UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March 3031, ~~2012~~2013

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 1-16477

COVENTRY HEALTH CARE, INC.

(Exact name of registrant as specified in its charter)



Delaware		52-2073000
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6720-B ROCKLEDGE DRIVE, SUITE 700, BETHESDA, MARYLAND 20817

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (301) 581-0600

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 T No £

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 T No £

Indicate by check mark 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.



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

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

Yes £ No T

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

Class		Outstanding at ~~October~~April 3115, ~~2012~~2013
Common Stock $.01 Par Value		134,~~503~~739,~~432~~756

COVENTRY HEALTH CARE, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Balance Sheets at September 30, 2012 and December 31, 2011	3
Consolidated Balance Sheets at March 31, 2013 and December 31, 2012	3
Consolidated Statements of Operations and Comprehensive Income for the quarters and nine months ended September 30, 2012 and 2011	4
Consolidated Statements of Operations and Comprehensive Income for the quarters ended March 31, 2013 and 2012	4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	5
Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 2013 and 2012	5
Notes to the Condensed Consolidated Financial Statements	6
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	2217
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk	3025
ITEM 4: Controls and Procedures	3025
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings	3126
ITEM 1A: Risk Factors	3126
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds	3326
ITEM 3: Defaults Upon Senior Securities	3326
ITEM 4: Mine Safety Disclosures	3326
ITEM 5: Other Information	3326
ITEM 6: Exhibits	3427
SIGNATURES	3528
INDEX TO EXHIBITS	3629

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

COVENTRY HEALTH CARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,~~262~~531,~~078~~678		$	1,~~579~~399,~~003~~162
Short-term investments	~~165~~120,~~811~~745			~~116~~121,~~205~~742
Accounts receivable, net	~~289~~260,~~951~~809			~~270~~272,~~263~~077
Other receivables, net	1945,~~014,567~~218			~~717~~892,~~736~~815
Other current assets	~~192~~195,~~203~~479			~~286~~196,~~301~~323
Total current assets	23,~~924~~053,~~610~~929			2,~~969~~882,~~508~~119
Long-term investments	2,~~563~~713,~~559~~291			2,~~635~~658,~~309~~582
Property and equipment, net	~~258~~261,~~378~~668			~~255~~266,~~485~~818
Goodwill	2,~~590~~591,~~465~~488			2,~~548~~591,~~834~~488
Other intangible assets, net	~~335~~302,~~103~~118			~~367~~318,~~533~~592
Other long-term assets	3432,~~548~~783			3633,~~863~~389
Total assets	$	8,~~706~~955,~~663~~277		$	8,~~813~~750,~~532~~988
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical liabilities	$	1,~~503~~476,~~691~~557		$	1,~~308~~418,~~507~~914
Accounts payable and other accrued liabilities	~~480~~509,~~582~~930			~~695~~488,~~235~~175
Deferred revenue	~~123~~150,~~841~~999			~~114~~137,~~510~~981
Current portion of long-term debt	—			233,903
Total current liabilities	2,137,486			2,045,070
Total current liabilities	2,108,114			2,352,155
Long-term debt	1,585,312			1,585,190
Long-term debt	1,585,067			1,584,700
Other long-term liabilities	396,476			397,813
Other long-term liabilities	387,159			365,686
Total liabilities	4,119,274			4,028,073
Total liabilities	4,080,340			4,302,541
Stockholders’ equity:
Common stock, $.01 par value; 570,000 authorized;196,153 issued and 134,326 outstanding in 2012; 193,469 issued and 141,172 outstanding in 2011	1,962			1,935
Common stock, $.01 par value; 570,000 authorized;197,196 issued and 134,688 outstanding in 2013; 197,080 issued and 134,573 outstanding in 2012	1,972			1,971
Treasury stock, at cost; 61,827 in 2012; 52,297 in 2011	(1,891,437		)	(1,583,313		)
Treasury stock, at cost; 62,508 in 2013; 62,507 in 2012	(1,920,996		)	(1,920,749		)
Additional paid-in capital	1,~~938~~981,~~036~~156			1,~~848~~970,~~995~~877
Accumulated other comprehensive income, net	7853,~~682~~757			6069,~~469~~220
Retained earnings	4,~~499~~720,~~080~~114			4,~~182~~601,~~905~~596
Total stockholders’ equity	4,~~626~~836,~~323~~003			4,~~510~~722,~~991~~915
Total liabilities and stockholders’ equity	$	8,~~706~~955,~~663~~277		$	8,~~813~~750,~~532~~988

See accompanying notes to the condensed consolidated financial statements.

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COVENTRY HEALTH CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

	Quarters Ended September 30,						Nine Months Ended September 30,
	Quarters Ended March 31,
	2012			2011			2012		2011
	2013			2012
Operating revenues:
Managed care premiums	$	3,~~168~~236,~~653~~663		$	23,~~680~~386,~~044~~268		$	~~9,764,584~~	$	~~8,172,974~~
Management services	~~289~~283,~~130~~572			~~295~~305,~~499~~699			~~902,963~~		~~884,553~~
Total operating revenues	3,~~457~~520,~~783~~235			23,~~975~~691,~~543~~967			~~10,667,547~~		~~9,057,527~~
Operating expenses:
Medical costs	2,~~674~~686,~~787~~651			2,~~185~~808,~~568~~348			~~8,240,205~~		~~6,709,521~~
Cost of sales	6659,~~178~~485			7167,~~511~~952			~~201,359~~		~~209,603~~
Selling, general and administrative	~~521~~520,~~022~~300			~~492~~502,~~855~~888			~~1,528,484~~		~~1,476,325~~
Provider class action - release	—			—			—		(159,300		)
Depreciation and amortization	37,631			36,303
Depreciation and amortization	36,318			32,996			116,341		102,191
Total operating expenses	3,304,067			3,415,491
Total operating expenses	3,298,305			2,782,930			10,086,389		8,338,340
Operating earnings	216,168			276,476
Operating earnings	159,478			192,613			581,158		719,187
Interest expense	24,582			25,557
Interest expense	24,671			28,227			74,845		70,844
Other income, net	30,330			24,434
Other income, net	32,271			22,913			87,137		66,201
Earnings before income taxes	221,916			275,353
Earnings before income taxes	167,078			187,299			593,450		714,544
Provision for income taxes	86,547			104,634
Provision for income taxes	61,819			64,618			225,728		257,135
Net earnings	$	135,369		$	170,719
Net earnings	$	105,259		$	122,681		$	367,722	$	457,409
Net earnings per common share:
Net earnings per common share:
Basic earnings per common share	$	1.01		$	1.21
Basic earnings per common share	$	0.79		$	0.84		$	2.65	$	3.09
Diluted earnings per common share	$	1.00		$	1.20
Diluted earnings per common share	$	0.78		$	0.83		$	2.64	$	3.06
Cash dividends declared per share	$	0.125		$	0.125
Cash dividends declared per share	$	0.125		$	—		$	0.375	$	—
Other comprehensive income, net of tax:
Other comprehensive income, net of tax:
Change in unrealized investment holding gains	(10,326		)	7,537
Change in net unrealized gains on investments	$	12,908		$	7,378		$	18,213	$	13,560
Reclassification adjustment, net	(12,513		)	(4,339		)
Comprehensive income	$	118,167		$	130,059		$	385,935	$	470,969
Income tax benefit (provision)	7,376			(2,732		)
Other comprehensive income, net of tax	$	(15,463	)	$	466
Comprehensive income	$	119,906		$	171,185

See accompanying notes to the condensed consolidated financial statements.

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COVENTRY HEALTH CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011
	2013			2012
Cash flows from operating activities:
Net earnings	$	~~367~~135,~~722~~369		$	~~457~~170,~~409~~719
Adjustments to earnings:
Depreciation and amortization	~~116~~37,~~341~~631			~~102~~36,~~191~~303
Amortization of stock compensation	235,~~778~~972			299,~~964~~014
Provider class action – release	—			(159,300		)
RADV release	—			(132,977		)
Provider class action – deferred tax adjustment	—			58,145
RADV release – deferred tax adjustment	—			50,531
RADV release	(132,977		)	—
RADV release – deferred tax adjustment	50,531			—
Changes in assets and liabilities:
Restricted cash – litigation escrow	—			(150,500		)
Accounts receivable, net	11,268			39,538
Accounts receivable, net	4,634			19,830
Other receivables, net	(52,403		)	(84,455		)
Other receivables, net	(290,261		)	20,301
Medical liabilities	57,643			101,984
Medical liabilities	141,850			(16,019		)
Accounts payable and other accrued liabilities	20,252			(145,907		)
Accounts payable and other accrued liabilities	(75,364		)	5,187
Deferred revenue	13,018			343,163
Deferred revenue	9,331			295,756
Other operating activities	(6,525		)	32,602
Other operating activities	5,665			7,776
Net cash from operating activities	222,225			420,515
Net cash from operating activities	221,250			670,740
Cash flows from investing activities:
Capital expenditures, net	(6115,~~075~~871		)	(5323,~~895~~517		)
Proceeds from sales of investments	1282,~~050,893~~922			1249,~~224,255~~120
Proceeds from maturities of investments	~~188~~67,~~562~~125			~~196~~122,~~554~~567
Purchases of investments	(1411,~~161,205~~368		)	(1345,~~951,376~~530		)
Payments for acquisitions, net of cash acquired	~~(48,480~~—		)	(446,~~116~~980		)
Net cash from investing activities	(3177,~~305~~192		)	(~~588~~44,~~578~~340		)
Cash flows from financing activities:
Proceeds from issuance of stock	644,~~500~~397			4225,~~091~~404
Payments for repurchase of stock	(~~311,215~~664		)	(~~209~~4,~~605~~564		)
Proceeds from issuance of debt, net	—			589,867
Repayment of debt	—			(233,903		)
Repayment of debt	(233,903		)	(380,029		)
Excess tax benefit from stock compensation	565			2,868
Excess tax benefit from stock compensation	8,542			7,849
Payments for cash dividends	(16,815		)	—
Payments for cash dividends	(34,794		)	—
Net cash from financing activities	(12,517		)	(210,195		)
Net cash from financing activities	(506,870		)	50,173
Net change in cash and cash equivalents	132,516			165,980
Net change in cash and cash equivalents	(316,925		)	132,335
Cash and cash equivalents at beginning of period	1,399,162			1,579,003
Cash and cash equivalents at beginning of period	1,579,003			1,853,988
Cash and cash equivalents at end of period	$	1,531,678		$	1,744,983
Cash and cash equivalents at end of period	$	1,262,078		$	1,986,323

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

COVENTRY HEALTH CARE, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A. BASIS OF PRESENTATION AND SIGNIFICANT EVENTS

Basis of Presentation

The condensed consolidated financial statements of Coventry Health Care, Inc. and its subsidiaries (“Coventry” or the “Company”) contained in this report are unaudited but reflect all normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the results of the interim periods reflected. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The Company has eliminated all significant intercompany balances and transactions. Therefore, it is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10–K for the year ended December 31, ~~2011~~2012. The results of operations for the interim periods reported herein are not necessarily indicative of results to be expected for the full year. The year-end balance sheet data included in this report was derived from audited financial statements.

Significant Events

Proposed Merger

On August 19, 2012, the Company, Aetna Inc. (“Aetna”) and Jaguar Merger Subsidiary, Inc. (“Merger Sub”) entered into an Agreement and Plan of Merger ~~(as amended~~, ~~and as may be further amended),~~ pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will be merged with and into ~~Coventry~~the Company (the “Merger”), with the Company surviving the ~~merger~~Merger as a wholly-owned subsidiary of Aetna ~~(the “Merger”)~~. A copy of the Agreement and Plan of Merger iswas filed as ~~Annex~~Exhibit A2.1 to the Company’s ~~definitive~~Current ~~proxy~~Report ~~statement~~on Form 8-K filed ~~with~~on August 20, 2012. The Company subsequently entered into Amendment No. 1 and Amendment No. 2 to the ~~Securities~~Agreement and ~~Exchange~~Plan ~~Commission~~of Merger, which were filed as Exhibit 2.1 to the Company’s Current Reports on Form 8-K filed on October 1823, 2012 (and November 13, 2012, respectively. As used herein, the “Merger Agreement”) means the Agreement and Plan of Merger, by and among Coventry, Aetna and Merger Sub, as amended. Under the terms of the ~~agreement~~Merger Agreement, the Company'’s ~~shareholders~~stockholders will receive $27.30 in cash, without interest, and 0.3885 of an Aetna common share for each share of ~~Coventry~~the ~~common~~Company’s ~~stock (other than treasury shares held by Coventry and any shares of Coventry~~ common stock ~~beneficially owned by Aetna, Merger Sub or any person who properly demands statutory appraisal of his or her shares)~~. The total transaction was initially estimated at approximately $7.3 billion, including the assumption of Coventry debt, based on the closing price of Aetna common shares on August 17, 2012.

~~The~~On ~~consummation~~November ~~of the Merger is subject to customary closing conditions~~21, ~~including~~2012, ~~among others,~~ the ~~adoption of the Merger Agreement by the~~ Company’s stockholders, ~~the~~voted ~~absence~~at ofthe ~~certain~~stockholder ~~legal~~special ~~impediments~~meeting to approve the ~~consummation~~adoption of the Merger, ~~the~~Agreement. ~~receipt~~Of ofthe ~~specified~~104,941,398 ~~governmental~~shares ~~consents~~voting ~~and~~at ~~approvals,~~ the ~~early~~special ~~termination~~meeting ~~or expiration~~ of ~~the~~stockholders, ~~waiting~~more ~~period~~than ~~under~~99% ~~the~~voted ~~Hart-Scott-Rodino~~in ~~Antitrust~~favor ~~Improvement Act~~ of ~~1976, and, subject to certain exceptions,~~ the ~~accuracy~~adoption of ~~representations and warranties made by~~ the ~~Company~~Merger ~~and Aetna~~Agreement, ~~respectively,~~which ~~and~~represented ~~compliance~~approximately by78% of the Company’s ~~and~~total ~~Aetna~~outstanding ~~with~~shares ~~their~~of ~~respective~~common ~~obligations~~stock ~~under~~as of the ~~Merger~~October ~~Agreement. The~~15, ~~Merger~~2012 isrecord ~~not expected to close until mid-2013~~date.

The consummation of the Merger is subject to customary closing conditions, including, among others, the adoption of the Merger Agreement by the Company’s stockholders, the absence of certain legal impediments to the consummation of the Merger, the receipt of specified governmental consents and approvals, the early termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, and, subject to certain exceptions, the accuracy of representations and warranties made by the Company and Aetna, respectively, and compliance by the Company and Aetna with their respective obligations under the Merger Agreement. The Merger is expected to close in mid-2013.

Revenue Recognition

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012, the Centers for Medicare and Medicaid Services (“CMS”) periodically performs audits and may seek return of premium payments made to the Company if risk adjustment factors are not properly supported by medical record data. The Company estimates and records reserves for CMS audits based on information available at the time the estimates are made. The judgments and uncertainties affecting the application of these policies include, among other things, significant estimates related to the amount of hierarchical condition category (“HCC”) revenue subject to audit, anticipated error rates, sample methodologies, confidence intervals, enrollee selection, and payment error extrapolation methodology.

During the quarter ended March 31, 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (“RADV”) Contract-Level Audits.” Most importantly, CMS made significant changes regarding which contract years are subject to the CMS RADV audits and other core areas of the audit methodology. As a result of this notice, the Company released RADV reserves, for contract years 2007 through 2011, resulting in an increase in operating earnings of $133.0 million during the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, 2012~~, all of which occurred in the first quarter of 2012~~.

B. NEW ACCOUNTING STANDARDS

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 permits an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is “more likely than not” that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Codification Subtopic 350-30, Intangibles-Goodwill and Other, General Intangibles Other Than Goodwill. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15,

Table of Contents

~~2012, with early adoption permitted~~B. ~~The~~ NEW ~~Company~~ACCOUNTING anticipates early adoption of ASU 2012-02 for its 2012 annual impairment test. The adoption of ASU 2012-02 is not expected to materially affect the Company’s financial position or results of operations and comprehensive income. STANDARDS

In ~~September~~February ~~2011~~2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2011~~No. 2013-0802, “~~Intangibles-Goodwill~~Comprehensive ~~and~~Income ~~Other~~ (Topic ~~350~~220): ~~Testing~~Reporting ~~Goodwill~~of ~~for~~Amounts ~~Impairment.”~~Reclassified ~~ASU~~Out ~~2011-08~~of ~~permits~~Accumulated anOther ~~entity~~Comprehensive toIncome.” ~~first~~The ~~assess~~amendments ~~qualitative~~in ~~factors~~this toUpdate ~~determine~~require ~~whether~~an itentity isto ~~“more~~report ~~likely~~the ~~than~~effect ~~not”~~of ~~that~~significant ~~the~~reclassifications ~~fair~~out ~~value~~ of aaccumulated ~~reporting~~other ~~unit~~comprehensive isincome ~~less~~on ~~than~~the ~~its~~respective ~~carrying~~line ~~amount~~items asin anet ~~basis~~income ~~for~~if ~~determining~~the ~~whether~~amount itbeing reclassified is ~~necessary~~required tounder ~~perform~~U.S. ~~the~~generally ~~two-step~~accepted ~~goodwill~~accounting ~~impairment~~principles ~~test~~(“GAAP”) ~~described~~to be reclassified in ~~Topic~~its ~~350,~~entirety ~~Intangibles-Goodwill~~to ~~and~~net ~~Other~~income. ASU ~~2011~~2013-0802 ~~was~~is effective for ~~annual~~reporting ~~and~~periods ~~interim goodwill impairment tests performed for fiscal years~~ beginning after December 15, ~~2011, with early adoption permitted~~2012. The Company adopted ASU ~~2011~~2013-0802 ~~effective~~in ~~January 1~~2013, ~~2012,~~ and it did not materially affect the Company’s financial position or results of operations and comprehensive income.

In ~~July~~October ~~2011~~2012, the FASB issued ASU ~~2011~~No. 2012-0604, “~~Other~~Technical ~~Expenses~~Corrections ~~(Topic~~and ~~720): Fees Paid to the Federal Government by Health Insurers~~Improvements.” ~~ASU~~The ~~2011-06~~amendments ~~addresses~~in ~~the~~this ~~timing,~~Update ~~recognition~~cover ~~and~~a ~~classification~~wide range of ~~the~~topics ~~annual~~in ~~health~~the ~~insurance~~Accounting ~~industry~~Standards ~~assessment~~Codification. ~~fee~~These ~~imposed~~amendments oninclude ~~health~~technical ~~insurers~~corrections ~~by the Patient Protection~~ and ~~Affordable~~improvements ~~Care~~to ~~Act, as amended by~~ the ~~Health~~Accounting ~~Care~~Standards Codification and ~~Education~~conforming ~~Reconciliation~~amendments ~~Act~~related ofto ~~2010~~fair ~~(collectively,~~value ~~“PPACA”)~~measurements. ~~The~~ASU ~~mandatory~~2012-04 ~~annual fee of health insurers~~ will be ~~imposed~~effective for ~~each~~fiscal ~~calendar~~periods ~~year~~ beginning ~~on or~~ after ~~January~~December 115, ~~2014~~2012. ~~This~~The ~~update~~Company ~~requires~~adopted ~~that~~ASU the liability for the fee be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight2012-~~line method of allocation unless another method better allocates the fee over the calendar year that it is payable. Although the federally mandated annual fee will be material~~04, ~~the~~and ~~adoption~~did ~~of ASU 2011-06 is~~ not ~~expected to~~ materially affect the Company’'s financial position or results of operations and comprehensive income.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in one continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Also, reclassification adjustments between comprehensive income and net income must be presented on the face of the financial statements. ASU 2011-05 was effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-05 effective January 1, 2012 by presenting one continuous statement of comprehensive income. Other than a change in presentation, the adoption of ASU 2011-05 did not affect the Company’s financial position or results of operations and comprehensive income.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” ASU 2011-04 requires additional fair value measurement disclosures, including: (a) quantitative information about the significant unobservable inputs used for Level 3 fair value measurements, a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, and a description of a company's valuation process, (b) any transfers between Level 1 and 2, (c) information about when the current use of a non-financial asset measured at fair value differs from its highest and best use, and (d) the hierarchy classification for items whose fair value is not recorded on the balance sheet but is disclosed in the notes. ASU 2011-04 was effective for fiscal periods beginning after December 15, 2011. The Company adopted these disclosure requirements effective January 1, 2012, as required. The adoption of ASU 2011-04 did not affect the Company’s financial position or results of operations and comprehensive income.

C. SEGMENT INFORMATION

The Company reorganized the executive management team to better align resources and provide continued focus on areas of future growth. As a result of this reorganization, the Company realigned its segments during the first quarter of 2012 to reflect the manner in which the chief operating decision maker reviews financial information. As a result, the Company has the following three reportable segments: Commercial Products, Government Programs, and Workers’ Compensation. Each of these segments, which the Company also refers to as “Divisions,” is separately managed and provides separate operating results that are evaluated by the Company’s chief operating decision maker.

The Commercial Products Division is primarily comprised of the Company’s traditional health plan based Commercial and Individual Risk business. Additionally, through this Division the Company contracts with various federal employee organizations to provide health insurance benefits under the Federal Employees Health Benefits Program (“FEHBP”) and offers ~~managed~~administrative ~~care~~services ~~and~~only ~~administrative~~ products to businesses that self-insure ~~the~~their health ~~care~~ benefits ofmanaged ~~their employees~~care. This Division also contains the dental services, network rental and behavioral health benefits products.

The Government Programs Division includes the Company’s Medicare Part D and traditional health plan based Medicare Advantage Coordinated Care Plans (“Medicare Advantage CCP”) and Medicaid products.

The Workers’ Compensation Division is comprised of fee-based, managed care services, such as provider network access, bill review, ~~care~~pharmacy benefit management, ~~services~~durable medical equipment and ~~pharmacy~~ancillary ~~benefit~~services, and care management, services to underwriters and administrators of workers’ compensation insurance.

The tables below summarize the operating results of the Company’s reportable segments through the gross margin level, as that is the measure of profitability used by the chief operating decision maker to assess segment performance and make decisions regarding the allocation of resources. A reconciliation of gross margin to operating earnings at a consolidated level is also provided. Total assets by reportable segment are not disclosed as these assets are not reviewed separately by the Company’s chief operating decision maker. The dollar amounts in the segment tables are presented in thousands.



	Quarter Ended March 31, 2013
	Commercial Products Division		Government Programs Division		Workers’ Compensation		Elim.			Total
Operating revenues
Managed care premiums	$	1,322,718	$	1,928,726	$	—	$	(14,781	)	$	3,236,663
Management services	108,084		—		175,488		—			283,572
Total operating revenues	1,430,802		1,928,726		175,488		(14,781		)	3,520,235
Medical costs	1,021,785		1,679,647		—		(14,781		)	2,686,651
Cost of sales	—		—		59,485		—			59,485
Gross margin	$	409,017	$	249,079	$	116,003	$	—		$	774,099

Selling, general and administrative										520,300
Depreciation and amortization										37,631
Operating earnings										$	216,168

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allocation of resources. A reconciliation of gross margin to operating earnings at a consolidated level is also provided. Total assets by reportable segment are not disclosed as these assets are not reviewed separately by the Company’s chief operating decision maker. The dollar amounts in the segment tables are presented in thousands. The Company’s segment presentation for 2011 has been reclassified to conform to the 2012 presentation.



	Quarter Ended March 31, 2012
	Commercial Products Division		Government Programs Division		Workers’ Compensation		Elim.			Total
Operating revenues
Managed care premiums	$	1,481,275	$	1,915,795	$	—	$	(10,802	)	$	3,386,268
Management services	113,777		—		191,922		—			305,699
Total operating revenues	1,595,052		1,915,795		191,922		(10,802		)	3,691,967
Medical costs	1,177,985		1,641,165		—		(10,802		)	2,808,348
Cost of sales	—		—		67,952		—			67,952
Gross margin	$	417,067	$	274,630	$	123,970	$	—		$	815,667

Selling, general and administrative										502,888
Depreciation and amortization										36,303
Operating earnings										$	276,476

	Quarter Ended September 30, 2012
	Commercial Products Division		Government Programs Division		Workers’ Compensation		Elim.			Total
Operating revenues
Managed care premiums	$	1,409,863	$	1,771,905	$	—	$	(13,115	)	$	3,168,653
Management services	101,138		—		187,992		—			289,130
Total operating revenues	1,511,001		1,771,905		187,992		(13,115		)	3,457,783
Medical costs	1,140,223		1,547,679		—		(13,115		)	2,674,787
Cost of sales	—		—		66,178		—			66,178
Gross margin	$	370,778	$	224,226	$	121,814	$	—		$	716,818
Selling, general and administrative										521,022
Depreciation and amortization										36,318
Operating earnings										$	159,478

	Quarter Ended September 30, 2011
	Commercial Products Division		Government Programs Division		Workers’ Compensation		Elim.			Total
Operating revenues
Managed care premiums	$	1,508,042	$	1,179,253	$	—	$	(7,251	)	$	2,680,044
Management services	99,301		—		196,198		—			295,499
Total operating revenues	1,607,343		1,179,253		196,198		(7,251		)	2,975,543
Medical costs	1,224,900		967,919		—		(7,251		)	2,185,568
Cost of sales	—		—		71,511		—			71,511
Gross margin	$	382,443	$	211,334	$	124,687	$	—		$	718,464
Selling, general and administrative										492,855
Depreciation and amortization										32,996
Operating earnings										$	192,613

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	Nine Months Ended September 30, 2012
	Commercial Products Division		Government Programs Division		Workers’ Compensation		Elim.			Total
Operating revenues
Managed care premiums	$	4,334,616	$	5,464,548	$	—	$	(34,580	)	$	9,764,584
Management services	328,474		—		574,489		—			902,963
Total operating revenues	4,663,090		5,464,548		574,489		(34,580		)	10,667,547
Medical costs	3,506,158		4,768,627		—		(34,580		)	8,240,205
Cost of sales	—		—		201,359		—			201,359
Gross margin	$	1,156,932	$	695,921	$	373,130	$	—		$	2,225,983
Selling, general and administrative										1,528,484
Depreciation and amortization										116,341
Operating earnings										$	581,158

	Nine Months Ended September 30, 2011
	Commercial Products Division		Government Programs Division		Workers’ Compensation		Elim.			Total
Operating revenues
Managed care premiums	$	4,531,512	$	3,663,231	$	—	$	(21,769	)	$	8,172,974
Management services	296,732		—		587,821		—			884,553
Total operating revenues	4,828,244		3,663,231		587,821		(21,769		)	9,057,527
Medical costs	3,632,592		3,098,698		—		(21,769		)	6,709,521
Cost of sales	—		—		209,603		—			209,603
Gross margin	$	1,195,652	$	564,533	$	378,218	$	—		$	2,138,403
Selling, general and administrative										1,476,325
Provider class action - release										(159,300		)
Depreciation and amortization										102,191
Operating earnings										$	719,187

D. DEBT

The Company’s outstanding debt consisted of the following (in thousands):

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
5.875% Senior notes due 1/15/12	$	—	$	233,903
6.300% Senior notes due 8/15/14, net of unamortized discount of $322 at March 31, 2013	$	374,775	$	374,718
6.300% Senior notes due 8/15/14, net of unamortized discount of $436 at September 30, 2012	374,661		374,490
6.125% Senior notes due 1/15/15	228,845		228,845
5.950% Senior notes due 3/15/17, net of unamortized discount of $632 at September 30, 2012	382,603		382,497
5.950% Senior notes due 3/15/17, net of unamortized discount of $561 at March 31, 2013	382,674		382,639
5.450% Senior notes due 6/7/21, net of unamortized discount of $1,042 at September 30, 2012	598,958		598,868
5.450% Senior notes due 6/7/21, net of unamortized discount of $982 at March 31, 2013	599,018		598,988
Total debt, including current portion	1,585,~~067~~312		1,~~818~~585,~~603~~190
Less current portion of total debt	—		~~233,903~~—
Total long-term debt	$	1,585,~~067~~312	$	1,~~584~~585,~~700~~190

In January 2012, at maturity, the Company repaid the $233.9 million outstanding balance of its 5.875% Senior Notes.

InDuring ~~June~~ 2011, the Company entered into a Credit Agreement (the “Credit Facility”). The Credit Facility provides for a five-year revolving credit facility in the principal amount of $750.0 million, with the Company having the ability to request an increase in the facility amount up to an aggregate principal amount not to exceed $1 billion. As of March 31, 2013 and December 31, 2012, there were no amounts outstanding under the Credit Facility.

9The Company’s senior notes and Credit Facility contain certain covenants and restrictions regarding, among other things, liens, asset dispositions and consolidations or mergers. Additionally, the Company’s Credit Facility requires compliance with a leverage ratio of 3 to 1 and limits subsidiary debt. As of March 31, 2013, the Company was in compliance with the applicable covenants and restrictions under its senior notes and Credit Facility.

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revolving credit facility in the principal amount of $750.0 million, with the Company having the ability to request an increase in the facility amount up to an aggregate principal amount not to exceed $1 billion. As of September 30, 2012 and December 31, 2011, there were no amounts outstanding under the Credit Facility.

The Company’s senior notes and Credit Facility contain certain covenants and restrictions regarding, among other things, liens, asset dispositions and consolidations or mergers. Additionally, the Company’s Credit Facility requires compliance with a leverage ratio of 3 to 1 and limits subsidiary debt. As of September 30, 2012, the Company was in compliance with the applicable covenants and restrictions under its senior notes and Credit Facility.

E. CONTINGENCIES

Legal Proceedings

In the normal course of business, the Company has been named as a defendant in various legal actions such as actions seeking payments for claims denied by the Company, medical malpractice actions, employment related claims and other various claims seeking monetary damages. The claims are in various stages of proceedings and some may ultimately be brought to trial. Incidents occurring through December 31, 2012 may result in the assertion of additional claims. The Company maintains general liability, professional liability and employment practices liability insurances in amounts that it believes are appropriate, with varying deductibles for which it maintains reserves. The professional errors and omissions liability and employment practices liability insurances are carried through its captive subsidiary. Although the results of pending litigation are always uncertain, the Company does not believe the results of such actions currently threatened or pending, including those described below, will individually or in the aggregate have a material adverse effect on its consolidated financial position or results of operations and comprehensive income.

As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, the Company received a subpoena from the U.S. Attorney for the District of Maryland, Northern Division, requesting information regarding the operational process for confirming Medicare eligibility for its Workers’ Compensation set-aside product. The Company is fully cooperating and is providing the requested information. The Company cannot predict what, if any, actions may be taken by the U.S. Attorney. However, based on the information known to date, the Company does not believe that the outcome of this investigation will have a material adverse effect on its financial position or results of operations and comprehensive income. 8

On September 3, 2009, a shareholder filed a putative securities class action against the Company and three of its current and former officers in the U.S District Court for the District of Maryland. Subsequent to the filing of the complaint, three other shareholders and/or investor groups filed motions with the court for appointment as lead plaintiff and approval of selection of lead and liaison counsel. By agreement, the four shareholders submitted a stipulation to the court regarding appointment of lead plaintiff and approval of selection of lead and liaison counsel. In December 2009, the court approved the stipulation and ordered the lead plaintiff to file a consolidated and amended complaint. The purported class period is February 9, 2007 to October 22, 2008. The consolidated and amended complaint alleges that the Company’s public statements contained false, misleading and incomplete information regarding the Company’s profitability, particularly with respect to the profit margins for its Medicare Private-Fee-For-Service products. The Company filed a motion to dismiss the complaint. By Order, dated March 31, 2011, the court granted in part, and denied in part, the Company’s motion to dismiss the complaint. The Company filed a motion for reconsideration with respect to that part of the court’s March 31, 2011 Order which denied the Company’s motion to dismiss the complaint. The motion for reconsideration was denied, but the court did rule that the class period was further restricted to April 25, 2008 to June 18, 2008. The Company believes the lawsuit is without merit and will vigorously contest and defend against the allegations in the lawsuit. Although it cannot predict the outcome, the Company believes this lawsuit will not have a material adverse effect on its financial position or results of operations and comprehensive income.

On October 13, 2009, two former employees and participants in the Coventry Health Care Retirement Savings Plan filed a putative ERISA class action lawsuit against the Company and several of its current and former officers, directors and employees in the U.S. District Court for the District of Maryland. Plaintiffs allege that defendants breached their fiduciary duties under ERISA by offering and maintaining Company stock in the Plan after it allegedly became imprudent to do so and by allegedly failing to provide complete and accurate information about the Company’s financial condition to plan participants in SEC filings and public statements. Three similar actions by different plaintiffs were later filed in the same court and were consolidated on December 9, 2009. An amended consolidated complaint has been filed. The Company filed a motion to dismiss the complaint. By Order, dated March 31, 2011, the court denied the Company’s motion to dismiss the amended complaint. The Company filed a motion for reconsideration of the court’s March 31, 2011 Order and filed an Alternative Motion to Certify the Court’s March 31, 2011 Order For Interlocutory Appeal to the Fourth Circuit Court of Appeals. Both of those motions were denied. The Company believes the lawsuit is without merit and will vigorously contest and defend against the allegations in the consolidated lawsuit. Although it cannot predict the outcome, the Company believes this lawsuit will not have a material adverse effect on its financial position or results of operations and comprehensive income.

On August 23, 2012, a putative stockholder class action lawsuit captioned Coyne v. Wise et al., C.A. No. 367380, was filed in the Circuit Court for Montgomery County, Maryland, against the Coventry Board of Directors, Coventry, Aetna and Merger Sub. On August 27, 2012, a second putative stockholder class action lawsuit captioned O'Brien v. Coventry Health Care, Inc. et al., C.A. 367577, was filed in the Circuit Court for Montgomery County, Maryland, against the Coventry Board of Directors, Coventry, Aetna and Merger Sub. On September 5, 2012, a third putative stockholder class action lawsuit captioned Preze v. Coventry Health Care, Inc. et al., C.A.

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~~367942~~On September 3, ~~was~~2009, a shareholder filed a putative securities class action against the Company and three of its current and former officers in the ~~Circuit~~U.S. District Court for ~~Montgomery~~the ~~County,~~District of Maryland. Subsequent to the filing of the complaint, ~~against~~three other shareholders and/or investor groups filed motions with the ~~Coventry~~court ~~Board~~for appointment as lead plaintiff and approval of ~~Directors~~selection of lead and liaison counsel. By agreement, ~~Coventry~~the four shareholders submitted a stipulation to the court regarding appointment of lead plaintiff and approval of selection of lead and liaison counsel. In December 2009, ~~Aetna~~the court approved the stipulation and ~~Merger~~ordered ~~Sub~~the lead plaintiff to file a consolidated and amended complaint. The ~~complaints~~purported inclass ~~these~~period ~~lawsuits~~was ~~generally~~February ~~allege~~9, ~~among~~2007 ~~other~~to ~~things~~October 22, 2008. The consolidated and amended complaint alleges that the ~~individual~~Company’s ~~defendants~~public ~~breached~~statements ~~their~~contained ~~fiduciary~~false, ~~duties~~misleading ~~owed~~and toincomplete ~~Coventry's~~information ~~public~~regarding ~~stockholders~~the inCompany’s ~~connection~~profitability, particularly with respect to the ~~Merger~~profit ~~because~~margins for its Medicare Advantage Private-Fee-For-Service products. The Company filed a motion to dismiss the ~~merger~~complaint. ~~consideration~~By ~~and~~Order, ~~certain~~dated ~~other~~March ~~terms~~31, 2011, the court granted in part, and denied in part, the ~~Merger~~Company’s ~~Agreement~~motion ~~are~~to ~~unfair.~~dismiss the complaint. The ~~complaints~~Company ~~further~~filed ~~allege~~a motion for reconsideration with respect to that ~~Aetna~~part ~~and~~of ~~Merger~~the ~~Sub~~court’s ~~aided~~March ~~and~~31, ~~abetted~~2011 ~~these~~Order ~~alleged~~which ~~breaches~~denied ofthe ~~fiduciary~~Company’s ~~duty~~motion to dismiss the complaint. InThe ~~addition,~~motion for reconsideration was denied but the ~~complaints~~court ~~generally~~did ~~allege~~rule that the ~~proposed~~class ~~Merger~~period ~~improperly~~was ~~favors~~further ~~Aetna~~restricted ~~and~~to ~~that~~April ~~certain~~25, ~~provisions~~2008 to June 18, 2008. As a result of ~~the~~a ~~Merger~~court ~~Agreement~~ordered ~~unduly~~mediation, ~~restrict~~the ~~Coventry's~~Company ~~ability~~has toentered ~~negotiate~~into a settlement agreement with ~~other~~counsel ~~potential~~for ~~bidders~~the plaintiffs and the class. ~~Among~~The ~~other~~parties ~~remedies,~~will ~~the~~be ~~complaints~~submitting ~~generally~~a ~~seek~~formal ~~injunctive~~written ~~relief~~settlement ~~prohibiting~~agreement to the ~~defendants~~court ~~from~~for ~~completing~~preliminary ~~the~~approval. ~~proposed~~These ~~Merger~~lawsuits ~~or,~~are ina covered claim under the ~~event~~Company’s ~~that~~Directors anand ~~injunction~~Officers isLiability ~~not~~Policy ~~awarded~~(“D&O Policy”), ~~unspecified~~and ~~money~~therefore, ~~damages~~after exhaustion of the Company’s self-insured retention of $2.5 million, ~~costs~~the settlement amount will be fully funded and ~~attorneys'~~paid ~~fees.~~under the D&O Policy. The Company ~~believes~~has ~~these~~accrued ~~lawsuits~~an ~~are~~immaterial ~~without~~settlement ~~merit~~amount in “accounts payable and ~~will~~other ~~vigorously~~accrued ~~contest~~liabilities” and ~~defend~~an ~~against~~associated recovery amount from the ~~allegations~~D&O Policy in ~~these~~“other ~~complaints~~receivables, net” in the accompanying balance sheet.

On ~~August 31~~October 13, ~~2012~~ 2009, atwo ~~putative~~former ~~stockholder~~employees ~~class~~and ~~action~~participants ~~lawsuit~~in ~~captioned~~the ~~Brennan v.~~ Coventry Health Care, ~~Inc.~~Retirement etSavings ~~al.,~~Plan ~~C.A. No. 7826-CS, was~~ filed ~~in the Court of Chancery of the State of Delaware against the Coventry Board of Directors, Coventry, Aetna and Merger Sub. On September 14, 2012,~~ a ~~second~~ putative ~~stockholder~~ERISA class action lawsuit ~~captioned~~against ~~Nashelsky v. Coventry Health Care, Inc. et al., C.A. No. 7868-CS, was filed in~~ the ~~Court~~Company ofand ~~Chancery~~several of ~~the~~its ~~State~~current ~~of Delaware against the Coventry Board of Directors, Coventry, Aetna~~ and ~~Merger~~former ~~Sub. On September 27~~officers, ~~2012,~~directors and ~~September~~employees ~~28,~~in ~~2012, putative stockholder class action lawsuits captioned Employees' Retirement System of~~ the ~~Government of the Virgin Islands v~~U. ~~Coventry Health Care, Inc~~S. etDistrict ~~al., C.A. No. 7905-CS and Farina v. Coventry Health Care, Inc. et al., C.A. No. 7909-CS, were filed in the~~ Court offor ~~Chancery of~~ the ~~State~~District of ~~Delaware against the Coventry Board of Directors, Coventry, Aetna and Merger Sub~~Maryland. Plaintiffs ~~On October 1, 2012, an amended complaint was filed in the Brennan v. Coventry Health Care, Inc. action. The complaints generally~~ allege that, ~~among other things, the individual~~ defendants breached their fiduciary duties ~~owed~~under toERISA ~~the~~by ~~public~~offering ~~stockholders~~and ofmaintaining ~~Coventry~~Company stock in ~~connection with~~ the ~~Merger~~Plan ~~because~~after ~~the~~it ~~merger~~allegedly ~~consideration~~became ~~and~~imprudent ~~certain~~to ~~other~~do ~~terms~~so inand ~~the~~by ~~merger~~allegedly ~~agreement~~failing ~~are~~to ~~unfair.~~provide ~~The~~complete ~~complaints~~and ~~further~~accurate ~~allege~~information ~~that~~about ~~Aetna~~the ~~and~~Company’s ~~Merger~~financial ~~Sub~~condition ~~aided~~to ~~and~~plan ~~abetted~~participants ~~these~~in ~~alleged~~SEC ~~breaches~~filings ofand ~~fiduciary~~public ~~duty~~statements. InThree ~~addition,~~similar ~~the~~actions ~~complaints~~by ~~generally~~different ~~allege~~plaintiffs ~~that~~were ~~certain~~later ~~provisions~~filed ofin the ~~Merger~~same ~~Agreement~~court ~~unduly~~and ~~restrict~~were ~~Coventry's~~consolidated ~~ability~~on toDecember ~~negotiate~~9, ~~with~~2009. An ~~other~~amended ~~potential~~consolidated ~~bidders~~complaint ~~and~~has ~~that~~been ~~the~~filed. The ~~Merger~~Company ~~Agreement~~filed ~~lacks~~a ~~adequate~~motion ~~safeguards~~to ondismiss ~~behalf~~the ofcomplaint. By ~~Coventry's~~Order, ~~stockholders~~dated ~~against~~March ~~the~~31, ~~decline~~2011, in the ~~value~~court ofdenied the ~~stock~~Company’s ~~component~~motion ofto dismiss the ~~merger~~amended ~~consideration~~complaint. The ~~complaints~~Company infiled ~~the~~a ~~Employees'~~motion ~~Retirement~~for ~~System~~reconsideration of the ~~Government~~court’s ofMarch ~~the~~31, ~~Virgin~~2011 ~~Islands,~~Order and ~~Farina~~filed ~~actions~~an ~~and~~Alternative ~~the~~Motion ~~amended~~to ~~complaint~~Certify in the ~~Brennan action also generally allege that Aetna'~~Court’s ~~Registration~~March ~~Statement on Form S-4 filed on September 21~~31, ~~2012,~~2011 ~~contained~~Order ~~various~~For ~~deficiencies.~~Interlocutory ~~Among~~Appeal ~~other~~to ~~remedies,~~ the ~~complaints~~Fourth ~~generally~~Circuit ~~seek~~Court ~~injunctive~~of ~~relief~~Appeals. ~~prohibiting~~Both ~~the~~of ~~defendants~~those ~~from~~motions ~~completing~~were ~~the~~denied. ~~proposed~~The ~~Merger,~~Company ~~rescissionary~~will ~~and~~vigorously ~~other~~defend ~~types~~against ofthe ~~damages~~allegations ~~and~~in ~~costs~~the ~~and~~consolidated ~~attorneys' fees~~lawsuit. The Company believes ~~these~~this ~~lawsuits~~lawsuit ~~are~~will ~~without~~not ~~merit~~have ~~and~~a ~~will~~material ~~vigorously~~adverse ~~contest~~effect ~~and~~on ~~defend~~its ~~against~~financial ~~the~~position ~~allegations~~or inresults ~~these~~of ~~complaints~~operations.

On ~~October~~August 423, 2012, a putative stockholder class action lawsuit captioned Coyne v. Wise et al., C.A. No. 367380, was filed in the Circuit Court offor ~~Chancery~~Montgomery ofCounty, Maryland, against the ~~State~~Coventry Board of ~~Delaware~~Directors, ~~entered~~Coventry, anAetna ~~order~~and ~~consolidating~~Merger ~~the~~Sub. ~~four~~On ~~Delaware~~August ~~actions~~27, ~~under~~2012, ~~the~~a ~~caption~~second Inputative restockholder class action lawsuit captioned O’Brien v. Coventry Health Care, Inc. ~~Shareholder~~et ~~Litigation~~al., ~~Consolidated~~ C.A. ~~No. 7905-CS~~367577, ~~appointing~~was filed in the ~~Employees'~~Circuit ~~Retirement~~Court ~~System~~for ofMontgomery County, Maryland, against the ~~Government~~Coventry Board of ~~the~~Directors, ~~Virgin~~Coventry, ~~Islands~~Aetna and Merger Sub. On September 5, ~~the~~2012, ~~General~~a ~~Retirement~~third ~~System~~putative ofstockholder ~~the~~class ~~City~~action oflawsuit ~~Detroit~~captioned Preze v. Coventry Health Care, ~~and~~Inc. et al., C.A. 367942, was filed in the ~~Police~~Circuit ~~and~~Court ~~Fire~~for ~~Retirement~~Montgomery ~~System~~County, ofMaryland, against the ~~City~~Coventry Board of ~~Detroit~~Directors, asCoventry, ~~Co-Lead~~Aetna ~~Plaintiffs~~and Merger Sub. OnThese ~~October~~three 5(3) actions have been consolidated. The complaints allege, ~~2012~~among other things, ~~plaintiffs~~that the individual defendants breached their fiduciary duties owed to Coventry’s public stockholders in connection with the ~~consolidated~~Merger ~~Delaware~~because ~~action~~the ~~filed~~merger aconsideration ~~motion~~and ~~for~~certain ~~expedited~~other ~~proceedings,~~terms in the Merger Agreement are unfair. The complaints further allege that Aetna and onMerger ~~October~~Sub ~~10,~~aided ~~2012~~and abetted these alleged breaches of fiduciary duty. In addition, ~~plaintiffs~~the incomplaints allege that the ~~consolidated~~proposed ~~Delaware~~Merger ~~action~~improperly ~~filed~~favors aAetna ~~motion~~and tothat ~~preliminarily~~certain ~~enjoin~~provisions of the ~~defendants~~Merger ~~from~~Agreement ~~taking~~unduly ~~any~~restrict ~~action~~Coventry’s ability to ~~consummate~~negotiate ~~the~~with ~~Merger~~other potential bidders. ~~The~~Among ~~parties~~other ~~have~~remedies, ~~since~~the ~~reached~~complaints ~~agreement~~seek oninjunctive relief prohibiting the ~~schedule~~defendants ~~for~~from ~~those~~completing ~~proceedings~~the proposed Merger or, ~~which~~in ~~was~~the ~~entered~~event bythat ~~order~~an ofinjunction ~~the~~is ~~Court~~not onawarded, ~~October~~unspecified 12money damages, ~~2012~~costs and attorneys’ fees. ~~Pursuant~~In toNovember ~~that~~2012, ~~scheduling~~the ~~order~~court, in response to a ~~hearing~~motion onfiled ~~plaintiffs'~~by ~~preliminary~~the ~~injunction~~Company, ~~motion~~entered ~~has~~an ~~been~~order ~~scheduled~~which stayed all three (3) actions for ~~November~~90 20days. On February 13, ~~2012.~~2013, the plaintiffs in each of the 3 lawsuits filed a Notice of Voluntary Dismissal of their lawsuits based on the settlement of the similar shareholder lawsuits filed in Delaware.

On August 31, 2012, a putative stockholder class action lawsuit captioned Brennan v. Coventry Health Care, Inc. et al., C.A. No. 7826-CS, was filed in the Court of Chancery of the State of Delaware against the Coventry Board of Directors, Coventry, Aetna and Merger Sub. On September 14, 2012, a second putative stockholder class action lawsuit captioned Nashelsky v. Coventry Health Care, Inc. et al., C.A. No. 7868-CS, was filed in the Court of Chancery of the State of Delaware against the Coventry Board of Directors, Coventry, Aetna and Merger Sub. On September 27, 2012, and September 28, 2012, putative stockholder class action lawsuits captioned Employees’ Retirement System of the Government of the Virgin Islands v. Coventry Health Care, Inc. et al., C.A. No. 7905-CS and Farina v. Coventry Health Care, Inc. et al., C.A. No. 7909-CS, were filed in the Court of Chancery of the State of Delaware against the Coventry Board of Directors, Coventry, Aetna and Merger Sub. On October 1, 2012, an amended complaint was filed in the Brennan v. Coventry Health Care, Inc. action. The complaints generally allege that, among other things, the individual defendants breached their fiduciary duties owed to the public stockholders of Coventry in connection with the Merger because the merger consideration and certain other terms in the merger agreement are unfair. The complaints further allege that Aetna and Merger Sub aided and abetted these alleged breaches of fiduciary duty. In addition, the complaints generally allege that certain provisions of the Merger Agreement unduly restrict Coventry’s ability to negotiate with other potential bidders and that the Merger Agreement lacks adequate safeguards on behalf of

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Coventry’s stockholders against the decline in the value of the stock component of the merger consideration. The complaints in the Employees’ Retirement System of the Government of the Virgin Islands, and Farina actions and the amended complaint in the Brennan action also generally allege that Aetna’s Registration Statement on Form S-4 filed on September 21, 2012, contained various deficiencies. Among other remedies, the complaints generally seek injunctive relief prohibiting the defendants from completing the proposed Merger, rescissionary and other types of damages and costs and attorneys’ fees.

On October 4, 2012, the Court of Chancery of the State of Delaware entered an order consolidating the four Delaware actions under the caption In re Coventry Health Care, Inc. Shareholder Litigation, Consolidated C.A. No. 7905-CS, appointing the Employees’ Retirement System of the Government of the Virgin Islands, the General Retirement System of the City of Detroit, and the Police and Fire Retirement System of the City of Detroit as Co-Lead Plaintiffs. On October 5, 2012, plaintiffs in the consolidated Delaware action filed a motion for expedited proceedings, and on October 10, 2012, plaintiffs in the consolidated Delaware action filed a motion to preliminarily enjoin the defendants from taking any action to consummate the Merger. The parties have since reached agreement on the schedule for those proceedings, which was entered by order of the Court on October 12, 2012. Pursuant to that scheduling order, a hearing on plaintiffs’ preliminary injunction motion was scheduled for November 20, 2012. On November 12, 2012, the Company and all named defendants entered into a Memorandum of Understanding (“MOU”) with the plaintiffs and their respective counsel which set forth an agreement in principle providing for the settlement of the In re Coventry Health Care, Inc. Shareholder Litigation. In consideration for the full settlement and dismissal with prejudice of the Shareholder Litigation and releases, the defendants agreed to (1) include additional disclosures in the definitive prospectus/proxy statement; (2) amend the Merger Agreement to reduce the Termination Fee payable by the Company upon termination of the Merger Agreement from $167,500,000 to $100,000,000; (3) amend the Merger Agreement to reduce the period during which the Company is required to discuss and negotiate with Aetna before making an Adverse Recommendation Change relating to a Superior Proposal from five calendar days to two calendar days; and (4) pay any attorneys’ fees and expenses awarded by the court. The MOU requires the parties to negotiate and execute a Stipulation of Settlement for submission to the court to obtain final court approval of the settlement and dismissal of the Shareholder Litigation.

Where available information indicates that it is probable that a loss has been incurred as of the date of the consolidated financial statements and the Company can reasonably estimate the amount of that loss, the Company accrues a liability of an estimated amount. In many proceedings, however, it is difficult to determine whether any loss is probable or reasonably possible. In addition, even where a loss is reasonably possible or an exposure to a loss exists in excess of the liability already accrued with respect to a previously identified loss contingency, it is not always possible to reasonably estimate the amount of the possible loss or range of loss.

There is significant judgment required in both the probability determination and as to whether an exposure to a loss can be reasonably estimated. No estimate of the possible loss, or range of loss, in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above due to the inherently unpredictable nature of legal proceedings. These matters can be affected by various factors; including, but not limited to, the procedural status of the dispute, the novel legal issues presented (including the legal basis for the majority of the alleged violations), the inherent difficulty in predicting regulatory judgments, fines and penalties, and the various remedies and levels of judicial review available to the Company in the event a judgment, fine or penalty is assessed. If one or more of these legal matters were resolved against the Company for amounts in excess of the Company’s expectations, the Company’s financial position or results of operations and comprehensive income could be materially adversely affected.

Guaranty Fund Assessments

The Company operates in a regulatory environment that may require the Company to participate in assessments under state insurance guaranty association laws. The Company’s exposure to guaranty fund assessments is based on its share of business it writes in the relevant jurisdictions for certain obligations of insolvent insurance companies to policyholders and claimants. An assessment could have a material adverse effect on the Company’s financial position and results of operations and comprehensive income.

The Commissioner of the Pennsylvania Insurance Department (“PID”) has placed Penn Treaty Network America Insurance Company and its subsidiary (collectively, “Penn Treaty”), neither of which is affiliated with the Company, in rehabilitation (an intermediate action 10

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before insolvency) and has petitioned the Commonwealth Court of Pennsylvania (the “Court”) for liquidation. In May 2012, the Court denied efforts by the PID to liquidate Penn Treaty and ordered the PID to develop and submit a plan of rehabilitation.

If Penn Treaty were to be liquidated, in future periods, the Company’s health plans and other insurers may be required to pay a portion of Penn Treaty’s policyholder claims through guaranty association assessments from various states in which Penn Treaty policyholders reside and in which the Company’s health plans and insurance subsidiaries write premiums. Such an assessment could have a material adverse effect on the Company’s financial position and results of operations and comprehensive income.

F. INVESTMENTS

The Company considers all of its investments as available-for-sale securities. Realized gains and losses on the sale of investments are determined on a specific identification basis.

The amortized cost, gross unrealized gain or loss and estimated fair value of short-term and long-term investments by security type were as follows as of ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012 (in thousands):

	AmortizedCost		UnrealizedGain		UnrealizedLoss			FairValue
As of September 30, 2012
As of March 31, 2013
State and municipal bonds	$	1,~~129~~120,~~681~~913	$	8266,~~822~~748	$	(22726	)	$	1,~~212~~186,~~481~~935
U.S. Treasury securities	79114,~~898~~448		~~905~~577		(1		)	80115,~~802~~024
Government-sponsored enterprise securities (1)	47,747		1,276		—			49,023
Government-sponsored enterprise securities	79,039		248		(2		)	79,285
Residential mortgage-backed securities (2)	314,781		16,512		(2		)	331,291
Residential mortgage-backed securities (1)	328,940		9,051		(793		)	337,198
Commercial mortgage-backed securities	1433,~~646~~938		~~179~~80		—(126		)	1433,~~825~~892
Asset-backed securities (3)	11,416		240		—			11,656
Asset-backed securities (2)	22,226		356		(10		)	22,572
Corporate debt and other securities	~~983~~1,~~040~~022,287		2713,~~220~~284		(~~149~~559		)	1,~~010~~035,~~111~~012
	$	2,~~581~~721,~~209~~791	$	~~129~~90,~~154~~344	$	(~~174~~2,217	)	$	2,~~710~~809,~~189~~918
Equity method investments (4)								19,181
Equity method investments (3)								24,118
								$	2,~~729~~834,~~370~~036

	AmortizedCost		UnrealizedGain		UnrealizedLoss			FairValue
As of December 31, 2011
As of December 31, 2012
State and municipal bonds	$	~~970~~1,~~746~~176,016	$	6278,~~215~~272	$	(7499	)	$	1,~~032~~253,~~954~~789
U.S. Treasury securities	8878,~~934~~264		~~2,410~~669		(42		)	9178,~~340~~931
Government-sponsored enterprise securities (1)	140,595		2,694		(11		)	143,278
Government-sponsored enterprise securities	72,394		1,139		(1		)	73,532
Residential mortgage-backed securities (2)	354,713		14,097		(12		)	368,798
Residential mortgage-backed securities (1)	302,012		10,703		(74		)	312,641
Commercial mortgage-backed securities	1321,~~801~~416		~~1,024~~193		—(19		)	1421,~~825~~590
Asset-backed securities (3)	12,840		664		—			13,504
Asset-backed securities (2)	23,421		211		(6		)	23,626
Corporate debt and other securities	1971,~~051,874~~230		2320,~~804~~726		(~~10,178~~346		)	1991,~~065,500~~610
	$	2,~~633~~644,~~503~~753	$	~~106~~111,~~908~~913	$	(~~10,212~~947	)	$	2,~~730~~755,~~199~~719
Equity method investments (4)								21,315
Equity method investments (3)								24,605
								$	2,~~751~~780,~~514~~324

(1) Includes ~~FDIC~~Agency pass-~~insured~~through ~~Temporary Liquidity Guarantee Program (“TLGP”)~~ securities ~~as of December 31~~, ~~2011.~~with ~~As of September 30, 2012,~~ the ~~Company~~timely nopayment ~~longer~~of ~~held~~principal ~~any~~and ~~TLGP~~interest ~~securities~~guaranteed.

(2) Includes ~~Agency~~auto ~~pass-through securities~~loans, ~~with~~credit ~~the~~card ~~timely~~debt, ~~payment of principal~~ and ~~interest~~rate ~~guaranteed~~reduction bonds.

(3) Includes ~~auto~~investments ~~loans,~~in ~~credit~~entities ~~card~~accounted ~~debt,~~for under the equity method of accounting and ~~rate~~therefore ~~reduction~~are ~~bonds~~presented at their carrying value.

~~(4)~~The ~~Includes~~amortized ~~investments~~cost inand ~~entities~~estimated ~~accounted~~fair value of available-for-sale ~~under~~debt ~~the~~securities ~~equity~~by ~~method~~contractual ofmaturity ~~accounting~~were ~~and~~as ~~therefore~~follows ~~are~~as ~~presented~~of atMarch 31, ~~their~~2013 ~~carrying~~and ~~value.~~December 31, 2012 (in thousands):



	As of March 31, 2013				As of December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturities:
Within 1 year	$	468,436	$	470,166	$	362,116	$	363,559
1 to 5 years	725,945		747,376		798,143		822,448
5 to 10 years	711,930		745,058		652,941		693,504
Over 10 years	815,480		847,318		831,553		876,208
Total	$	2,721,791	$	2,809,918	$	2,644,753	$	2,755,719

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The amortized cost and estimated fair value of available-for-sale debt securities by contractual maturity were as follows as of September 30, 2012 and December 31, 2011 (in thousands):

	As of September 30, 2012				As of December 31, 2011
	AmortizedCost		FairValue		AmortizedCost		FairValue
Maturities:
Within 1 year	$	374,265	$	376,111	$	315,362	$	317,067
1 to 5 years	760,802		787,781		984,503		1,006,221
5 to 10 years	572,789		619,592		536,577		574,207
Over 10 years	873,353		926,705		797,061		832,704
Total	$	2,581,209	$	2,710,189	$	2,633,503	$	2,730,199

Investments with long-term option adjusted maturities, such as residential and commercial mortgage-backed securities, are included in the “Over 10 years” category. Actual maturities may differ due to call or prepayment rights.

Gross investment gains of $1312.08 million and ~~no gross investment losses were realized on sales of investments for the quarter ended September 30, 2012. This compares to gross investment gains of~~ $~~6.5 million and $~~0.3 million gross investment losses were realized on sales of investments for the quarter ended ~~September~~March 3031, ~~2011~~2013. ~~Gross~~ ~~investment gains of $28.1 million and gross investment losses of $0.1 million were realized on sales of investments for the nine months ended September 30, 2012.~~ This compares to gross investment gains of $124.3 million and no gross investment losses ~~of $0.4 million~~ realized on sales of investments for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012. All realized gains and losses are recorded in other income, net in the Company’s consolidated statements of operations and comprehensive income.

The following table shows the Company’s investments’ gross unrealized losses and fair value at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	Less than 12 months					12 months or more					Total
At September 30, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
At March 31, 2013	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
State and municipal bonds	$	5110,~~213~~627	$	(22725	)	$	—102	$	—(1	)	$	5110,~~213~~729	$	(22726	)
U.S. Treasury securities	21,~~130~~774		(1		)	—		—			21,~~130~~774		(1		)
Government-sponsored enterprise securities	—11,786		—(2		)	—		—			—11,786		—(2		)
Residential mortgage-backed securities	~~474~~120,987		(1792		)	5360		(1		)	~~527~~121,047		(2793		)
Commercial mortgage-backed securities	—21,456		—(126		)	—		—			—21,456		—(126		)
Asset-backed securities	—13,988		—(10		)	—		—			—13,988		—(10		)
Corporate debt and other securities	1894,~~907~~947		(31557		)	~~44,579~~52		(~~118~~2		)	6394,~~486~~999		(~~149~~559		)
Total	$	26375,~~724~~565	$	(552,213	)	$	~~44,632~~214	$	(~~119~~4	)	$	71375,~~356~~779	$	(~~174~~2,217	)



	Less than 12 months					12 months or more					Total
At December 31, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
State and municipal bonds	$	61,342	$	(499	)	$	—	$	—		$	61,342	$	(499	)
U.S. Treasury securities	2,458		(1		)	1,065		(1		)	3,523		(2		)
Government-sponsored enterprise securities	15,714		(1		)	—		—			15,714		(1		)
Residential mortgage-backed securities	23,861		(73		)	59		(1		)	23,920		(74		)
Commercial mortgage-backed securities	7,701		(19		)	—		—			7,701		(19		)
Asset-backed securities	14,492		(6		)	—		—			14,492		(6		)
Corporate debt and other securities	79,381		(345		)	614		(1		)	79,995		(346		)
Total	$	204,949	$	(944	)	$	1,738	$	(3	)	$	206,687	$	(947	)

~~Table~~The unrealized losses presented in the table above do not meet the criteria for treatment as an other-than-temporary impairment. The unrealized losses are the result of, ~~Contents~~among other factors, interest rate movements. The Company has not decided to sell, and it is not more-likely-than-not that the Company will be required to sell before a recovery of the amortized cost basis of these securities.

	Less than 12 months					12 months or more					Total
At December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
State and municipal bonds	$	9,436	$	(7	)	$	—	$	—		$	9,436	$	(7	)
U.S. Treasury securities	4,932		(4		)	—		—			4,932		(4		)
Government-sponsored enterprise securities	12,495		(11		)	—		—			12,495		(11		)
Residential mortgage-backed securities	5,127		(11		)	43		(1		)	5,170		(12		)
Commercial mortgage-backed securities	—		—			—		—			—		—
Asset-backed securities	—		—			—		—			—		—
Corporate debt and other securities	350,294		(10,178		)	—		—			350,294		(10,178		)
Total	$	382,284	$	(10,211	)	$	43	$	(1	)	$	382,327	$	(10,212	)

The unrealized losses presented in this table do not meet the criteria for treatment as an other-than-temporary impairment. The unrealized losses are the result of, among other factors, interest rate movements. The Company has not decided to sell, and it is not more-likely-than-not that the Company will be required to sell before a recovery of the amortized cost basis of these securities.

The Company continues to review its investment portfolios under its impairment review policy. Given the current market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and that other-than-temporary impairments may be recorded in future periods.

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G. FAIR VALUE MEASUREMENTS

Financial Assets

Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures,” defines fair value and requires a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value based on the quality and reliability of the inputs or assumptions used in fair value measurements.

The Company’s Level 1 securities primarily consist of U.S. Treasury securities and cash. The Company determines the estimated fair value for its Level 1 securities using quoted (unadjusted) prices for identical assets or liabilities in active markets.

The Company’s Level 2 securities primarily consist of government-sponsored enterprise securities, state and municipal bonds, mortgage-backed securities, asset-backed securities, corporate debt and money market funds. The Company determines the estimated fair value for its Level 2 securities using the following methods: quoted prices for similar assets/liabilities in active markets, quoted prices for identical or similar assets in non-active markets (few transactions, limited information, non-current prices and high variability over time), inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities and default rates, among others), and inputs that are derived principally from or corroborated by other observable market data.

For the Company’s Level 2 assets, the following inputs and valuation techniques were utilized in determining the fair value of its financial instruments:

Cash Equivalents: Level 2 cash equivalents are valued using inputs that are principally from, or corroborated by, observable market data, primarily quoted prices for like or similar assets.

Government-Sponsored Enterprise Securities: These securities primarily consist of bonds issued by government-sponsored enterprises, such as the Federal Home Loan Bank, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. The fair value of government-sponsored enterprise securities is are based upon observable market inputs such as quoted prices for like or similar assets, benchmark yields, reported trades and credit spreads.

State and Municipal Bonds, Corporate Debt and Other Securities: The fair value of the Company’s debt securities is determined by observable market inputs which include quoted prices for identical or similar assets that are traded in an active market, benchmark yields, new issuances, issuer ratings, reported trades of comparable securities and credit spreads.

Residential and Commercial Mortgage-Backed Securities and Asset-Backed Securities: The fair value of these securities is determined either by aobservable ~~cash~~market ~~flow~~inputs, ~~model~~ which ~~utilizes~~include ~~the following inputs:~~ quoted prices for identical or similar assets that are traded in an active market, or by a cash flow model which utilizes the following inputs: benchmark yields, prepayment speeds, collateral performance, credit spreads and default rates that are observable at commonly quoted intervals.

The Company ~~no longer~~ has no Level 3 securities. ~~During the quarter ended March 31, 2011, the Company transferred all Level 3~~

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securities to Level 2, as described in the following pages. Prior to March 31, 2011, the Company’s Level 3 securities primarily consisted of corporate financial holdings, mortgage-backed securities and asset-backed securities that were thinly traded due to market volatility and lack of liquidity. The Company determined the estimated fair value for its Level 3 securities using unobservable inputs that could not be corroborated by observable market data; including, but not limited to, broker quotes, default rates, benchmark yields, credit spreads and prepayment speeds.

The Company obtains one price for each security from an independent third-party valuation service provider, which uses quoted or other observable inputs for the determination of fair value as noted above. As the Company is responsible for the determination of fair value, the Company performs quarterly analyses on the prices received from the third-party provider to determine whether the prices are reasonable estimates of fair value.

~~The following table presents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis at September 30, 2012 and December 31, 2011 (in thousands):~~ 13

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
At September 30, 2012	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,262,078	$	1,115,764	$	146,314	$	—
State and municipal bonds	1,212,481		—		1,212,481		—
U.S. Treasury securities	80,802		80,802		—		—
Government-sponsored enterprise securities	49,023		—		49,023		—
Residential mortgage-backed securities	331,291		—		331,291		—
Commercial mortgage-backed securities	14,825		—		14,825		—
Asset-backed securities	11,656		—		11,656		—
Corporate debt and other securities	1,010,111		—		1,010,111		—
Total	$	3,972,267	$	1,196,566	$	2,775,701	$	—

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
At December 31, 2011	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,579,003	$	1,449,883	$	129,120	$	—
State and municipal bonds	1,032,954		—		1,032,954		—
U.S. Treasury securities	91,340		91,340		—		—
Government-sponsored enterprise securities	143,278		—		143,278		—
Residential mortgage-backed securities	368,798		—		368,798		—
Commercial mortgage-backed securities	14,825		—		14,825		—
Asset-backed securities	13,504		—		13,504		—
Corporate debt and other securities	1,065,500		11,598		1,053,902		—
Total	$	4,309,202	$	1,552,821	$	2,756,381	$	—

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~~Transfers~~The ~~between~~following ~~levels,~~table ifpresents ~~any, are recorded as of~~ the end of the reporting period. During the quarter and nine months ended September 30, 2012 and the quarter and nine months ended September 30, 2011, there were no transfers between Level 1 and Level 2. During the quarter and nine months ended September 30, 2012 and the quarter ended September 30, 2011 there were no transfers to (from) Level 3 and, accordingly, tables summarizing changes in fair value ofhierarchy for the Company’s financial assets ~~for~~measured ~~those~~at ~~periods are not presented. The following table provides a summary of changes in the~~ fair value ofon ~~the~~a ~~Company’s~~recurring ~~Level~~basis 3at ~~financial~~March 31, ~~assets~~2013 ~~for~~and ~~the nine months ended September~~December 3031, ~~2011~~2012 (in thousands):

Nine Months Ended September 30, 2011	Total Level 3			Mortgage-backedsecurities			Asset-backed securities			Corporate and other
				Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
Beginning Balance, January 1, 2011	$	1,077		$	220		$	127		$	730
At March 31, 2013	Total			Level 1			Level 2			Level 3
Transfers from Level 3 (1)	(856		)	(258		)	(119		)	(479		)
Cash and cash equivalents	$	1,531,678		$	1,398,584		$	133,094		$	—
Total gains or losses (realized / unrealized)
State and municipal bonds	1,186,935			—			1,186,935			—
Included in earnings	107			16			7			84
U.S. Treasury securities	115,024			115,024			—			—
Included in other comprehensive income	(55		)	38			(8		)	(85		)
Government-sponsored enterprise securities	79,285			—			79,285			—
Purchases, issuances, sales and settlements
Residential mortgage-backed securities	337,198			—			337,198			—
Purchases	—			—			—			—
Commercial mortgage-backed securities	33,892			—			33,892			—
Issuances	—			—			—			—
Asset-backed securities	22,572			—			22,572			—
Sales	(273		)	(16		)	(7		)	(250		)
Corporate debt and other securities	1,035,012			—			1,035,012			—
Settlements	—			—			—			—
Total	$	4,341,596		$	1,513,608		$	2,827,988		$	—
Ending Balance, September 30, 2011	$	—		$	—		$	—		$	—

(1) The Company no longer relied upon broker quotes or other models involving unobservable inputs to value these securities, as there were sufficient observable inputs (e.g., trading activity) to validate the reported fair value. As a result, the Company transferred all securities from Level 3 to Level 2 during the quarter ended March 31, 2011.



			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
At December 31, 2012	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,399,162	$	1,218,046	$	181,116	$	—
State and municipal bonds	1,253,789		—		1,253,789		—
U.S. Treasury securities	78,931		78,931		—		—
Government-sponsored enterprise securities	73,532		—		73,532		—
Residential mortgage-backed securities	312,641		—		312,641		—
Commercial mortgage-backed securities	21,590		—		21,590		—
Asset-backed securities	23,626		—		23,626		—
Corporate debt and other securities	991,610		—		991,610		—
Total	$	4,154,881	$	1,296,977	$	2,857,904	$	—

Transfers between levels, if any, are recorded as of the end of the reporting period. During the quarter ended March 31, 2013 and the quarter ended March 31, 2012, there were no transfers between Level 1 and Level 2 and there were no transfers between Level 2 and Level 3.

Financial Liabilities

The Company’s fair value of its publicly-traded debt (senior notes) is based on Level 2 inputs, including quoted market prices for the same or similar debt or, if no quoted market prices are available, on the current market observable rates estimated to be available to the Company for debt of similar terms and remaining maturities. The carrying value of the Company’s senior notes (including the long-term and current portions) was $1.59 billion at ~~September~~March 3031, ~~2012~~2013 and $1.8259 billion at December 31, ~~2011~~2012. The estimated fair value of the Company’s senior notes (including the long-term and current portions) was $1.8180 billion at ~~September~~March 3031, ~~2012~~2013 and $1.9981 billion at December 31, ~~2011~~2012.

HThe carrying value of the revolving credit facility approximates the fair value due to the short maturity dates of the draws. ~~STOCK-BASED~~ ~~COMPENSATION~~The Company had no outstanding borrowings under its current credit facility at March 31, 2013 or December 31, 2012.

~~Stock Options~~14

The Company recorded compensation expense related to stock options of $3.0 million and $4.3 million for the quarters ended September 30, 2012 and 2011, respectively, and $9.7 million and $11.7 million for the nine months ended September 30, 2012 and 2011, respectively. The total intrinsic value of options exercised was $8.1 million and $1.3 million for the quarters ended September 30, 2012 and 2011, respectively, and $29.2 million and $19.2 million for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, there was $19.7 million of total unrecognized compensation cost (net of expected forfeitures) related to non-vested stock option grants, which is expected to be recognized over a weighted average period of 2.1 years.

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~~The~~H. STOCK-BASED ~~following table summarizes stock option activity for the nine months ended September 30, 2012:~~ COMPENSATION

	Shares (in thousands)		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Life
Outstanding at January 1, 2012	10,744		$	36.20
Granted	1,650		$	30.21
Exercised	(2,684	)	$	24.03
Cancelled and expired	(1,795	)	$	42.31
Outstanding at September 30, 2012	7,915		$	37.68	$	66,820	6.31
Exercisable at September 30, 2012	4,998		$	41.99	$	30,704	4.72

The Company continues to use the Black-Scholes-Merton option pricing model and amortizes compensation expense over the requisite service period of the grant. The methodology used in 2012 to derive the assumptions used in the valuation model is consistent with that used in prior year. Beginning in 2012, the Company declared its first quarterly cash dividend and, as a result, the expected dividend yield has changed. See Note I, Stockholders’ Equity, for more information regarding dividends. The expected dividend yields are based on the per share dividend declared by the Company’s Board of Directors. The following average values and weighted-average assumptions for the quarters and nine months ended September 30, 2012 and 2011 were used for option grants.

	Quarters Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Black-Scholes-Merton Value	$	7.84		$	10.84		$	7.52		$	11.08
Expected dividend yield	1.4		%	0.0		%	1.6		%	0.0		%
Risk-free interest rate	0.5		%	0.4		%	0.5		%	0.9		%
Expected volatility	34.5		%	48.0		%	37.3		%	41.9		%
Expected life (in years)	3.4			3.4			3.6			3.5

Restricted Stock Awards

The value of the restricted shares is amortized over various vesting periods through 2016. The Company recorded compensation expense related to restricted stock grants, including restricted stock granted in prior periods, of $3.6 million and $7.1 million for the quarters ended September 30, 2012 and 2011, respectively, and $14.0 million and $18.3 million for the nine months ended September 30, 2012 and 2011, respectively. The total unrecognized compensation cost (net of expected forfeitures) related to the restricted stock was $18.7 million at September 30, 2012, and is expected to be recognized over a weighted average period of 1.7 years. The total fair value of shares vested during the nine months ended September 30, 2012 and 2011 was $26.1 million and $23.4 million, respectively.

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The following table summarizes restricted stock award activity for the nine months ended September 30, 2012:

			Weighted-Average
	Shares		Grant-Date Fair
	(in thousands)		Value Per Share
Nonvested, January 1, 2012	2,108		$	26.62
Awarded	109		$	32.45
Vested	(774	)	$	26.11
Forfeited	(201	)	$	27.12
Nonvested, September 30, 2012	1,242		$	27.38

Performance Share Units

Performance Share Units (“PSUs”) represent hypothetical shares of the Company’s common stock. The PSUs vest (if at all) based upon the achievement of certain performance goals and other criteria at various periods through 2015. The Company granted PSUs ~~during~~in 2012 and 2013. The performance goals for the ~~nine~~two-year ~~months~~cumulative ~~ended~~period ~~September 30~~for the 2013 targets were finalized in the first quarter of 2013 for all grants, ~~2012~~which ~~but~~established ~~did~~the ~~not~~measurement ~~record~~date ~~compensation~~for ~~expense~~accounting ~~related~~purposes toof the PSUs. asAll ~~the~~PSUs ~~performance~~vest ~~goals~~at ~~for~~various periods through 2015 and all PSUs that vest will be paid out in cash based upon the ~~two-year~~price ~~cumulative~~of ~~period~~the ~~have~~Company’s ~~not~~stock. ~~been~~The ~~finalized~~Company recorded compensation expense of $2.9 million related to the PSUs for the ~~2013~~quarter ~~targets~~ended March 31, 2013 and ~~therefore~~no expense for the ~~measurement~~quarter ~~criteria~~ended ~~has~~March ~~not~~31, ~~been~~2012. The ~~established~~related ~~for~~liability ~~accounting~~was ~~purposes~~$2.9 ~~The~~million ~~PSU~~and ~~performance~~accrued ~~goals~~in ~~are~~“accounts ~~anticipated~~payable toand beother ~~finalized~~accrued liabilities” in the ~~first~~accompanying ~~quarter~~balance ofsheet at March 31, 2013.

The following table summarizes PSU activity for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013:

		Units
		(in thousands)
Nonvested, January 1, 2012		—
Balance, January 1, 2013		627
Granted		~~627~~170
Vested		—
Vested and Paid		—
Forfeited		—
Nonvested, September 30, 2012		627
Balance, March 31, 2013		797

Restricted Share Units

~~Beginning in 2012, the Company issued~~ Restricted Share Units (“RSUs”) ~~which~~ represent hypothetical shares of the Company’s common stock. The holders of RSUs have no rights as stockholders with respect to the shares of the Company’s common stock to which the awards relate. Some of the RSUs require the achievement of certain performance goals and other criteria in order to vest. All RSUs vest at various periods through 2016 and all RSUs that vest will be paid out in cash based upon the price of the Company’s stock. The Company recorded compensation expense of $23.70 million and $41.50 million related to the RSUs for the quarter ~~and~~ended ~~nine~~March 31, ~~months~~2013 ~~ended~~and ~~September 30~~March 31, 2012, respectively. The RSUs are classified as a liability by the Company. The related liability, ~~was $4.5 million and~~ accrued in “accounts payable and other accrued liabilities” in the accompanying balance sheet, at ~~September~~March 3031, 2013 and December 31, 2012 was $10.2 million and $7.2 million, respectively.

The following table summarizes RSU activity for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013:

	Units
	(in thousands)
Nonvested, January 1, 2012	—
Balance, January 1, 2013	604
Granted	~~614~~92
Vested	—
Vested and Paid	—
Forfeited	(41	)
Nonvested, September 30, 2012	610
Balance, March 31, 2013	695

I. STOCKHOLDERS’ EQUITY

Share Repurchases

The Company’s Board of Directors has approved a program to repurchase its outstanding common shares. Share repurchases may be made from time to time at prevailing prices on the open market, by block purchase, or in private transactions. Under the share repurchase program, the Company ~~purchased~~did ~~9.3~~not ~~million~~repurchase any shares of its common stock during the ~~nine~~quarters ~~months~~ ended ~~September 30~~March 31, 2013 and 2012. As of March 31, at2013, anthe total remaining number of common shares the Company is authorized to repurchase under this program is 6.5 million; however, the Company is subject to certain restrictions under the Merger Agreement. Excluded from these share repurchase program amounts are shares purchased in connection with the vesting of restricted stock awards to satisfy employees’ minimum statutory tax withholding obligations as these purchases are not part of this program.

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aggregate cost of $300.0 million. The Company did not repurchase any shares of its common stock during the quarter ended September 30, 2012. As of September 30, 2012, the total remaining number of common shares the Company is authorized to repurchase under this program is 7.2 million; however, the Company is subject to certain restrictions under the Aetna Merger Agreement. Excluded from these share repurchase program amounts are shares purchased in connection with the vesting of restricted stock awards to satisfy employees’ minimum statutory tax withholding obligations as these purchases are not part of this program.

Dividends

~~During~~On March 11, 2013, the ~~nine~~Board ~~months~~of ~~ended~~Directors ~~September 30~~declared a quarterly cash dividend to its shareholders. A quarterly cash dividend of $0.125 per share, ~~2012~~or $16.8 million in the aggregate, was accrued in “accounts payable and other accrued liabilities” in the ~~Board~~accompanying balance sheet at March 31, 2013, and subsequently paid on April 9, 2013 to all shareholders of ~~Directors~~record ~~declared~~as of the ~~following~~close ~~cash~~of ~~dividends:~~business on March

Date Declared	Dividend Amountper Share	Record Date	Date Paid	Total Dividends(in millions)
March 12, 2012	$0.125	March 23, 2012	April 9, 2012	$17.7
May 29, 2012	$0.125	June 21, 2012	July 9, 2012	$17.1
August 27, 2012	$0.125	September 21, 2012	October 8, 2012	$16.8
				$51.6

~~The~~Table cash dividend for the quarter ended September 30, 2012 was accrued in “accounts payable and other accrued liabilities” in the accompanying balance sheet at September 30, 2012, and subsequently paid on October 8, 2012. Declaration and payment of ~~future quarterly dividends is at the discretion of the Board of Directors and may be adjusted as business needs or market conditions change.~~Contents

22, 2013. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.

J. EARNINGS PER SHARE

Earnings per share (“EPS”) is calculated under the two-class method under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. ~~Coventry~~The Company grants restricted stock to certain employees under its stock-based compensation program, which entitles recipients to receive non-forfeitable cash dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. In accordance with ASC 260, “Earnings Per Share,” the two-class method has been applied to all periods presented. The Company previously calculated EPS under the treasury stock method. The application of the two-class method resulted in an immaterial decrease of $0.01 and $0.01 to previously reported basic and diluted EPS, respectively, for the quarter ended September 30, 2011 and $0.04 and $0.03 to previously reported basic and diluted EPS, respectively, for the nine months ended September 30, 2011.

Basic EPS is calculated using the weighted average number of common shares outstanding during the period. Diluted EPS assumes the exercise of all options. Options issued under the stock-based compensation program that have an antidilutive effect are excluded from the computation of diluted EPS. Potential common stock equivalents to purchase 42.94 million and 57.85 million shares for the quarters ended ~~September~~March 3031, ~~2012~~2013 and ~~2011, respectively, and 5.9 million and 6.2 million for the nine months ended September 30,~~ 2012 ~~and 2011~~, respectively, were excluded from the computation of diluted earnings per common share because the potential common stock equivalents were antidilutive.

19The table below provides the reconciliation of the earnings and number of shares used in the Company's calculations of basic and diluted earnings per share.



	Quarters Ended March 31,
	2013			2012
(in thousands, except for per share data)
Basic earnings per common share
Net Earnings	$	135,369		$	170,719
Less: Distributed and undistributed earnings allocated to participating securities	(1,155		)	(2,472		)
Net earnings allocable to common shares	$	134,214		$	168,247

Basic weighted average common shares outstanding	133,464			139,323
Basic earnings per common share	$	1.01		$	1.21

Diluted earnings per common share
Net Earnings	$	135,369		$	170,719
Less: Distributed and undistributed earnings allocated to participating securities	(1,149		)	(2,459		)
Net earnings allocable to common shares	$	134,220		$	168,260

Basic weighted average common shares outstanding	133,464			139,323
Effect of dilutive options	836			844
Diluted weighted average common shares outstanding	134,300			140,167
Diluted earnings per common share	$	1.00		$	1.20

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The table below provides the reconciliation of the earnings and number of shares used in our calculations of basic and diluted earnings per share.

	Quarters Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
(in thousands, except for per share data)
Basic earnings per common share
Net Earnings	$	105,259		$	122,681		$	367,722		$	457,409
Less: Distributed and undistributed earnings allocated to participating securities	(1,035		)	(1,890		)	(4,523		)	(6,726		)
Net earnings allocable to common shares	$	104,224		$	120,791		$	363,199		$	450,683
Basic weighted average common shares outstanding	132,567			144,415			136,952			145,982
Basic earnings per common share	$	0.79		$	0.84		$	2.65		$	3.09
Diluted earnings per common share
Net Earnings	$	105,259		$	122,681		$	367,722		$	457,409
Less: Distributed and undistributed earnings allocated to participating securities	(1,030		)	(1,875		)	(4,502		)	(6,672		)
Net earnings allocable to common shares	$	104,229		$	120,806		$	363,220		$	450,737
Basic weighted average common shares outstanding	132,567			144,415			136,952			145,982
Effect of dilutive options	684			1,164			723			1,183
Diluted weighted average common shares outstanding	133,251			145,579			137,675			147,165
Diluted earnings per common share	$	0.78		$	0.83		$	2.64		$	3.06

K. OTHER DISCLOSURES

Other Income, net

The following table presents the components of Other Income, net for the quarters ~~and nine months~~ ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 (in millions):

	Quarters Ended September 30,				Nine Months Ended September 30,
	Quarters Ended March 31,
	2012		2011		2012		2011
	2013		2012
Interest income	$	1716.15	$	1618.4	$	~~53.5~~	$	~~52.4~~
Gains on sales of investments	$	1312.05	$	64.23	$	~~28.0~~	$	~~11.9~~
Other income	$	21.23	$	01.37	$	~~5.6~~	$	~~1.9~~
Other income, net	$	3230.3	$	2224.94	$	~~87.1~~	$	~~66.2~~

Concentration of Credit Risk

The Company is a provider of health insurance coverage to State of Illinois employees and their dependents. As of ~~September~~December 3031, 2012, the Company ~~has~~had an outstanding premium receivable ~~balance~~ from the State of Illinois of approximately $3032.2 million. During the quarter, the Company started participating with the Vendor Assistance Program (“VAP”) which ~~represents~~is ~~seven~~run ~~months~~by a privately held company that has assumed receivables from certain of ~~health~~the ~~insurance~~State ~~premiums.~~of Illinois vendors. As of ~~December~~March 31, ~~2011~~2013, the Company ~~had~~has an outstanding premium receivable balance from the State of Illinois of approximately $4917.91 million, which represents three months of health insurance premiums owed at 100% and four months owed at 10%. As the receivable is from a governmental entity which has been making payments, the Company believes that the full receivable balance will ultimately be realized and therefore has not reserved against the outstanding balance. The Company’s regulated subsidiaries are required to submit statutory-basis financial statements to state regulatory agencies. For those financial statements, in accordance with state regulations, this receivable is being treated as an admitted asset in its entirety.

The Company believes its allowance for doubtful accounts adequately provides for estimated losses as of ~~September~~March 3031, ~~2012~~2013. The Company has a risk of incurring losses if such allowances are not adequate.

The Company contracts with a pharmacy benefit management (“PBM”) vendor to manage pharmacy benefits for its members and to provide rebate administration services on behalf of the Company. The Company had pharmacy rebate receivables of $302.5 million and $305.4 million as of March 31, 2013 and December 31, 2012, respectively, due from the PBM vendor resulting from the normal cycle of rebate processing, data submission and collection of rebates. The Company has credit risk due to the concentration of receivables with this single vendor; although the Company does not consider the associated credit risk to be significant. The Company only records the pharmacy rebate receivables to the extent that the amounts are deemed probable of collection.

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to provide rebate administration services on behalf of the Company. The Company had pharmacy rebate receivables of $286.6 million and $280.5 million as of September 30, 2012 and December 31, 2011, respectively, due from the PBM vendor resulting from the normal cycle of rebate processing, data submission and collection of rebates. The Company has credit risk due to the concentration of receivables with this single vendor; although the Company does not consider the associated credit risk to be significant. The Company only records the pharmacy rebate receivables to the extent that the amounts are deemed probable of collection.

Intangible Impairment

During the second quarter of 2012, the Company was notified of the non-renewal of the State of Kansas Medicaid contract, which the Company assumed in connection with the acquisition of Children’s Mercy’s Family Health Partners (“FHP”). Accordingly, depreciation and amortization expense for nine months ended September 30, 2012 includes a $7.7 million impairment charge of the intangibles associated with the non-renewal of this contract. The impairment charged related only to the intangibles assigned to the Kansas business acquired in the FHP acquisition and did not affect the intangibles assigned to the ongoing Missouri business, also acquired in the FHP acquisition.

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

General Information

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward–looking statements which are subject to risks and uncertainties in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically include assumptions, estimates or descriptions of our future plans, strategies and expectations and are generally identifiable by the use of the words “anticipate,” “will,” “believe,” “estimate,” “expect,” “intend,” “seek,” or other similar expressions. Examples of these include discussions regarding our operating and growth strategy, projections of revenue, income or loss and future operations. Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “our Company,” “the Company” or “us” as used in this Form 10-Q refer to Coventry Health Care, Inc. and its subsidiaries.

These forward–looking statements may be affected by a number of factors; including, but not limited to, the “Risk Factors” contained in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012, contained in Part II, Item 1A, “Risk Factors,” of ~~our~~this ~~quarterly report on~~ Form 10-Q ~~for the quarter ended March 31~~, ~~2012, contained in Part II, Item 1A, “Risk Factors,” herein~~ and as may be further updated from time to time in our subsequent quarterly reports on Form 10-Q. Actual operations and results may differ materially from those forward-looking statements expressed in this Form 10-Q.

The following discussion and analysis relates to our financial condition and results of operations for the quarters ~~and nine months~~ ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. This discussion should be read in conjunction with our condensed consolidated financial statements and other information presented herein as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012, including the critical accounting policies discussed therein.

Health Care Reform

In June 2012, the U.S. Supreme Court generally upheld the provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “PPACA”), except that the court held that the Department of Health and Human Services may not withhold existing Medicaid funding from states that refuse to adopt the Medicaid expansion provisions of PPACA, but may withhold new Medicaid funding associated with the expansion.

Given the complexities of PPACA, the numerous regulations still to be issued that will detail its requirements, continued issuance of interpretive guidance and the inherent difficulty to foresee how individuals and businesses will respond to the choices afforded them by the law, we cannot predict the full effect of PPACA on us at this time. We also cannot predict the changes that government authorities may implement in the future or assure you that those changes will not have an adverse effect on our business or results of operations. For additional discussion regarding PPACA, refer to Part I, Item 1, “Business-Government Regulation,” and Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012.

Proposed Merger

On August 19, 2012, the Company, Aetna Inc. (“Aetna”) and Jaguar Merger Subsidiary, Inc. (“Merger Sub”) entered into an Agreement and Plan of Merger ~~(as amended~~, ~~and as may be further amended),~~ pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will be merged with and into ~~Coventry~~the Company (the “Merger”), with the Company surviving the ~~merger~~Merger as a wholly-owned subsidiary of Aetna ~~(the “Merger”)~~. A copy of the Agreement and Plan of Merger iswas filed as ~~Annex~~Exhibit A2.1 to ~~the~~our ~~Company’s~~Current ~~definitive~~Report ~~proxy~~on ~~statement~~Form 8-K filed ~~with~~on August 20, 2012. We subsequently entered into Amendment No. 1 and Amendment No. 2 to the ~~Securities~~Agreement and ~~Exchange~~Plan ~~Commission~~of Merger, which were filed as Exhibit 2.1 to our Current Reports on Form 8-K filed on October 1823, 2012 (and November 13, 2012, respectively. As used herein, the “Merger Agreement”) means the Agreement and Plan of Merger, by and among Coventry, Aetna and Merger Sub, as amended. Under the terms of the ~~agreement~~Merger Agreement, ~~the~~our ~~Company~~ shareholders will receive $27.30 in cash, without interest, and 0.3885 of an Aetna common share for each share of Coventry common stock (other than treasury shares held by Coventry and any shares of Coventry common stock beneficially owned by Aetna, Merger Sub or any person who properly demands statutory appraisal of his or her shares). The total transaction was estimated at approximately $7.3 billion, including the assumption of Coventry debt, based on the closing price of Aetna common shares on August 17, 2012.

~~The~~On ~~consummation~~November of21, ~~the~~2012, ~~Merger~~our isstockholders ~~subject~~voted toat ~~customary~~the ~~closing~~stockholder ~~conditions,~~special ~~including,~~meeting ~~among~~to ~~others,~~approve the adoption of the Merger Agreement. byOf the ~~Company’s stockholders~~104,941,398 ~~the~~shares ~~absence~~voting ofat ~~certain legal impediments to~~ the ~~consummation~~special meeting of ~~the Merger~~stockholders, ~~the~~more ~~receipt~~than of99% ~~specified~~voted ~~governmental~~in ~~consents~~favor ~~and~~of ~~approvals,~~ the ~~early~~adoption ~~termination or expiration~~ of the ~~waiting~~Merger ~~period~~Agreement, ~~under~~which ~~the~~represented ~~Hart-Scott-Rodino~~approximately ~~Antitrust~~78% ~~Improvement Act~~ of ~~1976,~~our ~~and,~~total ~~subject~~outstanding toshares ~~certain~~of ~~exceptions,~~common ~~the~~stock ~~accuracy~~as of ~~representations and warranties made by~~ the ~~Company~~October ~~and Aetna~~15, ~~respectively,~~2012 ~~and~~record ~~compliance by the Company and Aetna with their respective obligations under the Merger Agreement~~date. ~~The Merger is not expected to close until mid-2013.~~

~~Summary~~The consummation of ~~Third~~the ~~Quarter~~Merger ~~2012~~is ~~Performance~~ subject to customary closing conditions, including, among others, the absence of certain legal impediments to the consummation of the Merger, the receipt of specified governmental consents and approvals, the early termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and, subject to certain exceptions, the accuracy of representations and warranties made by the Company and Aetna, respectively, and compliance by the Company and Aetna with their respective obligations under the Merger Agreement. The Merger is expected to close in mid-2013.

~~• Operating revenues of $3.5 billion, an increase of 16.2% from the prior year quarter.~~18

• Selling, general and administrative expense of 15.1% of total revenue, a decrease of 150 basis points from the prior year quarter.

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•Summary ~~Diluted earnings per common share~~ of ~~$0.78~~First ~~compared~~Quarter to2013 ~~$0.83 from the prior year quarter.~~Performance

• ~~Total~~Operating ~~membership~~revenues of $3.5 billion,~~374,000,~~ ana ~~increase~~decrease of ~~817,000~~4.7% ~~members~~ from the prior year quarter~~, driven by growth across the Company’s government programs in Medicare Advantage, Medicare Part D and Medicaid~~.

• ~~Announced~~Kentucky amedical ~~definitive~~loss ~~agreement~~ratio ~~pursuant~~(“MLR”) toof ~~which~~92.3%, wecompared ~~will~~to be120.9% ~~merged~~in ~~into~~the ~~Aetna~~prior year quarter.


•	Selling, general and administrative expense of 14.8% of total revenue, an increase of 120 basis points from the prior year quarter.


•	Diluted earnings per common share of $1.00, compared to $1.20 from the prior year quarter.


•	Total membership of 5.2 million, a decrease of 90,000 members from the prior year quarter.


•	Medicare Advantage Coordinated Care Plan (“Medicare Advantage CCP”) membership was 309,000, an increase of 59,000 members from the prior year quarter.

New Accounting Standards

See Note B, New Accounting Standards, to the condensed consolidated financial statements for information and disclosures related to new accounting standards, which is incorporated herein by reference.

Membership

The following table presents our membership (in thousands):

	As of September 30,		Increase
	As of March 31,		Increase
Membership by Product	~~2012~~2013	~~2011~~2012	(Decrease)
Health Plan Commercial Risk	1,~~489~~404	1,~~636~~549	(~~147~~145	)
Health Plan Commercial ASO	~~736~~778	~~710~~725	2653
Medicare Advantage CCP	~~256~~309	~~220~~250	3659
Medicaid Risk	~~998~~892	~~467~~924	~~531~~(32	)
Other National ASO	~~350~~339	~~376~~356	(2617	)
Medicare Part D	1,~~545~~450	1,~~148~~458	~~397~~(8	)
Total Membership	5,~~374~~172	45,~~557~~262	~~817~~(90	)

Medicaid Risk membership increased 531,000 from the prior year quarter, primarily as a result of the new contract with the Commonwealth of Kentucky to provide services for the Commonwealth’s Medicaid program and the acquisition of Children’s Mercy’s Family Health Partners (“FHP”) with Medicaid membership in Kansas and Missouri. The Kentucky contract was awarded effective in the fourth quarter of 2011, and the acquisition of FHP was completed in the first quarter of 2012. The Medicaid Risk increase is also due to same-store growth in our Missouri market as competitors exited that market during the third quarter of 2012. Additionally, the Medicaid Risk membership growth is due to Medicaid expansion into new regions in our Nebraska, Pennsylvania and Virginia markets during the third quarter of 2012. The decrease in Health Plan Commercial Risk membership was due to attrition, in-group changes and certain groups moving from Commercial Risk to Administrative Services Only (“ASO”) products primarily in our ~~Missouri,~~ Florida, ~~Illinois~~ and Pennsylvania markets., ~~This Commercial Risk membership decline was~~ partially offset by ~~continued~~ same-store membership growth in our ~~Kansas~~Georgia and ~~Georgia~~Utah markets. ~~The~~Medicaid ~~increase~~Risk inmembership ~~Medicare~~decreased ~~Part~~due Dto ~~membership~~the non-renewal of ~~397,000 reflects~~ the ~~addition~~State of ~~eight~~Kansas ~~auto~~Medicaid ~~assign~~contract. This Medicaid Risk membership decline was partially offset by expansions into new regions primarily in ~~the~~Pennsylvania, ~~first~~Virginia, ~~quarter~~and ofNebraska ~~2012~~ as well as ansame-store ~~increase~~growth in ~~product~~Missouri. ~~offerings~~The ~~from~~increase ~~two~~ in ~~2011~~Medicare Advantage CCP was due to ~~three~~continued ingrowth ~~2012~~throughout the majority of our markets.

Results of Operations

The following table is provided to facilitate a discussion regarding the comparison of our consolidated results of operations for the quarters ~~and nine months~~ ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 (dollars in thousands, except diluted earnings per share amounts):

	Quarters Ended September 30,						Nine Months Ended September 30,
	Quarters Ended March 31,						Increase
	2012			2011			2012			2011
	2013			2012			(Decrease)
Total operating revenues	$	3,~~457~~520,~~783~~235		$	23,~~975~~691,~~543~~967		$(4.7	~~10,667,547~~)%		$	~~9,057,527~~
Provider class action - release	$	—		$	—		$	—		$	(159,300	)
Operating earnings	$	216,168		$	276,476		(21.8	)%
Operating earnings	$	159,478		$	192,613		$	581,158		$	719,187
Operating earnings as a percentage of revenues	6.1		%	7.5		%	(1.4	)%
Operating earnings as a percentage of revenues	4.6		%	6.5		%	5.4		%	7.9		%
Net earnings	$	135,369		$	170,719		(20.7	)%
Net earnings	$	105,259		$	122,681		$	367,722		$	457,409
Diluted earnings per common share	$	1.00		$	1.20		(16.7	)%
Diluted earnings per common share	$	0.78		$	0.83		$	2.64		$	3.06
Selling, general and administrative as a percentage of revenue	14.8		%	13.6		%	1.2	%
Selling, general and administrative as a percentage of revenue	15.1		%	16.6		%	14.3		%	16.3		%

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Comparison of Quarters Ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012

Managed Care Premiums and Management Services

Managed care premium revenue ~~increased~~decreased ~~over~~from the prior year quarter primarily as a result of the ~~new~~declining ~~Medicaid~~Commercial ~~contract~~Risk ~~with~~membership ~~the~~noted ~~Commonwealth~~earlier. ofCommercial ~~Kentucky~~Risk ~~effective~~revenue ~~November~~also ~~2011,~~decreased ~~and~~from the ~~acquisition~~prior ofyear ~~FHP~~quarter ~~effective~~as ~~January~~the 1,prior ~~2012. The~~year ~~revenue~~quarter ~~increase~~included ~~is also~~favorable ~~attributable~~minimum tomedical ~~continued~~loss ~~growth~~ratio ofrebate ~~the~~accrual ~~Medicare~~reductions ~~Advantage~~of ~~Coordinated Care Plan (“CCP”) membership~~$36. ~~Additionally,~~3 ~~the~~million ~~revenue~~related ~~increase is due~~ to the ~~growth~~2011 ofplan ~~the~~year ~~Medicare Part D business~~ as a result of ~~the~~new ~~addition~~guidance ofissued ~~eight auto assign regions~~ in the first quarter of 2012 ason ~~well~~capitated asmedical ancontracts. ~~increase~~The indecrease ~~product~~is ~~offerings~~also ~~from~~attributable ~~two~~to inMedicare ~~2011~~Part D as a result of membership shifting to ~~three~~lower inpriced ~~2012~~premium products.

~~Managed~~The managed care premium ~~revenue~~decrease was also ~~increased~~due to Medicare Advantage CCP revenue declines from the prior year as a result of ~~minimum~~the ~~medical~~RADV ~~loss~~audit ~~ratio~~reserve ~~rebate~~releases ~~accrual~~that ~~reductions~~were ~~related~~recorded in the prior year quarter. On February 24, 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” In that notice, CMS announced which contract years will be subject to ~~new~~the ~~guidance~~CMS onRADV ~~capitated~~audits ~~medical~~and ~~contracts~~other ~~issued~~core inareas ~~2012~~of the audit methodology. We maintain reserves for our exposure to the RADV audits, and ~~increases~~during inthe first quarter of 2012 released RADV audit reserves, related to the ~~average~~2007 ~~Commercial~~through ~~realized~~2011 ~~premium~~contract ~~per~~years, ~~member~~resulting ~~per~~in ~~month~~an ~~(“PMPM”)~~increase in operating earnings of $133. 0 million in the prior year quarter. The ~~managed~~Medicare ~~care~~Advantage ~~premium~~CCP revenue ~~increases~~decrease ~~were~~is ~~partially~~almost entirely offset by ~~Commercial~~continued ~~membership~~growth ~~declines~~of the Medicare Advantage CCP membership.

~~Management~~The ~~services~~Company’s Medicaid revenue ~~decreased~~increased from the prior year quarter inprimarily ~~part~~driven ~~due~~by tomembership ~~the~~growth ~~loss~~and ofentry ainto ~~Workers'~~new ~~Compensation~~regions ~~customer~~in ~~account~~our ~~which~~Nebraska and Pennsylvania markets. This was partially offset by ~~certain~~Medicaid ~~groups~~revenue ~~moving~~reductions ~~from~~associated ~~Commercial~~with ~~Risk~~the toCompany’s ~~ASO~~Medicaid ~~products~~contract with the State of Kansas, which ended effective December 31, 2012.

Management services revenue decreased from the prior year quarter due to the loss of a Workers’ Compensation customer account, which was partially offset by certain groups moving from Commercial Risk to ASO products.

Medical Costs and Cost of Sales

Medical costs ~~increased~~decreased from the prior year quarter primarily as a result of ~~the~~decreases ~~new~~in ~~Medicaid~~Commercial ~~contract~~Risk ~~with~~membership, ~~the~~as ~~Commonwealth~~noted above. The decrease is also attributable to Medicaid as a result of ~~Kentucky,~~improvements in the ~~acquisition~~Kentucky ofmarket, ~~FHP~~discussed below, and the ~~Medicare~~Company’s ~~Part~~contract Dwith ~~membership~~the ~~growth~~State of Kansas ending effective December 31, 2012. ~~Medical~~ These ~~costs~~decreases ~~also~~were ~~increased~~partially offset by medical cost increases as a result of organic membership growth for the Medicare Advantage CCP business and Medicaid ~~businesses. This~~growth ~~was partially offset by a decrease~~ in ~~Commercial~~our ~~membership,~~Nebraska asand ~~noted~~Pennsylvania ~~above~~markets.

Total medical costs as a percentage of premium revenue (“medical loss ratio” or “MLR”) increased 20.91% over the prior year quarter, from 8182.59% to 8483.40%, primarily as a result of the increased ~~Medicaid~~Medicare ~~MLR~~Advantage ~~results.~~CCP ~~The overall~~ MLR ~~also~~results ~~increased~~offset ~~due~~by tothe adecreased ~~higher~~Medicaid ~~mix~~MLR ofresults. The Medicare Advantage CCP ~~and~~MLR ~~Medicaid~~increased ~~members,~~as ~~which operate at~~ a ~~higher~~result ~~MLR,~~of in the ~~current~~RADV ~~quarter~~audit ~~compared~~reserve torelease in the prior year quarter. The overall Medicaid MLR ~~increased~~decreased ~~over~~from the prior year quarter, from 88100.10% to 9386.04%, primarily due to ~~higher~~lower medical costs associated with the Kentucky Medicaid contract which incurred a MLR of ~~108~~92.43% for the current ~~year~~ quarter~~. The~~ ~~MLR~~compared ~~associated~~to ~~with~~a ~~Kentucky~~MLR ~~Medicaid~~of ~~was~~120.9% ~~high~~during ~~primarily~~the ~~due~~prior toyear quarter. The higher ~~utilization~~costs asin athe ~~result~~prior ofyear ~~adverse~~quarter ~~member~~related ~~selection,~~to ~~especially~~transitioning ina ~~regions~~highly ~~with~~unmanaged ~~high~~Medicaid ~~cost~~population ~~provider~~to ~~systems~~a ~~and~~managed ~~high~~care ~~utilization~~environment. Many ininitiatives ~~pharmacy~~to ~~and~~improve ~~mental~~care ~~health,~~and asreduce ~~well~~medical ascosts, ~~delays~~which byinclude the ~~Commonwealth~~introduction of ~~Kentucky in~~member ~~the~~co-pays ~~full~~and ~~implementation~~changes ofmade ~~risk~~to ~~adjusted~~the ~~revenue. The~~provider ~~higher~~network, ~~costs~~continue ~~are~~to ~~also~~improve ~~related~~the toKentucky ~~transitioning~~Medicaid financial results. Additionally, we received a ~~highly~~previously ~~unmanaged~~contracted ~~Medicaid~~5.3% ~~population~~rate toincrease ain ~~managed~~October ~~care~~2012 ~~environment.~~as Wewell ~~have~~as ~~several~~entered ~~initiatives~~into toa ~~improve~~contract ~~care~~amendment ~~and~~during ~~reduce~~the ~~medical~~current ~~costs~~year ~~through~~quarter with the ~~introduction~~Commonwealth of ~~member~~Kentucky ~~co-pays~~that ~~and~~resulted ~~changes~~in ~~made~~a to7% ~~the~~rate ~~provider~~increase, ~~network~~effective January 1, 2013.

Cost of sales associated with the Workers’ Compensation Division decreased due to the loss of a customer account.

Selling, General and Administrative

Selling, general and administrative expense increased over the prior year quarter primarily due to an increase in the number of full-time employees, asparticularly athose ~~percentage~~associated with the growth of ~~revenue~~the Medicare Advantage CCP and Medicaid products. These increases in normal operating costs; include, ~~decreased~~but 1not limited to, salaries and benefits and professional fees.5% ~~from~~The increase is also attributable to higher stock-based compensation and incentive compensation expense in the ~~prior~~current year quarter. ~~primarily~~For asmore ainformation ~~result~~regarding ofstock-based ~~managing~~compensation, ~~headcount~~refer ~~and~~to ~~associated~~Note ~~costs~~H, ~~while~~Stock-Based ~~continuing~~Compensation, to ~~grow~~the ~~operating~~condensed ~~revenues~~consolidated financial statements, which is incorporated herein by reference. The increases are partially offset by a general reduction in marketing, advertising, print and postage costs.

Selling, general and administrative expense, inas ~~the~~a ~~aggregate,~~percentage ~~increased~~of ~~primarily due to normal operating costs associated with the Kentucky Medicaid expansion and the FHP acquisition; including~~revenue, ~~but~~increased ~~not limited to, salaries and benefits, professional fees and premium taxes~~1. ~~The~~2% ~~increase~~over ~~is also attributable to additional salaries and benefits resulting from an increase in~~ the ~~number~~prior ofyear ~~full-time~~quarter ~~employees,~~as ~~particularly~~a ~~those~~result ~~associated with the growth~~ of the ~~Medicare~~items ~~Part~~mentioned ~~D products~~above. ~~The increases are partially offset by a general reduction in broker commissions and lower administrative costs associated with processing outstanding medical claims.~~

Depreciation and Amortization

Depreciation and amortization expense was higher during the current ~~year~~ quarter primarily due to the additional ~~amortization~~depreciations associated with ~~the FHP Missouri intangible assets, as well as~~ placing certain internally developed medical quality improvement software into service.

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Interest Expense and Other Income, Net

Interest expense ~~decreased~~in the current quarter was relatively consistent with the prior year quarter. The slight decrease from the prior year quarter was due to lower interest expense associated with the repayment, at maturity, of the $233.9 million outstanding balance of our 5.875% Senior Notes in January 2012 ~~and the repayment of our revolving Credit Facility in the second quarter of 2011~~. ~~This was partially offset by the interest expense on $600.0 million aggregate principal amount of our 5.450% Senior Notes due 2021 issued in the later part of the second quarter of 2011.~~

Other income, net increased as income in the current quarter included larger realized gains on the sales of investments.

Income Taxes

The provision for income taxes ~~slightly~~ decreased from the prior year quarter primarily due to a decrease in earnings ~~from the prior year quarter~~, partially offset by aan ~~slight~~ increase in the current quarter effective tax rate. The effective tax rate on operations increased to 3739.0% as compared to 3438.50% for the prior year quarter, primarily due to the proportion of earnings in states with higher tax rates and by compliance with new health care reform regulations that limit the deductibility of certain employees’ compensation.

2421

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Comparison of Nine Months Ended September 30, 2012 and 2011

Managed Care Premiums and Management Services

Managed care premium revenue increased from the prior year nine-month period primarily as a result of the new Medicaid contract with the Commonwealth of Kentucky and the acquisition of FHP. The increase is also due to the growth of Medicare Part D revenue as a result of the addition of eight auto assign regions as well as an increase in product offerings.

Medicare Advantage revenue increased over the prior year nine-month period primarily as a result of the Risk Adjustment Data Validation (“RADV”) audit reserve releases. On February 24, 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” In that notice, CMS made significant changes regarding which contract years will be subject to the CMS RADV audits and altered other core areas of the audit methodology. We maintain reserves for our exposure to the RADV audits, and during the first quarter of 2012 released RADV audit reserves, related to the 2007 through 2011 contract years, resulting in an increase in operating earnings of $133.0 million. Medicare Advantage revenue also increased as a result of organic membership growth.

Managed care premium revenue also increased from the prior year nine-month period as a result of minimum medical loss ratio rebate accrual reductions of $36.3 million related to new guidance on capitated medical contracts issued in 2012 and as a result of increases in the average Commercial realized premium PMPM. The managed care premium revenue increases were partially offset by Commercial membership declines.

Management services revenue increased over the prior year nine-month period primarily due to certain groups moving from Commercial Risk to ASO products.

Medical Costs and Cost of Sales

Medical costs increased from the prior year nine-month period primarily as a result of the new Medicaid contract with the Commonwealth of Kentucky, the acquisition of FHP and continued Medicare Part D membership growth. Medical costs also increased as a result of organic membership growth for Medicare Advantage CCP and Medicaid. This was partially offset by a decrease in Commercial membership, as noted above.

Total MLR increased 2.3% over the prior year nine-month period, from 82.1% to 84.4%, as a result of the increased Medicaid MLR, which was partially offset by the Medicare Advantage RADV audit reserve releases during the current year nine-month period. The overall MLR also increased due to a higher mix of Medicare Advantage CCP and Medicaid members, which operate at a higher MLR, in the current year nine-month period compared to the prior year nine-month period. The overall Medicaid MLR increased in the current year nine-month period, from 87.0% to 95.3%, primarily due to higher medical costs associated with the Kentucky Medicaid contract with an incurred MLR of 113.2% in the current year nine-month period, for reasons discussed above.

Selling, General and Administrative

Selling, general and administrative expense, as a percentage of revenue, decreased 2.0% from the prior year nine-month period primarily as a result of managing headcount and associated costs while continuing to grow operating revenues.

Selling, general and administrative expense, in the aggregate, increased over the prior year nine-month period primarily due to normal operating costs associated with the new Medicaid contract with the Commonwealth of Kentucky and the FHP acquisition; including, but not limited to, salaries and benefits, professional fees and premium taxes. The increase is also attributable to additional salaries and benefits associated with an increase in the number of full-time employees associated with the growth of the Medicare Part D products. The increases are partially offset by a general reduction in broker commissions and lower stock-based compensation expense. For more information regarding stock-based compensation, refer to Note H, Stock-Based Compensation, to the condensed consolidated financial statements, which is incorporated herein by reference.

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, on May 27, 2011, a Louisiana state court entered an order of final approval of a provider class action settlement and, accordingly, the Company recorded a non-recurring pretax adjustment to earnings of $159.3 million in the second quarter of 2011.

Depreciation and Amortization

Depreciation and amortization expense was higher during the current year nine-month period primarily due to the intangible asset impairment associated with the non-renewal of the State of Kansas Medicaid contract. During the second quarter of 2012, we were notified of the non-renewal of the State of Kansas Medicaid contract, which we assumed in connection with the acquisition of FHP. Accordingly, the current year nine-month period depreciation and amortization expense includes a $7.7 million impairment charge of the intangibles associated with the non-renewal of this contract. The impairment charged related only to the intangibles assigned to the Kansas business acquired in the FHP acquisition and did not affect the intangibles assigned to the ongoing Missouri business, also acquired in the FHP acquisition. Additionally, a portion of the depreciation and amortization expense increase is a result of placing certain internally developed medical quality improvement software into service.

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Interest Expense and Other Income, Net

Interest expense increased over the prior year nine-month period due to the issuance of $600.0 million aggregate principal amount of our 5.450% Senior Notes due 2021 in the later part of the second quarter of 2011. This was partially offset by lower interest expense associated with the repayment, at maturity, of the $233.9 million outstanding balance of our 5.875% Senior Notes in January 2012 and the repayment of our revolving Credit Facility in the second quarter of 2011.

Other income, net increased as income in the current year nine-month period included larger realized gains on the sales of investments.

Income Taxes

The provision for income taxes decreased from the prior year primarily due to a decrease in earnings, resulting from the non-recurring pretax adjustment to earnings associated with the provider class action litigation in Louisiana for 2011, and partially offset by an increase in the current year nine-month period effective tax rate. The effective tax rate on operations increased to 38.0% as compared to 36.0% for the prior year nine-month period, primarily due to the proportion of earnings in states with higher tax rates and by compliance with new health care reform regulations.

Segment Results

WeThe ~~reorganized~~following ~~the~~table ~~executive~~is ~~management~~provided ~~team~~ to ~~better~~facilitate ~~align resources and provide continued focus on areas of future growth. As~~ a ~~result~~discussion ofregarding ~~this reorganization, we realigned our segments during~~ the ~~first~~comparison ~~quarter~~ of ~~2012 to reflect the manner in which the chief operating decision maker reviews financial information. As a result,~~ our ~~reportable~~segment ~~segments~~results ~~have~~of ~~changed~~operations tofor the ~~following~~quarters ~~three~~ended ~~reportable segments: Commercial Products~~March 31, ~~Government~~2013 ~~Programs~~ and ~~Workers’ Compensation.~~2012:

Our segment presentation for 2011 has been reclassified to conform to the 2012 presentation. For additional information regarding our segments, refer to Note C, Segment Information, in the notes to the condensed consolidated financial statements, which is incorporated herein by reference.



	Quarters Ended March 31,						Increase
	2013			2012			(Decrease)
Operating Revenues (in thousands)
Commercial Risk	$	1,322,718		$	1,481,275		$	(158,557	)
Commercial Management Services	108,084			113,777			(5,693		)
Commercial Products Division	1,430,802			1,595,052			(164,250		)
Medicare Advantage ⁽¹⁾	831,378			834,312			(2,934		)
Medicaid Risk	690,800			668,060			22,740
Medicare Part D	406,548			413,423			(6,875		)
Government Programs Division	1,928,726			1,915,795			12,931
Workers’ Compensation	175,488			191,922			(16,434		)
Other/Eliminations	(14,781		)	(10,802		)	(3,979		)
Total Operating Revenues	$	3,520,235		$	3,691,967		$	(171,732	)

Gross Margin (in thousands)
Commercial Products Division	$	409,017		$	417,067		$	(8,050	)
Government Programs Division ⁽¹⁾	249,079			274,630			(25,551		)
Workers’ Compensation	116,003			123,970			(7,967		)
Other/Eliminations	—			—			—
Total Gross Margin ⁽¹⁾	$	774,099		$	815,667		$	(41,568	)

Revenue and Medical Cost Statistics
Managed Care Premium Yields (PMPM):
Health Plan Commercial Risk	$	306.18		$	311.92		(1.8		%)
Medicare Advantage Risk ⁽¹⁾	$	899.28		$	1,048.93		(14.3		%)
Medicare Part D	$	93.95		$	95.60		(1.7		%)
Medicaid Risk	$	266.74		$	238.74		11.7		%

Medical Loss Ratios (MLR):
Health Plan Commercial Risk	77.9		%	79.9		%	(2.0		%)
Medicare Advantage Risk ⁽¹⁾	84.6		%	74.1		%	10.5		%
Medicare Part D	93.4		%	94.9		%	(1.5		%)
Medicaid Risk	86.4		%	100.0		%	(13.6		%)
Total MLR	83.0		%	82.9		%	0.1		%

26(1) The quarter ended March 31, 2012 includes the effect of the RADV reserve release.

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The following table is provided to facilitate a discussion regarding the comparison of our segment results of operations for the quarters and nine months ended September 30, 2012 and 2011:

	Quarters EndedSeptember 30,						Increase			Nine Months EndedSeptember 30,						Increase
	2012			2011			(Decrease)			2012			2011			(Decrease)
Operating Revenues (in thousands)
Commercial Risk	$	1,409,863		$	1,508,042		$	(98,179	)	$	4,334,616		$	4,531,512		$	(196,896	)
Commercial Management Services	101,138			99,301			1,837			328,474			296,732			31,742
Commercial Products Division	1,511,001			1,607,343			(96,342		)	4,663,090			4,828,244			(165,154		)
Medicare Advantage	697,724			591,051			106,673			2,216,327			1,783,534			432,793
Medicaid Risk	730,996			316,255			414,741			2,096,734			933,109			1,163,625
Medicare Part D	343,185			271,947			71,238			1,151,487			946,588			204,899
Government Programs Division	1,771,905			1,179,253			592,652			5,464,548			3,663,231			1,801,317
Workers’ Compensation	187,992			196,198			(8,206		)	574,489			587,821			(13,332		)
Other/Eliminations	(13,115		)	(7,251		)	(5,864		)	(34,580		)	(21,769		)	(12,811		)
Total Operating Revenues	$	3,457,783		$	2,975,543		$	482,240		$	10,667,547		$	9,057,527		$	1,610,020
Gross Margin (in thousands)
Commercial Products Division	$	370,778		$	382,443		$	(11,665	)	$	1,156,932		$	1,195,652		$	(38,720	)
Government Programs Division	224,226			211,334			12,892			695,921			564,533			131,388
Workers’ Compensation	121,814			124,687			(2,873		)	373,130			378,218			(5,088		)
Other/Eliminations	—			—			—			—			—			—
Total Gross Margin	$	716,818		$	718,464		$	(1,646	)	$	2,225,983		$	2,138,403		$	87,580
Revenue and Medical Cost Statistics
Managed Care Premium Yields (PMPM):
Health Plan Commercial Risk	$	308.42		$	303.33		1.7		%	$	310.11		$	303.02		2.3		%
Medicare Advantage Risk	$	908.57		$	893.22		1.7		%	$	952.82		$	895.13		6.4		%
Medicare Advantage Risk excluding RADV release (1)	$	908.57		$	893.22		1.7		%	$	911.63		$	895.13		1.8		%
Medicare Part D (2)	$	86.24		$	94.10		(8.4		%)	$	86.42		$	92.89		(7.0		%)
Medicaid Risk	$	241.92		$	226.39		6.9		%	$	243.02		$	221.94		9.5		%
Medical Loss Ratios (MLR):
Health Plan Commercial Risk	81.5		%	82.1		%	(0.6		%)	81.5		%	80.9		%	0.6		%
Medicare Advantage Risk	83.1		%	82.0		%	1.1		%	80.1		%	83.0		%	(2.9		%)
Medicare Advantage Risk excluding RADV release (1)	83.1		%	82.0		%	1.1		%	83.3		%	83.0		%	0.3		%
Medicare Part D	84.2		%	76.8		%	7.4		%	90.0		%	88.0		%	2.0		%
Medicaid Risk	93.0		%	88.1		%	4.9		%	95.3		%	87.0		%	8.3		%
Total MLR	84.4		%	81.5		%	2.9		%	84.4		%	82.1		%	2.3		%

(1) When reviewing the premium yield and MLR for the Medicare Advantage Risk business, we believe that adjusting for the RADV audit reserve release recorded in the first quarter of 2012 is useful to understand the results of the Medicare Advantage Risk business because of our expectation that the adjustment will not occur again in the near future.

(2) Revenue per member per month for Medicare Part D excludes the effect of the CMS risk-share premium adjustments and revenue ceded to external parties.

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Commercial Products Division

Quarters ~~and Nine Months~~ Ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012

Commercial risk revenue decreased ~~for~~from the ~~quarter~~prior ~~and~~year ~~nine months ended September 30, 2012 as compared to the~~ quarter ~~and nine months ended September 30, 2011~~ due to lower membership as a result of attrition, in-group changes and certain groups moving from Commercial Risk to ASO products as well as declining Commercial membership as a result of an overall challenging sales environment. ~~This~~ ~~decrease~~Commercial ~~was~~Risk ~~partially~~revenue ~~offset~~also bydecreased from the prior year quarter as the prior year quarter included favorable minimum medical loss ratio rebate accrual reductions inof $36.3 million related to the ~~current~~2011 plan year ~~nine-month~~as ~~period~~a result of ~~$36~~new guidance issued in 2012 on capitated medical contracts.3 The ~~million~~minimum ~~and~~medical anloss ~~increase~~ratio accrual reductions also contributed to a decrease in the current quarter average realized premium PMPM ~~due~~when compared to ~~renewal~~the ~~rate~~prior ~~increases~~year quarter.

The gross margin for this Division decreased ~~for~~from the ~~quarter~~prior ~~and~~year ~~nine months ended September 30, 2012 as compared to the~~ quarter ~~and nine months ended September 30, 2011~~ primarily due to a decline in Commercial Risk membership~~. The Commercial Risk MLR was relatively consistent for the quarter~~ and ~~nine months ended September 30, 2012 as compared to~~ the ~~quarter~~resulting ~~and~~lower ~~nine~~premium ~~months ended September 30, 2011~~revenue. ~~There~~ ~~was~~The ~~a slight increase in the~~ Commercial Risk MLR ~~for~~decreased from the ~~nine-month~~prior ~~period,~~year quarter as ~~utilization~~we ~~trends~~are ~~continue~~experiencing tolower ~~return to normal levels. This was offset by minimum~~ medical ~~loss ratio rebate accrual reductions and an increase in the average Commercial realized premium PMPM due to renewal rate increases~~trends.

Government Programs Division

Quarters ~~and Nine Months~~ Ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012

Medicaid revenue increased ~~for~~over the prior year quarter ~~and~~primarily ~~nine~~as ~~months~~a ~~ended~~result ~~September 30,~~of ~~2012 as~~membership ~~compared~~growth toand the ~~quarter~~entry ~~and~~into ~~nine~~new ~~months~~regions ~~ended~~in ~~September 30,~~our ~~2011~~Nebraska ~~primarily~~and asPennsylvania amarkets. This ~~result~~was ofpartially offset by the ~~new~~Company’s Medicaid contract with the ~~Commonwealth~~State of ~~Kentucky~~Kansas ~~effective~~which ~~November~~ended ~~2011~~on ~~and~~December ~~the acquisition of FHP effective January 1~~31, 2012. The Medicare Advantage CCP revenue ~~increased~~decrease ~~over~~reflects the ~~prior year quarter and nine-month period primarily as a result of the~~ RADV audit reserve releases, aspartially ~~previously~~offset ~~discussed. Medicaid~~by ~~and~~membership ~~Medicare~~growth, ~~Advantage revenue also increased~~ as apreviously ~~result of organic membership growth~~discussed.

~~The revenue increase for the quarter and nine months ended September 30, 2012 as compared to the quarter and nine months ended September 30, 2011 is also due to the growth of~~ Medicare Part D revenue asdecreased adue ~~result~~to ofmembership ~~the~~shifting ~~addition of eight auto assign regions as well as an increase in product offerings from two in 2011~~ to ~~three~~lower inpriced ~~2012. Including the effect of the CMS risk sharing~~ premium ~~adjustments as well as ceded revenue, the premium was $86~~products.22 ~~PMPM~~Premiums indecreased ~~2012 compared~~ to $9193.1595 PMPM in ~~2011. Excluding the effect of CMS risk sharing premium adjustments and revenue ceded to external parties~~2013, ~~Medicare Part D premiums for 2012 decreased to $86.42 PMPM,~~ compared to $9295.8960 PMPM in ~~2011~~2012, primarily due to the ~~addition~~continued ofgrowth in a new lower priced premium ~~product~~preferred innetwork ~~2012~~product.

~~When~~The ~~reviewing~~gross margin decrease from the ~~premium~~prior ~~yield~~year quarter for the Government Programs Division is primarily driven by the Medicare ~~Part~~Advantage DRADV ~~business,~~audit wereserve ~~believe~~releases ~~that~~in ~~adjusting~~2012 as well as increased membership and premium PMPM increases for Medicaid Risk. These decreases were partially offset by a lower Medicaid Risk MLR. The lower Medicaid Risk MLR was driven by improved medical costs associated with the ~~ceded~~Kentucky ~~revenue~~business. isAs ~~useful~~previously ~~for~~mentioned, ~~comparisons~~the higher costs in the prior year quarter related to ~~competitors~~transitioning ~~that~~a ~~may~~highly ~~not~~unmanaged ~~have~~Medicaid ~~similar~~population ~~ceding~~to ~~arrangements~~a managed care environment. Many ~~When~~initiatives ~~reviewing~~to ~~the~~improve ~~Medicare~~care ~~Part~~and Dreduce ~~business~~medical costs, ~~adjusting~~which ~~for~~include the ~~risk~~introduction ~~sharing~~of ~~amounts~~member isco-pays ~~useful~~and changes made to ~~understand~~the provider network, continue to improve the Kentucky Medicaid financial results. Additionally, ofwe received a previously contracted 5.3% rate increase in October 2012 as well as entered into a contract amendment during the ~~Medicare~~current ~~Part~~year Dquarter ~~business~~with ~~because~~the Commonwealth of ~~our~~Kentucky ~~expectation~~ that ~~the~~resulted ~~risk~~in ~~sharing~~a ~~revenue~~7% ~~will~~rate ~~eventually~~increase, beeffective ~~insignificant~~January on1, 2013. The Kentucky Medicaid contract incurred a ~~full~~MLR of 92.3% for the current quarter compared to a MLR of 120.9% during the prior year ~~basis~~quarter.

The gross margin for this Division increased for the quarter and nine months ended September 30, 2012 as compared to the quarter and nine months ended September 30, 2011 primarily driven by the Medicare Advantage RADV audit reserve releases in 2012 and premium PMPM increases for Medicare Advantage and Medicaid Risk. These increases were offset by higher Medicaid Risk MLR. The higher Medicaid Risk MLR was driven by high medical costs associated with the new Kentucky business.

Workers’ Compensation Division

Quarters ~~and Nine Months~~ Ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012

The Workers’ Compensation Division revenue and gross margin decreased for the quarter ~~and nine months~~ ended ~~September~~March 3031, ~~2012~~2013 as compared to the quarter ~~and nine months~~ ended ~~September~~March 3031, ~~2011~~2012 in part due to the loss of a customer account. The revenue decrease is partially offset by increased revenue in our clinical ~~and durable medical equipment~~ programs as a result of higher volumes ~~and~~of ~~service items, respectively~~referrals.

Liquidity and Capital Resources

Liquidity

Our investment guidelines require our fixed income securities to be investment grade in order to provide liquidity to meet future payment obligations and minimize the risk to principal. The fixed income portfolio includes, among other investment categories, government and corporate securities and has an average credit quality rating of “AA-” and an effective duration of 4.0409 years as of ~~September~~March 3031, ~~2012~~2013. The average credit quality rating is based on the weighted average credit rating as provided by Standard & Poor'’s. See Footnote F, Investments, to the condensed consolidated financial statements for more information regarding our investments, which is incorporated herein by reference. Typically, the amount and duration of our short-term assets are more than sufficient to pay for our short-term liabilities, and we do not anticipate that sales of our long-term investment portfolio will be necessary to fund our claims liabilities.

28Our cash and investments, consisting of cash, cash equivalents, short-term investments and long-term investments, but excluding deposits of $72.6 million at March 31, 2013 and $71.1 million at December 31, 2012 that are restricted under state regulations, increased by $0.2 billion to $4.3 billion at March 31, 2013 from $4.1 billion at December 31, 2012.

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Our cash and investments, consisting of cash, cash equivalents, short-term investments and long-term investments, but excluding deposits of $73.2 million at September 30, 2012 and $74.0 million at December 31, 2011 that are restricted under state regulations, decreased by $0.3 billion to $4.0 billion at September 30, 2012 from $4.3 billion at December 31, 2011.

We have classified all of our investments as available-for-sale securities. Contractual maturities of the securities are disclosed in Note F, Investments, to the condensed consolidated financial statements, which is incorporated herein by reference.

During the nine months ended September 30, 2012, the Board of Directors declared three quarterly cash dividends of $0.125 per share each, or $51.6 million in the aggregate. The cash dividend for the quarter ended September 30, 2012 was accrued in “accounts payable and other accrued liabilities” in the accompanying balance sheet at September 30, 2012, and subsequently paid on October 8, 2012. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change. 23

~~The~~Table ~~demand for our products and services is subject to many economic fluctuations, risks, and uncertainties that could materially affect the way we do business. Management believes that the combination~~ of our ability to generate cash flows from operations, cash and investments on hand, and the excess funds held in certain of our regulated subsidiaries will be sufficient to fund continuing operations, capital expenditures, debt interest costs, debt principal repayments, cash dividends, and any other reasonably likely future cash requirements. In addition, our long-term investment portfolio is available for further liquidity needs including satisfaction of policy holder benefits. Please refer to Part II, Item 1A, “Risk Factors,” of this Form 10-Q, as well as Part II, Item 1A, “Risk Factors,” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, and Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10–K for the year ended December 31, 2011, for more information about how risks and uncertainties could materially affect our business. Contents

During the quarter ended March 31, 2013, the Board of Directors declared a quarterly cash dividend of $0.125 per share, or $16.8 million. The cash dividend for the quarter ended March 31, 2013 was accrued in “accounts payable and other accrued liabilities” in the accompanying balance sheet at March 31, 2013, and subsequently paid on April 9, 2013. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.

The demand for our products and services is subject to many economic fluctuations, risks, and uncertainties that could materially affect the way we do business. Management believes that the combination of our ability to generate cash flows from operations, cash and investments on hand, and the excess funds held in certain of our regulated subsidiaries will be sufficient to fund continuing operations, capital expenditures, debt interest costs, debt principal repayments, cash dividends, and any other reasonably likely future cash requirements. In addition, our long-term investment portfolio is available for further liquidity needs including satisfaction of policy holder benefits. Please refer to Part II, Item 1A, “Risk Factors,” of this Form 10-Q and Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10–K for the year ended December 31, 2012, for more information about how risks and uncertainties could materially affect our business.

Cash Flows

Operating Activities

Net cash from operating activities for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 was an inflow primarily as a result of net earnings, net of adjustments, and an increase in medical liabilities primarily related to the continued growth of both the ~~Medicare~~Pennsylvania ~~Part D~~ and Kentucky Medicaid businesses. Offsetting these inflows was an increase in other receivables related to the settlement timing of ~~settlement~~Medicare ~~of current year subsidy and~~ risk ~~share~~adjuster receivables ~~for our Medicare business~~ due from CMS. Additionally, offsetting the inflows is a decrease of accounts payable and other accrued liabilities primarily as a result of payments in 2012 for the 2011 annual incentive and performance compensation program and payments in 2012 for the 2011 minimum medical loss ratio rebates.

Our net cash from operating activities for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 decreased by $~~449~~198.53 million from the corresponding ~~2011~~2012 period. The decrease was primarily a result of the ~~timing of settlement of current year subsidy receivables for our Medicare business due from CMS,~~ deferred revenue related to the early receipt in ~~September~~March ~~2011~~2012 of the ~~October~~April ~~2011~~2012 Medicare premium payment from CMS, which did not occur infor ~~September~~the ~~2012,~~period ~~and~~ended ~~lower~~March ~~net~~31, ~~earnings~~2013. Offsetting this decrease in net cash from operating activities was anlower ~~increase~~outflows inwithin ~~medical~~accounts ~~liabilities~~payable ~~primarily~~and other accrued liabilities related to the ~~continued~~timing ~~growth~~ of ~~both~~incentive ~~the~~compensation ~~Medicare Part D~~ and ~~Kentucky~~stock-based ~~businesses~~award payments and ~~$150.5~~an ~~million~~increase ~~paid in 2011~~ to ~~settle~~net ~~the~~earnings, ~~provider~~net ~~class~~of ~~action litigation in Louisiana~~adjustments.

Investing Activities

Net cash from investing activities was an outflow for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 primarily due to investment purchases, ~~capital expenditures~~ and ~~the~~capital ~~acquisition of FHP during the period~~expenditures. This outflow was partially offset by the proceeds received from the sales and maturities of investments.

Projected capital expenditures for fiscal year ~~2012~~2013 are estimated at $8095 to $90105 million and consist primarily of computer hardware, software and other equipment.

Cash flows used for investing activities for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013 ~~decreased~~increased by $~~557~~32.39 million from the corresponding ~~2011~~2012 period. The ~~decrease~~increase is primarily due to ~~lower~~higher investment purchases in ~~2012~~2013 partially offset by ~~lower~~no ~~proceeds received from the sales of investments and larger~~ payments for acquisitions in 2013.

Financing Activities

Net cash from financing activities was an outflow, primarily due to the ~~repurchase~~payment offor ~~stock~~cash ofdividends ~~$311.2 million and repayment of the $233.9 million outstanding balance of our 5.875% Senior Notes~~ during the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013.

~~Under~~Cash ~~our~~flows ~~share~~used ~~repurchase~~for ~~program,~~financing weactivities ~~purchased~~for ~~9.3 million shares of our common stock during~~ the ~~nine~~quarter ~~months~~ ended ~~September 30,~~March ~~2012~~31, at2013 andecreased ~~aggregate~~by ~~cost of~~ $~~300~~197.07 million~~. The~~ ~~entire~~from ~~amount~~the ~~was~~corresponding ~~repurchased~~2012 ~~during~~period. The ~~the~~decrease ~~second~~is ~~quarter~~primarily ofdue ~~2012. As~~to ofshare ~~September 30,~~repurchases ~~2012,~~related to the ~~total~~vesting ~~remaining number~~ of ~~common~~stock-based ~~shares~~awards weto ~~are~~satisfy ~~authorized~~employees’ tominimum ~~repurchase~~statutory ~~under~~tax ~~this~~withholding ~~program~~obligations isin ~~7.2~~2012, ~~million.~~which ~~Excluded~~were ~~from~~minimal ~~these~~in ~~share~~2013, ~~repurchase~~as ~~program~~well ~~amounts~~as ~~are~~the ~~shares~~repayment ~~purchased~~of debt in ~~connection~~2012 ~~with~~related ~~the~~to ~~vesting~~our ofSenior ~~restricted~~Notes ~~stock~~due ~~awards~~January to2012. ~~satisfy~~This ~~employees’~~decrease ~~minimum~~in ~~statutory~~cash ~~tax~~flows ~~withholding~~used ~~obligations~~for asfinancing ~~these~~activities ~~purchases~~was ~~are~~partially ~~not~~offset ~~part~~by ofa ~~the~~cash ~~program~~dividend payment in 2013.

Cash flows from financing activities for the nine months ended September 30, 2012 decreased by $557.0 million from the corresponding 2011 period. The decrease is primarily due to more share repurchases in 2012 and dividends paid in 2012, which did not occur in 2011, as well as higher net borrowings in 2011 related to the issuance in 2011 of our Senior Notes due June 7, 2021.

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Health Plans

Our regulated health maintenance organization and insurance company subsidiaries are required by state regulatory agencies to maintain minimum surplus balances, thereby limiting the dividends our parent company may receive from our regulated subsidiaries. During the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2012~~2013, we received ~~$214.7~~no ~~million in~~ dividends from our regulated subsidiaries and made ~~$39.0~~no ~~million in~~ capital contributions to them. We had approximately $12.93 billion of regulated capital and surplus at ~~September~~March 3031, ~~2012~~2013.

We believe that all of our subsidiaries that incur medical claims maintain more than adequate liquidity and capital resources to meet these short-term obligations as a matter of both our policy and state insurance regulations.

Excluding funds held by entities subject to regulation and excluding our equity method investments, we had cash and investments of approximately $1.12 billion ~~and $1.4 billion~~ at ~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011, respectively~~2012. The decrease resulted primarily from share repurchases, the repayment of our 5.875% Senior Notes, cash paid for the FHP acquisition, capital contributions made by the parent company and cash dividend payments partially offset by dividends received from our regulated subsidiaries and earnings generated by our non-regulated entities.

~~Outlook~~ 24

~~Commercial~~Table ~~Products Division - We expect our Commercial Risk membership to decrease slightly during the fourth quarter~~ of ~~2012, from approximately 1.5 million members at September 30, 2012. Full year 2012 Commercial MLR is expected to be in the range of 81.5% to 82.5%, a slight increase from the 2011 MLR of 81.6%.~~Contents

Government Programs Division - For our Medicare Advantage product, we anticipate slight growth during the fourth quarter of 2012, from 256,000 members at September 30, 2012. We expect the 2012 Medicare Advantage MLR to be in the range of low to mid 80%s, excluding the favorable effect from the release of RADV audit reserves recorded in the first quarter of 2012.

For our Medicaid business, we are expecting membership to decrease slightly during the fourth quarter of 2012, from approximately 1.0 million members at September 30, 2012. We anticipate a sequential improvement in the Kentucky market MLR resulting in an MLR in the range of low to mid 90%s for the total Medicaid business.

We anticipate membership in our Medicare Part D product will increase slightly during the fourth quarter of 2012, from 1.5 million members at September 30, 2012. Our MLR expectation for 2012 is in the range of low to mid 80%s.

Workers’ Compensation Division - We expect our Workers’ Compensation Division revenue, cost of sales and selling, general and administrative expense will decrease in 2012 driven by the loss of a customer account. We expect the full year 2012 gross margin for this Division to be down compared to 2011 by approximately 2% due to the customer account loss.

Other - We expect selling, general and administrative expense to be in a range of $2.09 billion to $2.11 billion for 2012. We expect our effective tax rate will range from 37.7% to 38.3% for 2012. Although the declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change, we expect to continue our quarterly cash dividend payments to our shareholders throughout 2012.

Legal Proceedings

See Note E, Contingencies, to the condensed consolidated financial statements for information and disclosures related to contingencies, which is incorporated herein by reference.

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

These disclosures should be read in conjunction with the condensed consolidated financial statements, Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other information presented herein as well as in ~~the~~Part II, Item 7a “Quantitative and Qualitative Disclosures About Market Risk” ~~section~~of ~~contained in~~ our Annual Report on Form 10–K for the year ended December 31, ~~2011~~2012.

No material changes have occurred in our exposure to market risk since the date of our Annual Report on Form 10–K for the year ended December 31, ~~2011~~2012.

ITEM 4: Controls and Procedures

We have performed an evaluation as of the end of the period covered by this report of the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures ~~are~~were effective as of March 31, 2013.

30There have been no significant changes in our internal control over financial reporting (as defined in Rule 13a–15(f) promulgated under the Securities and Exchange Act of 1934) during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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There have been no significant changes in our internal control over financial reporting (as defined in Rule 13a–15(f) promulgated under the Securities and Exchange Act of 1934) during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1: Legal Proceedings

See Note E, Contingencies, to the condensed consolidated financial statements for information and disclosures related to contingencies, which is incorporated herein by reference.

ITEM 1A: Risk Factors

With the exception of the new risk ~~factors~~factor below related to ~~the~~federal ~~proposed~~spending ~~merger with Aetna~~cuts, ~~Inc. (“Aetna”),~~ there have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2011, as updated in our quarterly report on Form 10-Q for the quarter ended March 31,~~ 2012.

~~Certain~~We ~~Risks~~may ~~Related~~be adversely affected by changes in government funding related to the ~~Proposed~~automatic ~~Merger~~spending cuts that are occurring due to federal sequestration.

OnThe ~~August~~Budget ~~19,~~Control ~~2012,~~Act weof ~~entered~~2011 ~~into~~ (the ~~Merger~~“BCA”) ~~Agreement,~~requires ~~pursuant~~automatic tospending ~~which~~reductions weof ~~will~~$1.2 betrillion ~~acquired~~for byfederal ~~Aetna. See~~fiscal ~~Note~~years A2013 through 2021, ~~Basis~~minus ofany ~~Presentation~~deficit reductions enacted by Congress and ~~Significant~~debt ~~Events,~~service tocosts. However the ~~condensed~~percentage ~~consolidated~~reduction ~~financial~~for ~~statements~~Medicare ~~for~~may ~~information~~not ~~and~~be ~~disclosures~~more ~~related~~than to2% ~~the~~for ~~Proposed~~a ~~Merger~~fiscal year, ~~which~~with isa ~~incorporated~~uniform ~~herein~~percentage byacross ~~reference~~all Medicare programs. In ~~There~~addition, issome noprograms, ~~assurance~~such ~~that~~as ~~our~~Medicaid, ~~stockholders~~are ~~will~~exempt ~~approve~~from the ~~adoption~~reductions. These ofBCA-mandated ~~the~~spending ~~Merger~~cuts ~~Agreement~~are commonly referred to as “sequestration.” Sequestration began on March 1, 2013, and ~~there~~CMS isbegan noimposing ~~assurance~~a ~~that~~2% ~~the~~reduction ~~other~~on ~~conditions~~Medicare funding to ~~the~~Medicare ~~completion~~Health ofPlans ~~the~~as ~~proposed~~of ~~Merger~~April ~~will~~1, ~~be satisfied~~2013. Unless InCongress ~~connection~~and ~~with~~ the ~~proposed~~President ~~Merger,~~take weaction and ~~our~~reach ~~stockholders~~an agreement to change the law, federal spending will be subject to ~~several~~sequestration ~~risks,~~until ~~including~~ the ~~following:~~end of federal fiscal year 2021.

The full effect of sequestration on our operations is uncertain. We ~~may~~cannot ~~have~~predict ~~difficulty~~with ~~attracting,~~certainty ~~motivating~~whether ~~and~~changes ~~retaining~~to ~~executives~~Medicare ~~and~~funding ~~other~~will ~~key~~have ~~employees~~an inadverse ~~light~~effect on our business or results of ~~the~~operations ~~Merger~~or our ability to reduce related provider payments to offset such changes to Medicare funding. We are also unable to predict what other deficit reduction initiatives may be proposed by Congress or whether Congress will attempt to restructure or suspend sequestration.

Uncertainty about the effect of the Merger on our employees may have an adverse effect on our business. This uncertainty may impair our ability to attract, retain and motivate key personnel until the Merger is completed. Employee retention may be particularly challenging during the pendency of the Merger, as our employees may experience uncertainty about their future roles with the combined business. If key employees of the Company depart because of issues relating to the uncertainty and difficulty of integration, financial incentives or a desire to not become employees of the combined business, our business and results of operations could be adversely affected.

The Merger Agreement limits our ability to pursue alternatives to the Merger.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a party other than Aetna. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction. Further, there are only limited exceptions to our agreement that our Board of Directors will not withdraw or modify in a manner adverse to Aetna the recommendation of our Board of Directors in favor of the adoption of the Merger Agreement, and Aetna generally has a right to match any competing acquisition proposals that may be made. However, at any time prior to the adoption of the Merger Agreement by our stockholders, our Board of Directors is permitted to take certain of these actions and, in certain circumstances, terminate the Merger Agreement if it determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties to our stockholders under applicable law, doing so could entitle Aetna to a termination fee of $167.5 million.

While we believe these provisions are reasonable and not preclusive of other offers, the provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per-share value than the currently proposed merger consideration. Furthermore, the termination fee may result in a potential competing acquirer proposing to pay a lower per-share price to acquire the Company than it might otherwise have proposed to pay because of the added expense of the $167.5 million termination fee that may become payable by the Company in certain circumstances.

Failure to complete the Merger could negatively affect the stock price and the future business and financial results of the Company.

Completion of the Merger is subject to the satisfaction (or waiver, if applicable) of numerous conditions, including, but not limited to, the following:

• adoption of the Merger Agreement by holders of a majority of the outstanding shares of Company common stock in accordance with Delaware law;

• absence of any applicable law or order being in effect that enjoins, restrains, prevents, prohibits or makes illegal completion of the Merger;

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• absence of the imposition of any term or condition that would have or would reasonably be expected to have, individually or in the aggregate, a regulatory material adverse effect on Aetna or Coventry;

• receipt of necessary regulatory and governmental approvals; and

• the accuracy of the representations and warranties and the performance of the covenants made by the parties in the Merger Agreement.

There can be no assurance that these and other conditions set forth in the Merger Agreement will be satisfied or that the Merger will be completed. If the Merger is not completed, the ongoing businesses of the Company may be adversely affected and, without realizing any of the benefits of having completed the Merger, the Company would be subject to a number of risks, including, but not limited to, the following:

• We may experience negative reactions from the financial markets, including negative impacts on our stock prices, and from our customers, providers, vendors, regulators and employees;

• We may be required to pay Aetna a termination fee of $167.5 million if the Merger is terminated under certain circumstances;

• We will be required to pay certain transaction-related costs relating to the Merger, whether or not the Merger is completed;

• The Merger Agreement places certain restrictions on the conduct of our business prior to completion of the Merger or the termination of the Merger Agreement. Such restrictions, the waiver of which is subject to the consent of Aetna (in most cases, not to be unreasonably withheld, conditioned or delayed), may prevent us from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Merger; and

• Matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to the Company as an independent company.

There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may adversely affect our businesses, financial condition, financial results and stock prices.

In addition, we could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against the Company to perform its obligations under the Merger Agreement. If the Merger is not completed, these risks may materialize and may adversely affect our business, financial condition, financial results and stock prices.

We do not expect the closing of the Merger to occur until mid-2013 and our ability to operate our business until closing is restricted by certain provisions in the Merger Agreement.

The closing of the Merger is subject to the satisfaction of certain conditions, which we expect will be satisfied sometime in 2013. Until the earlier of the closing of the Merger or the termination of the Merger Agreement, our ability to operate our business is restricted by the Merger Agreement. In general, except (i) as required or expressly contemplated by the Merger Agreement, (ii) as required or prohibited by applicable law or (iii) as set forth in the confidential disclosure schedules delivered in connection with the execution of the Merger Agreement, unless Aetna otherwise consents (which consent may not be unreasonably withheld, conditioned or delayed), we are required to conduct our business in the ordinary course of business consistent with past practice and in compliance in all material respects with applicable laws and permits and to use commercially reasonable efforts to preserve intact our business organization and relationships with third parties and to keep available the services of our present officers and employees. In addition, we have agreed to refrain from taking certain other actions set forth in the Merger Agreement. Our agreement to conduct our business in the ordinary course of business consistent with past practices may prohibit the Company from pursing certain other business opportunities or taking other actions which may be beneficial to the Company. The failure to pursue such business opportunities or to take such actions during the pendency of the Merger may negatively affect our results of operations.

Lawsuits have been filed and other lawsuits may be filed against the Company and Aetna challenging the Merger. An adverse ruling in any such lawsuit may prevent the Merger from being completed.

In connection with the proposed Merger, several purported stockholders of Coventry have filed putative class action lawsuits in the Court of Chancery of the State of Delaware and Circuit Court for Montgomery County, Maryland. These lawsuits seek, amongst other things, injunctive relief prohibiting the defendants from completing the proposed Merger and other types of money damages, costs and attorneys' fees.

One of the conditions to completion of the Merger is the absence of any applicable law (including any order) being in effect that prohibits completion of the Merger. Accordingly, if a plaintiff is successful in obtaining an order prohibiting completion of the Merger, then such order may prevent the Merger from being completed, or from being completed within the expected timeframe.

In addition, the defense or settlement of any of these lawsuits or claims may adversely affect the combined company's business, financial condition or results of operations.

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Our business relationships may be subject to disruption due to uncertainty associated with the Merger.

Parties with which we do business may experience uncertainty associated with the Merger, including with respect to current and future business relationships with us. Our business relationships may be subject to disruption as customers, providers, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us. These disruptions could have an adverse effect on our business, financial condition, results of operations or prospects of our business. The adverse effect of such disruptions could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

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

The following table presents information about our purchases of our common shares during the quarter ended ~~September~~March 3031, ~~2012~~2013 (in thousands, except average price paid per share information):

	Total Number ofShares Purchased (1)	Average Price Paidper Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares That May Yet Be Purchased Under The Plan or Program(2)
July 1-31, 2012	—	$	—	—	7,182
January 1 - 31, 2013	4	$	46.19	—	6,537
August 1-31, 2012	11	$	35.44	—	7,182
February 1 - 28, 2013	2	$	46.15	—	6,537
September 1-30, 2012	26	$	41.56	—	7,182
March 1 - 31, 2013	8	$	45.85	—	6,537
Totals	3714	$	3945.7699	—	76,~~182~~537


⁽¹⁾	Includes shares purchased in connection with the vesting of restricted stock awards to satisfy employees’ minimum statutory tax withholding obligations.


⁽²⁾	These shares are under a stock repurchase program previously announced on December 20, 1999, as amended.

ITEM 3: Defaults Upon Senior Securities

Not Applicable.

ITEM 4: Mine Safety Disclosures

Not Applicable.

ITEM 5: Other Information

Not Applicable.

3326

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ITEM 6: Exhibits

Exhibit No.		Description of Exhibit
2.1		Agreement and Plan of Merger, dated as of August 19, 2012, among Aetna, Inc., Jaguar Merger Subsidiary, Inc. and Coventry Health Care, Inc. (Incorporated by reference to Exhibit 2.1 to Coventry Health Care, Inc.'s Form 8-K filed on August 20, 2012).
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made by Allen F. Wise, Chief Executive Officer and Chairman.
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made by Randy P. Giles, Executive Vice President, Chief Financial Officer and Treasurer.
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, made by Allen F. Wise, Chief Executive Officer and Chairman, and Randy P. Giles, Executive Vice President, Chief Financial Officer and Treasurer.
101		The following financial statements from Coventry Health Care, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2012~~2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		COVENTRY HEALTH CARE, INC.
		(Registrant)
Date:	~~November~~May 51, ~~2012~~2013	By: /s/ Allen F. Wise
		Allen F. Wise
		Chief Executive Officer and Chairman
Date:	~~November~~May 51, ~~2012~~2013	By: /s/ Randy P. Giles
		Randy P. Giles
		Executive Vice President, Chief Financial Officer and Treasurer
Date:	~~November~~May 51, ~~2012~~2013	By: /s/ John J. Ruhlmann
		John J. Ruhlmann
		Senior Vice President and Corporate Controller

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INDEX TO EXHIBITS

Exhibit No.		Description of Exhibit
2.1		Agreement and Plan of Merger, dated as of August 19, 2012, among Aetna, Inc., Jaguar Merger Subsidiary, Inc. and Coventry Health Care, Inc. (Incorporated by reference to Exhibit 2.1 to Coventry Health Care, Inc.'s Form 8-K filed on August 20, 2012).
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made by Allen F. Wise, Chief Executive Officer and Chairman.
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 made by Randy P. Giles, Executive Vice President, Chief Financial Officer and Treasurer.
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, made by Allen F. Wise, Chief Executive Officer and Chairman, and Randy P. Giles, Executive Vice President, Chief Financial Officer and Treasurer.
101		The following financial statements from Coventry Health Care, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2012~~2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

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