acquired all of the shares of Constitution Life Insurance Company ("Constitution Life") and The Pyramid Life Insurance Company ("Pyramid"), as well as the Traditional Insurance business written by American Progressive Life & Health Insurance Company of New York ("Progressive") on a 100% coinsurance basis. As of December 31, 2015, we determined that our Traditional Insurance business should be classified as held for sale and reported as discontinued operations. Consequently, the related assets and liabilities were adjusted to fair value as of December 31, 2015 based on the estimated net amounts realizable upon sale and for all periods presented were classified as assets and liabilities of discontinued operations in our consolidated balance sheets. The related operating results and cash flows are reported in discontinued operations in our consolidated financial statements. See Note 12—Discontinued Operations for further details.

        On August 1, 2016, we completed the sale of our subsidiary, Today's Options of New York, Inc., ("TONY") which operates the Total Care Medicaid plan, to Molina Healthcare, Inc. ("Molina"). As of June 30, 2016, we determined that our Medicaid business should be classified as held for sale and reported as discontinued operations. Consequently, the related assets and liabilities were reclassified as assets and liabilities of discontinued operations in our consolidated balance sheets for all periods presented. The related operating results and cash flows are reported in discontinued operations in our consolidated financial statements. See Note 12—Discontinued Operations for further details.

        On May 1, 2015, we sold our APS Healthcare domestic subsidiaries and we sold our APS Healthcare Puerto Rico subsidiaries on February 4, 2015 and these businesses are reported as discontinued operations. As a result, the related assets and liabilities for APS Healthcare have been reclassified as assets and liabilities of discontinued operations in our consolidated balance sheets. The related operating results and cash flows are reported in discontinued operations in our consolidated financial statements. See Note 12—Discontinued Operations for further details.

XML

BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2016

BASIS OF PRESENTATION

BASIS OF PRESENTATION

2. BASIS OF PRESENTATION

        We have prepared the accompanying Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles, known as GAAP, for interim reporting in accordance with Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, the Consolidated Financial Statements do not include all of the disclosures normally required by U.S. GAAP or those normally made in an Annual Report on Form 10-K. We have eliminated all material intercompany transactions and balances. The interim financial information in this report is unaudited, but in the opinion of management, includes all adjustments, including normal, recurring adjustments necessary to present fairly the financial position and results of operations for the periods reported. The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year.

        Unconsolidated Subsidiaries:    We have entered into agreements with various healthcare providers to establish ACOs. These ACOs were generally formed as Limited Liability Companies. We own a majority interest in our ACOs but do not consolidate them because we share the power to direct the activities that most significantly impact the ACOs. Our share of the income of an ACO is generally 50% and our share of losses of an ACO is generally 100%. In the event of losses, we generally have the right to receive 100% of subsequent profits until our losses are recovered. Any remaining revenues are generally shared at 50%.

        The ACOs are considered variable interest entities, known as VIEs, under GAAP as these entities do not have sufficient equity to finance their own operations without additional financial support. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. The power to direct the activities of the ACOs that most significantly impact their performance is shared between us and the healthcare providers that we have joined with to establish the ACOs pursuant to the structure of the Management Committee of each of the ACOs. Accordingly, we have determined that we are not the primary beneficiary of the ACOs, and therefore we cannot consolidate them. We account for our participation in the ACOs using the equity method. Gains and losses from our participation in the ACOs are reported as equity in (losses) earnings of unconsolidated subsidiaries in the consolidated statements of operations. Our net investment in the ACOs is reported in other assets in our consolidated balance sheets.

        ACO Revenue:    On July 29, 2016, CMS informed us that our MSSP ACOs generated $97 million in gross savings for program year 2015. This compares to $80 million in gross savings for program year 2014, which we reported in the second quarter of 2015. Ten of our ACO's qualified for shared savings payments, compared to nine in program year 2014, and received payments of $39.8 million, compared to $26.9 million in program year 2014. Our share of these payments for 2016, after payments to our physician partners of $11.3 million, is $28.5 million, compared to $20.9 million in 2015, and is reflected in equity in (losses) earnings of unconsolidated subsidiaries in our consolidated statements of operations.

        Statutory Accounting Practices:    For our insurance and HMO subsidiaries, U.S. GAAP differs from statutory accounting practices prescribed or permitted by regulatory authorities. See Note 2—Basis of Presentation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information on these differences.

        Use of Estimates:    The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Critical accounting policies require significant subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based on information available at the time the estimates are made, as well as anticipated future events. We periodically evaluate our estimates, and as additional information becomes available or actual amounts become determinable, we may revise the recorded estimates and reflect the revisions in our operating results. In our judgment, the accounts involving estimates and assumptions that are most critical to the preparation of our financial statements are policy related liabilities and expense recognition, goodwill and other intangible assets, investment valuation, revenue recognition and income taxes. All unamortized deferred acquisition costs, or DAC, were written off at December 31, 2015, in connection with the fair value adjustment on our Traditional Insurance business. As a result, we no longer consider accounting for DAC to be a critical accounting policy.

        Reclassifications:    In accordance with the provisions of Accounting Standards Codification, known as ASC, 205-20, Presentation of Financial Statements—Discontinued Operations, effective June 30, 2016, we determined that our Total Care business should be classified as held for sale and reported in discontinued operations. Also, effective December 31, 2015, we determined that our Traditional Insurance business should be classified as held for sale and reported in discontinued operations. Effective with the sale of the APS Healthcare domestic operations on May 1, 2015, we determined that our APS Healthcare businesses should be reported as discontinued operations. As a result, the results of operations and cash flows related to our Total Care, Traditional Insurance and APS Healthcare businesses are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and presented separately in our consolidated balance sheets. Unless otherwise noted, all disclosures in the notes accompanying our consolidated financial statements reflect only continuing operations. For additional information on our discontinued operations, see Note 12—Discontinued Operations.

        We adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, effective January 1, 2016. Under this ASU, debt issuance costs related to a recognized debt liability are to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result, we have reclassified unamortized deferred loan fees related to our Series A mandatorily redeemable preferred shares, or MRPS, from other assets to be offset against the MRPS liability balance. The unamortized costs amounted to $0.1 million at September 30, 2016 and $0.2 million at December 31, 2015.

        Change in Accounting Estimate:    CMS uses risk-adjusted rates per member to determine the monthly payments to Medicare Plans. CMS has implemented a risk adjustment model which apportions premiums paid to all health plans according to health diagnoses. The risk adjustment model uses health status indicators, or risk scores, to improve the accuracy of payment. The CMS risk adjustment model pays more for members with increasing health severity. Under this risk adjustment methodology, diagnosis data from inpatient and ambulatory treatment settings are used by CMS to calculate the risk adjusted premium payment to Medicare Plans. The monthly risk-adjusted premium per member is determined by CMS based on normalized risk scores of each member from the prior year. Annually, CMS provides the updated risk scores to the Plans and revises premium rates prospectively, beginning with the July remittance for current Plan year members. CMS will also calculate the retroactive adjustments to premium related to the revised risk scores for the current year for current Plan year members and for the prior year for prior Plan year members.

        Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, based on health diagnoses for our Medicare Advantage business. Under our previous methodology, we estimated changes in CMS premiums related to revenue adjustments based upon the diagnosis data submitted to CMS and ultimately accepted by CMS. We believe this method resulted in a lag in recognizing revenue for changes in our members' medical condition that will ultimately be included in the final risk adjusted premium paid by CMS. During the first quarter of 2016, we completed the development and validation of a model that allows us to better estimate the risk-adjusted premiums that will ultimately be realized based upon our historical experience for members that have a full year of experience and members that have joined during the annual enrollment period or special election period. We believe this change serves to better reflect risk-adjusted premiums in the period in which they are earned and is considered a change in estimate under ASC 250, Accounting Changes. This change in estimate resulted in the accelerated recognition of $7.7 million and $26.5 million of additional current year premium revenue, or $0.08 and $0.23 per share after tax for the three months and nine months ended September 30, 2016, respectively. Under our previous estimation process, this revenue would not have been recognized until the related diagnosis data was submitted to and accepted by CMS, typically in the third and fourth quarters of the current year and the first and second quarters of the subsequent year.

        Significant Accounting Policies:    For a description of existing significant accounting policies, see Note 3—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 and Note 3—Recently Issued and Pending Accounting Pronouncements herein.

XML

RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2016

RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

3. RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

        Statement of Cash Flows:    In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on classification in the statement of cash flows for eight specific cash flow reporting issues and clarifies application of the predominance principle in determining classification within the statement of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Retrospective application is required unless impracticable. We are currently evaluating the impact of adoption on our consolidated statements of cash flows.

XML

INVESTMENTS

9 Months Ended

Sep. 30, 2016

INVESTMENTS

INVESTMENTS

4. INVESTMENTS

        The amortized cost and fair value of fixed maturity investments are as follows:

	September 30, 2016
Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	21,321	$	58	$	(5	)	$	21,374
Government sponsored agencies		514		13		—			527
Other political subdivisions		26,760		657		(43	)		27,374
Corporate debt securities		89,233		4,518		(1,034	)		92,717
Foreign debt securities		28,444		434		(751	)		28,127
Residential mortgage-backed securities		22,300		1,154		(3	)		23,451
Commercial mortgage-backed securities		22,797		350		(103	)		23,044
Other asset-backed securities		4,392		35		(32	)		4,395
	$	215,761	$	7,219	$	(1,971	)	$	221,009

	December 31, 2015
Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	8,481	$	5	$	(8	)	$	8,478
Government sponsored agencies		516		—		(9	)		507
Other political subdivisions		35,253		771		(98	)		35,926
Corporate debt securities		144,772		4,076		(2,425	)		146,423
Foreign debt securities		28,287		471		(1,159	)		27,599
Residential mortgage-backed securities		34,973		1,254		(258	)		35,969
Commercial mortgage-backed securities		21,264		68		(181	)		21,151
Other asset-backed securities		5,731		33		(41	)		5,723
	$	279,277	$	6,678	$	(4,179	)	$	281,776

        At September 30, 2016, gross unrealized losses were primarily driven by corporate debt securities and foreign debt securities. The fair values of certain callable, hybrid securities in these groups are depressed due to the expectation that these securities will not be called at their respective call dates, thus being extended and priced to their final maturity dates. However, we have evaluated these holdings with our investment managers and do not believe any individual holdings to be other-than-temporarily impaired. For additional information regarding our process for evaluating investments for potential other-than-temporary impairment see Note 3—Summary of Significant Accounting Policies—Investments of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

        The amortized cost and fair value of fixed maturity investments at September 30, 2016 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
	(in thousands)
Due in 1 year or less	$	8,100	$	8,208
Due after 1 year through 5 years		79,073		81,434
Due after 5 years through 10 years		57,515		60,133
Due after 10 years		21,584		20,344
Mortgage and asset-backed securities		49,489		50,890
	$	215,761	$	221,009

        The fair value and unrealized loss as of September 30, 2016 and December 31, 2015 for fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below:

	Less than 12 Months					12 Months or Longer					Total
September 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	11,957	$	(5	)	$	—	$	—		$	11,957	$	(5	)
Other political subdivisions		—		—			1,536		(43	)		1,536		(43	)
Corporate debt securities		7,334		(53	)		5,321		(981	)		12,655		(1,034	)
Foreign debt securities		6,992		(13	)		8,089		(738	)		15,081		(751	)
Residential mortgage-backed securities		—		—			579		(3	)		579		(3	)
Commercial mortgage-backed securities		8,015		(96	)		2,181		(7	)		10,196		(103	)
Other asset-backed securities		—		—			2,171		(32	)		2,171		(32	)
Total fixed maturities	$	34,298	$	(167	)	$	19,877	$	(1,804	)	$	54,175	$	(1,971	)
Total number of securities in an unrealized loss position														35

	Less than 12 Months					12 Months or Longer					Total
December 31, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	5,210	$	(8	)	$	—	$	—		$	5,210	$	(8	)
Government sponsored agencies		507		(9	)		—		—			507		(9	)
Other political subdivisions		3,162		(98	)		—		—			3,162		(98	)
Corporate debt securities		48,819		(2,392	)		1,396		(33	)		50,215		(2,425	)
Foreign debt securities		6,528		(382	)		5,085		(777	)		11,613		(1,159	)
Residential mortgage-backed securities		3,021		(41	)		6,701		(217	)		9,722		(258	)
Commercial mortgage-backed securities		7,422		(151	)		2,108		(30	)		9,530		(181	)
Other asset-backed securities		1,467		(22	)		928		(19	)		2,395		(41	)
Total fixed maturities	$	76,136	$	(3,103	)	$	16,218	$	(1,076	)	$	92,354	$	(4,179	)
Total number of securities in an unrealized loss position														96

Realized Gains and Losses

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

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016			2015
	(in thousands)
Realized gains:
Fixed maturities	$	—		$	359		$	1,563		$	4,175
Realized gain on sale of equity investment(1)		—			29,620			—			29,620
Other		—			—			119			120
		—			29,979			1,682			33,915
Realized Losses:
Fixed maturities		—			(228	)		(154	)		(290	)
Other		(143	)		—			(143	)		—
		(143	)		(228	)		(297	)		(290	)
Net realized (losses) gains	$	(143	)	$	29,751		$	1,385		$	33,625

(1)           Represents a gain on the sale of our cost-method investment in naviHealth in the third quarter of 2015.

XML

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2016

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

5. FAIR VALUE MEASUREMENTS

        We carry fixed maturity investments and equity securities at fair value in our Consolidated Financial Statements. These fair value disclosures consist of information regarding the valuation of these financial instruments followed by the fair value measurement disclosure requirements of Fair Value Measurements and Disclosures Topic, ASC 820-10. For further discussion, see Note 6—Fair Value Measurements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

        The following table presents our recurring fair value measurements by ASC-820-10 hierarchy levels (in thousands):

September 30, 2016	Total		Level 1		Level 2		Level 3(1)
Assets:
Fixed maturities, available for sale	$	221,009	$	—	$	220,958	$	51
Equity securities		6,404		—		6,404		—
Total assets	$	227,413	$	—	$	227,362	$	51

December 31, 2015
Assets:
Fixed maturities, available for sale	$	281,776	$	—	$	281,674	$	102
Equity securities		6,352		—		6,352		—
Total assets	$	288,128	$	—	$	288,026	$	102

(1)           Level 3 securities are all mortgage-backed and asset-backed securities at September 30, 2016 and December 31, 2015 and represent private-placement securities that are thinly traded and priced using an internal model or modeled by independent brokers.

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME

9 Months Ended

Sep. 30, 2016

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

6. ACCUMULATED OTHER COMPREHENSIVE INCOME

        The components of accumulated other comprehensive income are as follows (in thousands):

	Net Unrealized Gains on Investments Available for Sale			Long-Term Claim Reserve Adjustment			Accumulated Other Comprehensive Income
Three months ended September 30, 2016
Balance as of July 1, 2016	$	15,483		$	(5,403	)	$	10,080
Other comprehensive loss before reclassifications		(9,355	)		2,940			(6,415	)
Less: Amounts reclassified from other comprehensive loss(1)		(6	)		—			(6	)
Net current-period other comprehensive loss		(9,349	)		2,940			(6,409	)
Balance as of September 30, 2016	$	6,134		$	(2,463	)	$	3,671
Three months ended September 30, 2015
Balance as of July 1, 2015	$	11,605		$	(4,641	)	$	6,964
Other comprehensive loss before reclassifications		(26	)		10			(16	)
Less: Amounts reclassified from other comprehensive loss(1)		68			—			68
Net current-period other comprehensive loss		(94	)		10			(84	)
Balance as of September 30, 2015	$	11,511		$	(4,631	)	$	6,880
Nine months ended September 30, 2016
Balance as of January 1, 2016	$	6,090		$	(3,342	)	$	2,748
Other comprehensive income before reclassifications		1,064			879			1,943
Less: Amounts reclassified from other comprehensive income(1)		1,020			—			1,020
Net current-period other comprehensive loss		44			879			923
Balance as of September 30, 2016	$	6,134		$	(2,463	)	$	3,671
Nine months ended September 30, 2015
Balance as of January 1, 2015	$	19,088		$	(6,440	)	$	12,648
Other comprehensive loss before reclassifications		(5,025	)		1,809			(3,216	)
Less: Amounts reclassified from other comprehensive loss(1)		2,552			—			2,552
Net current-period other comprehensive loss		(7,577	)		1,809			(5,768	)
Balance as of September 30, 2015	$	11,511		$	(4,631	)	$	6,880

Table amounts are presented net of tax at a rate of 35%.

(1)           Reclassed from net realized gains in the Consolidated Statements of Operations.

XML

STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2016

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

7. STOCK-BASED COMPENSATION

        In April 2011, we established the Universal American Corp. 2011 Omnibus Equity Award Plan, known as the 2011 Equity Plan. The 2011 Equity Plan is the sole active plan for providing equity compensation to eligible employees, directors and other third parties. We issue shares upon the exercise of options granted under the 2011 Equity Plan. Detailed information for activity in our stock-based incentive plan can be found in Note 15—Stock-Based Compensation in our Annual Report on Form 10-K for the year ended December 31, 2015.

        Compensation expense, included in other operating costs and expenses, and the related tax benefit were as follows:

	Three Months ended September 30,					Nine Months ended September 30,
	2016			2015		2016		2015
	(in thousands)
Stock options	$	433		$	734	$	1,623	$	3,459
Restricted stock awards		1,083			1,166		3,508		5,420
Total stock-based compensation expense		1,516			1,900		5,131		8,879
Less: stock-based compensation expense—discontinued operations		(22	)		72		109		1,256
Stock-based compensation expense—continuing operations		1,538			1,828		5,022		7,623
Tax benefit recognized		538			640		1,757		2,668
Stock-based compensation expense—continuing operations, net of tax	$	1,000		$	1,188	$	3,265	$	4,955

Stock Option Awards

        We recognize compensation cost for share-based payments to employees, directors and other third parties based on the grant date fair value of the award, which we amortize over the grantees' service period in accordance with the provisions of Compensation—Stock Compensation Topic, ASC 718-10. We use the Black-Scholes valuation model to value stock options, except in the case of performance-based stock options, where we use a Monte Carlo valuation approach.

        We estimated the fair value for options granted during the period at the date of grant with the following range of assumptions:

	For options granted
	2016
Weighted-average grant date fair value	$1.54 - $2.04
Risk free interest rates	0.65% - 1.09%
Dividend yields	0.00%
Expected volatility	33.15% - 33.86%
Expected lives of options (in years)	3.75 - 4.00

        We did not capitalize any cost of stock-based compensation. Future expense may vary based upon factors such as the number of awards granted by us and the then-current fair value of such awards.

        A summary of option activity for the nine months ended September 30, 2016 is set forth below:

Options	Options (in thousands)			Weighted Average Exercise Price
Outstanding at January 1, 2016		4,871		$	6.80
Granted		755			6.13
Exercised		(1,324	)		6.09
Forfeited or expired		(208	)		7.34
Outstanding at September 30, 2016		4,094		$	6.89

        Options granted during 2016 included 358,000 performance options which vest ratably over a four-year period, but only if our stock price meets specified targets at the vesting dates. Vesting is cumulative, such that if a stock price target is missed on a vesting date, but a subsequent stock price target is met on a future vesting date, all previously unvested options would then vest. In addition, in the event of a Change in Control (as defined in the 2011 Equity Plan), all performance options will no longer vest in accordance with the performance-based criteria but instead shall vest as if such grants were originally granted as four-year time vested grants where 25% of such awards would vest on each of the first four anniversaries of the date of grant. These options were determined to contain a market condition for vesting under ASC 718—Compensation—Stock Compensation, and were valued using a Monte Carlo valuation approach.

        The total intrinsic value of stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised was $1.6 million and $3.4 million for the nine months ended September 30, 2016 and 2015, respectively.

        As of September 30, 2016, the total compensation cost related to non-vested option awards not yet recognized was $2.5 million, which we expect to recognize over a weighted average period of 2.5 years.

Restricted Stock Awards

        In accordance with our 2011 Equity Plan, we may grant restricted stock to employees, directors and other third parties. These awards generally vest ratably over a four-year period. We generally value restricted stock awards at an amount equal to the market price of our common stock on the date of grant, except in the case of performance-based awards, which we value using a Monte Carlo valuation approach. We recognize compensation expense for restricted stock awards on a straight line basis over the vesting period.

        A summary of non-vested restricted stock award activity for the nine months ended September 30, 2016 is set forth below:

Non-Vested Restricted Stock	Shares (in thousands)			Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2016		2,012		$	5.66
Granted		805			4.84
Vested		(443	)		8.41
Forfeited		(149	)		6.43
Non-vested at Setpember 30, 2016		2,225		$	4.76

        The fair value of restricted stock vested during the nine months ended September 30, 2016 was $2.6 million.

        Shares granted during 2016 included 382,000 performance shares which vest in the same manner as the performance options discussed above. These shares were determined to contain a market condition for vesting under ASC 718—Compensation—Stock Compensation, and were valued using a Monte Carlo valuation approach.

Tax Benefits of Stock-Based Compensation

        ASC 718-10 requires us to report the benefits of tax deductions in excess of recognized compensation cost of equity awards as a financing cash flow. We recognized ($2.1) million and $0.1 million of financing cash flows for these excess tax deductions for the nine months ended September 30, 2016 and 2015, respectively.

XML

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE

9 Months Ended

Sep. 30, 2016

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE

8. CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE

        On June 27, 2016, we completed an offering of $115.0 million of our 4.00% Convertible Senior Notes due 2021 (the "Convertible Notes"). The Convertible Notes are senior unsecured obligations of the Company. Interest on the Convertible Notes is payable on June 15 and December 15 of each year, commencing on December 15, 2016 until their maturity date of June 15, 2021. We may not redeem the Convertible Notes prior to the maturity date.

        Prior to the close of the business day immediately preceding December 15, 2020, the Convertible Notes will be convertible only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2016 (and only during such calendar quarter), if the daily volume-weighted average price, or VWAP, of the common stock for at least 20 trading days (whether or not consecutive) during a period of thirty consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the daily VWAP of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. The Convertible Notes were not convertible at any time during the three month or nine month periods ended September 30, 2016 and did not result in any dilution in our calculation of earnings per share.

        On or after December 15, 2020 until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we may satisfy our conversion obligation by paying or delivering, as applicable, cash, shares of our voting common stock or a combination of cash and shares of voting common stock, at our election.

        The Convertible Notes will be convertible at an initial conversion rate of 105.8890 shares of our voting common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $9.44. The conversion rate will be subject to adjustment in certain events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event in certain circumstances, including customary conversion rate adjustments in connection with a "make-whole fundamental change."

        We allocated the principal amount of the Convertible Notes between its liability and equity components (see table below). The carrying amount of the liability component was determined by measuring the fair value of a similar debt instrument of similar credit quality and maturity that did not have the conversion feature. The carrying amount of the equity component, representing the embedded conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Convertible Notes as a whole. The equity component was recorded to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the Convertible Notes over the carrying amount of the liability component was recorded as a debt discount, and is being amortized to interest expense using an effective interest rate of 8.5% over the term of the Convertible Notes. We allocated the total amount of transaction costs incurred to the liability and equity components using the same proportions as the proceeds from the Convertible Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the liability component of the Convertible Notes, and are being amortized and recorded in other operating expenses using the effective interest method through the maturity date. Transaction costs attributable to the equity component were netted with the equity component of the Convertible Notes in additional paid-in capital.

        The Convertible Notes consist of the following components (in thousands):

	September 30, 2016
Liability component:
Principal	$	115,000
Conversion feature		(20,637	)
Amortization		1,081
Principal balance in liabilities		95,444
Liability portion of debt issuance costs		(3,799	)
Net carrying amount	$	91,645
Equity component:
Conversion feature	$	20,637
Equity portion of debt issuance costs		(875	)
Deferred taxes		(6,917	)
Net carrying amount	$	12,845

        We used the net proceeds from the Convertible Notes, together with cash on hand, to (i) repurchase all (a)11,011,515 shares of our common stock held by certain affiliates of Perry Capital ("Perry") and (b) 7,098,775 shares of our common stock held by certain affiliates of Welsh, Carson, Anderson & Stowe ("WCAS"), at a purchase price of $6.80 per share, for an aggregate purchase price of approximately $123.0 million, and (ii) repurchase 2,082,800 shares of our common stock for an aggregate purchase price of approximately $15.1 million from purchasers of the convertible notes in privately negotiated transactions. Richard C. Perry, Chief Executive Officer of Perry Corp., and Sean M. Traynor, General Partner at WCAS, each resigned from our Board of Directors in connection with the repurchase of common stock from Perry and WCAS.

        We recognized interest expense on the Convertible Notes issued June 27, 2016 of $2.2 million for the three months ended September 30, 2016 and $2.3 million for the nine months ended September 30, 2016, which included $1.0 million and $1.1 million, respectively, of non-cash interest expense, representing amortization of the discount on the carrying amount of the Convertible Notes.

XML

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

        In addition to the matters discussed below, we are also subject to a variety of legal proceedings, arbitrations, governmental investigations, including SEC investigations, audits, claims and litigation, including claims under the False Claims Act and claims for benefits under insurance policies and claims by members, providers, customers, employees, regulators and other third parties. In some cases, plaintiffs seek punitive damages. It is not possible to accurately predict the outcome or estimate the resulting penalty, fine or other remedy that may result from any current or future legal proceeding, investigation, audit, claim or litigation. Nevertheless, the range of outcomes and losses could be significant and could have a material adverse effect on our consolidated financial statements.

        On October 22, 2013, we filed a lawsuit in the United States District Court for the District of Delaware against funds affiliated with the private equity firm GTCR, known as GTCR, David Katz, a former managing director of GTCR, and former senior management of APS Healthcare (Gregory Scott, Jerome Vaccaro and John McDonough). The lawsuit arose out of our acquisition of APS Healthcare from GTCR in March 2012.

        On September 9, 2016, we entered into a Settlement Agreement with funds affiliated with GTCR and the other individual defendants to fully resolve all of the parties' respective outstanding claims arising from the Company's acquisition of APS Healthcare from GTCR in 2012.

        Pursuant to the Settlement Agreement:

•           We acquired all of the 6,272,104 shares of common stock held by the funds affiliated with GTCR and the other individuals for an aggregate payment of $13.0 million. In addition, we received $1.6 million that was held in an escrow account relating to the acquisition. GTCR received $749,000 that was held in such escrow account. 

•           George Sperzel, GTCR's designee on our board of directors, resigned from the Company's board of directors and the Letter Agreement dated as of March 2, 2012 between the Company and GTCR regarding board representation was terminated.

Governmental Regulation

        Laws and regulations governing Medicare, Medicaid and other state and federal healthcare and insurance programs are complex and subject to significant interpretation. As part of the Affordable Care Act, known as ACA, CMS, State regulatory agencies and other regulatory agencies have been exercising increased oversight and regulatory authority over our Medicare and other businesses. Compliance with such laws and regulations is subject to CMS audit, other governmental review and investigation, including SEC investigations and significant and complex interpretation. CMS audits our Medicare Advantage plans with regularity to ensure we are in compliance with applicable laws, rules, regulations and CMS instructions. Our Medicare Advantage plans will likely be subject to audit in 2016 or 2017. There can be no assurance that we will be found to be in compliance with all such laws, rules and regulations in connection with these audits, reviews and investigations, and at times we have been found to be out of compliance. Failure to be in compliance can subject us to significant regulatory action including significant fines, penalties, cancellation of contracts with governmental agencies or operating restrictions on our business, including, without limitation, suspension of our ability to market to and enroll new members in our Medicare plans, termination of our contracts with CMS, exclusion from Medicare and other state and federal healthcare programs and inability to expand into new markets or add new products within existing markets.

        Certain of our subsidiaries provide products and services to various government agencies. As a government contractor, we are subject to the terms of the contracts we have with those agencies and applicable laws governing government contracts. As such, we may be subject to False Claim Act litigation (also known as qui tam litigation) brought by individuals who seek to sue on behalf of the government, alleging that the government contractor submitted false claims to the government. In 2014 and 2015, Innovative Resources Group, LLC ("IRG"), a subsidiary of APS Healthcare, resolved three False Claims Act matters relating to IRG's historical contracts in Missouri, Tennessee and Nevada. During 2015, we sold our APS Healthcare business. However, it is possible that we could be the subject of additional False Claims Act investigations and litigation in the future that could have a material adverse effect on our business and results of operations.

XML

BUSINESS SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2016

BUSINESS SEGMENT INFORMATION

BUSINESS SEGMENT INFORMATION

10. BUSINESS SEGMENT INFORMATION

        Our business segments are based on product and consist of

•           Medicare Advantage; and 

•           Management Services Organization, or MSO.

Our remaining segment, Corporate & Other, reflects the activities of our holding company and other ancillary operations.

        We report intersegment revenues and expenses on a gross basis in each of the operating segments but eliminate them in the consolidated results. These intersegment revenues and expenses affect the amounts reported on the individual financial statement line items, but we eliminate them in consolidation and they do not change income before taxes. The most significant intersegment activity relates to interest on intercompany loans between segments.

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

	Three months ended September 30,
	2016						2015
	Revenues			Pre-tax Income (Loss) from Continuing Operations			Revenues			Pre-tax Income (Loss) from Continuing Operations
	(in thousands)
Medicare Advantage	$	342,887		$	7,624		$	306,807		$	(72	)
MSO		—			(8,594	)		—			(9,320	)
Corporate & Other		841			(8,148	)		3,406			(7,363	)
Intersegment revenues		(196	)		—			(174	)		—
Adjustments to segment amounts:
Net realized (losses) gains(1)		(143	)		(143	)		29,751			29,751
Total	$	343,389		$	(9,261	)	$	339,790		$	12,996

	Nine months ended September 30,
	2016						2015
	Revenues			Pre-tax Income (Loss) from Continuing Operations			Revenues			Pre-tax Income (Loss) from Continuing Operations
	(in thousands)
Medicare Advantage	$	1,036,489		$	47,664		$	931,906		$	18,628
MSO		—			4,072			—			(9,409	)
Corporate & Other		1,410			(26,494	)		6,895			(29,338	)
Intersegment revenues		(520	)		—			(601	)		—
Adjustments to segment amounts:
Net realized gains(1)		1,385			1,385			33,625			33,625
Total	$	1,038,764		$	26,627		$	971,825		$	13,506

(1)           We evaluate the results of operations of our segments based on income (loss) before realized gains and losses and income taxes. Management believes that realized gains and losses are not indicative of overall operating trends.

XML

OTHER DISCLOSURES

9 Months Ended

Sep. 30, 2016

OTHER DISCLOSURES

OTHER DISCLOSURES

11. OTHER DISCLOSURES

        Income Taxes:    For interim financial reporting, except in circumstances as described in the following paragraph, we estimate our annual effective tax rate based on projected taxable income for the full year and record a quarterly tax provision based on that estimated annual effective tax rate.

        In situations where uncertainty surrounding possible future events or transactions precludes our ability to make a reliable estimate of pre-tax income for the full year, projected pre-tax income for the full year is close to break-even, or permanent differences are significant when compared to projected pre-tax income, our estimated annual effective tax rate may become volatile and could distort the income tax provision for an interim period. When this happens, we calculate our interim income tax provision using actual year-to-date financial results.

        As the year progresses, we refine our estimate of full year pre-tax income as new information becomes available, including actual year-to-date financial results. This continual estimation process could result in a change to our estimated annual effective tax rate, or cause us to change between use of an estimated annual effective tax rate and actual year-to-date financial results in calculating our year-to-date income tax provision. When this occurs, we adjust the income tax provision during the quarter in which the change occurs so that the year-to-date income tax provision reflects the current estimates and methodology used. In both cases, the tax effect of realized gains and losses as well as non-recurring tax differences are reported in the interim period in which they occur. Significant judgment is required in determining our annual estimated effective tax rate and in evaluating our tax positions.

        For the three and nine months ended September 30, 2016 and 2015, due to the significance of permanent differences compared to projected pre-tax income for 2016, we determined our income tax provision using actual year-to-date financial results from continuing operations.

        For the quarter ended September 30, 2016, our effective tax rate on continuing operations was 5.5%, resulting in an income tax benefit of $0.5 million. For the same period in 2015, our effective tax rate on continuing operations exceeded 100%, resulting in an income tax provision of $13.0 million. The difference in the effective tax rate from the statutory rate in both periods was driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rate.

        For the nine months ended September 30, 2016, our effective tax rate on continuing operations was 58.1%, resulting in an income tax provision of $15.5 million. For the same period in 2015, our effective tax rate on continuing operations was 56.4%, resulting in an income tax provision of $7.6 million. The effective tax rate for the nine months ended September 30, 2016 was driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates. For the nine months ended September 30, 2015, the tax benefit included $5.1 million in foreign tax credit carryforwards created in connection with the February 2015 sale of APS Puerto Rico. Excluding the foreign tax credit carryforwards, the effective tax rate was 94.4%, driven by permanent items, including the non-deductible ACA Fee and non-deductible interest expense. State and foreign income taxes also contributed to the variance in the effective tax rate.

        The significance of non-deductible permanent differences (primarily ACA fee and interest on our preferred stock) in relation to our pre-tax income results in a high effective tax rate, which may continue.

        Unconsolidated Subsidiaries:    We account for our participation in the ACOs using the equity method. Gains and losses from our participation in the ACOs are reported as equity in losses of unconsolidated subsidiaries in the consolidated statements of operations. Our net investment in the ACOs is reported in other assets in the consolidated balance sheets. We recognized equity in losses of our unconsolidated ACOs of $5.2 million and 7.4 million for the three months ended September 30, 2016 and 2015, respectively, and equity in earnings (losses) of $14.5 million and $(1.1) million for the nine months ended September 30, 2016 and 2015, respectively.

        The condensed financial information for 100% of our unconsolidated ACOs is as follows:

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016		2015
	(in thousands)
Total revenue	$	70		$	—		$	41,057	$	26,924
Total expenses		5,093			7,446			15,948		22,018
Net (loss) income	$	(5,023	)	$	(7,446	)	$	25,109	$	4,906

        During the second quarter ended June 30, 2016, we recognized $41.0 million of gross shared savings revenue from our ACOs. $39.8 million related to program year 2015 shared savings from 10 of our MSSP ACOs and $1.2 million of program year 2016 shared savings revenue for our new Next Generation ACO. During the quarter ended September 30, 2016, we adjusted MSSP program year 2015 revenues by $0.1 million, reflecting a true up to the actual cash received from CMS during the quarter. We also determined that no change in the program year 2016 shared savings revenue accrual for the Next Generation ACO was required. This compares with $26.9 million of program year 2014 gross shared savings revenue recognized from 9 of our MSSP ACOs during the second quarter ended June 30, 2015. For additional information on our ACOs, see Note 1—Organization and Company Background and Note 2—Basis of Presentation.

        Common Stock:    In connection with the stock purchase agreements and the stock repurchase discussed in Note 8, and the litigation settlement discussed in Note 9, we retired 23.2 million shares of our voting common stock and all 3.3 million shares of our non-voting common stock. Changes in the number of shares of voting common stock issued and outstanding for the nine months ended September 30, 2016 were as follows (in thousands):

Balance at January 1, 2016	81,312
Issuance of common stock	472
Exercise of stock options	137
Share buyback/cancellation	(23,165	)
Balance at September 30, 2016	58,756

        Earnings Per Common Share Computation:    Under ASC 260, Earnings Per Share, income (loss) from continuing operations is the trigger for determining whether potential common stock equivalents are dilutive or anti-dilutive when calculating diluted earnings per share. Diluted EPS includes the dilutive effect of the unvested restricted stock and stock options outstanding during the period. For the three months ended September 30, 2016 and 2015, we had losses from continuing operations and accordingly, excluded common stock equivalents of 0.7 million from the calculation of diluted earnings per share for both periods.

XML

DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2016

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

12. DISCONTINUED OPERATIONS

        Sale of Traditional Insurance Business:    On August 3, 2016 we completed the sale of our Traditional Insurance business to Nassau Re. Under the terms of the agreement, Nassau Re acquired all of the shares of Constitution Life and Pyramid, as well as the Traditional Insurance business written by Progressive on a 100% coinsurance basis. At closing, we received approximately $30.5 million in cash, which, under the terms of the agreement, is subject to post-closing price adjustments based on actual capital and surplus of Constitution Life and Pyramid compared to the target statutory capital and surplus of $68.5 million. We were also entitled to receive potential earn-out payments through June 30, 2018 that we agreed to settle currently for $11.4 million in cash, which we received in October 2016.

        As of December 31, 2015, in accordance with ASC 360-10, Property, Plant and Equipment and ASC 205-20, Presentation of Financial Statements—Discontinued Operations, we determined that our Traditional Insurance business should be classified as held for sale and reported in discontinued operations. Under ASC 360-10-35, a long-lived asset classified as held for sale shall be measured at the lower of its carrying amount or fair value less cost to sell. We determined fair value at the balance sheet date, by calculating estimated net proceeds, using actual statutory surplus, estimating the likelihood of receiving any earn-out and estimating closing costs. Estimated net proceeds were compared to the GAAP book value of the entities being sold and the business being reinsured. At December 31, 2015, our analysis indicated a pre-tax loss of $149.2 million, generating a deferred tax benefit of $40.9 million, against which we recorded a $25.6 million valuation allowance, resulting in an after-tax loss of $133.8 million. We adjusted the carrying value to estimated fair value at September 30, 2016, which resulted in an after tax gain of $3.9 million and $0.4 million for three months and nine months ended September 30, 2016, respectively. The gain recorded in the third quarter included the reclassification of $4.8 million, after tax, of AOCI related to the sale of the Traditional Insurance business to the cumulative loss on the transaction. This was partially offset by a $1.0 million after-tax adjustment to reflect the early cash settlement of the earn-out. Additionally, discontinued operations treatment requires that the related assets and liabilities for the current period and all historical periods presented are reclassified as assets and liabilities held for sale in our consolidated balance sheets, and the related operating results and cash flows for the current period and all historical periods presented have been reclassified as discontinued operations in our consolidated financial statements.

        In connection with the sale of our Traditional Insurance business, we agreed to provide certain support services to Nassau Re under a transition service agreement, or TSA. During the three and nine months ending September 30, 2016, we recognized fee income of $0.4 million.

        Sale of Total Care Medicaid Plan:    On August 1, 2016, we completed the sale of TONY, which operates the Total Care Medicaid plan, to Molina for an adjusted purchase price of $38.0 million, subject to closing date balance sheet adjustments, resulting in a pre-tax gain of $20.4 million.

        As of June 30, 2016, in accordance with ASC 360-10 and ASC 205-20, we determined that our Total Care business should be classified as held for sale and reported in discontinued operations. Additionally, discontinued operations treatment requires that the related assets and liabilities for all historical periods presented are reclassified as assets and liabilities held for sale in our consolidated balance sheets, and the related operating results and cash flows for the current period and all historical periods presented have been reclassified as discontinued operations in our consolidated financial statements.

        In connection with the sale of the Total Care business, we agreed to provide certain support services to Molina under a TSA. During the three and nine months ending September 30, 2016, we recognized fee income of $0.2 million.

        Sale of APS Healthcare:    On February 4, 2015, we sold our APS Healthcare Puerto Rico subsidiaries to an affiliate of the Metro Pavia Health System. APS Puerto Rico provides managed behavioral health services under the Government Health Plan Medicaid program under a contract that terminated on March 31, 2015. The purchase price at closing was $26.5 million, which was settled in cash, subject to a balance sheet true-up. The transaction resulted in a pre-tax realized loss of approximately $0.4 million. The transaction also generated an additional foreign tax credit carryforward of $5.4 million that was recorded as a deferred tax asset.

        On May 1, 2015, we sold our remaining APS Healthcare operating subsidiaries to KEPRO, Inc., a company that provides quality improvement and care management services to both government clients and the private sector. The purchase price was $5.0 million, which was settled in cash at closing, subject to a working capital true up, which was finalized during the quarter ended September 30, 2015. The transaction resulted in a pre-tax realized loss of $17.0 million in 2015, including the working capital true up.

        In addition, the transaction included a potential earn-out based on certain contract renewals. Due to the variability in the length of time over which the contract renewals could occur and the difficulty of estimating the success of such renewals, we considered the potential earn-out to be a contingent gain which was recorded only if and when we determined it to be realizable. We recorded earn-out revenue of $4.4 million and $12.1 million based on amounts received from the buyer during the three and nine months ended September 30, 2016, respectively. The amounts received in the third quarter of 2016 represented the final settlement of earn-out revenue.

        In connection with the sales of the APS businesses, we agreed to provide certain support services to the buyers under TSA's. During the three and nine months ending September 30, 2015, we recognized fee income of $1.2 million and $2.9 million respectively. All APS-related TSA services were completed as of December 31, 2015.

        Effective with the sale of our APS Healthcare businesses, in accordance with ASC 205-20, the results of operations and cash flows related to APS Healthcare are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and are presented separately in our consolidated balance sheets as of September 30, 2016 and December 31, 2015, respectively.

        Discontinued Operations Summary Financial Information:    Summarized financial information for our discontinued operations is presented below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016		2015
	(in thousands)
Revenues:
Net premiums	$	28,575		$	89,525		$	198,194	$	285,627
Net investment income		1,324			4,038			9,145		13,532
Fee and other income		140			403			914		32,127
Net realized (losses) gains		(11	)		(27	)		160		41
Total revenues		30,028			93,939			208,413		331,327
Benefits, claims and expenses:
Claims and other benefits		25,324			75,976			172,427		242,269
Change in deferred policy acquisition costs		—			2,621			—		8,489
Amortization of intangible assets		67			267			470		1,191
Affordable Care Act fee		279			891			1,919		2,551
Other operating costs and expenses		4,651			12,036			30,518		74,621
Total benefits, claims and expenses		30,321			91,791			205,334		329,121
Operating income		(293	)		2,148			3,079		2,206
Non-operating results:
Total Care—gain on sale		20,407			—			20,407		—
APS Healthcare(1)		34,069			1,366			41,746		(17,303	)
Traditional Insurance—gain on sale		2,776			—			2,792		—
Income (loss) from discontinued operations before income taxes		56,959			3,514			68,024		(15,097	)
Provision for (benefit from) income taxes		(2,679	)		657			5,298		(6,796	)
Income (loss) from discontinued operations	$	59,638		$	2,857		$	62,726	$	(8,301	)

(1)           2016 amounts include earn-out revenues and litigation settlement, while 2015 amounts represent initial gain (loss) on Sale of APS Healthcare. See Note 9—Commitments and Contingencies for additional information.

        Total assets and liabilities of discontinued operations are as follows:

	September 30, 2016		December 31, 2015
	(in thousands)
Assets
Fixed maturities available for sale, at fair value	$	53,425	$	427,690
Other invested assets		—		12,800
Total investments		53,425		440,490
Cash and cash equivalents		1,388		6,628
Accrued investment income		501		3,196
Reinsurance recoverables—life		109,361		476,863
Reinsurance recoverables—health		57,157		130,501
Due and unpaid premiums		443		27,565
Goodwill and intangible assets		—		4,197
Deferred income tax asset		3,696		—
Income taxes receivable		—		10,194
Other healthcare receivables		—		2,045
Net amounts receivable from continuing operations		37		44,289
Other assets		12,238		4,602
Total assets	$	238,246	$	1,150,570
Liabilities
Reserves and other policy liabilities—life	$	109,526	$	495,518
Reserves for future policy benefits—health		54,493		539,307
Policy and contract claims—health		2,867		38,482
Premiums received in advance		399		2,000
Amounts due to reinsurers		1,665		2,325
Deferred income tax liability		—		7,491
Other liabilities		67,122		30,916
Total liabilities	$	236,072	$	1,116,039

XML

BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2016

BASIS OF PRESENTATION

Unconsolidated Subsidiaries

        Unconsolidated Subsidiaries:    We have entered into agreements with various healthcare providers to establish ACOs. These ACOs were generally formed as Limited Liability Companies. We own a majority interest in our ACOs but do not consolidate them because we share the power to direct the activities that most significantly impact the ACOs. Our share of the income of an ACO is generally 50% and our share of losses of an ACO is generally 100%. In the event of losses, we generally have the right to receive 100% of subsequent profits until our losses are recovered. Any remaining revenues are generally shared at 50%.

        The ACOs are considered variable interest entities, known as VIEs, under GAAP as these entities do not have sufficient equity to finance their own operations without additional financial support. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. The power to direct the activities of the ACOs that most significantly impact their performance is shared between us and the healthcare providers that we have joined with to establish the ACOs pursuant to the structure of the Management Committee of each of the ACOs. Accordingly, we have determined that we are not the primary beneficiary of the ACOs, and therefore we cannot consolidate them. We account for our participation in the ACOs using the equity method. Gains and losses from our participation in the ACOs are reported as equity in (losses) earnings of unconsolidated subsidiaries in the consolidated statements of operations. Our net investment in the ACOs is reported in other assets in our consolidated balance sheets.

ACO Revenue

        ACO Revenue:    On July 29, 2016, CMS informed us that our MSSP ACOs generated $97 million in gross savings for program year 2015. This compares to $80 million in gross savings for program year 2014, which we reported in the second quarter of 2015. Ten of our ACO's qualified for shared savings payments, compared to nine in program year 2014, and received payments of $39.8 million, compared to $26.9 million in program year 2014. Our share of these payments for 2016, after payments to our physician partners of $11.3 million, is $28.5 million, compared to $20.9 million in 2015, and is reflected in equity in (losses) earnings of unconsolidated subsidiaries in our consolidated statements of operations.

Statutory Accounting Practices

        Statutory Accounting Practices:    For our insurance and HMO subsidiaries, U.S. GAAP differs from statutory accounting practices prescribed or permitted by regulatory authorities. See Note 2—Basis of Presentation of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information on these differences.

Use of Estimates

        Use of Estimates:    The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Critical accounting policies require significant subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based on information available at the time the estimates are made, as well as anticipated future events. We periodically evaluate our estimates, and as additional information becomes available or actual amounts become determinable, we may revise the recorded estimates and reflect the revisions in our operating results. In our judgment, the accounts involving estimates and assumptions that are most critical to the preparation of our financial statements are policy related liabilities and expense recognition, goodwill and other intangible assets, investment valuation, revenue recognition and income taxes. All unamortized deferred acquisition costs, or DAC, were written off at December 31, 2015, in connection with the fair value adjustment on our Traditional Insurance business. As a result, we no longer consider accounting for DAC to be a critical accounting policy.

Reclassifications

        Reclassifications:    In accordance with the provisions of Accounting Standards Codification, known as ASC, 205-20, Presentation of Financial Statements—Discontinued Operations, effective June 30, 2016, we determined that our Total Care business should be classified as held for sale and reported in discontinued operations. Also, effective December 31, 2015, we determined that our Traditional Insurance business should be classified as held for sale and reported in discontinued operations. Effective with the sale of the APS Healthcare domestic operations on May 1, 2015, we determined that our APS Healthcare businesses should be reported as discontinued operations. As a result, the results of operations and cash flows related to our Total Care, Traditional Insurance and APS Healthcare businesses are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and presented separately in our consolidated balance sheets. Unless otherwise noted, all disclosures in the notes accompanying our consolidated financial statements reflect only continuing operations. For additional information on our discontinued operations, see Note 12—Discontinued Operations.

        We adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, effective January 1, 2016. Under this ASU, debt issuance costs related to a recognized debt liability are to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result, we have reclassified unamortized deferred loan fees related to our Series A mandatorily redeemable preferred shares, or MRPS, from other assets to be offset against the MRPS liability balance. The unamortized costs amounted to $0.1 million at September 30, 2016 and $0.2 million at December 31, 2015.

Change in Accounting Estimate

        Change in Accounting Estimate:    CMS uses risk-adjusted rates per member to determine the monthly payments to Medicare Plans. CMS has implemented a risk adjustment model which apportions premiums paid to all health plans according to health diagnoses. The risk adjustment model uses health status indicators, or risk scores, to improve the accuracy of payment. The CMS risk adjustment model pays more for members with increasing health severity. Under this risk adjustment methodology, diagnosis data from inpatient and ambulatory treatment settings are used by CMS to calculate the risk adjusted premium payment to Medicare Plans. The monthly risk-adjusted premium per member is determined by CMS based on normalized risk scores of each member from the prior year. Annually, CMS provides the updated risk scores to the Plans and revises premium rates prospectively, beginning with the July remittance for current Plan year members. CMS will also calculate the retroactive adjustments to premium related to the revised risk scores for the current year for current Plan year members and for the prior year for prior Plan year members.

        Effective January 1, 2016, we changed the way we estimate changes in risk-adjusted premiums receivable from CMS, based on health diagnoses for our Medicare Advantage business. Under our previous methodology, we estimated changes in CMS premiums related to revenue adjustments based upon the diagnosis data submitted to CMS and ultimately accepted by CMS. We believe this method resulted in a lag in recognizing revenue for changes in our members' medical condition that will ultimately be included in the final risk adjusted premium paid by CMS. During the first quarter of 2016, we completed the development and validation of a model that allows us to better estimate the risk-adjusted premiums that will ultimately be realized based upon our historical experience for members that have a full year of experience and members that have joined during the annual enrollment period or special election period. We believe this change serves to better reflect risk-adjusted premiums in the period in which they are earned and is considered a change in estimate under ASC 250, Accounting Changes. This change in estimate resulted in the accelerated recognition of $7.7 million and $26.5 million of additional current year premium revenue, or $0.08 and $0.23 per share after tax for the three months and nine months ended September 30, 2016, respectively. Under our previous estimation process, this revenue would not have been recognized until the related diagnosis data was submitted to and accepted by CMS, typically in the third and fourth quarters of the current year and the first and second quarters of the subsequent year.

Significant Accounting Policies

        Significant Accounting Policies:    For a description of existing significant accounting policies, see Note 3—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 and Note 3—Recently Issued and Pending Accounting Pronouncements herein.

XML

INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2016

INVESTMENTS

Schedule of amortized cost and fair value of fixed maturity investments

	September 30, 2016
Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	21,321	$	58	$	(5	)	$	21,374
Government sponsored agencies		514		13		—			527
Other political subdivisions		26,760		657		(43	)		27,374
Corporate debt securities		89,233		4,518		(1,034	)		92,717
Foreign debt securities		28,444		434		(751	)		28,127
Residential mortgage-backed securities		22,300		1,154		(3	)		23,451
Commercial mortgage-backed securities		22,797		350		(103	)		23,044
Other asset-backed securities		4,392		35		(32	)		4,395
	$	215,761	$	7,219	$	(1,971	)	$	221,009

	December 31, 2015
Classification	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	8,481	$	5	$	(8	)	$	8,478
Government sponsored agencies		516		—		(9	)		507
Other political subdivisions		35,253		771		(98	)		35,926
Corporate debt securities		144,772		4,076		(2,425	)		146,423
Foreign debt securities		28,287		471		(1,159	)		27,599
Residential mortgage-backed securities		34,973		1,254		(258	)		35,969
Commercial mortgage-backed securities		21,264		68		(181	)		21,151
Other asset-backed securities		5,731		33		(41	)		5,723
	$	279,277	$	6,678	$	(4,179	)	$	281,776

Schedule of amortized cost and fair value of fixed maturity investments by contractual maturity

	Amortized Cost		Fair Value
	(in thousands)
Due in 1 year or less	$	8,100	$	8,208
Due after 1 year through 5 years		79,073		81,434
Due after 5 years through 10 years		57,515		60,133
Due after 10 years		21,584		20,344
Mortgage and asset-backed securities		49,489		50,890
	$	215,761	$	221,009

Schedule of fair value and unrealized loss for fixed maturities in a continuous unrealized loss position

	Less than 12 Months					12 Months or Longer					Total
September 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	11,957	$	(5	)	$	—	$	—		$	11,957	$	(5	)
Other political subdivisions		—		—			1,536		(43	)		1,536		(43	)
Corporate debt securities		7,334		(53	)		5,321		(981	)		12,655		(1,034	)
Foreign debt securities		6,992		(13	)		8,089		(738	)		15,081		(751	)
Residential mortgage-backed securities		—		—			579		(3	)		579		(3	)
Commercial mortgage-backed securities		8,015		(96	)		2,181		(7	)		10,196		(103	)
Other asset-backed securities		—		—			2,171		(32	)		2,171		(32	)
Total fixed maturities	$	34,298	$	(167	)	$	19,877	$	(1,804	)	$	54,175	$	(1,971	)
Total number of securities in an unrealized loss position														35

	Less than 12 Months					12 Months or Longer					Total
December 31, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
U.S. Treasury securities and U.S. Government obligations	$	5,210	$	(8	)	$	—	$	—		$	5,210	$	(8	)
Government sponsored agencies		507		(9	)		—		—			507		(9	)
Other political subdivisions		3,162		(98	)		—		—			3,162		(98	)
Corporate debt securities		48,819		(2,392	)		1,396		(33	)		50,215		(2,425	)
Foreign debt securities		6,528		(382	)		5,085		(777	)		11,613		(1,159	)
Residential mortgage-backed securities		3,021		(41	)		6,701		(217	)		9,722		(258	)
Commercial mortgage-backed securities		7,422		(151	)		2,108		(30	)		9,530		(181	)
Other asset-backed securities		1,467		(22	)		928		(19	)		2,395		(41	)
Total fixed maturities	$	76,136	$	(3,103	)	$	16,218	$	(1,076	)	$	92,354	$	(4,179	)
Total number of securities in an unrealized loss position														96

Schedule of gross realized gains and losses included in the consolidated statements of operations

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016			2015
	(in thousands)
Realized gains:
Fixed maturities	$	—		$	359		$	1,563		$	4,175
Realized gain on sale of equity investment(1)		—			29,620			—			29,620
Other		—			—			119			120
		—			29,979			1,682			33,915
Realized Losses:
Fixed maturities		—			(228	)		(154	)		(290	)
Other		(143	)		—			(143	)		—
		(143	)		(228	)		(297	)		(290	)
Net realized (losses) gains	$	(143	)	$	29,751		$	1,385		$	33,625

(1)           Represents a gain on the sale of our cost-method investment in naviHealth in the third quarter of 2015.

XML

FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2016

FAIR VALUE MEASUREMENTS

Schedule of assets that are carried at fair value by hierarchy levels

        The following table presents our recurring fair value measurements by ASC-820-10 hierarchy levels (in thousands):

September 30, 2016	Total		Level 1		Level 2		Level 3(1)
Assets:
Fixed maturities, available for sale	$	221,009	$	—	$	220,958	$	51
Equity securities		6,404		—		6,404		—
Total assets	$	227,413	$	—	$	227,362	$	51

December 31, 2015
Assets:
Fixed maturities, available for sale	$	281,776	$	—	$	281,674	$	102
Equity securities		6,352		—		6,352		—
Total assets	$	288,128	$	—	$	288,026	$	102

(1)           Level 3 securities are all mortgage-backed and asset-backed securities at September 30, 2016 and December 31, 2015 and represent private-placement securities that are thinly traded and priced using an internal model or modeled by independent brokers.

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

9 Months Ended

Sep. 30, 2016

ACCUMULATED OTHER COMPREHENSIVE INCOME

Schedule of components of accumulated other comprehensive income

        The components of accumulated other comprehensive income are as follows (in thousands):

	Net Unrealized Gains on Investments Available for Sale			Long-Term Claim Reserve Adjustment			Accumulated Other Comprehensive Income
Three months ended September 30, 2016
Balance as of July 1, 2016	$	15,483		$	(5,403	)	$	10,080
Other comprehensive loss before reclassifications		(9,355	)		2,940			(6,415	)
Less: Amounts reclassified from other comprehensive loss(1)		(6	)		—			(6	)
Net current-period other comprehensive loss		(9,349	)		2,940			(6,409	)
Balance as of September 30, 2016	$	6,134		$	(2,463	)	$	3,671
Three months ended September 30, 2015
Balance as of July 1, 2015	$	11,605		$	(4,641	)	$	6,964
Other comprehensive loss before reclassifications		(26	)		10			(16	)
Less: Amounts reclassified from other comprehensive loss(1)		68			—			68
Net current-period other comprehensive loss		(94	)		10			(84	)
Balance as of September 30, 2015	$	11,511		$	(4,631	)	$	6,880
Nine months ended September 30, 2016
Balance as of January 1, 2016	$	6,090		$	(3,342	)	$	2,748
Other comprehensive income before reclassifications		1,064			879			1,943
Less: Amounts reclassified from other comprehensive income(1)		1,020			—			1,020
Net current-period other comprehensive loss		44			879			923
Balance as of September 30, 2016	$	6,134		$	(2,463	)	$	3,671
Nine months ended September 30, 2015
Balance as of January 1, 2015	$	19,088		$	(6,440	)	$	12,648
Other comprehensive loss before reclassifications		(5,025	)		1,809			(3,216	)
Less: Amounts reclassified from other comprehensive loss(1)		2,552			—			2,552
Net current-period other comprehensive loss		(7,577	)		1,809			(5,768	)
Balance as of September 30, 2015	$	11,511		$	(4,631	)	$	6,880

Table amounts are presented net of tax at a rate of 35%.

(1)           Reclassed from net realized gains in the Consolidated Statements of Operations.

XML

STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2016

STOCK-BASED COMPENSATION

Schedule of compensation expense included in other operating costs and expenses and the related tax benefit

	Three Months ended September 30,					Nine Months ended September 30,
	2016			2015		2016		2015
	(in thousands)
Stock options	$	433		$	734	$	1,623	$	3,459
Restricted stock awards		1,083			1,166		3,508		5,420
Total stock-based compensation expense		1,516			1,900		5,131		8,879
Less: stock-based compensation expense—discontinued operations		(22	)		72		109		1,256
Stock-based compensation expense—continuing operations		1,538			1,828		5,022		7,623
Tax benefit recognized		538			640		1,757		2,668
Stock-based compensation expense—continuing operations, net of tax	$	1,000		$	1,188	$	3,265	$	4,955

Schedule of assumptions used to estimate the fair value for options granted during the period at the date of grant

	For options granted
	2016
Weighted-average grant date fair value	$1.54 - $2.04
Risk free interest rates	0.65% - 1.09%
Dividend yields	0.00%
Expected volatility	33.15% - 33.86%
Expected lives of options (in years)	3.75 - 4.00

Summary of option activity

Options	Options (in thousands)			Weighted Average Exercise Price
Outstanding at January 1, 2016		4,871		$	6.80
Granted		755			6.13
Exercised		(1,324	)		6.09
Forfeited or expired		(208	)		7.34
Outstanding at September 30, 2016		4,094		$	6.89

Summary of non-vested restricted stock awards

Non-Vested Restricted Stock	Shares (in thousands)			Weighted Average Grant-Date Fair Value
Non-vested at January 1, 2016		2,012		$	5.66
Granted		805			4.84
Vested		(443	)		8.41
Forfeited		(149	)		6.43
Non-vested at Setpember 30, 2016		2,225		$	4.76

XML

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE (Tables)

9 Months Ended

Sep. 30, 2016

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE

Summary of component of Convertible Notes

        The Convertible Notes consist of the following components (in thousands):

	September 30, 2016
Liability component:
Principal	$	115,000
Conversion feature		(20,637	)
Amortization		1,081
Principal balance in liabilities		95,444
Liability portion of debt issuance costs		(3,799	)
Net carrying amount	$	91,645
Equity component:
Conversion feature	$	20,637
Equity portion of debt issuance costs		(875	)
Deferred taxes		(6,917	)
Net carrying amount	$	12,845

XML

BUSINESS SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 30, 2016

BUSINESS SEGMENT INFORMATION

Schedule of financial data by segment, with a reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes

	Three months ended September 30,
	2016						2015
	Revenues			Pre-tax Income (Loss) from Continuing Operations			Revenues			Pre-tax Income (Loss) from Continuing Operations
	(in thousands)
Medicare Advantage	$	342,887		$	7,624		$	306,807		$	(72	)
MSO		—			(8,594	)		—			(9,320	)
Corporate & Other		841			(8,148	)		3,406			(7,363	)
Intersegment revenues		(196	)		—			(174	)		—
Adjustments to segment amounts:
Net realized (losses) gains(1)		(143	)		(143	)		29,751			29,751
Total	$	343,389		$	(9,261	)	$	339,790		$	12,996

	Nine months ended September 30,
	2016						2015
	Revenues			Pre-tax Income (Loss) from Continuing Operations			Revenues			Pre-tax Income (Loss) from Continuing Operations
	(in thousands)
Medicare Advantage	$	1,036,489		$	47,664		$	931,906		$	18,628
MSO		—			4,072			—			(9,409	)
Corporate & Other		1,410			(26,494	)		6,895			(29,338	)
Intersegment revenues		(520	)		—			(601	)		—
Adjustments to segment amounts:
Net realized gains(1)		1,385			1,385			33,625			33,625
Total	$	1,038,764		$	26,627		$	971,825		$	13,506

(1)           We evaluate the results of operations of our segments based on income (loss) before realized gains and losses and income taxes. Management believes that realized gains and losses are not indicative of overall operating trends.

XML

OTHER DISCLOSURES (Tables)

9 Months Ended

Sep. 30, 2016

OTHER DISCLOSURES

Schedule of condensed financial information for 100% of unconsolidated ACOs

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016		2015
	(in thousands)
Total revenue	$	70		$	—		$	41,057	$	26,924
Total expenses		5,093			7,446			15,948		22,018
Net (loss) income	$	(5,023	)	$	(7,446	)	$	25,109	$	4,906

Schedule of changes in number of shares of voting common stock issued and outstanding

        Changes in the number of shares of voting common stock issued and outstanding for the nine months ended September 30, 2016 were as follows (in thousands):

Balance at January 1, 2016	81,312
Issuance of common stock	472
Exercise of stock options	137
Share buyback/cancellation	(23,165	)
Balance at September 30, 2016	58,756

XML

DISCONTINUED OPERATIONS (Tables)

9 Months Ended

Sep. 30, 2016

DISCONTINUED OPERATIONS

Schedule of financial information included in income and balance sheet from discontinued operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016		2015
	(in thousands)
Revenues:
Net premiums	$	28,575		$	89,525		$	198,194	$	285,627
Net investment income		1,324			4,038			9,145		13,532
Fee and other income		140			403			914		32,127
Net realized (losses) gains		(11	)		(27	)		160		41
Total revenues		30,028			93,939			208,413		331,327
Benefits, claims and expenses:
Claims and other benefits		25,324			75,976			172,427		242,269
Change in deferred policy acquisition costs		—			2,621			—		8,489
Amortization of intangible assets		67			267			470		1,191
Affordable Care Act fee		279			891			1,919		2,551
Other operating costs and expenses		4,651			12,036			30,518		74,621
Total benefits, claims and expenses		30,321			91,791			205,334		329,121
Operating income		(293	)		2,148			3,079		2,206
Non-operating results:
Total Care—gain on sale		20,407			—			20,407		—
APS Healthcare(1)		34,069			1,366			41,746		(17,303	)
Traditional Insurance—gain on sale		2,776			—			2,792		—
Income (loss) from discontinued operations before income taxes		56,959			3,514			68,024		(15,097	)
Provision for (benefit from) income taxes		(2,679	)		657			5,298		(6,796	)
Income (loss) from discontinued operations	$	59,638		$	2,857		$	62,726	$	(8,301	)

(1)           2016 amounts include earn-out revenues and litigation settlement, while 2015 amounts represent initial gain (loss) on Sale of APS Healthcare. See Note 9—Commitments and Contingencies for additional information.

	September 30, 2016		December 31, 2015
	(in thousands)
Assets
Fixed maturities available for sale, at fair value	$	53,425	$	427,690
Other invested assets		—		12,800
Total investments		53,425		440,490
Cash and cash equivalents		1,388		6,628
Accrued investment income		501		3,196
Reinsurance recoverables—life		109,361		476,863
Reinsurance recoverables—health		57,157		130,501
Due and unpaid premiums		443		27,565
Goodwill and intangible assets		—		4,197
Deferred income tax asset		3,696		—
Income taxes receivable		—		10,194
Other healthcare receivables		—		2,045
Net amounts receivable from continuing operations		37		44,289
Other assets		12,238		4,602
Total assets	$	238,246	$	1,150,570
Liabilities
Reserves and other policy liabilities—life	$	109,526	$	495,518
Reserves for future policy benefits—health		54,493		539,307
Policy and contract claims—health		2,867		38,482
Premiums received in advance		399		2,000
Amounts due to reinsurers		1,665		2,325
Deferred income tax liability		—		7,491
Other liabilities		67,122		30,916
Total liabilities	$	236,072	$	1,116,039

XML

ORGANIZATION AND COMPANY BACKGROUND (Details) - item		9 Months Ended
	Aug. 03, 2016	Sep. 30, 2016
Organization and company background
Number of ACOs		22
Number of states in which entity operates		11
Number of next generation ACOs		1
MSO
Organization and company background
Number of members		236,800
Number of participating providers in ACOs		5,200
Traditional Insurance | Nassau Reinsurance Group Holdings, L.P
Organization and company background
Percentage under coinsurance treaty	100.00%
Medicare Advantage Subsidiaries
Organization and company background
Number of members		114,400
Medicare Advantage Subsidiaries | Texas HMO
Organization and company background
Number of members		68,800
Medicare Advantage Subsidiaries | New York And Maine
Organization and company background
Number of members		45,600

XML

BASIS OF PRESENTATION (Details) $ / shares in Units, $ in Millions		3 Months Ended	9 Months Ended	12 Months Ended
	Jul. 29, 2016 USD ($) item	Sep. 30, 2016 USD ($) $ / shares	Sep. 30, 2016 USD ($) $ / shares	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($) item
Share of the entity in income of ACOs (as a percent)			50.00%
Share of the entity in losses of ACOs (as a percent)			100.00%
Share of entity in subsequent profits in case of losses of ACOs (as a percent)			100.00%
Share of entity in revenue remaining after recovery of losses of ACOs (as a percent)			50.00%
Mandatorily Redeemable Preferred Shares
Unamortized costs		$ 0.1	$ 0.1	$ 0.2
CMS | Premium revenue
Additional premium revenue due to change in accounting estimate		$ 7.7	$ 26.5
Additional premium revenue due to change in accounting estimate (per share) | $ / shares		$ 0.08	$ 0.23
Qualify for savings
Total savings from ACOs for CMS	$ 97.0				$ 80.0
Number of ACOs qualifying for savings | item	10				9
Payments to be received by ACOs	$ 39.8				$ 26.9
Payments to physician partners			$ 11.3
Revenue from unconsolidated subsidiaries			$ 28.5	$ 20.9

XML

INVESTMENTS - Fixed Maturity Investments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investments
Amortized Cost	$ 215,761	$ 279,277
Gross Unrealized Gains	7,219	6,678
Gross Unrealized Losses	(1,971)	(4,179)
Fair Value	221,009	281,776
U.S. Treasury securities and U.S. Government obligations
Investments
Amortized Cost	21,321	8,481
Gross Unrealized Gains	58	5
Gross Unrealized Losses	(5)	(8)
Fair Value	21,374	8,478
Government sponsored agencies
Investments
Amortized Cost	514	516
Gross Unrealized Gains	13
Gross Unrealized Losses		(9)
Fair Value	527	507
Other political subdivisions
Investments
Amortized Cost	26,760	35,253
Gross Unrealized Gains	657	771
Gross Unrealized Losses	(43)	(98)
Fair Value	27,374	35,926
Corporate debt securities
Investments
Amortized Cost	89,233	144,772
Gross Unrealized Gains	4,518	4,076
Gross Unrealized Losses	(1,034)	(2,425)
Fair Value	92,717	146,423
Foreign debt securities
Investments
Amortized Cost	28,444	28,287
Gross Unrealized Gains	434	471
Gross Unrealized Losses	(751)	(1,159)
Fair Value	28,127	27,599
Residential mortgage-backed securities
Investments
Amortized Cost	22,300	34,973
Gross Unrealized Gains	1,154	1,254
Gross Unrealized Losses	(3)	(258)
Fair Value	23,451	35,969
Commercial mortgage-backed securities
Investments
Amortized Cost	22,797	21,264
Gross Unrealized Gains	350	68
Gross Unrealized Losses	(103)	(181)
Fair Value	23,044	21,151
Other asset-backed securities
Investments
Amortized Cost	4,392	5,731
Gross Unrealized Gains	35	33
Gross Unrealized Losses	(32)	(41)
Fair Value	$ 4,395	$ 5,723

XML

INVESTMENTS - Expected Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Amortized Cost
Due in 1 year or less	$ 8,100
Due after 1 year through 5 years	79,073
Due after 5 years through 10 years	57,515
Due after 10 years	21,584
Mortgage and asset-backed securities	49,489
Amortized Cost	215,761	$ 279,277
Fair Value
Due in 1 year or less	8,208
Due after 1 year through 5 years	81,434
Due after 5 years through 10 years	60,133
Due after 10 years	20,344
Mortgage and asset-backed securities	50,890
Fair Value	$ 221,009	$ 281,776

XML

INVESTMENTS - Fair Value and Gross Unrealized Losses (Details) $ in Thousands	Sep. 30, 2016 USD ($) item	Dec. 31, 2015 USD ($) item
Investments
Less than 12 Months, Fair Value	$ 34,298	$ 76,136
Less than 12 Months, Gross Unrealized Losses	(167)	(3,103)
12 Months or Longer, Fair Value	19,877	16,218
12 Months or Longer, Gross Unrealized Losses	(1,804)	(1,076)
Total, Fair Value	54,175	92,354
Total, Gross Unrealized Losses	$ (1,971)	$ (4,179)
Total number of securities in an unrealized loss position | item	35	96
U.S. Treasury securities and U.S. Government obligations
Investments
Less than 12 Months, Fair Value	$ 11,957	$ 5,210
Less than 12 Months, Gross Unrealized Losses	(5)	(8)
Total, Fair Value	11,957	5,210
Total, Gross Unrealized Losses	(5)	(8)
Government sponsored agencies
Investments
Less than 12 Months, Fair Value		507
Less than 12 Months, Gross Unrealized Losses		(9)
Total, Fair Value		507
Total, Gross Unrealized Losses		(9)
Other political subdivisions
Investments
Less than 12 Months, Fair Value		3,162
Less than 12 Months, Gross Unrealized Losses		(98)
12 Months or Longer, Fair Value	1,536
12 Months or Longer, Gross Unrealized Losses	(43)
Total, Fair Value	1,536	3,162
Total, Gross Unrealized Losses	(43)	(98)
Corporate debt securities
Investments
Less than 12 Months, Fair Value	7,334	48,819
Less than 12 Months, Gross Unrealized Losses	(53)	(2,392)
12 Months or Longer, Fair Value	5,321	1,396
12 Months or Longer, Gross Unrealized Losses	(981)	(33)
Total, Fair Value	12,655	50,215
Total, Gross Unrealized Losses	(1,034)	(2,425)
Foreign debt securities
Investments
Less than 12 Months, Fair Value	6,992	6,528
Less than 12 Months, Gross Unrealized Losses	(13)	(382)
12 Months or Longer, Fair Value	8,089	5,085
12 Months or Longer, Gross Unrealized Losses	(738)	(777)
Total, Fair Value	15,081	11,613
Total, Gross Unrealized Losses	(751)	(1,159)
Residential mortgage-backed securities
Investments
Less than 12 Months, Fair Value		3,021
Less than 12 Months, Gross Unrealized Losses		(41)
12 Months or Longer, Fair Value	579	6,701
12 Months or Longer, Gross Unrealized Losses	(3)	(217)
Total, Fair Value	579	9,722
Total, Gross Unrealized Losses	(3)	(258)
Commercial mortgage-backed securities
Investments
Less than 12 Months, Fair Value	8,015	7,422
Less than 12 Months, Gross Unrealized Losses	(96)	(151)
12 Months or Longer, Fair Value	2,181	2,108
12 Months or Longer, Gross Unrealized Losses	(7)	(30)
Total, Fair Value	10,196	9,530
Total, Gross Unrealized Losses	(103)	(181)
Other asset-backed securities
Investments
Less than 12 Months, Fair Value		1,467
Less than 12 Months, Gross Unrealized Losses		(22)
12 Months or Longer, Fair Value	2,171	928
12 Months or Longer, Gross Unrealized Losses	(32)	(19)
Total, Fair Value	2,171	2,395
Total, Gross Unrealized Losses	$ (32)	$ (41)

XML

INVESTMENTS - Realized Gains and Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Gross realized gains and gross realized losses
Realized gains		$ 29,979	$ 1,682	$ 33,915
Realized losses	$ (143)	(228)	(297)	(290)
Net realized gains on investments	(143)	29,751	1,385	33,625
Fixed maturities, available for sale
Gross realized gains and gross realized losses
Realized gains		359	1,563	4,175
Realized losses		(228)	(154)	(290)
Realized gain on sale of equity investments | naviHealth
Gross realized gains and gross realized losses
Realized gain on sale of equity investment		$ 29,620		29,620
Other
Gross realized gains and gross realized losses
Realized gains			119	$ 120
Realized losses	$ (143)		$ (143)

XML

FAIR VALUE MEASUREMENTS (Details) - Fair Value Measurements Recurring - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets:
Total assets	$ 227,413	$ 288,128
Fixed maturities, available for sale
Assets:
Fair value of investment	221,009	281,776
Equity securities
Assets:
Fair value of investment	6,404	6,352
Level 2
Assets:
Total assets	227,362	288,026
Level 2 | Fixed maturities, available for sale
Assets:
Fair value of investment	220,958	281,674
Level 2 | Equity securities
Assets:
Fair value of investment	6,404	6,352
Level 3
Assets:
Total assets	51	102
Level 3 | Fixed maturities, available for sale
Assets:
Fair value of investment	$ 51	$ 102

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Components of accumulated other comprehensive income
Balance at the beginning of period	$ 10,080	$ 6,964	$ 2,748	$ 12,648
Other comprehensive income (loss) before reclassifications	(6,415)	(16)	1,943	(3,216)
Less: Amounts reclassified from other comprehensive income (loss)	(6)	68	1,020	2,552
Total other comprehensive (loss) income, net of income taxes	(6,409)	(84)	923	(5,768)
Balance at the end of period	3,671	6,880	$ 3,671	6,880
Federal rate (as a percent)			35.00%
Net Unrealized Gains on Investments Available for Sale
Components of accumulated other comprehensive income
Balance at the beginning of period	15,483	11,605	$ 6,090	19,088
Other comprehensive income (loss) before reclassifications	(9,355)	(26)	1,064	(5,025)
Less: Amounts reclassified from other comprehensive income (loss)	(6)	68	1,020	2,552
Total other comprehensive (loss) income, net of income taxes	(9,349)	(94)	44	(7,577)
Balance at the end of period	6,134	11,511	6,134	11,511
Long-Term Claim Reserve Adjustment
Components of accumulated other comprehensive income
Balance at the beginning of period	(5,403)	(4,641)	(3,342)	(6,440)
Other comprehensive income (loss) before reclassifications	2,940	10	879	1,809
Total other comprehensive (loss) income, net of income taxes	2,940	10	879	1,809
Balance at the end of period	$ (2,463)	$ (4,631)	$ (2,463)	$ (4,631)

XML

STOCK-BASED COMPENSATION - Stock Option Awards (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
STOCK-BASED COMPENSATION
Stock compensation expense	$ 1,516	$ 1,900	$ 5,131	$ 8,879
Less: stock-based compensation expense - discontinued operations	(22)	72	109	1,256
Stock-based compensation expense - continuing operations	1,538	1,828	5,022	7,623
Tax benefit recognized	538	640	1,757	2,668
Stock-based compensation expense - continuing operations, net of tax	1,000	1,188	$ 3,265	4,955
Options
Exercised (in shares)			(137,000)
Employees, directors and other third parties stock options
STOCK-BASED COMPENSATION
Stock compensation expense	$ 433	734	$ 1,623	3,459
Assumptions used to estimate the fair value of options at the date of grant using a Black-Scholes option pricing model
Risk free interest rates, minimum (as a percent)			0.65%
Risk free interest rates, maximum (as a percent)			1.09%
Dividend yields (as a percent)			0.00%
Expected volatility, minimum (as a percent)			33.15%
Expected volatility, maximum (as a percent)			33.86%
Options
Outstanding at the beginning of the period (in shares)			4,871,000
Granted (in shares)			755,000
Exercised (in shares)			(1,324,000)
Forfeited or expired (in shares)			(208,000)
Outstanding at the end of the period (in shares)	4,094,000		4,094,000
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)			$ 6.80
Granted (in dollars per share)			6.13
Exercised (in dollars per share)			6.09
Forfeited or expired (in dollars per share)			7.34
Outstanding at the end of the period (in dollars per share)	$ 6.89		$ 6.89
Options, other disclosures
Total intrinsic value of options exercised			$ 1,600	3,400
Compensation cost related to non-vested awards not yet recognized	$ 2,500		$ 2,500
Weighted-average period over which compensation cost related to non-vested awards is expected to be recognized			2 years 6 months
Employees, directors and other third parties stock options | Minimum
Assumptions used to estimate the fair value of options at the date of grant using a Black-Scholes option pricing model
Weighted-average grant date fair value (in dollars per share)			$ 1.54
Expected lives of options (in years)			3 years 9 months
Employees, directors and other third parties stock options | Maximum
Assumptions used to estimate the fair value of options at the date of grant using a Black-Scholes option pricing model
Weighted-average grant date fair value (in dollars per share)			$ 2.04
Expected lives of options (in years)			4 years
Performance based options
Options
Granted (in shares)			358,000
Vesting period			4 years
Vesting Percentage			25.00%
Restricted stock awards
STOCK-BASED COMPENSATION
Stock compensation expense	$ 1,083	$ 1,166	$ 3,508	$ 5,420
Options
Vesting period			4 years

XML

STOCK-BASED COMPENSATION - Restricted Stock Awards (Details) - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Maximum
Weighted Average Grant-Date Fair Value
Financing cash out flows for excess tax deductions recognized	$ (2.1)
Financing cash in flows for excess tax deductions recognized		$ 0.1
Restricted stock awards
Restricted Stock Awards
Vesting period	4 years
Restricted Stock
Non-vested at beginning of period (in shares)	2,012,000
Granted (in shares)	805,000
Vested (in shares)	(443,000)
Forfeited (in shares)	(149,000)
Non-vested at end of period (in shares)	2,225,000
Weighted Average Grant-Date Fair Value
Non-vested at beginning of period (in dollars per share)	$ 5.66
Granted (in dollars per share)	4.84
Vested (in dollars per share)	8.41
Forfeited (in dollars per share)	6.43
Non-vested at end of period (in dollars per share)	$ 4.76
Total fair value of shares vested	$ 2.6
Performance based restricted stock awards
Restricted Stock
Granted (in shares)	382,000
Vesting Percentage	25.00%

XML

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE - Disclosures (Details)		9 Months Ended
	Jun. 27, 2016 USD ($)	Sep. 30, 2016 USD ($) item $ / shares
Debt instruments
Gross proceeds from convertible debt		$ 115,000,000
Convertible Notes | Senior unsecured notes
Debt instruments
Gross proceeds from convertible debt	$ 115,000,000
Interest rate (as a percent)	4.00%
Trading days | item		20
Consecutive trading days		30 days
Percentage of Conversion price		130.00%
Business days, period		5 days
Consecutive trading-day period		5 days
Principal increments of notes		$ 1,000
Percentage of measurement period on VWAP		98.00%
Initial conversion rate		105.8890
Conversion price | $ / shares		$ 9.44
Effective interest rate		8.50%

XML

CONVERTIBLE SENIOR NOTES DUE 2021; STOCK REPURCHASE - Convertible Notes Components (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Liability component:
Amortization			$ 1,081
Net carrying amount	$ 91,645		$ 91,645
Equity component:
Number of common stock shares repurchased			23,165,000
Value of shares repurchased			$ 180,921
Interest expense	3,046	$ 1,142	4,825	$ 3,849
Amortization of debt discount			348	$ 1,825
Convertible Notes | Senior unsecured notes
Liability component:
Principal	115,000		115,000
Conversion feature	(20,637)		(20,637)
Amortization			1,081
Principal balance in liabilities	95,444		95,444
Liability portion of debt issuance costs			(3,799)
Net carrying amount	91,645		91,645
Equity component:
Conversion feature			20,637
Equity portion of debt issuance costs			(875)
Deferred taxes			(6,917)
Net carrying amount	12,845		12,845
Interest expense	2,200		2,300
Amortization of debt discount	$ 1,000		$ 1,100
Convertible Notes | Senior unsecured notes | Perry
Equity component:
Number of common stock shares repurchased			11,011,515
Convertible Notes | Senior unsecured notes | WCAS
Equity component:
Number of common stock shares repurchased			7,098,775
Share price (in dollars per share)	$ 6.80		$ 6.80
Value of shares repurchased			$ 123,000
Convertible Notes | Senior unsecured notes | Perry and WCAS
Equity component:
Number of common stock shares repurchased			2,082,800
Value of shares repurchased			$ 15,100

XML

COMMITMENTS AND CONTINGENCIES (Details)		9 Months Ended
	Sep. 09, 2016 USD ($) shares	Sep. 30, 2016 item
GTCR litigation settlement
Settlement Agreement
Number of shares acquired which are previously held by the funds | shares	6,272,104
Payment to acquire shares previously held by the funds	$ 13,000,000
Proceeds from escrow account under litigation settlement	1,600,000
GTCR litigation settlement | GTCR
Settlement Agreement
Proceeds from escrow account under litigation settlement, which was held in such escrow account	$ 749,000
IRG
COMMITMENTS AND CONTINGENCIES
Number of false claims resolved | item		3

XML

BUSINESS SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes
Revenues	$ 343,389	$ 339,790	$ 1,038,764	$ 971,825
Pre-tax Income (loss) From Continuing Operations	(9,261)	12,996	26,627	13,506
Operating segments | Medicare Advantage
Reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes
Revenues	342,887	306,807	1,036,489	931,906
Pre-tax Income (loss) From Continuing Operations	7,624	(72)	47,664	18,628
Operating segments | MSO
Reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes
Pre-tax Income (loss) From Continuing Operations	(8,594)	(9,320)	4,072	(9,409)
Operating segments | Corporate & Other
Reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes
Revenues	841	3,406	1,410	6,895
Pre-tax Income (loss) From Continuing Operations	(8,148)	(7,363)	(26,494)	(29,338)
Intersegment revenues
Reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes
Revenues	(196)	(174)	(520)	(601)
Net realized (losses) gains
Reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income from continuing operations before income taxes
Revenues	(143)	29,751	1,385	33,625
Pre-tax Income (loss) From Continuing Operations	$ (143)	$ 29,751	$ 1,385	$ 33,625

XML

OTHER DISCLOSURES - Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Taxes:
Effective tax rate on income from continuing operations (as a percent)	5.50%	100.00%	58.10%	56.40%
(Benefit from) provision for income taxes	$ (504)	$ 13,045	$ 15,473	$ 7,618
Effective tax rate on income from continuing operations excluding foreign tax credit carryforwards (as a percent)			94.40%
APS Puerto Rico
Income Taxes:
Foreign tax credit carryforwards		$ 5,100		$ 5,100

XML

OTHER DISCLOSURES - Unconsolidated Subsidiaries (Details) $ in Thousands	3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) item	Dec. 31, 2014 USD ($)	Jun. 30, 2015 item
Unconsolidated Subsidiaries
Equity in (losses) earnings of unconsolidated subsidiaries	$ (5,170)		$ (7,446)	$ 14,504	$ (1,134)
Revenues	343,389		339,790	1,038,764	971,825
Net income (loss)	50,881		2,808	73,880	(2,413)
ACOs
Unconsolidated Subsidiaries
Revenues	70			41,057	26,924
Total expenses	5,093		7,446	15,948	22,018
Net income (loss)	(5,023)		$ (7,446)	25,109	$ 4,906
Total savings from ACOs for CMS		$ 41,000
Shared savings revenue from Next Generation ACO	$ 1,200
Shared savings revenue				$ 100		$ 39,800	$ 26,900
Number of ACOs qualifying for savings | item						10		9

XML

OTHER DISCLOSURES - Common Stock (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016
Changes in the number of shares of common stock issued
Common stock issued and outstanding, beginning of period			81,312
Issuance of common stock			472
Exercise of stock options			137
Share buyback/cancellation			(23,165)
Common stock issued and outstanding end of period	58,756		58,756
Common stock - voting
Changes in the number of shares of common stock issued
Common stock issued and outstanding, beginning of period			81,300
Share buyback/cancellation			23,200
Common stock issued and outstanding end of period	58,800		58,800
Common stock - non-voting
Changes in the number of shares of common stock issued
Common stock issued and outstanding, beginning of period			3,300
Share buyback/cancellation			3,300
Stock options and unvested restricted stock
Changes in the number of shares of common stock issued
Antidilutive securities excluded from the computation of diluted EPS (in shares)	700	700

XML

DISCONTINUED OPERATIONS - Sale of Businesses (Details) - USD ($) $ in Thousands					1 Months Ended	3 Months Ended	9 Months Ended		12 Months Ended
	Aug. 03, 2016	Aug. 01, 2016	May 01, 2015	Feb. 04, 2015	Oct. 31, 2016	Sep. 30, 2016	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Sale of Businesses
Deferred tax (benefit) charge							$ 18,967	$ 3,730
Total Care Medicaid Plan
Sale of Businesses
Gain (loss) on sale, pre-tax						$ 20,407	20,407
Fee recognized from support provided under TSA agreements						200	200
Traditional Insurance
Sale of Businesses
Cash proceeds	$ 30,500
Target statutory capital and surplus	$ 68,500
Gain (loss) on sale, pre-tax						2,776	2,792		$ (149,200)
Deferred tax (benefit) charge						(3,900)	(400)		(40,900)
Deferred tax assets valuation allowance									25,600
Gain (loss) on sale, net of tax									$ (133,800)
Reclassification, after tax, of AOCI related to the sale of business							4,800
After tax of early cash settlement of the earn out							1,000
Fee recognized from support provided under TSA agreements						400	400
Earn-out revenue					$ 11,400
Traditional Insurance | Nassau Reinsurance Group Holdings, L.P
Sale of Businesses
Quota Share Percentage of Reinsurance Agreement	100.00%
APS Healthcare Puerto Rico Inc.
Sale of Businesses
Purchase price at closing				$ 26,500
Gain (loss) on sale, pre-tax				(400)
Foreign tax credit carryforwards				$ 5,400
APS Healthcare Domestic Business
Sale of Businesses
Purchase price at closing			$ 5,000
Gain (loss) on sale, pre-tax			$ (17,000)
Fee recognized from support provided under TSA agreements						1,200	2,900
Earn-out revenue						$ 4,400	$ 12,100
Molina Health Care Inc | Total Care Medicaid Plan
Sale of Businesses
Purchase price at closing		$ 38,000
Gain (loss) on sale, pre-tax		$ 20,400

XML

DISCONTINUED OPERATIONS - Financial Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Revenues:
Net premiums	$ 28,575	$ 89,525	$ 198,194	$ 285,627
Net investment income	1,324	4,038	9,145	13,532
Fee and other income	140	403	914	32,127
Net realized (losses) gains	(11)	(27)	160	41
Total revenues	30,028	93,939	208,413	331,327
Benefits, claims and expenses:
Claims and other benefits	25,324	75,976	172,427	242,269
Change in deferred policy acquisition costs		2,621		8,489
Amortization of intangible assets	67	267	470	1,191
Affordable Care Act fee	279	891	1,919	2,551
Other operating costs and expenses	4,651	12,036	30,518	74,621
Total benefits, claims and expenses	30,321	91,791	205,334	329,121
Operating income	(293)	2,148	3,079	2,206
Non-operating results:
Income (loss) from discontinued operations before income taxes	56,959	3,514	68,024	(15,097)
Provision for (benefit from) income taxes	(2,679)	657	5,298	(6,796)
Income (loss) from discontinued operations	59,638	2,857	62,726	(8,301)
Assets
Fixed maturities available for sale, at fair value	53,425		53,425		$ 427,690
Other invested assets					12,800
Total investments	53,425		53,425		440,490
Cash and cash equivalents	1,388		1,388		6,628
Accrued investment income	501		501		3,196
Reinsurance recoverables - life	109,361		109,361		476,863
Reinsurance recoverables - health	57,157		57,157		130,501
Due and unpaid premiums	443		443		27,565
Goodwill and intangible assets					4,197
Deferred income tax asset	3,696		3,696
Income taxes receivable					10,194
Other healthcare receivables					2,045
Net amounts receivable from continuing operations	37		37		44,289
Other assets	12,238		12,238		4,602
Total Assets	238,246		238,246		1,150,570
Liabilities
Reserves and other policy liabilities - life	109,526		109,526		495,518
Reserves for future policy benefits - health	54,493		54,493		539,307
Policy and contract claims - health	2,867		2,867		38,482
Premiums received in advance	399		399		2,000
Amounts due to reinsurers	1,665		1,665		2,325
Deferred income tax liability					7,491
Other liabilities	67,122		67,122		30,916
Total liabilities	236,072		236,072		1,116,039
Total Care Medicaid Plan
Non-operating results:
Gain on sale	20,407		20,407
APS Healthcare
Non-operating results:
APS Healthcare	34,069	$ 1,366	41,746	$ (17,303)
Traditional Insurance
Non-operating results:
Gain on sale	$ 2,776		$ 2,792		$ (149,200)