Use these links to rapidly review the document
TABLE OF CONTENTS

Table of Contents

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

---

FORM 10-Q

Commission file number: 001-35149

---

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

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

(914) 934-5200
(Registrant's telephone number, including area code)

---

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

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

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

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

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

   

---

Table of Contents

TABLE OF CONTENTS

---

Table of Contents

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

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

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

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

2

---

Table of Contents

PART I

ITEM 1—FINANCIAL STATEMENTS

        

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

   

See Notes to unaudited Consolidated Financial Statements.

3

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

   

See Notes to unaudited Consolidated Financial Statements.

4

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

   

See Notes to unaudited Consolidated Financial Statements.

5

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)

   

See Notes to unaudited Consolidated Financial Statements.

6

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

   

See Notes to unaudited Consolidated Financial Statements.

7

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND COMPANY BACKGROUND

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

        Universal American is a specialty health and life insurance holding company with an emphasis on providing a broad array of health insurance and managed care products and services to people covered by Medicare and Medicaid. Collectively, our health plans and insurance company subsidiaries are licensed in all fifty states and in the District of Columbia and authorized to sell Medicare Advantage products, life, accident and health insurance and annuities and to provide comprehensive medical services through Medicaid.

        Through our Medicare Advantage subsidiaries, we sell Medicare Coordinated Care Plan products in Texas, which we call HMOs, and sell Medicare Coordinated Care products in New York and Maine that are built around contracted networks of providers, which we call PPOs and Medicare Advantage private fee-for-service products, known as PFFS Plans. Our Medicare Advantage plans currently serve approximately 106,600 members, including 66,400 members in our Texas HMOs and 40,200 members in upstate New York and Maine.

        Our subsidiary, Collaborative Health Systems, LLC, also known as CHS, works with physicians and other healthcare professionals to operate Accountable Care Organizations, or ACOs, under the Medicare Shared Savings Program ("Shared Savings Program"). During the first quarter of 2015, we added one new ACO. As of September 30, 2015, we had twenty-four active ACOs in eleven states previously approved for participation in the program by the Centers for Medicare & Medicaid Services, known as CMS. Based on data provided by CMS, these ACOs currently include approximately 3,200 participating providers with approximately 280,000 assigned Medicare fee-for-service beneficiaries, both within and outside our current Medicare Advantage footprint. CHS provides these ACOs with care coordination, analytics and reporting, technology and other administrative capabilities to enable participating providers to deliver better care and lower healthcare costs for their Medicare fee-for-service beneficiaries. The Company provides funding to CHS to support the operating activities of CHS and the ACOs.

        We operate the Total Care Medicaid managed care plan which provides Medicaid managed care services in upstate New York, currently serving approximately 39,500 members in Syracuse and surrounding areas.

        We discontinued marketing and selling Traditional insurance products, consisting of Medicare supplement products, fixed benefit accident and sickness insurance and senior life insurance after June 1, 2012. However, we continue to manage the block as the policies remain in force over the renewal period. On October 8, 2015, we entered into a definitive agreement to sell our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. For further discussion of this transaction, see Note 12—Subsequent Events.

        On May 1, 2015, we sold our APS Healthcare domestic subsidiaries and we sold our APS Healthcare Puerto Rico subsidiaries on February 4, 2015. The operating results of APS Healthcare for the current period and all historical periods presented have been reclassified as discontinued operations in our consolidated financial statements. See Note 11—Discontinued Operations for further details.

8

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2. BASIS OF PRESENTATION

        We have prepared the accompanying Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, for interim reporting in accordance with Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, the Consolidated Financial Statements do not include all of the disclosures normally required by U.S. GAAP or those normally made in an Annual Report on Form 10-K. For our insurance and HMO subsidiaries, U.S. GAAP differs from statutory accounting practices prescribed or permitted by regulatory authorities. We have eliminated all material intercompany transactions and balances. The interim financial information in this report is unaudited, but in the opinion of management, includes all adjustments, including normal, recurring adjustments necessary to present fairly the financial position and results of operations for the periods reported. The results of operations for the three and nine months ended September 30, 2015 and 2014 are not necessarily indicative of the results to be expected for the full year.

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

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

        On July 30, 2015, CMS informed us that our 23 Medicare Shared Savings Program, or MSSP, ACOs which were active in 2014, generated $80 million in gross savings for program year 2014. This compares to $66 million in gross savings for 2012/2013, the first program period of the MSSP, which comprised up to 21 months and which we reported in the third quarter of 2014. For these 23 ACOs, the results showed that:

•

9 ACOs, serving more than 105,000 Medicare beneficiaries, including our flagship ACO in Houston, qualified for shared savings totaling $26.9 million. This compares to $20.4 million in shared savings paid to ACOs for the first program year 2012/2013, which was longer. Our share of these payments, recorded in the 2nd quarter of 2015, after payments to our physician partners

9

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2. BASIS OF PRESENTATION (Continued)

of $6.0 million, increased to $20.9 million, which is reflected in equity in (losses) earnings of unconsolidated subsidiaries in our consolidated statements of operations. We received these payments during October 2015.

•

8 additional ACOs achieved savings but did not exceed the Minimum Savings Rate, known as MSR. Of those eight, four missed the MSR by less than 1%.



•

Quality scores improved for all ACOs, which indicates improved healthcare management particularly for our chronically ill beneficiaries.

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

        Reclassifications:    In accordance with the provisions of Accounting Standards Codification, known as ASC, 205-20, Presentation of Financial Statements—Discontinued Operations, effective with the sale of the APS Healthcare domestic operations on May 1, 2015, the results of operations and cash flows related to our APS Healthcare business are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and presented separately in our consolidated balance sheets. Unless otherwise noted, all disclosures in the notes accompanying our consolidated financial statements reflect only continuing operations.

        As a result of the growth of our ACOs and Total Care, effective with the filing of our December 31, 2014 Annual Report on Form10-K/A, we have modified the way we manage and report our business. Our Medicare Advantage and Traditional Insurance segments remain unchanged; however, we have split our ACO and Total Care businesses from the Corporate & Other segment to form two new segments—Management Services Organization, or MSO, and Medicaid, respectively. We will continue to report the activities of our holding company and other ancillary operations in our Corporate & Other segment. For segment reporting, we have made reclassifications to conform prior period amounts to the current period presentation.

        Significant Accounting Policies:    For a description of existing significant accounting policies, see Note 3—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2014 and Note 3—Recently Issued and Pending Accounting Pronouncements herein.

10

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

3. RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

        Business Combinations:    In September 2015, the Financial Accounting Standards Board issued Accounting Standards Update, known as ASU, 2015-16, Business Combinations—Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination and instead requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

        ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and is to be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. We will adopt this ASU, on January 1, 2016. This guidance is not expected to have a material impact on our financial position, results of operations or cash flows in future periods.

        Debt Issue Costs—Presentation:    In August 2015, the Financial Accounting Standards Board issued ASU 2015-15, Interest—Imputation of Interest—Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This guidance expands on ASU 2015-03 to address reporting of debt issuance costs incurred in connection with establishing a line of credit, allowing an entity to defer and present such costs as an asset to be amortized ratably over the term of the line of credit. Adoption of ASU 2015-15 will not have a material impact on our financial position, results of operations or cash flows in future periods.

        Revenue from Contracts with Customers:    In August 2015, the Financial Accounting Standards Board issued ASU 2015-14, Revenue from Contracts with Customers—Deferral of the Effective Date, which delays the implementation of ASU 2014-09, Revenue from Contracts with Customers, by one year. Implementation is now required in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We do not expect the adoption of either ASU to have a material impact on our financial position, results of operations or cash flows in future periods.

11

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS

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

 

        At September 30, 2015, gross unrealized losses were primarily driven by corporate securities and foreign debt securities and mortgage backed securities. The fair values of these securities are depressed primarily due to increases in market interest rates driven by spread widening on corporate debt. We have evaluated these holdings with our investment managers and do not believe any individual holdings to be other-than-temporarily impaired. For additional information regarding our process for evaluating investments for potential other-than-temporary impairment see Note 3—Summary of Significant Accounting Policies—Investments of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2014.

        The amortized cost and fair value of fixed maturity investments at September 30, 2015 by contractual maturity are shown below. Expected maturities will differ from contractual maturities

12

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS (Continued)

because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

        The fair value and unrealized loss as of September 30, 2015 and December 31, 2014 for fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below:

13

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4. INVESTMENTS (Continued)

Realized Gains and Losses

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

14

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5. FAIR VALUE MEASUREMENTS

        We carry fixed maturity investments and equity securities at fair value in our Consolidated Financial Statements. These fair value disclosures consist of information regarding the valuation of these financial instruments followed by the fair value measurement disclosure requirements of Fair Value Measurements and Disclosures Topic, ASC 820-10. For further discussion, see Note 7—Fair Value Measurements included in our Annual Report on Form 10-K/A for the year ended December 31, 2014.

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

 

        The following table provides a summary of changes in the recurring fair value measurement of our Level 3 financial instruments (in thousands):

 

15

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6. ACCUMULATED OTHER COMPREHENSIVE INCOME

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

16

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. STOCK-BASED COMPENSATION

        In April 2011, we established the Universal American Corp. 2011 Omnibus Equity Award Plan, known as the 2011 Equity Plan. The 2011 Equity Plan is the sole active plan for providing equity compensation to eligible employees, directors and other third parties. We issue shares upon the exercise of options granted under the 2011 Equity Plan. Detailed information for activity in our stock-based incentive plan can be found in Note 19—Stock-Based Compensation in our Annual Report on Form 10-K/A for the year ended December 31, 2014.

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

Stock Option Awards

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

17

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. STOCK-BASED COMPENSATION (Continued)

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

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

        A summary of option activity for the nine months ended September 30, 2015 is set forth below:

        The total intrinsic value of stock options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised was $3.4 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively.

        As of September 30, 2015, the total compensation cost related to non-vested option awards not yet recognized was $4.1 million, which we expect to recognize over a weighted average period of 2.3 years.

Restricted Stock Awards

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

18

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. STOCK-BASED COMPENSATION (Continued)

        A summary of non-vested restricted stock award activity for the nine months ended September 30, 2015 is set forth below:

        The fair value of restricted stock vested during the nine months ended September 30, 2015 was $8.1 million.

Tax Benefits of Stock-Based Compensation

        ASC 718-10 requires us to report the benefits of tax deductions in excess of recognized compensation cost of equity awards as a financing cash flow. We recognized $0.1 million and ($0.7) million of financing cash flows for these excess tax deductions for the nine months ended September 30, 2015 and 2014, respectively.

8. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

        On October 22, 2013, we filed a lawsuit in the United States District Court for the District of Delaware against funds affiliated with the private equity firm GTCR, known as GTCR, David Katz, a former managing director of GTCR, and former senior management of APS Healthcare (Gregory Scott, Jerome Vaccaro and John McDonough, all such defendants, collectively, the "Defendants"). The lawsuit, which alleges securities fraud, multiple material breaches of contract and common law fraud, seeks substantial damages, including punitive damages. The lawsuit arises out of our acquisition of APS Healthcare from GTCR in March 2012. The Defendants filed a motion to dismiss the complaint. In a decision issued on July 24, 2014, the court denied the motion with respect to the breach of contract claim. The court granted the motion with respect to the securities fraud claims and portions of the common law fraud claims on the ground that they did not provide enough detail about each

19

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. COMMITMENTS AND CONTINGENCIES (Continued)

Defendant's specific role in the alleged fraud. On September 22, 2014, the Company filed an Amended Complaint to provide additional details regarding each Defendant's role in the alleged fraud. We are awaiting a decision from the court on the Defendant's motion to dismiss.

Government Regulations

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

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

9. BUSINESS SEGMENT INFORMATION

        As a result of the growth of our ACOs and the acquisition of Total Care, effective with the filing of our December 31, 2014 Annual Report on Form 10-K/A, we have modified the way we manage and report our business. Our Medicare Advantage and Traditional Insurance segments remain unchanged; however, we have split our ACO and Total Care businesses from the Corporate & Other segment to form two new segments—MSO and Medicaid, respectively.

        As of September 30, 2015 our business segments are based on product and consist of:

•

Medicare Advantage;



•

MSO;

20

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. BUSINESS SEGMENT INFORMATION (Continued)

•

Medicaid; and



•

Traditional Insurance.

        Our remaining segment, Corporate & Other, reflects the activities of our holding company, our prior participation in the New York Health Benefits Exchange, known as the Exchange, and other ancillary operations. Effective January 1, 2015, we are no longer participating in the Exchange.

        We report intersegment revenues and expenses on a gross basis in each of the operating segments but eliminate them in the consolidated results. These intersegment revenues and expenses affect the amounts reported on the individual financial statement line items, but we eliminate them in consolidation and they do not change income before taxes. The most significant items eliminated are intersegment revenue and expense relating to commissions earned by agency subsidiaries in our Medicare Advantage segment from insurance subsidiaries in our Traditional segment and interest on intercompany loans which cross segments.

        Financial data by segment, with a reconciliation of segment revenues and segment income (loss) before income taxes to total revenue and income before income taxes in accordance with U.S. GAAP is as follows:

21

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9. BUSINESS SEGMENT INFORMATION (Continued)

10. OTHER DISCLOSURES

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

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

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

22

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. OTHER DISCLOSURES (Continued)

        For the three and nine months ended September 30, 2015, due to the significance of permanent differences compared to projected pre-tax income for 2015, we determined our income tax provision using actual year-to-date financial results from continuing operations. In the first and second quarters of 2015, we used the estimated annual effective tax rate to determine our income tax provision. For the three and nine months ended September 30, 2014, we determined our income tax provision using actual year-to-date financial results.

        For the quarter ended September 30, 2015, our effective tax rate on continuing operations was 92.6%, resulting in an income tax provision of $14.2 million. For the same period in 2014, our effective tax rate on continuing operations exceeded 100%, resulting in an income tax provision of $4.5 million. The high effective tax rates in both periods were driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates.

        For the nine months ended September 30, 2015, our effective tax rate on continuing operations was 54.1%, resulting in an income tax provision of $10.9 million. For the same period in 2014, our effective tax rate from continuing operations exceeded (100%) resulting in an income tax provision of $8.7 million. For the nine months ended September 30, 2015, the tax provision included $5.1 million in foreign tax credit carryforwards created in connection with the February 2015 sale of APS Puerto Rico. Utilization of this tax benefit is the result of sufficient income from continuing sources; therefore, it is included in continuing operations. Excluding the foreign tax credit carryforwards, the effective tax rate was 79.6%. For the nine months ended September 30, 2014, the tax effect of permanent differences exceeded the tax benefit of our loss from continuing operations, resulting in income tax expense. The high effective tax rates in both periods were driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates.

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

        In September 2014, the Internal Revenue Service issued final regulations on the ACA's executive compensation deduction limitation for health insurance providers under Code section 162(m)(6), which provided additional information regarding the definition of a health insurance issuer. Based on our analysis of the final regulations, we no longer believe we are subject to the limitation. As a result, during the fourth quarter of 2014, we stopped treating this as a non-deductible expense and recorded a tax benefit related to amounts previously considered non-deductible. Income tax provision (benefit) for the three and nine months ended September 30, 2014 included $0.5 million and $1.7 million, respectively, related to such costs. There is a risk that the Internal Revenue Service or other regulators may disagree with our interpretation, which could result in higher taxes.

23

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. OTHER DISCLOSURES (Continued)

        Restructuring Charges:    A summary of our restructuring liability balance as of September 30, 2015 follows:

        During 2015, we recorded a restructure charge of $5.6 million related to the sale of our APS Healthcare domestic business. In connection with the sale, we retained certain office space which we have exited and certain Managed Behavioral Health, known as MBH, contracts which we have terminated and are operating at a loss as the business runs off. Our restructure charge for facilities represents the estimated costs to close the facilities, including lease buyout costs and rent costs, net of estimated sublease revenue, on non-cancellable leases prior to termination. The related leases run through 2021. The charge related to the MBH contracts represents the estimated operating losses on the terminated contracts through the end of the contractual period, March 31, 2016. We expect no additional charges under this APS Healthcare restructuring initiative. For further discussion of our past restructuring initiatives, see Note 22—Other Operational Disclosures—Restructuring Charges in our Annual Report on Form 10-K/A for the year ended December 31, 2014.

        Loan Payable:    On October 9, 2015, we executed an amendment to our 2012 Credit Facility, known as the Facility, which waived certain financial covenants for the period ended September 30, 2015. In addition, on October 14, 2015, we repaid the outstanding balance on our term loan of $44.9 million and terminated the Facility, including the unused revolver. See Note 12—Subsequent Events, for additional information. As of September 30, 2015, we were in compliance with our financial covenants under the 2012 Credit Facility.

24

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. OTHER DISCLOSURES (Continued)

        On March 31, 2015, we repaid $58.6 million of principal on our term loan under the Facility. During the three and nine months ended September 30, 2015, we made interest payments totaling $0.3 million and $1.3 million and other fee payments totaling $0.1 million and $0.4 million, respectively.

        During 2014, we were not required to make any principal payments as all scheduled 2014 principal payments, totaling $14.3 million, were prepaid in 2013, in connection with the amendment of our credit facility on November 4, 2013. During the three and nine months ended September 30, 2014, we made interest payments totaling $0.5 million and $1.9 million and other fee payments totaling $0.1 million and $0.4 million, respectively.

        Unconsolidated Subsidiaries:    We account for our participation in the ACOs using the equity method. Gains and losses from our participation in the ACOs are reported as equity in (losses) earnings of unconsolidated subsidiaries in the consolidated statements of operations. Our net investment in the ACOs is reported in other assets in the consolidated balance sheets. We recognized equity in losses of our unconsolidated ACOs of $7.4 million and $1.1 million for the three and nine months ended September 30, 2015, respectively, and $5.2 million of income and $10.4 million of losses for the three and nine months ended September 30, 2014, respectively.

        During 2015 and 2014, we recognized our portion of ACO shared savings revenue when notified by CMS. Such notification lags the Program Year to which the revenue relates by six to nine months. Revenue from the initial 2012/2013 Program Year, which ended on December 31, 2013, was recorded in the quarter ended September 30, 2014 and revenue for the 2014 Program Year, which ended on December 31, 2014, was recorded in the quarter ended June 30, 2015. Following is a summary of shared savings revenue included in equity in (losses) earnings of our unconsolidated ACOs for the program years indicated:

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

25

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. OTHER DISCLOSURES (Continued)

        For additional information on our ACOs, see Note 1—Organization and Company Background and Note 2—Basis of Presentation.

        Earnings Per Common Share Computation:    Under ASC 260, Earnings Per Share, income (loss) from continuing operations is the trigger for determining whether potential common stock equivalents are dilutive or anti-dilutive when calculating diluted earnings per share. Universal American has income from continuing operations for the three and nine months ended September 30, 2015 and accordingly, included the effect of dilutive securities in calculating diluted earnings per share for those periods. For the three and nine months ended September 30, 2014, Universal American had losses from continuing operations and accordingly, excluded common stock equivalents of 0.8 million and 0.5 million, respectively, from the calculation of diluted earnings per share for those periods.

11. DISCONTINUED OPERATIONS

        On February 4, 2015, we sold our APS Healthcare Puerto Rico subsidiaries to an affiliate of the Metro Pavia Health System. APS Puerto Rico provided managed behavioral health services under the Government Health Plan Medicaid program under a contract that terminated on March 31, 2015 and had $151 million of revenue in 2014. The purchase price at closing was $26.5 million, which was settled in cash. The transaction resulted in a pre-tax realized loss of approximately $0.4 million. The transaction also generated an additional foreign tax credit carryforward of $5.1 million that has been recorded as a deferred tax asset.

        On May 1, 2015, we sold our remaining APS Healthcare operating subsidiaries to KEPRO, Inc., a company that provides quality improvement and care management services to both government clients and the private sector. The purchase price was $5.0 million, which was settled in cash at closing, subject to a working capital true up, which was finalized during the quarter ended September 30, 2015. In addition, the transaction includes a potential earn-out of up to an additional $19.0 million based on certain contract renewals. Due to the variability in the length of time over which the contract renewals may occur and the difficulty of estimating the success of such renewals, we consider the potential earn-out to be a contingent gain which will be recorded only if and when we determine it to be realizable. At September 30, 2015 no portion of the potential earn-out met the criteria to be accrued as a contingent gain. The transaction resulted in a pre-tax realized loss of $16.9 million, including the working capital true up.

        In connection with the sales of the APS businesses, we agreed to provide certain support services to the buyers under a transition services agreement, or TSA, until they can assume the responsibilities directly. During the three and nine months ended September 30, 2015, we provided support under the TSA agreements and recognized fee income of $1.2 million and $2.9 million, respectively.

        Effective with the sale of our APS Healthcare businesses as discussed above, in accordance with ASC 205-20 Presentation of Financial Statements—Discontinued Operations, the results of operations and cash flows related to APS Healthcare are reported as discontinued operations for all periods presented. In addition, the related assets and liabilities have been segregated from the assets and liabilities related to our continuing operations and are presented separately in our consolidated balance sheets as of September 30, 2015 and December 31, 2014, respectively.

26

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. DISCONTINUED OPERATIONS (Continued)

        Summarized financial information for our discontinued operations for the three and nine month periods ended September 30 is presented below:

27

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. DISCONTINUED OPERATIONS (Continued)

        Total assets and liabilities of discontinued operations are as follows:

12. SUBSEQUENT EVENTS

        Sale of Traditional Insurance Business:    On October 8, 2015, we entered into a definitive agreement to sell our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. ("Nassau"). Our Traditional Insurance business includes Medicare Supplement, Long Term Care, Disability, Life, and other ancillary insurance products, all of which have been in run-off since 2012.

        Under the terms of the agreement, Nassau will acquire Constitution Life Insurance Company and The Pyramid Life Insurance Company, and reinsure the Traditional Insurance business written by American Progressive Life & Health Insurance Company of New York through a 100% quota share coinsurance agreement. The purchase price is approximately $43 million, subject to adjustments based on actual capital and surplus of Constitution and Pyramid at closing, compared to the target statutory capital and surplus of $68.5 million. We will also be entitled to receive potential earn-out payments through June 30, 2018 that may result in additional payments of between $13 million and $24 million. The transaction is estimated to generate an after-tax GAAP loss of approximately $150 million, including the write-off of approximately $53 million in intangible assets. Statutory capital and surplus at Constitution and Pyramid at September 30, 2015 is estimated to be approximately $58 million. However, actual statutory capital and surplus will change between now and closing as a result of the experience of the business and the effect of our reserve sufficiency testing that is performed in the fourth quarter, and such change could result in materially lower or higher actual statutory capital and surplus and impact the ultimate GAAP loss recognized for the sale. The closing of the agreement is

28

---

Table of Contents

UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. SUBSEQUENT EVENTS (Continued)

expected in early 2016 subject to customary closing conditions, including regulatory approval from the Texas, Kansas and New York insurance departments.

        Special Cash Dividend:    On October 26, 2015, we paid a special cash dividend of $0.75 per share, to shareholders of record on October 19, 2015.

        A portion of the dividend will be a Qualified Dividend and a portion will be a Return of Capital which reduces the holder's basis in their Universal American stock. The actual breakdown will be determined in the first quarter of 2016.

        Repayment of Debt:    On October 14, 2015, we repaid the outstanding balance on our term loan of $44.9 million and terminated our credit facility, including the unused revolver. In connection with the termination of the credit facility, during the fourth quarter we also wrote off the unamortized balance of related deferred loan origination fees of $0.8 million.

29

---

Table of Contents

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

Introduction

        The following discussion and analysis presents a review of our financial condition as of September 30, 2015 and our results of operations for the three and nine months ended September 30, 2015 and 2014. As used in this quarterly report, except as otherwise indicated, references to the "Company," "Universal American," "we," "our," and "us" are to Universal American Corp., a Delaware corporation and its subsidiaries.

        You should read the following analysis of our consolidated results of operations and financial condition in conjunction with the consolidated financial statements and related consolidated footnotes included elsewhere in this Quarterly Report on Form 10-Q as well as the Consolidated Financial Statements and related consolidated footnotes and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K/A for the year ended December 31, 2014. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from management's expectations. Factors that could cause such differences include those set forth or incorporated by reference in our Annual Report on Form 10-K/A for the year ended December 31, 2014 filed on March 31, 2015 under Part II, Item 1A—Risk Factors.

Overview

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

•

Medicare Advantage:  We serve the growing Medicare population by providing Medicare Advantage products to approximately 107,000 members as of September 30, 2015. Approximately 31% of the Medicare population in the United States is currently enrolled in Medicare Advantage plans; a type of Medicare health plan offered by private companies that contract with the federal government to provide enrollees with health insurance. Our current focus is to grow our Medicare Advantage business in Texas (primarily Houston/Beaumont), upstate New York (primarily the Syracuse area) and Maine, regions in which we have meaningful market positions.



•

Management Services Organization (MSO):  We believe there is an opportunity to address the high cost of health care for the majority of the Medicare population enrolled in traditional fee-for-service Medicare and have joined predominantly with primary-care and multi-specialty provider groups to operate twenty-four Accountable Care Organizations, or ACOs, pursuant to the Medicare Shared Saving Program, known as the MSSP.



•

Medicaid:  We provide Medicaid products to approximately 39,500 members in upstate New York through our Total Care Medicaid Health Plan.

        We also operate our Traditional Insurance segment, which includes Medicare Supplement, Long Term Care, Disability, Life, and other ancillary insurance products, all of which have been in run-off since 2012.

Recent Developments

        Sale of Traditional Insurance Business:    On October 8, 2015, we entered into a definitive agreement to sell our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. For further

30

---

Table of Contents

discussion of this transaction, see Note 12—Subsequent Events in the Notes to Consolidated Financial Statements.

        Special Cash Dividend:    On October 26, 2015, we paid a special cash dividend of $0.75 per share to shareholders of record on October 19, 2015. For further discussion of this transaction, see Note 12—Subsequent Events in the Notes to Consolidated Financial Statements.

        Repayment of Debt:    On October 14, 2015, we repaid the outstanding balance on our term loan of $44.9 million and terminated our credit facility, including the unused revolver. For further discussion of this transaction, see Note 12—Subsequent Events in the Notes to Consolidated Financial Statements.

        ACO Revenue—On July 30, 2015, the Centers for Medicare & Medicaid Services, known as CMS, informed us that our 23 MSSP ACOs which were active in 2014, generated $80 million in gross savings for program year 2014. This compares to $66 million in gross savings for 2012/2013, the first program period of the MSSP, which comprised up to 21 months and which we reported in the third quarter of 2014. For these 23 ACOs, the results showed that:

•

9 ACOs, serving more than 105,000 Medicare beneficiaries, including our flagship ACO in Houston, qualified for shared savings totaling $26.9 million. This compares to $20.4 million in shared savings paid to ACOs for the first program year 2012/2013, which was longer. Our share of these payments, recorded in the 2nd quarter of 2015, after payments to our physician partners of $6.0 million increased to $20.9 million, which is reflected in equity in (losses) earnings of unconsolidated subsidiaries in our consolidated statements of operations. We received these payments during October 2015.



•

8 additional ACOs achieved savings but did not exceed the Minimum Savings Rate, known as MSR. Of those eight, four missed the MSR by less than 1%.



•

Quality scores improved for all ACOs, which indicates improved healthcare management particularly for our chronically ill beneficiaries.

        On June 4, 2015, CMS issued the final MSSP rule for program years beginning in 2016. We believe that the new rule will enhance the success of the MSSP program in general and our ACOs in particular.

31

---

Table of Contents

Membership/Beneficiaries

        The following table presents our membership/beneficiaries in our three main businesses:

Results of Operations—Consolidated Overview

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

32

---

Table of Contents

Three months ended September 30, 2015 and 2014

        Income from continuing operations for the quarter ended September 30, 2015 was $1.1 million, or $0.01 per diluted share, compared to a loss from continuing operations of $3.2 million, or $0.04 per diluted share, for the quarter ended September 30, 2014.

        Our Medicare Advantage segment generated a loss before income taxes of $0.1 million for the quarter ended September 30, 2015; a decrease of $5.4 million compared to the quarter ended September 30, 2014. The decrease in earnings was driven primarily by higher utilization in our Northeast markets, a decrease in favorable prior period items and lower net investment income, partially offset by a decrease in commissions and general expense levels driven by our cost reduction initiatives and lower membership. The quarter ended September 30, 2015, included $3.3 million of net unfavorable prior period items compared to $3.7 million favorable items for the quarter ended September 30, 2014.

        Our MSO segment, which includes the operations of our ACOs, generated a loss before income taxes of $9.3 million for the quarter ended September 30, 2015, compared with income of $3.2 million in the same period of 2014, a decrease in earnings of $12.5 million. In 2014, we recognized program year 2012/2013 shared savings revenue of $13.4 million in the third quarter, while in 2015, we recognized program year 2014 shared savings revenue in the second quarter. Operating expenses for the quarter were $9.3 million compared to $10.2 million for the quarter ended September 30, 2014, reflecting fewer active ACOs in 2015.

        Our Medicaid segment generated income before income taxes of $0.5 million for the three months ended September 30, 2015 compared to $0.1 million for the quarter ended September 30, 2014. This increase was primarily due to an increase in net premiums as a result of higher state reimbursement rates, partially offset by an increase in operating expenses.

        Our Traditional Insurance segment generated income before taxes of $1.8 million for the quarter ended September 30, 2015, an increase of $1.9 million compared to the same period in 2014. The increase in earnings is primarily driven by the reduction of operating expenses.

        Our Corporate & Other segment reported a loss of $7.4 million for the three months ended September 30, 2015 compared to a loss of $6.4 million in the same period in 2014. This was primarily due to decreased net investment income and reduced recoveries on previously written off agent balances, partially offset by lower corporate expenses and the discontinuation of our New York Exchange business.

        Net realized gains for the quarter ended September 30, 2015 included a $29.6 million gain on the sale of our cost-method minority investment in naviHealth.

        For the quarter ended September 30, 2015, our effective tax rate on continuing operations was 92.6%, resulting in an income tax provision of $14.2 million. For the same period in 2014, our effective tax rate on continuing operations exceeded 100%, resulting in an income tax provision of $4.5 million. The high effective tax rates in both periods were driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates.

        Income from discontinued operations was $1.7 million and $1.2 million for the quarters ended September 30, 2015 and 2014, respectively. 2015 income included a working capital adjustment related to the sale of APS Healthcare's domestic business, which reduced the realized loss on this sale and also included a favorable return to provision adjustment related to the 2014 income tax return of the disposed businesses. 2014 income represents operating results of the disposed businesses. For further information on the sale of APS Healthcare's businesses, see Note 11—Discontinued Operations in the Notes to Consolidated Financial Statements.

33

---

Table of Contents

Nine months ended September 30, 2015 and 2014

        Income from continuing operations for the nine months ended September 30, 2015 was $9.2 million, or $0.11 per diluted share, compared to a loss from continuing operations of $13.1 million, or $0.15 per diluted share, for the nine months ended September 30, 2014.

        Our Medicare Advantage segment generated income before income taxes of $18.6 million for the nine months ended September 30, 2015; a decrease of $24.5 million compared to the nine months ended September 30, 2014. The decrease in earnings was driven by higher utilization in our Northeast markets, expected lower membership, as we exited non-core markets, a decrease in favorable prior period items and lower net investment income, partially offset by a decrease in commissions and general expense levels driven by our cost reduction initiatives and lower membership. The nine months ended September 30, 2015, included $6.2 million of net favorable prior period items compared to $28.2 million favorable items for the nine months ended September 30, 2014.

        Our MSO segment generated a loss before income taxes of $9.4 million for the nine months ended September 30, 2015 compared to a loss of $19.9 million in the same period of 2014, an improvement of $10.5 million. This improvement was driven by a $7.5 million increase in shared savings revenue, as nine of our ACOs qualified for shared savings in program year 2014, compared with three ACOs in program year 2012/2013. Operating expenses for the nine months ended September 30, 2015 were $30.3 million compared to $33.3 million for the nine months ended September 30, 2014, reflecting fewer active ACOs in 2015.

        Our Medicaid segment generated a loss before income taxes of $0.9 million for the nine months ended September 30, 2015 compared to income of $2.2 million for the nine months ended September 30, 2014. This decrease was primarily due to an increase in medical expenses caused by higher inpatient utilization and operating expenses, partially offset by an increase in net premiums due to higher state reimbursement rates,.

        Our Traditional Insurance segment generated income before taxes of $7.4 million for the nine months ended September 30, 2015, an increase of $4.2 million compared to the same period in 2014. The increase in earnings is primarily driven by the reduction of operating expenses.

        Our Corporate & Other segment reported a loss of $29.3 million for the nine months ended September 30, 2015 compared to a loss of $33.7 million in the same period in 2014. This was primarily due to lower corporate expenses, lower legal costs related to our non-core business, the discontinuation of our Exchange business and lower debt service costs.

        Net realized gains for the nine months ended September 30, 2015 included a $29.6 million gain on the sale of our cost-method minority investment in naviHealth.

        For the nine months ended September 30, 2015, our effective tax rate on continuing operations was 54.1%, resulting in an income tax provision of $10.9 million. For the same period in 2014, our effective tax rate from continuing operations exceeded (100%) resulting in an income tax provision of $8.7 million. For the nine months ended September 30, 2015, the tax provision included $5.1 million in foreign tax credit carryforwards created in connection with the February 2015 sale of APS Puerto Rico. Utilization of this tax benefit is the result of sufficient income from continuing sources; therefore, it is included in continuing operations. Excluding the foreign tax credit carryforwards, the effective tax rate was 79.6%. For the nine months ended September 30, 2014, the tax effect of permanent differences exceeded the tax benefit of our loss from continuing operations, resulting in income tax expense. The high effective tax rates in both periods were driven by permanent differences, primarily the non-deductible ACA Fee and non-deductible interest expense on our preferred stock. State income taxes also contributed to the variance in the effective tax rates.

34

---

Table of Contents

        Loss from discontinued operations was $11.6 million and $3.9 million for the nine months ended September 30, 2015 and 2014, respectively. 2015 included a realized loss of $17.3 million, pre-tax, on the sale of APS Healthcare's domestic and foreign businesses and also included a restructure charge of $5.6 million related to the shut down of facilities, run out of the retained MBH business and severance, as well as operating results for the period prior to the sale and a return to provision adjustment related to the 2014 income tax return of the disposed businesses. 2014 income represents operating results of the disposed businesses. For further information on the sale of APS Healthcare's businesses, see Note 11—Discontinued Operations and Note 10—Other Disclosures—Restructuring Charges in the Notes to Consolidated Financial Statements.

Segment Results—Medicare Advantage

        Our Medicare Advantage segment includes the operations of our Medicare coordinated care HMO, PPO and Network PFFS Plans (collectively known as the Plans. Our HMOs offer coverage to Medicare members primarily in Southeastern Texas (primarily Houston/Beaumont), and the Dallas/Ft. Worth area. For 2015, our PPO and Network PFFS Plans offer coverage primarily in upstate New York and Maine. Effective January 1, 2015, we exited non-core markets, resulting in a reduction in membership of approximately 22,600 members.

Three months ended September 30, 2015 and 2014

        Our Medicare Advantage segment generated a loss before income taxes of $0.1 million for the quarter ended September 30, 2015; a decrease of $5.4 million compared to the quarter ended September 30, 2014. The decrease in earnings was driven primarily by higher utilization in our Northeast markets, a decrease in favorable prior period items and lower net investment income, partially offset by a decrease in commissions and general expense levels driven by our cost reduction initiatives and lower membership. The quarter ended September 30, 2015, included $3.3 million of net unfavorable prior period items compared to $3.7 million favorable items for the quarter ended September 30, 2014.

        In the Northeast markets, where we had a 35% increase in membership during 2015, and now have more than 40,000 members with a large concentration in upstate New York, we recorded an increased Medical Benefit Ratio largely driven by higher utilization and a lag in adequate premium for new members. We are addressing both of these issues and believe that our 2016 bids adequately reflected our experience.

        Net premiums.    Net premiums for the Medicare Advantage segment decreased by $35.7 million for the quarter ended September 30, 2015 compared with the same period in 2014, primarily as a result of

35

---

Table of Contents

exiting non-core markets. In the Northeast markets, where we had a 35% increase in membership during 2015, we had a lag in adequate premium for new members, as discussed above. There were no prior period items recognized in Net premiums for the quarter ended September 30, 2015. Net premiums for the quarter ended September 30, 2014 included $1.4 million of favorable prior period items.

        Net investment and other income.    Net investment and other income decreased $2.1 million for the quarter ended September 30, 2015 primarily due to lower invested asset levels.

        Medical expenses.    Medical expenses decreased by $23.9 million for the quarter ended September 30, 2015 compared to the quarter ended September 30, 2014. The decrease was driven by our exit of non-core markets, offset by growth in our core markets, unfavorable prior period items and an increase in utilization in the Northeast markets, resulting in a Medicare Advantage medical benefit ratio of 88.0% for the quarter ended September 30, 2015 compared with 85.7% for the quarter ended September 30, 2014. Medical expenses for the quarter ended September 30, 2015 included $3.3 million of net unfavorable items related to prior periods, compared to $2.3 million of net favorable items related to prior periods for the quarter ended September 30, 2014.

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

        Adjusting for the prior year items discussed above in net premiums and medical expenses, for the quarter ended September 30, 2015, our medical benefit ratio MBR, excluding quality initiative costs, was 86.1%. Our medical benefit MBRs for the quarter ended September 30, 2015, as reported and recast to exclude prior year items, are summarized in the table below:

        ACA fee.    The ACA fee for the three months ended September 30, 2015 amounted to $6.4 million or 2.1% of 2015 net premiums compared to $5.8 million or 1.7% of net premiums for the same period in 2014. The ACA fee is based on prior year premiums and is included in the calculation of minimum medical loss ratios under the ACA. The increase in the ACA fee is due to the scheduled increase in the industry-wide total fee from $8.0 billion in 2014 to $11.3 billion in 2015. The 2015 ACA fee includes approximately $1.0 million related to 2014 premium in non-core markets that we exited in 2015. Excluding this amount, the 2015 ACA fee expense for continuing business was approximately 1.8% of 2015 net premiums.

        Commissions and general expenses.    Commissions and general expenses for the three months ended September 30, 2015 decreased $9.2 million compared to the same period in 2014, primarily due to cost reduction initiatives and net lower membership due to our exit of non-core markets. Our administrative

36

---

Table of Contents

expense ratio improved to 10.8% for the three months ended September 30, 2015 from 12.4% for the three months ended September 30, 2014 primarily as a result of our cost reduction efforts.

Nine months ended September 30, 2015 and 2014

        Our Medicare Advantage segment generated income before income taxes of $18.6 million for the nine months ended September 30, 2015; a decrease of $24.5 million compared to the nine months ended September 30, 2014. The decrease in earnings was driven by higher utilization in our Northeast markets, expected lower membership, as we exited non-core markets, a decrease in favorable prior period items and lower net investment income, partially offset by a decrease in commissions and general expense levels driven by our cost reduction initiatives and lower membership. The nine months ended September 30, 2015, included $6.2 million of net favorable prior period items compared to $28.2 million favorable items for the quarter ended September 30, 2014.

        In the Northeast markets where we had a 35% increase in membership during 2015, we recorded an increased Medical Benefit Ratio largely driven by higher utilization and a lag in adequate premium for new members. We are addressing both of these issues and believe that our 2016 bids adequately reflected our experience.

        Net premiums.    Net premiums for the Medicare Advantage segment decreased by $130.4 million for the nine months ended September 30, 2015 compared with the same period in 2014, primarily as a result of exiting non-core markets. In the Northeast markets, where we had a 35% increase in membership during 2015, we had a lag in adequate premium for new members, as discussed above. Net premiums for the nine months ended September 30, 2015 included $15.1 million of favorable prior period items compared to $14.6 million of favorable prior period items for the nine months ended September 30, 2014.

        Net investment and other income.    Net investment and other income decreased by $5.0 million for the nine months ended September 30, 2015 primarily due to lower invested asset levels.

        Medical expenses.    Medical expenses decreased by $85.5 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The decrease was driven by our exit of non-core markets, offset by growth in our core markets, unfavorable prior period items and an increase in utilization in the Northeast markets, resulting in a Medicare Advantage medical benefit ratio of 86.8% for the nine months ended September 30, 2015 compared with 84.2% for the nine months ended September 30, 2014. Medical expenses for the nine months ended September 30, 2015 included $8.9 million of net unfavorable items related to prior periods, compared to $13.6 million of net favorable items related to prior periods for the nine months ended September 30, 2014.

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

37

---

Table of Contents

        Adjusting for the prior year items discussed above in net premiums and medical expenses, for the nine months ended September 30, 2015, our medical benefit MBR, excluding quality initiative costs, was 84.8%. Our medical benefit MBRs for the nine months ended September 30, 2015, as reported and recast to exclude prior year items, are summarized in the table below:

        ACA fee.    The ACA fee for the nine months ended September 30, 2015 amounted to $19.1 million, or 2.1%, of 2015 net premiums compared to $17.3 million or 1.6% of net premiums for the same period in 2014. The ACA fee is based on prior year premiums and is included in the calculation of minimum medical loss ratios under the ACA. The increase in the ACA fee is due to the scheduled increase in the industry-wide total fee from $8.0 billion in 2014 to $11.3 billion in 2015. The 2015 ACA fee includes approximately $3.0 million related to 2014 premium in non-core markets that we exited in 2015. Excluding this amount, the 2015 ACA fee expense for continuing business was approximately 1.7% of 2015 net premiums.

        Commissions and general expenses.    Commissions and general expenses for the nine months ended September 30, 2015 decreased $27.1 million compared to the same period in 2014, primarily due to cost reduction initiatives and lower membership due to our exit of non-core markets. Our administrative expense ratio improved to 10.0% for the nine months ended September 30, 2015 from 11.3% for the nine months ended September 30, 2014 primarily as a result of our cost reduction efforts.

Segment Results—Management Services Organization

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

        Formerly included in our Corporate & Other segment, our MSO segment includes our CHS subsidiary, which collaborates with physicians and other healthcare professionals to operate ACOs under the MSSP. As of September 30, 2015 we sponsored twenty-four active ACOs in eleven states previously approved for participation in the program by CMS. Based on data provided by CMS, these ACOs currently include approximately 3,200 participating providers with approximately 280,000

38

---

Table of Contents

assigned Medicare fee-for-service beneficiaries, both within and outside our current Medicare Advantage footprint. CHS provides these ACOs with care coordination, analytics and reporting, technology and other administrative capabilities to enable participating providers to deliver better care and lower healthcare costs for their Medicare fee-for-service beneficiaries. We have determined that we cannot consolidate the ACOs and therefore, include our share of their operating results in Equity in (losses) earnings of unconsolidated subsidiaries on our Consolidated Statements of Operations. In the table above, we have presented our share of the results of the ACOs combined with the results of CHS to provide a better understanding of the results of operations.

        The MSSP is relatively new and therefore has limited historical experience. This impacts our ability to accurately accumulate and interpret the data available for calculating the ACOs' shared savings. Therefore, we were not able to recognize revenue for the year ended December 31, 2013 until we received the final settlement results from CMS in September 2014. Similarly, we were not able to recognize revenue for the year ended December 31, 2014 in the 2014 financial statements. Based on the ACO operating agreements, we bear all costs of the ACO operations until revenue is recognized. At that point, we generally have the right to receive 100% of subsequent profits until our losses are recovered. Any remaining revenue is generally shared equally with our ACO provider partners.

Three months ended September 30, 2015 and 2014

        Our MSO segment generated a loss before income taxes of $9.3 million for the quarter ended September 30, 2015, compared with income of $3.2 million in the same period of 2014, a decrease in earnings of $12.5 million. In 2014, we recognized program year 2012/2013 shared savings revenue of $13.4 million in the third quarter, while in 2015, we recognized program year 2014 shared savings revenue in the second quarter. Operating expenses for the quarter were $9.3 million compared to $10.2 million for the quarter ended September 30, 2014, reflecting fewer active ACOs in 2015.

Nine months ended September 30, 2015 and 2014

        Our MSO segment generated a loss before income taxes of $9.4 million for the nine months ended September 30, 2015, compared to a loss of $19.9 million in the same period of 2014, an improvement of $10.5 million. This improvement was driven by a $7.5 million increase in shared savings revenue, as nine of our ACOs qualified for shared savings in program year 2014, compared with three ACOs in program year 2012/2013. Operating expenses for the nine months ended September 30, 2015 were $30.3 million compared to $33.3 million for the nine months ended September 30, 2014, reflecting fewer active ACOs in 2015.

Segment Results—Medicaid

39

---

Table of Contents

        Our Medicaid segment includes the operations of our Total Care Medicaid health plan. Total Care provides Medicaid managed care services in three counties in upstate New York that overlap with our existing Medicare Advantage footprint. Roughly 80% of its members are located in Onondaga County, which includes the Syracuse, NY market. In addition to the Medicaid program, Total Care also participates in the Child Health Plus program for low-income, uninsured children.

Three months ended September 30, 2015 and 2014

        Our Medicaid segment generated income before income taxes of $0.5 million for the three months ended September 30, 2015 compared to $0.1 million for the quarter ended September 30, 2014. This increase was primarily due to an increase in net premiums as a result of higher state reimbursement rates, partially offset by an increase in operating expenses.

        Net premiums.    Net premiums increased by $2.1 million, or 5%, compared to the three months ended September 30, 2014 primarily as a result of an increase in state reimbursement rates, including a 2015 rate adjustment that was retroactive to April 1, 2015 and a change in mix of business, partially offset by lower membership. Net premium includes state reimbursement for premium tax and the ACA fee. The state reimbursement for the ACA fee increased significantly in 2015, consistent with the increase in ACA fee expense discussed below.

        Medical expenses.    Medical expenses increased by $0.1 million, or less than 1% compared to the three months ended September 30, 2014 with higher claims costs substantially offset by lower membership.

        ACA fee.    The ACA fee for the three months ended September 30, 2015 increased by $0.8 million. The ACA fee is based on prior year premium. The 2014 ACA fee was based on Total Care's 2013 premium since December 1, 2013, the date of acquisition, while the 2015 ACA fee is based on Total Care's premium for the year ended December 31, 2014.

        Commissions and general expenses.    Commissions and general expenses increased $0.8 million compared to the three months ended September 30, 2014, primarily due to increased technology and personnel costs. Our administrative expense ratio was 8.5% and 7.1% for the three months ended September 30, 2015 and 2014, respectively.

Nine months ended September 30, 2015 and 2014

        Our Medicaid segment generated a loss before income taxes of $0.9 million for the nine months ended September 30, 2015 compared to income of $2.2 million for the nine months ended September 30, 2014. This decrease was primarily due to an increase in medical expenses caused by increased inpatient utilization and operating expenses, partially offset by an increase in net premiums due to higher state reimbursement rates.

        Net premiums.    Net premiums increased by $11.2 million, or 9%, compared to the nine months ended September 30, 2014 primarily as a result of an increase in state reimbursement rates, higher member months and a change in mix of business. Net premium includes state reimbursement for premium tax and the ACA fee. The state reimbursement for the ACA fee increased significantly in 2015, consistent with the increase in ACA fee expense discussed below.

        Medical expenses.    Medical expenses increased by $10.3 million, or 9% compared to the nine months ended September 30, 2014. The increase was driven by higher claims costs, caused primarily by inpatient utilization, and unfavorable development as well as higher membership, resulting in a medical benefit ratio of 90.1% for the nine months ended September 30, 2015 compared with 89.9% for the nine months ended September 30, 2014.

40

---

Table of Contents

        ACA fee.    The ACA fee for the nine months ended September 30, 2015 increased by $2.4 million. The ACA fee is based on prior year premium. The 2014 ACA fee was based on Total Care's 2013 premium since December 1, 2013, the date of acquisition, while the 2015 ACA fee is based on Total Care's premium for the year ended December 31, 2014.

        Commissions and general expenses.    Commissions and general expenses increased $1.6 million compared to the nine months ended September 30, 2014, primarily due to increased personnel and technology costs. Our administrative expense ratio was 8.4% and 7.9% for the nine months ended September 30, 2015 and 2014, respectively.

Segment Results—Traditional Insurance

        Our Traditional Insurance segment consists of three major lines of business. Senior Market includes Medicare supplement, senior dental and hospital indemnity products. Specialty Health includes fixed benefit accident and sickness, specified disease, hospital, surgical and long-term care products. Life Insurance includes senior life products. We discontinued marketing and selling Traditional insurance products after June 1, 2012.

        On October 8, 2015, we entered into a definitive agreement to sell our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. For further discussion of this transaction, see Note 12—Subsequent Events in the Notes to Consolidated Financial Statements.

Three months ended September 30, 2015 and 2014

        Our Traditional Insurance segment generated income before taxes of $1.8 million for the quarter ended September 30, 2015, an increase of $1.9 million compared to the same period in 2014. The increase in earnings is primarily driven by the reduction of operating expenses.

41

---

Table of Contents

        Net premiums.    Net premiums declined by $5.0 million, or 11%. This is the result of the continued effect of lapsation across all lines of business. The following tables detail premium for the segment by major lines of business:

        Policyholder benefits.    Policyholder benefits declined by $1.8 million, or 5%, compared to 2014. This decline was principally due to the overall decline in insurance in-force, partially offset by unfavorable experience on specialty health. For 2015, the policyholder benefit ratio for specialty health was 128.4%, compared with 112.7% in 2014.

        Change in deferred policy acquisition costs.    The change in deferred policy acquisition costs decreased by $2.3 million from 2014 driven by lower amortization on a declining block of business.

        Commissions and general expenses, net of allowances.    Commissions and general expenses, net of allowances, decreased by $2.9 million from 2014. This decrease is primarily attributed to lower commissions on less insurance in-force as well as lower costs required to run a smaller book of business in-force. In addition, 2014 included consulting costs related to the transition to outsourcing certain functions.

Nine months ended September 30, 2015 and 2014

        Our Traditional Insurance segment generated income before taxes of $7.4 million for the nine months ended September 30, 2015, an increase of $4.2 million compared to the same period in 2014. The increase in earnings is primarily driven by the reduction of operating expenses.

        Net premiums.    Net premiums declined by $16.7 million, or 12%. This is the result of the continued effect of lapsation across all lines of business. The following tables detail premium for the segment by major lines of business:

        Policyholder benefits.    Policyholder benefits declined by $9.3 million, or 9%, compared to the nine months ended September 30, 2014. This decline was principally due to the overall decline in insurance in-force, partially offset by unfavorable experience on specialty health. For the nine months ended September 30, 2015, the policyholder benefit ratio for specialty health was 111.2%, compared with 104.7% for the same period in 2014.

42

---

Table of Contents

        Change in deferred policy acquisition costs.    The change in deferred policy acquisition costs decreased by $0.9 million from 2014 driven by lower amortization on a declining block of business.

        Commissions and general expenses, net of allowances.    Commissions and general expenses, net of allowances, decreased by $9.5 million from the nine months ended September 30, 2014. This decrease is primarily attributed to lower commissions on less insurance in-force as well as lower costs required to run a smaller book of business in-force. In addition, the nine months ended September 30, 2014 included consulting costs related to the transition to outsourcing certain functions.

Segment Results—Corporate & Other

        Corporate & Other reflects the activities of our holding company, our participation in the New York Health Benefits Exchange, known as the "Exchange," and other ancillary operations. Effective January 1, 2015, we are no longer participating in the Exchange.

Three months ended September 30, 2015 and 2014

        Our Corporate & Other segment reported a loss of $7.4 million for the three months ended September 30, 2015 compared to a loss of $6.4 million in the same period in 2014. This was primarily due to decreased net investment income and reduced recoveries on previously written off agent balances, partially offset by corporate expense reduction initiatives and the discontinuation of our Exchange business.

        Net premiums.    Net premiums decreased by $0.5 million for the quarter ended September 30, 2015 compared to the same period in 2014 as a result of the Company no longer participating in the Exchange. In the third quarter of 2015 we recorded a risk corridor adjustment related to the run off of the Exchange business.

        Net investment income.    Net investment income decreased by $1.8 million for the three months ended September 30, 2015 compared to the same period in 2014. In 2014, we received a distribution on a cost-method minority investment of $2.7 million compared to $1.9 million in 2015. In addition, in 2014, the segment received investment income on a loan to our APS Healthcare subsidiary which is reported in discontinued operations.

        Fee and other income.    Fee and other income increased by $1.0 million for the quarter ended September 30, 2015 compared to same period in 2014 primarily due to revenues from transition services agreements entered into in connection with the sale of our APS Healthcare businesses. These additional revenues are largely offset by expenses included in commissions and general expenses.

43

---

Table of Contents

        Claims and other benefits.    Claims and other benefits decreased by $0.4 million for the quarter ended September 30, 2015 compared to the same period in 2014 as a result of the Company no longer participating in the Exchange.

        Interest expense.    Interest expense decreased by $0.5 million for the three months ended September 30, 2015 compared to the same period in 2014 due to the term loan prepayment made on March 31, 2015.

        Commissions and general expenses.    Commissions and general expenses increased by $0.6 million for the quarter ended September 30, 2015 compared to the same period in 2014. The increase was primarily due to costs associated with the transition services agreements for APS Healthcare and decreased recoveries of agent receivables that were previously written off, totaling $4.9 million partially offset by reductions in general corporate expenses primarily related to our expense reduction initiatives which totaled $4.3 million.

Nine months ended September 30, 2015 and 2014

        Our Corporate & Other segment reported a loss of $29.3 million for the nine months ended September 30, 2015 compared to a loss of $33.7 million in the same period in 2014. This was primarily due to corporate expense reduction initiatives, lower legal costs related to our non-core business, the discontinuation of our Exchange business and lower debt service costs.

        Net premiums.    Net premiums decreased by $0.6 million for the nine months ended September 30, 2015 compared to the same period in 2014 as a result of the Company no longer participating in the Exchange. Additionally, in 2015 we received a larger than anticipated risk score adjustment, net of risk corridor related to the Exchange business.

        Net investment income.    Net investment income decreased by $1.3 million for the nine months ended September 30, 2015 compared to same period in 2014. In 2014, we received a distribution on a cost-method minority investment of $2.7 million compared to $1.9 million in 2015.

        Fee and other income.    Fee and other income increased by $2.0 million for the nine months ended September 30, 2015 compared to same period in 2014 primarily due to revenues from transition services agreements entered into in connection with the sale of our APS Healthcare businesses. These additional revenues are largely offset by expenses included in commissions and general expenses.

        Claims and other benefits.    Claims and other benefits decreased by $1.2 million for the nine months ended September 30, 2015 compared to the same period in 2014, primarily due to the Company no longer participating in the Exchange. Additionally, in 2015, we received larger than anticipated recoveries for the Exchange as a result in changes to the Federal transitional reinsurance program.

        Interest expense.    Interest expense decreased by $1.0 million for the nine months ended September 30, 2015 compared to the same period in 2014 due to the term loan prepayment made on March 31, 2015.

        Commissions and general expenses.    Commissions and general expenses decreased by $2.2 million for the nine months ended September 30, 2015 compared to the same period in 2014. This decrease was driven by reductions in general corporate expenses related to our expense reduction initiatives and lower legal costs related to our non-core business which totaled $13.0 million. These reductions were partially offset by costs associated with the transition services agreements, accelerated vesting of stock compensation expense for terminated employees and accelerated amortization of debt issuance costs in connection with our loan prepayment and amendment to our revolving credit facility totaling $10.8 million.

44

---

Table of Contents

Liquidity and Capital Resources

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

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

•

dividends from and capital contributions to our Insurance and HMO subsidiaries—During the first quarter of 2015, our Insurance subsidiary, Pyramid Life, declared a $75 million extraordinary dividend which was subsequently paid to the holding company in April 2015. On May 31, 2015 we merged our Insurance subsidiary Marquette National Life into Constitution Life. In connection with that merger, Marquette paid a $5.6 million liquidating distribution to its holding company. In June 2015, our HMO subsidiary, SelectCare of Texas, declared a $9.0 million ordinary dividend, which was subsequently paid to the holding company in July 2015. In September 2015, our Insurance subsidiary, Constitution Life Insurance Company declared an $11.0 million ordinary dividend, which was subsequently paid to the holding company in October 2015. See below for further discussion of 2015 activity.



•

loans from and interest payments to our Insurance subsidiaries to support investments in our ACO business—During 2013, our Insurance subsidiaries loaned $22 million to our parent company. During the nine months ended September 30, 2015, the parent company paid interest totaling $ $0.4 million to our Insurance subsidiaries on such loans. The Company repaid $9 million of this loan to its Insurance subsidiary, Pyramid Life, in April 2015.



•

the cash flows of our other subsidiaries, including our Medicare Advantage management service organization—Net cash flows available to our parent company amounted to approximately $18.8 million during the nine months ended September 30, 2015.



•

the cash flows of our ACO business and other growth initiatives—For the nine months ended September 30, 2015, we funded expenses of approximately $30.3 million, pre-tax, related to our ACO business. In the second quarter of 2015, we accrued our share of program year 2014 shared saving revenues of $20.9 million, which was received in October 2015.



•

payment of dividends to holders of our mandatorily redeemable preferred shares—Dividends to holders of our mandatorily redeemable preferred shares amount to $3.4 million per year and we have paid $2.6 million during the nine months ended September 30, 2015. The $40 million face value of those shares cannot be redeemed prior to 2017, unless there is a change in control of the Company.



•

payment of debt principal, interest and fees required under our 2012 Credit Facility—On October 14, 2015, we prepaid the balance of our term loan and terminated our 2012 Credit Facility—see below for discussion of 2015 activity.



•

working capital loans to our Medicaid health plan—Periodically, our parent company lends cash to our Medicaid subsidiary, Today's Options of New York, Inc., known as TONY, to bridge the timing difference between claims payments and premium receipts from New York State Department of Health. These loans are immediately repaid upon receipt of premiums. As of September 30, 2015, TONY had no outstanding loan balance due to the parent company.



•

payment of certain corporate overhead costs and public company expenses, net of revenues, which amounted to $10.1 million for the nine months ended September 30, 2015.

45

---

Table of Contents

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

•

payment of dividends to shareholders—We do not currently pay a regular dividend to our shareholders, however, on October 8, 2015, we announced a special dividend of $0.75 per share, which was paid on October 26, 2015. Payment of any future dividends would be dependent upon an evaluation of excess capital, as discussed below.



•

repurchase of our common stock under our stock repurchase plan—On May 13, 2014 we repurchased and retired six million shares of our common stock directly from funds associated with Capital Z Partners Management, LLC at a price of $6.03 per share for total consideration of $36.2 million. We used cash on hand to fund the repurchase of these shares.



•

proceeds from the sale of subsidiaries—During the first quarter of 2015, we completed the sale of our APS Healthcare Puerto Rico subsidiaries for $26.5 million in cash. During the second quarter of 2015, we completed the sale of our domestic APS subsidiaries for $5 million in cash. See 11—Discontinued Operations in the Notes to Consolidated Financial Statements.



•

proceeds from the sale of and distributions received on investments—In August 2015, we sold our interest in our cost-basis investment in naviHealth for $35.6 million and received cash proceeds of $33.1 million, with the balance of $2.5 million held in escrow and booked a pre-tax realized gain of $29.6 million. In addition, in July 2015, we received a $1.9 million cash distribution on another cost-method investment.



•

As of September 30, 2015, we had approximately $163 million of cash and investments in our parent company and unregulated subsidiaries, prior to the October 2015 term loan prepayment and special dividend discussed above.

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

•

reinvestment in existing businesses;



•

acquisitions, investments or other strategic transactions;



•

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



•

paydown of debt (as applicable); or



•

other appropriate uses.

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

Sources and Uses of Liquidity of Our Subsidiaries

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

        The National Association of Insurance Commissioners, known as the NAIC, imposes regulatory risk-based capital, known as RBC, requirements on insurance companies. The level of RBC is calculated and reported annually. A number of remedial actions could be enforced if a company's total adjusted capital is less than 200% of authorized control level RBC. However, we generally consider target surplus to be 350% of authorized control level RBC. At December 31, 2014, all but one of our insurance subsidiaries had total adjusted capital in excess of our target of 350% of authorized control level RBC. This insurance subsidiary was merged into Constitution Life on June 30, 2015 and the merged entity has adjusted capital in excess of our target. Excess capital can be used by the insurance and HMO subsidiaries to make dividend payments to their respective holding companies, subject to certain restrictions, and from there to our parent company.

46

---

Table of Contents

        At September 30, 2015, we held cash and invested assets of approximately $750 million at our insurance and HMO subsidiaries that could readily be converted to cash. We believe that this level of liquidity is sufficient to meet our obligations and pay expenses.

        During the first quarter of 2015, our Insurance subsidiary, Pyramid Life, declared a $75 million extraordinary dividend which was subsequently paid to its respective holding company in April 2015. On May 31, 2015, we merged our Insurance subsidiary Marquette National Life into Constitution Life. In connection with that merger, Marquette paid a $5.6 million liquidating distribution to its holding company. In June 2015, our HMO subsidiary, SelectCare of Texas, declared a $9.0 million ordinary dividend, which was subsequently paid to the holding company in July 2015. In September 2015, our Insurance subsidiary, Constitution Life Insurance Company declared an $11.0 million ordinary dividend, which was subsequently paid to the holding company in October 2015. No other dividends were declared or paid by our other Insurance and HMO subsidiaries in the first nine months of 2015. Based on current estimates, we expect the aggregate additional amount of dividends that may be paid to our parent company in 2015 without prior approval by state regulatory authorities is approximately $0.3 million. In the first quarter of 2015, we funded a total of $17.1 million in capital contributions to one of our Insurance subsidiaries and $0.3 million to our Medicaid health plan.

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

        Total Care.    We require cash at Total Care to pay claims and other benefits for our members, to pay operating expenses, to maintain adequate capital levels. The primary sources of liquidity are premiums received from the New York Department of Health. Total Care is required to maintain a contingent reserve equal to 7.25% of premium. During the nine months ended September 30, 2015, we made a capital contribution of $0.3 million. We may be required to make additional capital contributions in the future to meet contingent reserve requirements.

        Investments.    We invest primarily in fixed maturity securities of the U.S. Government and its agencies, U.S. state and local governments, mortgage-backed securities and corporate fixed maturity securities with investment grade ratings of BBB– or higher by S&P or Baa3 or higher by Moody's Investor Service. As of September 30, 2015, approximately 99% of our fixed income investment portfolio had investment grade ratings from S&P or Moody's.

        At September 30, 2015, cash and cash equivalents represent approximately 24% of our total cash and invested assets. Approximately 20% of cash and invested assets were held in securities backed by the U.S. government or its agencies and the average credit quality of our total investment portfolio was AA–.

        The average book yield of our investment portfolio was 2.6% at September 30, 2015 and 3.0% at December 31, 2014. The decrease in our average book yield is principally driven by the higher percentage of our assets being held in lower yielding cash and cash equivalents as of September 30, 2015 versus December 31, 2014.

        2012 Credit Facility.    On September 30, 2015, the Company executed an amendment to the 2012 Credit Facility, which reduced the commitment on the revolving credit facility from $50 million to $25 million, waived certain financial covenants for the period ended September 30, 2015 and allowed us to make restricted payments, under certain conditions. As of September 30, 2015, we were in compliance with our financial covenants under the 2012 Credit Facility.

47

---

Table of Contents

        On October 14, 2015, we repaid the outstanding balance on our term loan of $44.9 million and terminated our credit facility, including the unused revolver.

Critical Accounting Policies

        There have been no changes to our critical accounting policies during the current quarter ended September 30, 2015. For a description of our significant accounting policies, see Note 3—Summary of Significant Accounting Policies included in our Annual Report on Form 10-K/A for the year ended December 31, 2014.

Policy and Contract Claims—Accident and Health Policies

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

        The liability for policy and contract claims—health at September 30, 2015 decreased by $12.0 million during the nine months ended September 30, 2015. The decrease in the liability was primarily attributable to lower claims reserves relating to our Medicare Advantage business, primarily due to decreased membership.

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

        During the nine months ended September 30, 2015, claim reserves settled, or are currently expected to be settled, for $0.4 million less than estimated at December 31, 2014. Prior period development represents less than 0.1% of the incurred claims recorded in 2014.

48

---

Table of Contents

Sensitivity Analysis

        The following table illustrates the sensitivity of our accident and health IBNR payable at September 30, 2015 to identified reasonably possible changes to the estimated weighted average completion factors and health care cost trend rates. However, it is possible that the actual completion factors and health care cost trend rates will develop differently from our historical patterns and therefore could be outside of the ranges illustrated below.

Effects of Recently Issued and Pending Accounting Pronouncements

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

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Investment Interest Rate Sensitivity

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

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

        We regularly conduct various analyses to gauge the financial impact of changes in interest rate on our financial condition. The ranges selected in these analyses reflect our assessment as being reasonably

49

---

Table of Contents

possible over the succeeding twelve-month period. The magnitude of changes modeled in the accompanying analyses should not be construed as a prediction of future economic events, but rather, be treated as a simple illustration of the potential impact of such events on our financial results.

        The sensitivity analysis of interest rate risk assumes an instantaneous shift in a parallel fashion across the yield curve, with scenarios of interest rates increasing and decreasing 100 and 200 basis points from their levels as of September 30, 2015, and with all other variables held constant. The following table summarizes the impact of the assumed changes in market interest rates at September 30, 2015. Due to the current low interest rate environment, when estimating the effect of market interest rate decreases on fair value we have set an interest rate floor of 0% and have not allowed interest rates to go negative.

Debt

        We pay interest on our term loan based on LIBOR over one, two, three or nine month interest periods. Due to the variable interest rate, we would be subject to higher interest costs if short-term interest rates rise. We regularly conduct various analyses to gauge the financial impact of changes in interest rates on our financial condition. The ranges selected in these analyses reflect our assessment as being reasonably possible over the succeeding twelve-month period. The magnitude of changes modeled in the accompanying analyses should not be construed as a prediction of future economic events, but rather, be treated as a simple illustration of the potential impact of such events on our financial results.

        The sensitivity analysis of interest rate risk assumes scenarios involving increases or decreases in LIBOR of 100 and 200 basis points from their levels as of and for the nine months ended September 30, 2015, and with all other variables held constant. The following table summarizes the impact of changes in LIBOR. Due to the current low interest rate environment, when estimating the effect of LIBOR decreases on pre-tax income, we have set an interest rate floor of 0% and have not allowed LIBOR to go negative.

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

        Effective October 14, 2015, this floating rate debt has been paid in full. For further information on the debt paydown, see Note 12—Subsequent Events in the Notes to Consolidated Financial Statements.

50

---

Table of Contents

ITEM 4—CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Inherent Limitations on Effectiveness of Controls

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

Evaluation of Effectiveness of Controls

        We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, 2015, at a reasonable assurance level, to timely alert management to material information required to be included in our periodic filings with the Securities and Exchange Commission.

Changes in Internal Control over Financial Reporting

        There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

51

---

Table of Contents

PART II

ITEM 1—LEGAL PROCEEDINGS

        For information relating to litigation affecting us, see Note 8—Commitments and Contingencies in Part I—Item 1 of this report, which is incorporated into this Part II—Item 1—Legal Proceedings by reference.

ITEM 1A—RISK FACTORS

        Except as set forth below, there have been no material changes to the risk factors included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014, filed with the SEC on March 31, 2015, as modified by the changes to those risk factors included in other reports we filed with the SEC subsequent to March 31, 2015:

The sale of our Traditional Insurance is subject to many conditions, including regulatory approvals, and if these conditions are not satisfied or waived, the transaction will not be completed.

        On October 8 2015, we entered into a definitive agreement to sell our Traditional Insurance business to Nassau Reinsurance Group Holdings, L.P. The purchase price is approximately $43 million, subject to adjustments based on actual capital and surplus of Constitution Life Insurance Company and The Pyramid Life Insurance Company at closing, compared to the target statutory capital and surplus of $68.5 million. The transaction is estimated to generate an after-tax GAAP loss of approximately $150 million, including the write-off of approximately $53 million in intangible assets. Statutory capital and surplus at Constitution and Pyramid at September 30, 2015 is estimated to be approximately $58 million. However, actual statutory capital and surplus will change between now and closing as a result of the experience of the business and the effect of our reserve sufficiency testing that is performed in the fourth quarter, and such change could result in materially lower or higher actual statutory capital and surplus and impact the ultimate GAAP loss recognized for the sale.

        Our Traditional Insurance business includes Medicare Supplement, Long Term Care, Disability, Life, and other ancillary insurance products, all of which have been in run-off since 2012. The closing of the transaction is expected in early 2016, but is subject to numerous closing conditions, including regulatory approval from the Texas, Kansas and New York insurance departments. If the sale of our Traditional Insurance business is not consummated, the price of our Common Stock may decline to the extent that the market price of our Common Stock reflects positive market assumptions that the transaction will be completed.

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

        None.

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4—MINE SAFETY DISCLOSURES

        None.

ITEM 5—OTHER INFORMATION

        None.

52

---

Table of Contents

ITEM 6—EXHIBITS

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

53

---

Table of Contents

SIGNATURES

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

54

---