RISK FACTORS

      This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus before purchasing our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected, the value of our stock could decline, and you may lose all or part of your investment. The risks and uncertainties described below are those that we currently believe may materially affect our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Business

If our government contracts are not renewed or are terminated, our business could be substantially impaired.

      We provide our Medicaid, Medicare, SCHIP and other services through a limited number of contracts with state, federal or local government agencies. These contracts generally have terms of one or two years and are subject to nonrenewal by the applicable agency. All of our government contracts are terminable for cause if we breach a material provision of the contract or violate relevant laws or regulations. In addition, our right to add new members may be suspended by a government agency if it finds deficiencies in our provider network or operations. For the year ended December 31, 2003, the percentage of our total premium revenue that we derived from our Medicaid contracts in Florida, New York and Connecticut was 59%, 9% and 4%, respectively; and the percentage derived from our Medicare contracts was 27%, which was primarily derived from our Florida Medicare business; and the remainder is from our commercial and other contracts.

      Our contracts with the states are subject to cancellation or a potential freeze on enrollment by the state in the event of the unavailability of state or federal funding. This has recently occurred with the Florida Healthy Kids SCHIP program, which includes our Healthy Kids contract. The State of Florida suspended new enrollment in this program beginning in July 2003 due to budgetary constraints. The State has recently announced that children on the program’s waiting list as of January 2004 will be assigned to eligible health plans, including ours, beginning in the second quarter of 2004, and that any future enrollment and growth in the Healthy Kids SCHIP program will be limited to specified open enrollment periods and subject to the availability of adequate funding for the program. In some jurisdictions, a cancellation or enrollment freeze may be immediate and in other jurisdictions a notice period is required. Some of our contracts are also subject to termination or are eligible for renewal through annual competitive bids. We may face increased competition as other plans attempt to enter our markets through the contracting process.

      If we are unable to renew, or to successfully rebid or compete for any of our government contracts, or if any of our contracts are terminated, our business could be substantially impaired. If any of those circumstances were to occur, we would likely pursue one or more alternatives, including seeking to enter into contracts in other geographic markets, seeking to enter into contracts for other services in our existing markets, or seeking to acquire other businesses with existing government contracts. If we were unable to do so, we could be forced to cease conducting business. In any such event, our revenues would decrease materially.

If we are unable to manage medical benefits expense effectively, our profitability will likely be reduced or we could cease to be profitable.

      Our profitability depends, to a significant degree, on our ability to predict and effectively manage our costs related to the provision of healthcare services. Relatively small changes in the ratio of our expenses related to healthcare services to the premiums we receive, or medical benefits ratio, can create significant changes in our financial results. Factors that may cause medical benefits expense to exceed our estimates include:

	•	an increase in the cost of healthcare services and supplies, including pharmaceuticals, whether as a result of inflation or otherwise;

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	•	higher than expected utilization of healthcare services;
	•	periodic renegotiation of hospital, physician and other provider contracts;
	•	the occurrence of catastrophes, major epidemics, terrorism or bio-terrorism;
	•	changes in the demographics of our members and medical trends affecting them; and
	•	new mandated benefits or other changes in healthcare laws, regulations and/or practices.

      Because of the relatively high average age of the Medicare population, medical benefits expense for our Medicare plans may be particularly difficult to control. According to CMS, from 1967 to 2002, Medicare healthcare expenses nationwide increased on average by 13.2% annually.

      Although we have been able to manage our medical benefits expense through a variety of techniques, including various payment methods to primary care physicians and other providers, advance approval for hospital services and referral requirements, medical management and quality management programs, upgraded information systems, and reinsurance arrangements, we may not be able to continue to manage these expenses effectively in the future. If our medical benefits expense increases, our profits could be reduced or we may not remain profitable. For example, a hypothetical 1% increase in our medical benefits ratio for 2003 would have reduced our earnings before income taxes for the year ended December 31, 2003 by $10.4 million. The medical benefits ratio represents our medical benefits expense as a percentage of our premium revenue.

      We maintain reinsurance to protect us against severe or catastrophic medical claims, but we cannot assure you that such reinsurance coverage currently is or will be adequate or available to us in the future or that the cost of such reinsurance will not limit our ability to obtain it.

Because our premiums, which generate most of our revenues, are fixed by contract, we are unable to increase our premiums during the contract term if our corresponding medical benefits expense exceeds our estimates.

      Most of our revenues are generated by premiums consisting of fixed monthly payments per member. These payments are fixed by contract, and we are obligated during the contract period, which is generally one or two years, to provide or arrange for the provision of healthcare services as established by state and federal governments. We have less control over costs related to the provision of healthcare services than we do over our selling, general and administrative expense. Historically, our medical benefits expense as a percentage of premium revenue has fluctuated. For example, our medical benefits expense was 84.8% of our combined premium revenue in 2002 and 82.6% of our combined premium revenue in 2003. If our medical benefits expense exceeds our estimates, we will be unable to adjust the premiums we receive under our current contracts, and our profits may decline.

Reductions in funding for government healthcare programs could substantially reduce our profitability.

      All of the healthcare services we offer are through government-sponsored programs, such as Medicaid and Medicare. As a result, our profitability is dependent, in large part, on continued funding for government healthcare programs at or above current levels. For example, the premium rates paid by each state to health plans like ours differ depending on a combination of factors such as upper payment limits established by the state and federal governments, a member’s health status, age, gender, county or region, benefit mix and member eligibility categories. Future Medicaid premium rate levels may be affected by continued government efforts to contain medical costs or state and federal budgetary constraints. According to the National Association of State Budget Officers, Medicaid spending consumed 20.8% of the average state’s budget in 2002, representing the second largest expenditure. According to the Congressional Budget Office, total state spending on Medicaid is expected to reach $127 billion in 2004, representing a 10.5% annual increase from 2002. Some states may find it difficult to continue paying the current rates to Medicaid health plans. Changes in Medicaid funding, for example, may lead to reductions in the number of persons enrolled in or eligible for Medicaid, reductions in the amount of reimbursement or elimination of coverage for certain benefits such as pharmacy, behavioral health or other benefits. In some cases, changes in funding could be made retroactive. All of the states in which we operate are presently considering legislation that would reduce reimbursement rates, payment levels, benefits covered or the

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      Federal budgetary constraints also may limit premiums payable under our Medicare plans. For example, as a result of the Balanced Budget Act of 1997, annual increases on premiums paid to many Medicare+Choice plans were subject to a 2% cap, even though overall Medicare healthcare expenses were increasing at a higher rate.

We are subject to extensive government regulation, and any violation of the laws and regulations applicable to us could reduce our revenues and profitability and otherwise adversely affect our operating results.

      Our business is extensively regulated by the federal government and the states in which we operate. The laws and regulations governing our operations are generally intended to benefit and protect health plan members and providers rather than stockholders. The government agencies administering these laws and regulations have broad latitude to enforce them. These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer, and how we interact with our members, providers and the public. We are subject, on an ongoing basis, to various governmental reviews, audits and investigations to verify our compliance with our contracts and applicable laws and regulations. Any adverse review, audit or investigation could result in:

	•	forfeiture of amounts we have been paid pursuant to our government contracts;
	•	imposition of civil or criminal penalties, fines or other sanctions on us;
	•	loss of our right to participate in government-sponsored programs, including Medicaid and Medicare;
	•	damage to our reputation in various markets;
	•	increased difficulty in marketing our products and services; and
	•	loss of one or more of our licenses to act as an insurer or health maintenance organization or to otherwise provide a service.

      Any of these events could reduce our revenues and profitability and otherwise adversely affect our operating results.

We derive a substantial portion of our revenues and profits from operations in Florida, and legislative actions, economic conditions or other factors that adversely affect those operations could materially reduce our revenues and profits.

      In 2003, our Florida health plans accounted for 86.0% of our total premium revenues. If we are unable to continue to operate in Florida, or if our current operations in any portion of Florida are significantly curtailed, our revenues will decrease materially. Our reliance on our operations in Florida could cause our revenues and profitability to change suddenly and unexpectedly, depending on legislative actions, economic conditions and similar factors. In addition, our significant market share in Florida may make it more difficult for us to expand our membership in Florida. For example, Florida has recently frozen enrollment for its Healthy Kids SCHIP program. Our inability to continue to operate in Florida, or a decrease in the revenues of our Florida operations, would harm our overall operating results.

We may not be able to realize the benefits we anticipate from the acquisition of Harmony Health Systems.

      As a result of our recent acquisition of Harmony, we will face significant challenges in integrating organizations, operations, technology and services in a timely and efficient manner and in retaining key personnel. Cost savings, revenue growth and other anticipated benefits of the acquisition may not materialize. The acquisition may result in a diversion of our management’s attention, loss of management-level and other key employees of Harmony, and an inability to integrate management, systems and operations, in particular because Harmony does not currently operate on our Perot Systems’ Diamond 950 software. The failure to

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We may be unsuccessful in implementing our growth strategy if we are unable to make or finance other acquisitions on favorable terms or integrate the businesses we acquire into our existing operations.

      Although we cannot predict with certainty our rate of growth as a result of acquisitions, we believe that acquisitions of contract rights and other health plans will be important to our growth strategy. Many of the other potential purchasers of these assets have greater financial resources than we have. Moreover, some sellers may insist on selling assets that we do not want, such as commercial lines of business, or transferring their liabilities to us as part of the sale of their companies or assets. Even if we identify suitable acquisition targets, we may be unable to complete acquisitions or obtain the necessary financing for these acquisitions on terms favorable to us, or at all. Further, to the extent we complete acquisitions, we may be unable to realize the anticipated benefits from acquisitions because of operational factors or difficulties in integrating the acquisitions with our existing businesses. This may include the integration of:

	•	additional employees, whom we refer to as associates, who are not familiar with our operations;
	•	new provider networks, which may operate on terms different from our existing networks;
	•	additional members, who may decide to transfer to other healthcare providers or health plans;
	•	disparate information, claims processing and record keeping systems; and
	•	accounting policies, including those which require a high degree of judgment or complex estimation processes, such as estimates of medical claims incurred but not reported, accounting for goodwill, intangible assets, stock-based compensation and income tax matters.

      In addition, we are generally required to obtain regulatory approval from one or more state agencies when making acquisitions, which may require a public hearing. This is the case regardless of whether we already operate a plan in the state in which the business to be acquired is located. We may be unable to comply with these regulatory requirements for an acquisition in a timely manner, or at all. For all of the above reasons, we may not be able to successfully implement our acquisition strategy.

We may be unable to expand into some geographic areas without incurring significant additional costs.

      We are likely to incur additional costs if we enter states or counties where we do not currently operate. Our rate of expansion into other geographic areas may also be inhibited by:

	•	the time and costs associated with obtaining a health maintenance organization license to operate in the new area or the expansion of our licensed service area, if necessary;
	•	our inability to develop a network of physicians, hospitals and other healthcare providers that meets our requirements and those of government regulators;
	•	competition, which increases the costs of recruiting members;
	•	the cost of providing healthcare services in those areas; and
	•	demographics and population density.

      Accordingly, we may be unsuccessful in entering other metropolitan areas, counties or states.

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Our limited operating history as a stand-alone entity makes evaluating our business and future prospects difficult.

      We were formed in May 2002 to acquire the WellCare group of companies. Until the closing of that acquisition in July 2002, the companies that comprise our Florida operations had operated as a closely-held business, and our New York and Connecticut businesses had operated as subsidiaries of a public company, the majority stockholders of which were the owners of the Florida operations. Although the majority of our associates were employed by our predecessor companies, almost all of the senior members of our current management have joined us recently, including Todd S. Farha, our President and Chief Executive Officer. Our limited operating history under current management may not be adequate to enable you to fully assess our future prospects.

A failure to estimate incurred but not reported medical benefits expense accurately will affect our profitability.

      Our medical benefits expense includes estimates of medical claims incurred but not reported, or IBNR. We, together with our internal and consulting actuaries, estimate our medical cost liabilities using actuarial methods based on historical data adjusted for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors. Actual conditions, however, could differ from those assumed in the estimation process. Due to the uncertainties associated with the factors used in these assumptions, materially different amounts could be reported in our financial statements for a particular period under different conditions or using different assumptions. Adjustments, if necessary, are made to medical benefits expense when the criteria used to determine IBNR change and when actual claim costs are ultimately determined. Although our estimates of IBNR have been adequate since our acquisition of the WellCare businesses, they may be inadequate in the future, which would adversely affect our results of operations. Further, our inability to estimate IBNR accurately may also affect our ability to take timely corrective actions, further exacerbating the extent of any adverse effect on our results.

The new Medicare legislation makes changes to the Medicare program that could reduce our profitability and increase competition for our existing and prospective members.

      On December 8, 2003, President Bush signed the Medicare Modernization Act of 2003. This legislation makes significant changes to the Medicare program. We believe that many of these changes will benefit the managed care sector. However, the new rate methodologies, expanded benefits and shifts in certain coverage responsibilities pursuant to the Act may increase competition and create uncertainties, including the following:

	•	The Act increases reimbursement for Medicare+Choice plans, which will be renamed “Medicare Advantage” in 2006. Higher reimbursement rates may increase the number of plans that participate in the program, creating new competition that could adversely affect our profitability.
	•	Beginning in 2006, a new regional Medicare Preferred Provider Organization, or Medicare PPO, program will be implemented pursuant to the Act. Medicare PPOs would allow their members more flexibility to select physicians than the current plans, which are HMOs that require members to coordinate with a primary care physician. The Act requires the Secretary of the Department of Health and Human Services to create between 10 and 50 regions for the Medicare PPO program, with each region covering at least one state and some possibly crossing state lines. The regional Medicare PPO program will compete with local Medicare Advantage HMO programs and may affect our Medicare Advantage HMO business. We do not know whether the regions will be constructed in a way that will create obstacles or opportunities for us to participate in the program. We also do not know how the creation of the regional Medicare PPO program, which is intended to provide further choice to beneficiaries, will affect our Medicare Advantage HMO business.
	•	In order to participate in the regional Medicare Advantage PPO program under the Act, a plan must meet certain requirements, including having an adequate provider network throughout the region. The Act provides some incentives for certain hospitals to join the network. However, we do not know whether we will be able to contract with a sufficient number of providers throughout our regions to satisfy the network adequacy requirements under the Act that would enable us to participate in the regional product.

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	•	Beginning in 2006, the payments for the local Medicare Advantage HMO and regional Medicare Advantage PPO programs will be based on a competitive bidding process that may decrease the amount of premiums paid to us or cause us to increase the benefits we offer.
	•	Beginning in 2006, organizations that offer Medicare Advantage plans of the type we currently offer will be required to offer prescription drug benefits. It is not known at this time whether the governmental payments will be adequate to cover the costs for this benefit. In addition, Medicare Advantage enrollees will be required to obtain their drug benefit from their Medicare Advantage plan. Enrollees may prefer a stand-alone drug plan and may disenroll from the Medicare Advantage plan altogether in order to participate in another drug plan. Accordingly, the new prescription drug benefit could reduce our profitability and membership enrollment following its implementation in 2006.
	•	Some enrollees may have chosen our Medicare+Choice plan in the past rather than a Medicare fee-for-service program because of the added drug benefit that we offer with our Medicare+Choice plan. Following the implementation of the new prescription drug benefit, Medicare beneficiaries will have the opportunity to obtain a drug benefit without joining a managed care plan. As a result, our membership enrollment may decline.
	•	Beginning in 2006, individuals eligible for both Medicare and Medicaid, or dual-eligibles, will generally receive their drug coverage from Medicare rather than from Medicaid. Because Medicaid will no longer be directly responsible for most drug coverage for dual-eligibles, Medicaid payments to plans will be reduced. We cannot predict whether this change in Medicaid payments will have an adverse effect on our operating results.

Changes, other than the new Medicare legislation, in federal funding mechanisms also could reduce our profitability.

      In addition to changes pursuant to the new Medicare legislation, other changes in federal funding mechanisms could reduce our profitability. As part of the current administration’s 2004 budget submission to Congress, the Department of Health and Human Services announced principles for Medicaid reform. The proposal would establish two capped allotments for states combining both Medicaid and SCHIP funds, one for acute care and one for long-term care. Under this proposal, all mandatory populations and benefits would continue to be covered as required under current law. States, however, would be given flexibility for optional populations and benefits. The proposal would be revenue neutral over a 10-year period, although states would receive an additional $12.7 billion over the first seven years, with corresponding funding reductions in years eight through 10.

      The proposal was meant to provide increased flexibility to the states in managing their Medicaid and SCHIP programs, in particular in the design of benefit packages for optional populations. Governors working in concert with the Department of Health and Human Services were unable to reach agreement on these principles and the proposal was set aside for the time being. It is uncertain whether this proposal, or a variation thereof, will eventually be enacted. Congress instead passed a $20.0 billion fiscal relief program for the states, which included a $10.0 billion increase in the share of medical assistance expenditures provided to each state’s Medicaid program, known as the Federal Medical Assistance Percentage.

      If the Department’s proposal is ultimately adopted and the number of persons enrolled in Medicaid or SCHIP decreases in the states in which we operate or the scope of benefits provided is reduced, or expanded without a corresponding increase in payments made to us, our growth, revenues and profitability could be reduced.

We are required to comply with laws governing the transmission, security and privacy of health information, and we have not yet determined what our total compliance costs will be.

      The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply with standards for the exchange of health information within our company and with third parties, such as healthcare providers, business associates, and our members. These include standards for common healthcare transactions, such as claims information, plan eligibility, payment information and the use of electronic

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      The Department of Health and Human Services finalized the transaction standards on August 17, 2000. While we initially were required to comply with them by October 16, 2002, Congress passed legislation in December 2001 that delayed the compliance date until October 16, 2003, but only for entities that submitted a compliance plan by the original implementation deadline, which we did. On February 20, 2003, the Department published certain modifications to the final transaction standards, but these changes did not affect the October 16, 2003 compliance deadline. The Department issued the privacy standards on December 28, 2000, and after certain delays, they became effective on April 14, 2001, with a compliance date of April 14, 2003. Sanctions for failing to comply with the HIPAA health information practices provisions include criminal penalties and civil sanctions. The security standards became effective April 21, 2003, with a compliance date of April 21, 2005 for most covered entities.

      HIPAA also provides that to the extent that state laws impose stricter privacy standards than HIPAA privacy regulations or to the extent that a state seeks and receives an exception from the Department of Health and Human Services regarding certain state laws, such state standards and laws will not be preempted. The states’ ability to promulgate stricter rules, and uncertainty regarding many aspects of the regulations, make compliance with the relatively new regulatory landscape difficult and more expensive.

      We believe we have achieved substantial compliance with HIPAA by the applicable deadlines. However, given its complexity, the recent adoption of several final regulations, the possibility that the regulations may change and may be subject to changing and perhaps conflicting interpretation, our ability to comply with all of the HIPAA requirements is uncertain. Moreover, due to the evolving nature of the HIPAA requirements we have not yet determined what our total compliance costs will be.

Future changes in healthcare law may reduce our profitability or liquidity.

      Healthcare laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could reduce our profitability by:

	•	imposing additional capital requirements;
	•	increasing our administrative and other costs;
	•	increasing mandated benefits;
	•	forcing us to restructure our relationships with providers; or
	•	requiring us to implement additional or different programs and systems.

      Changes in state law also may adversely affect our profitability. Laws relating to managed care consumer protection standards, including increased plan information disclosure, limits to premium increases, expedited appeals and grievance procedures, third party review of certain medical decisions, health plan liability, access to specialists, clean claim payment timing, physician collective bargaining rights and confidentiality of medical records either have been enacted or continue to be under discussion. New healthcare reform legislation may require us to change the way we operate our business, which may be costly. Further, although we have exercised care in structuring our operations to attempt to comply in all material respects with the laws and regulations applicable to us, government officials charged with responsibility for enforcing such laws may assert that we or certain transactions in which we are involved are in violation of these laws, or courts may ultimately interpret such laws in a manner inconsistent with our interpretation. Therefore, it is possible that future legislation and regulation and the interpretation of laws and regulations could have a material adverse effect on our ability to operate under the Medicaid, Medicare and SCHIP programs and to continue to serve our members and attract new members.

      The statutory framework for our regulated subsidiaries’ statutory net worth requirements may change over time. For instance, New York has proposed a 150% increase in reserve requirements. Other states may

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Restrictions on our ability to market would adversely affect our revenue.

      Although we enroll some of our new members through auto enrollment programs and voluntary member enrollment, we rely on our marketing and sales efforts for a significant portion of our membership growth. All of the states in which we currently operate permit marketing but impose strict requirements and limitations as to the types of marketing activities that are permitted. In Florida and New York, other plans have been prohibited from engaging in marketing activities for a period of time after being found to have violated the state’s requirements. While no such action is currently pending or threatened by the State of Florida against us, from time to time we have been cited, and in some cases fined, for alleged marketing violations. Until recently, our New York Medicare business was prohibited from marketing as a result of past audits and regulatory deficiencies. If our marketing efforts were to be prohibited or curtailed, our ability to increase or sustain membership would be significantly harmed, which would adversely affect our revenue.

Past operational deficiencies related to our New York business may adversely affect our growth in New York.

      We inherited a number of operational deficiencies when we acquired our New York business, which resulted in a prohibition on marketing our Medicare program in New York. Although we have made investments in our New York business to address these deficiencies and are once again permitted to market our Medicare health plan in New York, we continue to experience problems related to our past deficiencies, including gaps in our provider network. Moreover, members and providers and potential members and providers may have a negative perception of our New York health plans as a result of these prior operational deficiencies. These issues may adversely affect the growth of our business in New York.

If we are unable to maintain satisfactory relationships with our providers, our profitability could decline and we may be precluded from operating in some markets.

      Our profitability depends, in large part, upon our ability to enter into cost-effective contracts with hospitals, physicians and other healthcare providers in appropriate numbers in our geographic markets and at convenient locations for our members. In any particular market, however, providers could refuse to contract, demand higher payments or take other actions that could result in higher medical benefits expense. In some markets, certain providers, particularly hospitals, physician/hospital organizations or multi-specialty physician groups, may have significant market positions or near monopolies. If such a provider or any of our other providers refuse to contract with us, use their market position to negotiate contracts that might not be cost-effective or otherwise place us at a competitive disadvantage, those activities could adversely affect our operating results in that market area. In the long term, our ability to contract successfully with a sufficiently large number of providers in a particular geographic market will affect the relative attractiveness of our managed care products in that market and could preclude us from renewing our Medicaid or Medicare contracts in those markets or from entering into new markets.

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      Our provider contracts with network primary care physicians and specialists generally have terms of one year, with automatic renewal for successive one-year terms. We may terminate these contracts for cause, based on provider conduct or other appropriate reasons, subject to laws giving providers due process rights. The contracts generally may be cancelled by either party without cause upon 60 or 90 days prior written notice. Our contracts with hospitals generally have terms of one to two years, with automatic renewal for successive one-year terms. We may terminate these contracts for cause, based on provider misconduct or other appropriate reasons. Our hospital contracts generally may be cancelled by either party without cause upon 120 days prior written notice. We may be unable to continue to renew such contracts or enter into new contracts enabling us to serve our members profitably. We will be required to establish acceptable provider networks prior to entering new markets. Although we have established long-term relationships with many of our network providers, we may be unable to maintain those relationships or enter into agreements with providers in new markets on a timely basis or under favorable terms. If we are unable to retain our current provider contracts or enter into new provider contracts timely or on favorable terms, our profitability could decline.

If a state fails to renew its federal waiver application for mandated Medicaid enrollment into managed care or such application is denied, our membership in that state will likely decrease.

      A significant percentage of our Medicaid plan enrollment results from mandatory Medicaid enrollment in managed care plans. States may only mandate Medicaid enrollment into managed care under federal waivers or demonstrations. Waivers and programs under demonstrations are generally approved for two-year periods and can be renewed on an ongoing basis if the state applies and the waiver request is approved or renewed by CMS. We have no control over this renewal process. If a state in which we operate does not renew its mandated program or the federal government denies the state’s application for renewal, our business would suffer as a result of a likely decrease in membership.

We rely on the accuracy of eligibility lists provided by the government. Inaccuracies in those lists could reduce our revenues or profitability.

      Premium payments to us are based upon eligibility lists produced by the government. From time to time, states require us to reimburse them for premiums paid to us based on an eligibility list that a state later discovers contains individuals who are not in fact eligible for any government-sponsored program or are eligible for a different premium category or a different program. Alternatively, a state could fail to pay us for members for whom we are entitled to payment. Our profitability would be reduced as a result of such reimbursement to the state if we had made related payments to providers and were unable to recoup such payments from the providers. During 2003 and 2002, premium payment adjustments by the government ranged from 0% to 3%, both negative and positive, of total premiums.

Our business depends on our information systems, and our inability to effectively integrate, manage and keep secure our information systems could disrupt our operations.

      Our business is dependent on effective and secure information systems that assist us in, among other things, monitoring utilization and other cost factors, supporting our healthcare management techniques, processing provider claims and providing data to our regulators. Our providers also depend upon our information systems for membership verifications, claims status and other information. If we experience a reduction in the performance, reliability or availability of our information systems, our operations and ability to produce timely and accurate reports could be adversely affected. In addition, many of our key software applications are licensed from third parties. If the owner of the software becomes insolvent or is otherwise unable to support the software, our operations could be adversely affected. Our operations could also be adversely affected if the software owner is unwilling to continue to support the software or charges materially increased fees for such support.

      We will not have a fully implemented disaster recovery and business continuity program until the end of 2004. Events outside our control, including acts of nature, such as earthquakes, fires or hurricanes, or terrorism, could significantly impair our information systems and applications.

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      Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs. If we are unable to maintain or expand our systems, we could suffer from, among other things, operational disruptions, such as the inability to pay claims or to make claims payments on a timely basis, loss of members, difficulty in attracting new members, regulatory problems and increases in administrative expenses.

      Our business requires the secure transmission of confidential information over public networks. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems and client data stored in our information systems. Anyone who circumvents our security measures could misappropriate our confidential information or cause interruptions in services or operations. The Internet is a public network, and data is sent over this network from many sources. In the past, computer viruses or software programs that disable or impair computers have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems, or those of our providers or regulators, which could disrupt our operations, or make our systems inaccessible to our providers or regulators. We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. Because of the confidential health information we store and transmit, security breaches could expose us to a risk of regulatory action, litigation, possible liability and loss. Our security measures may be inadequate to prevent security breaches, and our business operations would be adversely affected by cancellation of contracts and loss of members if they are not prevented.

We may not have adequate intellectual property rights in our brand names for our health plans, and we may be unable to adequately enforce such rights.

      Our success depends, in part, upon our ability to market our health plans under our brand names, including “WellCare,” “HealthEase,” “Staywell” and “Harmony.” While we hold federal trademark registrations for the “WellCare” trademark, we have not taken enforcement action to prevent infringement of our federal trademark and have not secured registrations of our other marks. Other businesses may have prior rights in the brand names that we market under or in similar names, which could limit or prevent our ability to use these marks, or to prevent others from using similar marks. If we are unable to prevent others from using our brand names, or if others prohibit us from using them, our revenues could be adversely affected. Even if we are able to protect our intellectual property rights in such brands, we could incur significant costs in doing so.

Ineffective management of our growth may adversely affect our results of operations, financial condition and business.

      Depending on acquisition and other opportunities, we expect to continue to increase our membership and to expand into other markets. In 1999, we had total revenue of approximately $275 million. In 2003, we had total revenue of more than $1.0 billion. Continued rapid growth could place a significant strain on our management and on other resources. Our ability to manage our growth may depend on our ability to strengthen our management team and attract, train and retain skilled associates, and our ability to implement and improve operational, financial and management information systems on a timely basis. If we are unable to manage our growth effectively, our financial condition and results of operations could be materially and adversely affected. In addition, due to the initial substantial costs related to potential acquisitions, rapid growth could adversely affect our short-term profitability and liquidity.

We are subject to competition that may limit our ability to increase or maintain membership in the markets we serve.

      We operate in a highly competitive environment and in an industry that is currently subject to significant changes due to business consolidations, new strategic alliances and aggressive marketing practices by other managed care organizations. We compete for members principally on the basis of size, location and quality of provider network, benefits provided, quality of service and reputation. A number of these competitive elements are partially dependent upon and can be positively affected by financial resources available to a health plan.

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We have substantial debt obligations that could restrict our operations.

      We have a significant amount of outstanding indebtedness, including $160 million in borrowings under our new senior secured credit facilities and $28.2 million in outstanding debt to the parties that sold our Florida operations to us. We have available borrowing capacity under our new senior secured revolving credit facility of approximately $50 million. We may also incur additional indebtedness in the future. Our substantial indebtedness could have adverse consequences, including:

	•	increasing our vulnerability to adverse economic, regulatory and industry conditions, and placing us at a disadvantage compared to our competitors that are less leveraged;
	•	limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•	limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions and general corporate or other purposes; and
	•	exposing us to greater interest rate risk since the interest rate on borrowings under our senior credit facilities is variable.

      Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal on indebtedness instead of for other corporate purposes, including funding future expansion of our business and ongoing capital expenditures. If our operating cash flow and capital resources are insufficient to service our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt. However, these measures might be unsuccessful or inadequate in permitting us to meet scheduled debt service obligations.

Restrictions and covenants in our credit facilities and instruments governing our additional indebtedness may limit our ability to make certain acquisitions and declare dividends.

      The documents governing our new senior secured credit facilities and our indebtedness to the parties that sold our Florida operations to us contain various restrictions and covenants, including prescribed fixed charge coverage and leverage ratios and limitations on capital expenditures and acquisitions, that restrict our financial and operating flexibility, including our ability to make certain acquisitions and declare dividends without lender approval.

Our failure to comply with covenants in our debt instruments could result in our indebtedness being immediately due and payable and the loss of our assets.

      Our indebtedness to the parties that sold our Florida operations to us is secured by a pledge of 51% of the outstanding capital stock of our subsidiary, WellCare Health Plans, Inc., which is the parent corporation of all of our operating subsidiaries. Our credit facilities are similarly secured by a pledge of stock of our operating subsidiaries, as well as a pledge of substantially all of the assets of our non-regulated entities. If we fail to pay any of our indebtedness when due, or if we breach any of the other covenants in the instruments governing our indebtedness, one or more events of default, including cross-defaults among multiple portions of our indebtedness, could result. These events of default could permit our creditors to declare all amounts owing to be immediately due and payable. If we were unable to repay indebtedness owed to our secured creditors, they could proceed against the collateral securing that indebtedness.

We are dependent on our executive officers and other key associates.

      Our operations are highly dependent on the efforts of our President and Chief Executive Officer and our other senior executives. Although some of our executives have entered into employment agreements with us,

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Claims relating to medical malpractice and other litigation could cause us to incur significant expenses.

      Our providers involved in medical care decisions may be exposed to the risk of medical malpractice claims. A small percentage of these providers do not have malpractice insurance. Although our network providers are independent contractors, claimants sometimes allege that a managed care organization such as us should be held responsible for alleged provider malpractice, and some courts have permitted that theory of liability; however, the Florida legislature recently enacted legislation that has partially limited liability of managed care organizations for provider malpractice. In addition, managed care organizations may be sued directly for alleged negligence, such as in connection with the credentialing of network providers or for improper denials or delay of care. In addition, Congress and several states are considering legislation that would expressly permit managed care organizations to be held liable for negligent treatment decisions or benefits coverage determinations.

      From time to time, we are party to various other litigation matters, some of which seek monetary damages. We cannot predict with certainty the eventual outcome of any pending litigation or potential future litigation, and we might incur substantial expense in defending these or future lawsuits or indemnifying third parties with respect to the results of such litigation. For example, an action, entitled E.S. Thomas vs. Well Care HMO, Inc. , was filed against one of our HMO subsidiaries in early 2001 by a sales agency that contracted to market our predecessor’s commercial health plan. The plaintiff alleges that its contract requires our Well Care HMO subsidiary to allow the plaintiff to serve as a sales agent for Well Care HMO’s Medicare health plans, and seeks monetary damages, including lost profits over the alleged contract term. See “Business — Legal Proceedings.”

      We maintain errors and omissions insurance with a policy limit of $10 million and other insurance coverage and, in some cases, indemnification rights that we believe are adequate based on industry standards. However, potential liabilities may not be covered by insurance or indemnity, our insurers or indemnifying parties may dispute coverage or may be unable to meet their obligations, or the amount of our insurance or indemnification coverage may be inadequate. We cannot assure you that we will be able to obtain insurance coverage in the future, or that insurance will continue to be available on a cost-effective basis, if at all. Moreover, even if claims brought against us are unsuccessful or without merit, we would have to defend ourselves against such claims. The defense of any such actions may be time-consuming and costly, and may distract our management’s attention. As a result, we may incur significant expenses and may be unable to effectively operate our business.

Growth in the number of Medicaid eligibles may be counter-cyclical, which could adversely affect our operating results when general economic conditions are improving.

      The number of persons eligible to receive Medicaid benefits may grow more slowly or even decline if economic conditions continue to improve. Therefore, improvements in general economic conditions may cause our membership levels to decrease, thereby causing our operating results to suffer, which could lead to decreases in our stock price during periods in which stock prices in general are increasing.

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Negative publicity regarding the managed care industry may harm our business and operating results.

      In the past, the managed care industry has received negative publicity. This publicity has led to increased legislation, regulation, review of industry practices and private litigation in the commercial sector. These factors may adversely affect our ability to market our services, require us to change our services and increase the regulatory burdens under which we operate, further increasing the costs of doing business and adversely affecting our operating results.

If state regulators do not approve payments of dividends and distributions by our affiliates to us, our liquidity could be materially impaired.

      We operate principally through our health plan subsidiaries. These subsidiaries are subject to laws and regulations that limit either the amount of dividends and distributions that they can pay to us or the amount of fees that may be paid to affiliates of our health plan subsidiaries without prior approval of, or notification to, state regulators. In addition, our New York and Connecticut subsidiaries may not pay any dividends until September 2004 without regulatory approval. The discretion of the state regulators, if any, in approving or disapproving a dividend is not clearly defined. Health plans that declare non-extraordinary dividends must usually provide notice to the regulators in advance of the intended distribution date of a non-extraordinary dividend. The aggregate amounts our Florida health plan subsidiaries could have paid us at December 31, 2001, 2002 and 2003 without approval of the regulatory authorities were $0, $2,215,000 and $568,000, respectively, assuming no dividends had been paid during the respective calendar years. No dividends were available to be paid from our New York and Connecticut health plan subsidiaries during those years. None of our health plan subsidiaries paid any dividends during 2001, 2002 or 2003. Moreover, the proposed increase in reserve requirements in New York may further hinder the ability of our New York managed care plan to pay dividends. If the regulators were to deny or significantly restrict our subsidiaries’ requests to pay dividends to us or to pay fees to the affiliates of our health plan subsidiaries, the funds available to our company as a whole would be limited, which could harm our ability to implement our business strategy. For example, we could be hindered in our ability to make debt service payments on amounts drawn from our credit facilities.

Recently enacted changes in securities laws and regulations are likely to increase our costs.

      The Sarbanes-Oxley Act of 2002, which became law in July 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in some of our corporate governance practices. In addition, the New York Stock Exchange has recently adopted revisions to its requirements for listed companies. We expect these new rules, and interpretations of these rules, and regulations to increase our legal and financial compliance costs, and to make some activities more difficult, time consuming and/or costly. We also expect these new rules and regulations to make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and executive officers.

Risks Related to this Offering

There has been no public market, and it is possible that no trading market will develop or be maintained, for our common stock and you may not be able to resell shares of our common stock for an amount equal to or more than your purchase price.

      Prior to this offering there has not been a public market for our common stock. We cannot predict the extent to which a trading market will develop, how liquid that market might become or whether it will be maintained. The initial public offering price will be determined by negotiation between the representatives of the underwriters and us and may not be indicative of prices that will prevail in the trading market. If an active trading market fails to develop or be maintained, you may be unable to sell the shares of common stock purchased in this offering at an acceptable price or at all.

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Volatility of our stock price could adversely affect stockholders.

      The market price of our common stock could fluctuate significantly as a result of:

	•	state and federal budget decreases;
	•	adverse publicity regarding health maintenance organizations and other managed care organizations;
	•	government action regarding eligibility;
	•	changes in government payment levels;
	•	changes in state mandatory programs;
	•	changes in expectations of our future financial performance or changes in financial estimates, if any, of public market analysts;
	•	announcements relating to our business or the business of our competitors;
	•	conditions generally affecting the managed care industry or our provider networks;
	•	the success of our operating or acquisition strategy;
	•	the operating and stock price performance of other comparable companies;
	•	the termination of any of our contracts;
	•	regulatory or legislative changes; and
	•	general economic conditions, including inflation and unemployment rates.

      Investors may not be able to resell their shares of our common stock following periods of volatility because of the market’s adverse reaction to that volatility. Our stock may not trade at the same levels as the stock of other healthcare companies, and the market in general may not sustain its current prices.

You will experience immediate and significant dilution in the book value per share and will experience further dilution with the future exercise of stock options.

      If you purchase common stock in this offering, you will incur immediate dilution, which means that:

	•	you will pay a price per share that exceeds by $13.45 the per share net tangible book value of our assets immediately following the offering; and
	•	the investors in the offering will have contributed 60.9% of the total equity capital to fund us (before deducting the estimated underwriting discounts and commissions and offering expenses) but will own only 19.2% of our outstanding shares of our common stock.

      As of June 1, 2004, we had outstanding options to purchase 1,552,794 shares of our common stock, of which 96,330 were vested, at a weighted average price of $5.31 per share. From time to time, we may issue additional options to associates, non-employee directors and consultants pursuant to our equity incentive plans. These options generally vest commencing one year from the date of grant and continue vesting over a three-year period. As these options vest, you will experience further dilution as these stock options are exercised by their holders.

Future sales, or the availability for sale, of our common stock may cause our stock price to decline.

      In connection with this offering, we, along with our officers, directors and certain of our stockholders, will have agreed prior to the commencement of this offering, subject to limited exceptions, not to sell or transfer any shares of common stock for 180 days after the date of this prospectus without the underwriters’ consent. However, the underwriters may release these shares from these restrictions at any time. In evaluating whether to grant such a request, the underwriters may consider a number of factors with a view toward maintaining an orderly market for, and minimizing volatility in the market price of, our common stock. These factors include, among others, the number of shares involved, recent trading volume and prices of the stock, the length of time

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      Based on shares outstanding as of June 1, 2004, a total of approximately 27,390,000 shares of common stock may be sold in the public market by existing stockholders 181 days after the date of this prospectus, subject to applicable volume and other limitations imposed under federal securities laws. Sales of substantial amounts of our common stock in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock. See “Shares Eligible for Future Sale” below for a more detailed description of the restrictions on selling shares of our common stock after this offering.

We have broad discretion to spend the net proceeds of this offering and may spend the proceeds in ways with which you may not agree.

      Our business plan is general in nature and is subject to change based upon changing conditions and opportunities. Our management will retain broad discretion to expend a significant portion of the net proceeds of this offering. Because of the number and variability of factors that will determine the use of these proceeds, our actual allocation of the proceeds may vary substantially from our current intentions. If management fails to use the proceeds effectively, our operating results could suffer. See “Use of Proceeds” for a more detailed description of how management intends to apply the proceeds from this offering.

The concentration of our capital stock ownership upon the completion of this offering will likely limit your ability to influence corporate matters.

      Soros Private Equity Investors LP, or SPEI, owned 79.3% of our outstanding capital stock as of June 1, 2004. Upon the completion of this offering, SPEI will beneficially own 63.4% of our outstanding capital stock, or 60.4% if the underwriters exercise their over-allotment option in full. In addition, we anticipate that our executive officers and directors will together beneficially own approximately 9.7% of our capital stock. The chairman of our board of directors is associated with SPEI. As a result, this director may have the ability to influence our management and affairs and determine the outcome of matters submitted to stockholders for approval, including the election and removal of directors, amendments to our charter, approval of any equity-based employee compensation plan and any merger, consolidation or sale of all or substantially all of our assets.

The concentration of our capital stock ownership, as well as provisions in our charter documents and under Delaware law, could discourage a takeover that stockholders may consider favorable and make it more difficult for you to elect directors of your choosing.

      After completion of this offering, SPEI will beneficially own 23,172,285 shares of our common stock, representing 63.4% of the voting power of our common stock, assuming the underwriters do not exercise their over-allotment option. For as long as SPEI owns a majority of our common stock, a takeover of our company will require SPEI’s approval, and SPEI will have sufficient voting control to approve the election of our directors.

      In addition, provisions of our certificate of incorporation, bylaws and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change in control that a stockholder may consider favorable. These provisions could also discourage proxy contests, make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions that you may consider unfavorable.

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