Form 10Q September 30, 2006

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.

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

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

	September 30,		December 31,
	2006		2005
ASSETS		(unaudited)
Current assets:
Cash and cash equivalents	$	1,215,475	$	391,646
Short-term investments		192,105		545,615
Accounts receivable, net		201,251		228,028
Other receivables, net		161,459		76,462
Deferred income taxes		52,152		57,666
Other current assets		18,696		26,285
Total current assets		1,841,138		1,325,702

Long-term investments		1,107,668		1,125,632
Property and equipment, net		310,716		351,427
Goodwill		1,628,784		1,612,390
Other intangible assets, net		397,471		419,352
Other long-term assets		73,144		60,669
Total assets	$	5,358,921	$	4,895,172

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical liabilities	$	1,071,525	$	752,774
Accounts payable and other accrued liabilities		342,890		442,785
Deferred revenue		83,610		64,668
Current portion of long-term debt		10,000		10,000
Total current liabilities		1,508,025		1,270,227

Long-term debt		750,500		760,500
Other long-term liabilities		324,888		309,742
Total liabilities		2,583,413		2,340,469

Stockholders’ equity:
Common stock, $.01 par value; 570,000 authorized
187,589 issued and 159,357 outstanding in 2006
186,253 issued and 162,717 outstanding in 2005		1,876		1,863
Treasury stock, at cost; 28,232 in 2006; 23,536 in 2005		(564,668)		(299,001)
Additional paid-in capital		1,549,997		1,468,176
Accumulated other comprehensive loss		(3,056)		(3,743)
Retained earnings		1,791,359		1,387,408
Total stockholders’ equity		2,775,508		2,554,703
Total liabilities and stockholders’ equity	$	5,358,921	$	4,895,172

		Quarters Ended September 30,				Nine Months Ended September 30,
			2006		2005		2006		2005
Operating revenues:
	Managed care premiums	$	1,695,952	$	1,434,394	$	5,133,411	$	4,246,314
	Management services		213,184		239,795		659,351		646,032
	Total operating revenues		1,909,136		1,674,189		5,792,762		4,892,346

Operating expenses:
	Medical costs		1,333,846		1,136,751		4,111,296		3,384,582
	Selling, general and administrative		322,649		304,746		984,167		851,368
	Depreciation and amortization		28,360		22,669		83,710		60,442
	Total operating expenses		1,684,855		1,464,166		5,179,173		4,296,392

Operating earnings			224,281		210,023		613,589		595,954

Interest expense			13,156		13,088		39,321		45,669
Other income, net			27,576		15,121		74,652		47,662

Earnings before income taxes			238,701		212,056		648,920		597,947

Provision for income taxes			91,184		78,991		244,969		222,735


Net earnings		$	147,517	$	133,065	$	403,951	$	375,212

Net earnings per share:
	Basic earnings per share	$	0.93	$	0.83	$	2.54	$	2.39
	Diluted earnings per share	$	0.92	$	0.81	$	2.50	$	2.33

Weighted average common shares outstanding:
	Basic		157,891		160,373		158,760		157,009
	Effect of dilutive options and restricted stock		2,545		3,514		2,939		3,741
	Diluted		160,436		163,887		161,699		160,750

		Nine Months Ended September 30,
			2006		2005
Net cash from operating activities		$	750,525	$	688,918
Cash flows from investing activities:
	Capital expenditures, net		(47,678)		(39,594)
	Proceeds from sales of investments		984,999		387,111
	Proceeds from maturities of investments		442,590		342,180
	Purchases of investments		(1,037,171)		(740,975)
	Payments for acquisitions, net of cash acquired		(34,872)		(872,826)
Net cash from investing activities			307,868		(924,104)

Cash flows from financing activities:
	Proceeds from issuance of stock		22,201		19,775
	Payments for repurchase of stock		(268,696)		(16,385)
	Excess tax benefit from stock compensation		21,931		-
	Proceeds from issuance of debt, net		-		1,066,495
	Payments for retirement of debt		(10,000)		(682,500)
Net cash from financing activities			(234,564)		387,385
Net change in cash and cash equivalents			823,829		152,199
Cash and cash equivalents at beginning of period			391,646		417,636
Cash and cash equivalents at end of period		$	1,215,475	$	569,835

The condensed consolidated financial statements of Coventry Health Care, Inc. and its subsidiaries (“Coventry” or the “Company”) contained in this report are unaudited but reflect all normal recurring adjustments which, in the opinion of management, are necessary for the fair presentation of the results of the interim periods reflected. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to applicable rules and regulations of the Securities and Exchange Commission. The results of operations for the interim periods reported herein are not necessarily indicative of results to be expected for the full year. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10–K for the year ended December 31, 2005.

The Medicare Part D program, which gives beneficiaries access to prescription drug coverage, took effect January 1, 2006. Coventry has been awarded contracts by the Centers for Medicare & Medicaid Services (“CMS”) to offer various Medicare Part D plans on a nationwide basis, in accordance with guidelines put forth by the agency. Payments from CMS under these contracts include amounts for premiums, amounts for risk corridor adjustments and amounts for reinsurance and low-income cost subsidies.

We recognize premium revenue ratably over the contract period for providing insurance coverage. Regarding the CMS risk corridor provision, an estimated risk sharing receivable or payable is recognized based on activity-to-date. Activity for CMS risk sharing is accumulated at the contract level and recorded to the balance sheet in other receivables or other accrued liabilities depending on the net contract balance at the end of the reporting period. Costs for covered prescription drugs are expensed as incurred.

Subsidy amounts received for reinsurance and for cost sharing related to low income individuals are recorded in medical liabilities and will offset medical costs when paid. We do not recognize premium revenue or claims expense for these subsidies as the Company does not incur any risk with this part of the program.

A reconciliation of the final risk sharing, low-income subsidy, and reinsurance subsidy amounts is performed following the end of the contract year.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting and disclosure for uncertain income tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently assessing the effect of adopting FIN 48 on its consolidated financial position and results of operations.

Effective January 28, 2005, the Company completed the acquisition of First Health. The total purchase price, including estimated transition costs, for First Health of $1.7 billion was allocated to the assets, including identifiable intangible assets and liabilities based on estimated fair values. The estimated transition costs of $46.4 million include estimated costs for involuntary employee termination of $25.6 million, of which $24.8 million has been paid; estimated costs for exiting certain leased building space of $10.0 million, of which $5.0 million has been paid; and other transition cost accruals of which substantially all has been paid.

Effective January 1, 2006, the Company completed the acquisition of Providers Synergies, L.L.C. (“Provider Synergies”), an Ohio limited liability company. Provider Synergies manages preferred drug lists and negotiates rebates on behalf of state government and commercial clients. The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of Provider Synergies have been included in the Company’s consolidated financial statements since the date of acquisition. The pro forma effects of this acquisition were not material to the Company’s consolidated financial statements.

The Company’s senior notes and credit facilities require compliance with specified financial ratios and contain certain covenants and restrictions regarding incurring additional debt, limiting dividends or other restricted payments, restricting sales of assets above a certain threshold and consolidations or mergers in the context of a change in control. The Company has complied with all ratios and covenants under the senior notes and credit facilities.

The Company is a defendant in the provider track of the In Re: Managed Care Litigation filed in the United States District Court for the Southern District of Florida, Miami Division, Multi-District Litigation (“MDL”), No. 1334, in the action captioned, Charles B. Shane., et al., vs. Humana, Inc., et al. This lawsuit was filed by a group of physicians as a class action against Coventry and nine other companies in the managed care industry. The plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), conspiracy to violate RICO and aiding and abetting a scheme to violate RICO. In addition to these federal law claims, the complaint included state law claims for breach of contract, violations of various state prompt payment laws and equitable claims for unjust enrichment and quantum meruit. The trial court dismissed several of the state law claims and ordered all physicians who had an arbitration provision in their provider contracts to submit their direct RICO claims and their remaining state law claims to arbitration. As a consequence of this ruling, the plaintiffs who had arbitration provisions voluntarily dismissed their claims that were subject to arbitration. In its order, the trial court also held that the plaintiffs’ claims of (1) conspiracy to violate RICO and (2) aiding and abetting violations of RICO were not subject to arbitration. The trial court then certified various subclasses of plaintiffs with respect to these two federal law claims.

Seven defendants have entered into settlement agreements with the plaintiffs, which have received final approval from the trial court. On June 16, 2006, the trial court filed an order in the Shane lawsuit which granted summary judgment on all claims in favor of the Company. The trial court also granted summary judgment on all claims in favor of two other defendants. The plaintiffs have filed a Notice of Appeal of the trial court’s summary judgment order with the Eleventh Circuit Court of Appeals. The Shane lawsuit has triggered the filing of copycat class action complaints by other health care providers such as chiropractors, podiatrists, acupuncturists and other licensed health care professionals. Each of these actions has been transferred to the MDL and have been designated as “tag-along” actions. The court has entered an order which stays all proceedings in the tag-along actions until all pre-trial proceedings in the Shane action have been concluded. Although the Company can not predict the outcome, management believes that the Shane and the tag-along actions will not have a material adverse effect on its financial position or its results of operations. Management also believes that the claims asserted in these lawsuits are without merit and the Company intends to defend its position.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) which requires that compensation costs related to share-based payment transactions be recognized in financial statements. SFAS 123R eliminates the alternative to use the intrinsic method of accounting provided for in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” which generally resulted in no compensation expense recorded in the financial statements related to the grant of stock options to employees if certain conditions were met.

Effective January 1, 2006, the Company adopted SFAS 123R using the modified prospective method. Under this method, the fair value of awards granted after the date of adoption and the unvested portion of previously granted awards outstanding at the date of adoption are included in operating expenses over the vesting period during which an employee provides service in exchange for the award. In accordance with the modified prospective method, prior period amounts presented herein have not been restated to reflect the adoption of SFAS 123R.

As a result of adopting SFAS 123R, the Company recorded $8.3 million and $22.0 million of compensation expense related to stock options, or $5.1 million and $13.7 million after-tax, in its statement of operations for the three and nine months ended September 30, 2006, respectively. As required in prior years under APB No. 25, the Company recognized forfeitures related to stock awards as they occurred. SFAS 123R requires an entity to estimate expected forfeitures at the grant date. As a result, the Company recorded a favorable $0.5 million ($0.3 million after tax) cumulative effect of a change in accounting principle upon the adoption of SFAS 123R as it relates to estimated forfeitures. This one time benefit applies to compensation cost recognized in prior periods for awards that are unvested on the adoption date and represents an estimate of the number of outstanding instruments upon adoption of SFAS 123R for which the requisite service is not expected to be rendered. The net increase of SFAS 123R for stock-based compensation expense reduced both basic and diluted earnings per share by $0.03 and $0.08 for the three and nine months ended September 30, 2006, respectively. In accordance with SFAS 123R, the Company estimates forfeitures and is recognizing compensation expense only for those share-based awards that are expected to vest.

In accordance with SFAS 123R, for the period beginning January 1, 2006, excess tax benefits from stock awards are presented as financing cash flows. The excess tax benefits totaled $21.9 million for the nine months ended September 30, 2006. Such benefits were $37.7 million for the nine months ended September 30, 2005 and are presented as a component of operating cash flows.

As of September 30, 2006, the Company had one stock incentive plan, the Amended and Restated 2004 Stock Incentive Plan (the “Stock Incentive Plan”) under which shares of the Company’s common stock were authorized for issuance to key employees, consultants and directors in the form of stock options, restricted stock and other stock-based awards. In May 2006, the Stock Incentive Plan was amended to increase the number of shares authorized for issuance by an additional 9.0 million shares. Shares available for issuance under the Stock Incentive Plan were 10.1 million as of September 30, 2006.

Under the Stock Incentive Plan, the terms and conditions of option grants are established on an individual basis with the exercise price of the options being equal to not less than 100% of the fair value of the underlying stock at the date of grant. Options generally become exercisable after one year in 25% increments per year and expire ten years from the date of grant. At September 30, 2006, the Stock Incentive Plan had outstanding options representing 11.3 million shares of common stock.

The Black-Scholes-Merton weighted-average value of options granted was $17.13 and $14.87 per share for the quarters ended September 30, 2006 and 2005, respectively, and $17.53 and $14.88 per share for the nine months ended September 30, 2006 and 2005, respectively. The total intrinsic value of options exercised was $19.2 million and $25.3 million for the quarters ended September 30, 2006 and 2005, respectively, and $51.2 million and $74.3 million for the nine months ended September 30, 2006 and 2005, respectively. As of September 30, 2006, there was $79.3 million of total unrecognized compensation cost (net of expected forfeitures) related to nonvested stock option grants which is expected to be recognized over a weighted average period of 2.8 years.

The following table summarizes stock option activity for the nine months ended September 30, 2006:

The Company has elected to continue to use the Black-Scholes-Merton option pricing model and straight-line amortization of compensation expense over the requisite service period of the grant. The Company will reconsider use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

The Company has not paid dividends in the past nor does it expect to pay dividends in the future. As such, the Company used a dividend yield percentage of zero. The Company uses a risk-free interest rate consistent with the yield available on a U.S. Treasury note with a term equal to the expected term of the underlying grants. The expected volatility was estimated based upon a blend of the implied volatility of the Company’s tradeable options and the historical volatility of the Company’s share price. The expected life was estimated based upon exercise experience of option grants made in the past to Company employees.

Information with respect to stock options outstanding and stock options exercisable at September 30, 2006 was as follows:

The value of the restricted shares is amortized over various vesting periods through 2010. The Company recorded compensation expense related to restricted stock grants, including restricted stock granted in prior periods, of approximately $6.5 million and $6.0 million for the quarters ended September 30, 2006 and 2005, respectively, and $19.1 million and $15.7 million for the nine months ended September 30, 2006 and 2005, respectively. The total unrecognized compensation cost related to the restricted stock was $45.5 million at September 30, 2006, and is expected to be recognized over a weighted average period of 2.4 years. The total fair value of shares vested during the nine months ended September 30, 2006 and 2005 was $34.5 million and $ 40.1 million, respectively.

The following table summarizes restricted stock award activity for the nine months ended September 30, 2006:

The following table illustrates the effect on net earnings and earnings per common share (“EPS”) as if we had applied the fair value recognition provisions of SFAS 123 to stock-based compensation during the three months and nine months ended September 30, 2005 (in millions, except per share amounts):

	Quarter Ended	Nine Months Ended
	September 30, 2005	September 30, 2005
Net earnings, as reported	$ 133,065	$ 375,212
Add: Stock-based employee compensation expense
included in reported net earnings, net of tax	3,744	9,807

Deduct: Total stock-based employee compensation
expense determined under fair-value-based method
for all awards, net of tax	(8,037)	(20,823)

Net earnings, pro-forma	$ 128,772	$ 364,196

EPS, basic - as reported	$ 0.83	$ 2.39
EPS, basic - pro-forma	$ 0.80	$ 2.32


EPS, diluted - as reported	$ 0.81	$ 2.33
EPS, diluted - pro-forma	$ 0.79	$ 2.27

In February 2006, the Company’s Board of Directors approved an increase to the share repurchase program in an amount equal to 5% of the Company’s outstanding common stock, thus increasing the Company’s repurchase authorization by 8.1 million shares. Under the share repurchase program, the Company purchased 4.6 million shares of the Company’s common stock during the nine months ended September 30, 2006, at an aggregate cost of $256.1 million. As of September 30, 2006, the total remaining common shares the Company is authorized to repurchase under this program is 6.2 million.

The Company has two reportable segments: Health Plans and First Health. The Health Plans segment provides Commercial, Medicare Advantage, Medicaid and Medicare Part D products to a cross section of employer groups and individuals. The First Health segment is a collection of health benefits services companies that serve the Group Health and Specialty sectors.

The table below summarizes the Company’s reportable segments (in thousands). “Other” represents the elimination of fees charged between segments. Disclosure of total assets by reportable segment has not been disclosed, as they are not reported on a segment basis internally by the Company and are not reviewed separately by the Company’s chief operating decision maker.

	Quarter Ended September 30, 2006
		Health		First
		Plans		Health		Other		Total
Operating Revenue:
Managed care premiums	$	1,675,471	$	20,481	$	-	$	1,695,952
Management services		30,321		184,507		(1,644)		213,184
Total operating revenues		1,705,792		204,988		(1,644)		1,909,136

Total operating expenses		1,516,198		170,301		(1,644)		1,684,855

Operating earnings	$	189,594	$	34,687	$	-	$	224,281

	Quarter Ended September 30, 2005
		Health		First
		Plans		Health		Other		Total
Operating Revenue:
Managed care premiums	$	1,422,056	$	12,338	$	-	$	1,434,394
Management services		32,166		210,666		(3,037)		239,795
Total operating revenues		1,454,222		223,004		(3,037)		1,674,189

Total operating expenses		1,293,251		173,952		(3,037)		1,464,166

Operating earnings	$	160,971	$	49,052	$	-	$	210,023

	Nine Months Ended September 30, 2006
		Health		First
		Plans		Health		Other		Total
Operating Revenue:
Managed care premiums	$	5,072,702	$	60,709	$	-	$	5,133,411
Management services		91,695		572,571		(4,915)		659,351
Total operating revenues		5,164,397		633,280		(4,915)		5,792,762

Total operating expenses		4,669,157		514,931		(4,915)		5,179,173

Operating earnings	$	495,240	$	118,349	$	-	$	613,589

	Nine Months Ended September 30, 2005
		Health		First
		Plans		Health ⁽¹⁾		Other		Total
Operating Revenue:
Managed care premiums	$	4,216,496	$	29,818	$	-	$	4,246,314
Management services		91,892		559,622		(5,482)		646,032
Total operating revenues		4,308,388		589,440		(5,482)		4,892,346

Total operating expenses		3,850,937		450,937		(5,482)		4,296,392

Operating earnings	$	457,451	$	138,503	$	-	$	595,954

⁽¹⁾ Includes results since January 28, 2005, the date of acquisition

The Health Plan operations are aligned in several insured products. The Company believes identifying the gross margin and medical loss ratio (“MLR”) calculation from each of these products is useful in understanding the Company’s results of operations and is summarized in the table below (in thousands):

	Quarters Ended September 30,

		Medicare		Medicare
	Commercial	Advantage	Medicaid	Part D⁽¹⁾	Total
2006
Revenues	$ 1,132,085	$ 201,898	$ 192,500	$ 148,988	$ 1,675,471
Medical costs	877,246	163,986	163,868	114,302	1,319,402
Gross margin	$ 254,839	$ 37,912	$ 28,632	$ 34,686	$ 356,069
MLR	77.5%	81.2%	85.1%	76.7%	78.7%

2005
Revenues	$ 1,066,259	$ 168,691	$ 187,106	$ -	$ 1,422,056
Medical costs	829,582	138,164	160,039	-	1,127,785
Gross margin	$ 236,677	$ 30,527	$ 27,067	$ -	$ 294,271
MLR	77.8%	81.9%	85.5%	0.0%	79.3%

	Nine Months Ended September 30,

		Medicare		Medicare
	Commercial	Advantage	Medicaid	Part D⁽¹⁾	Total
2006
Revenues	$ 3,393,255	$ 603,335	$ 571,781	$ 504,331	$ 5,072,702
Medical costs	2,641,155	487,861	485,925	454,932	4,069,873
Gross margin	$ 752,100	$ 115,474	$ 85,856	$ 49,399	$ 1,002,829
MLR	77.8%	80.9%	85.0%	90.2%	80.2%

2005
Revenues	$ 3,144,164	$ 505,504	$ 566,828	$ -	$ 4,216,496
Medical costs	2,478,836	408,075	474,561	-	3,361,472
Gross margin	$ 665,328	$ 97,429	$ 92,267	$ -	$ 855,024
MLR	78.8%	80.7%	83.7%	0.0%	79.7%
⁽¹⁾ Represents the Medicare Part D Prescription Drug Plan and excludes the health plan Medicare Advantage business.

The First Health operations are aligned into two sectors. The Company believes identifying the revenue from each of these sectors is useful in understanding the Company’s results of operations and is summarized in the table below (in thousands):

The unrealized gain on the Company’s investment portfolio for the quarter ended September 30, 2006, was primarily a result of a decrease in interest rates during the third quarter of 2006.

Earnings Per Share - Basic earnings per share are based on the weighted average number of common shares outstanding during the year. Diluted earnings per share assume the exercise of all options and the vesting of all restricted stock using the treasury stock method. Potential common stock equivalents to purchase 4.9 million and 2.8 million shares for the quarters ended September 30, 2006 and 2005, respectively, and 3.8 million and 1.4 million shares for the nine months ended September 30, 2006 and 2005, respectively, were excluded from the computation of diluted earnings per share because the potential common stock equivalents were anti-dilutive.

Other Income - Other income includes interest income of $26.2 million and $14.3 million for the quarters ended September 30, 2006 and 2005, respectively, and $70.1 million and $42.2 million for the nine months ended September 30, 2006 and 2005, respectively.

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

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

These forward–looking statements may be affected by a number of factors, including, but not limited to, the “Risk Factors” contained in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10–K for the year ended December 31, 2005, and Part II, Item 1A, “Risk Factors” of this Form 10–Q. Actual operations and results may differ materially from those expressed in this Form 10–Q.

The following discussion and analysis relates to our financial condition and results of operations for the quarters and nine months ended September 30, 2006 and 2005. This discussion should be read in conjunction with the condensed consolidated financial statements and other information presented herein as well as in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10–K for the year ended December 31, 2005, including the critical accounting policies discussed therein.

Effective January 1, 2006, we completed the acquisition of Providers Synergies, L.L.C. (“Provider Synergies”), an Ohio limited liability company. Provider Synergies manages preferred drug lists and negotiates rebates on behalf of state government and commercial clients. The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of Provider Synergies have been included in our consolidated financial statements since the date of acquisition. The pro forma effects of this acquisition were not material to the Company’s consolidated financial statements.

The following tables present our Health Plan membership as of September 30, 2006 and 2005 (amounts in thousands).

	September 30,	September 30,
	2006	2005

Health Plan Membership By Market
Delaware	145	103
Georgia	96	72
Illinois	103	91
Iowa	63	66
Kansas	222	212
Louisiana	55	76
Michigan	58	62
Nebraska	63	48
North Carolina	114	131
Pennsylvania	690	736
St. Louis	434	447
Utah	220	207
Virginia	178	174
West Virginia	77	82
Total Health Plan Membership	2,518	2,507


Membership By Product:
Fully-Insured
Commercial	1,451	1,454
Medicare Advantage	79	74
Medicaid	373	397
Total Fully Insured	1,903	1,925

Administrative Services Only	615	582

Total Health Plan Membership	2,518	2,507

Medicare Part D Membership	687	-

Commercial membership decreased slightly from the prior year quarter. During the twelve months ended September 30, 2006, we experienced losses in our competitive Pennsylvania market and we also experienced the expected loss of commercial insured members in our Louisiana operations during the fourth quarter of 2005 and the first half of 2006, primarily due to Hurricane Katrina. Additionally, there were a few large groups changing from a risk product to a non-risk product. These losses were largely offset by gains in employer group business in other markets such as Delaware, Kansas and Georgia and also by growth in individual business across multiple markets.

Medicaid membership decreased from the prior year quarter primarily due to changes in the eligibility requirements for Medicaid beneficiaries throughout the Missouri market as well as the state of North Carolina’s termination of its existing managed care program during the current quarter resulting in a loss off approximately 7,400 members.

The increase in non-risk membership from the prior year quarter was attributable to organic growth in various markets as well as a few large groups changing from a risk product to a non-risk product.

The following table is provided to facilitate a more meaningful discussion regarding the comparison of our operations for the quarters and nine months ended September 30, 2006 and 2005 (in thousands, except EPS and membership).

				Quarters Ended					Nine Months Ended
				September 30,			Increase		September 30,			Increase
				2006		2005	(Decrease)		2006		2005	(Decrease)
Consolidated Business
	Total operating revenues		$	1,909,136	$	1,674,189	14.0%	$	5,792,762	$	4,892,346	18.4%
	Operating earnings		$	224,281	$	210,023	6.8%	$	613,589	$	595,954	3.0%
	Operating earnings as a % of revenue			11.7%		12.5%	(0.8%)		10.6%		12.2%	(1.6%)
	Net earnings		$	147,517	$	133,065	10.9%	$	403,951	$	375,212	7.7%
	Diluted earnings per share		$	0.92	$	0.81	13.6%	$	2.50	$	2.33	7.3%
	Selling, general and			16.9%		18.2%	(1.3%)		17.0%		17.4%	(0.4%)
	administrative as a % of revenue

Health Plan Business
Managed Care Premium Yields (per member per month):
	Commercial		$	261.05	$	247.60	5.4%	$	258.47	$	244.62	5.7%
	Medicare Advantage		$	855.05	$	761.90	12.2%	$	848.59	$	765.13	10.9%
	Medicaid		$	170.90	$	157.10	8.8%	$	166.49	$	157.00	6.0%
	Medicare Part D		$	71.97		n/a	n/a	$	94.46		n/a	n/a
Medical Costs (per member per month):
	Commercial		$	202.29	$	192.64	5.0%	$	201.18	$	192.86	4.3%
	Medicare Advantage		$	694.50	$	624.03	11.3%	$	686.18	$	617.66	11.1%
	Medicaid		$	145.48	$	134.38	8.3%	$	141.49	$	131.44	7.6%
	Medicare Part D		$	55.22		n/a	n/a	$	85.21		n/a	n/a
Medical Loss Ratios:
	Commercial			77.5%		77.8%	(0.3%)		77.8%		78.8%	(1.0%)
	Medicare Advantage			81.2%		81.9%	(0.7%)		80.9%		80.7%	0.2%
	Medicaid			85.1%		85.5%	(0.4%)		85.0%		83.7%	1.3%
	Total			78.9%		79.3%	(0.4%)		79.1%		79.7%	(0.6%)
	Medicare Part D			76.7%		n/a	n/a		90.2%		n/a	n/a
Administrative Statistics:
	Selling, general and			11.0%		11.0%	-		11.3%		11.0%	0.3%
	administrative as a % of revenue
	Days in medical liabilities⁽¹⁾			56.0		56.0	-

First Health Business⁽²⁾
Membership:
	National Accounts
		On-going accounts		460,800		671,000
		Run-out ⁽³⁾		38,600		90,000
	Total National Accounts			499,400		761,000
	Mail Handlers			411,400		468,000
Revenue by product lines
	National Accounts		$	27,308	$	37,588		$	90,014	$	105,854
	Federal Employees Health Benefit Plan			49,213		60,337			153,142		148,851
	Network Rental			31,400		24,643			95,394		67,067
	Group Health Subtotal			107,921		122,568			338,550		321,772
	Medicaid/Public Sector			45,983		49,742			137,684		126,907
	Workers’ Compensation			51,084		50,694			157,046		140,761
	Specialty Business Subtotal			97,067		100,436			294,730		267,668
	Total First Health Revenues		$	204,988	$	223,004		$	633,280	$	589,440
	⁽¹⁾Excludes Medicare Part D; ⁽²⁾ Results of Operations includes First Health since January 28, 2005, the date of acquisition; and ⁽³⁾Company is still providing services to terminated customers.

Managed care premium revenue increased as a result of new business related to our Medicare Part D products and as a result of rate increases that occurred throughout all markets. Medicare Part D business accounted for $149.0 million of managed care premium revenue this quarter which includes a reduction of revenue of $41.0 million attributable to the estimation of Centers for Medicare & Medicaid Services (“CMS”) Risk Sharing payments. This risk sharing revenue represents the change during the quarter in the amount we would receive from CMS if we settled with CMS as of the end of the third quarter. The Medicare Part D program was profitable this quarter and, as a result, the risk-sharing revenue recorded in the first two quarters of 2006 is beginning to reverse in the current quarter. We expect the Medicare Part D program to be profitable on a full year basis and, as a result, expect that the full year risk-sharing revenue will be insignificant as of year end.

Additionally, we have quota share reinsurance arrangements with two of our Medicare Part D distribution partners. As a result of the quota sharing arrangements, we ceded Medicare Part D premium revenue to these partners of $20.9 million for the third quarter. This amount is excluded from the $149.0 million of reported Medicare Part D revenue. Excluding the CMS risk sharing revenue and before subtracting the quota share ceded revenue, the premium yield for Medicare part D business would have been $29.90 higher than the $71.97 reported. When reviewing the premium yield for Medicare Part D business, adjusting for the risk share amounts is useful to understand the results of the business because of our expectation that the risk sharing revenue will eventually be insignificant on a full year basis. Adjusting for the ceded revenue is useful for comparisons to competitors that may not have similar ceding arrangements.

Commercial premium yields increased as a result of rate increases that occurred throughout all markets. The reported commercial premium yield increase of 5.4% is lower than the rate increases on renewing business due to a mix change in the types of plans being purchased as new business (such as a change to lower benefit plans); the types of plans being selected by renewing members when they have a choice among multiple options (such as a change to higher deductible, lower premium plans); and the termination of certain large groups which had high costs and high premium yields. Medicare Advantage premium yields increased as a result of the rate increases from the annual Competitive Bid filings. Medicaid premium yields increased as a result of rate increases effective January 1 and July 1, 2006 in Missouri, our largest Medicaid market.

The decline in management services revenue is in our First Health segment and is partially a result of membership declines experienced in the National Accounts and Federal Employees Health Benefit Plan sectors. Additionally, the implementation of Medicare Part D resulted in a decline of First Health pharmacy administration fee based revenue compared to the prior year quarter, although this decline is more than offset by the increased revenue from our new Medicare Part D business discussed above in the managed care premium revenue section.

Medical costs have increased as a result of new business related to our Medicare Part D products and as a result of medical trend. Medicare Part D medical costs totaled $114.3 million. Excluding Medicare Part D business, Health Plan medical costs as a percentage of premium revenue has declined 0.4% compared with the prior year quarter. This decline is primarily a result of premium increases and better than expected cost trends. The better than expected cost trends were primarily attributed to lower inpatient utilization.

Selling, general and administrative expense increased as a result of costs related to the new Medicare Part D business in 2006 and recognizing stock option expense related to the adoption of SFAS 123(R). These increases are partially offset by lower selling, general and administrative expense in the First Health segment as a result of expected continued efficiencies gained subsequent to the acquisition.

Depreciation and amortization increased as a result of an increase in property and equipment over the past twelve months, primarily computer equipment and software related to our First Health business.

Other income increased as a result of a rise in interest rates over the last twelve months and a larger investment portfolio.

Our provision for income taxes increased due to an increase in earnings. The effective tax rate increased to 38.2% in the third quarter of 2006 compared to 37.3% for the same period in 2005 primarily as a result of the First Health acquisition. As expected, subsequent to the acquisition, the Company’s earnings have gradually changed among the states that have higher tax rates, with an end result of an increased state tax provision.

As described in our Annual Report on Form 10-K for the year ended December 31, 2005, the effects of Hurricane Katrina affected our local Louisiana Health Plan. Beginning in the first quarter of 2006, our Louisiana Health Plan is back to more normal operating protocols and is operating as a profitable, but smaller, business.

Managed care premium revenue increased as a result of new business related to our Medicare Part D products and as a result of rate increases that occurred throughout all markets. Medicare Part D business accounted for $504.3 million of managed care premium revenue in 2006 which includes $15.7 million attributable to the estimation of CMS Risk Sharing payments. As a result of the quota sharing arrangements, we ceded Medicare Part D premium revenue to these partners of $57.1 million. This amount is excluded from the $504.3 million of reported Medicare Part D revenue. Excluding the CMS risk sharing revenue and before subtracting the quota share ceded revenue, the premium yield for Medicare Part D business would have been $7.77 higher than the $94.46 reported.

Premium yields increased for the nine month period of 2006 for the same reasons discussed above in the quarterly section.

Management services revenue increased as a result of reporting a full nine months of First Health results in 2006. First Health was acquired on January 28, 2005 and therefore only results from January 28, 2005 through September 30, 2005 are included in our 2005 results of operations. This increase is offset partially by declines in membership in the National Accounts and Federal Employees Health Benefit Plan sectors as well as a decline of First Health pharmacy administration fee-based revenue compared to the prior year period as a result of the implementation of the Medicare Part D program.

Medical costs have increased as a result of new business related to our Medicare Part D products and as a result of medical trend. Medicare Part D medical costs totaled $454.9 million. Excluding Medicare Part D business, Health Plan medical costs as a percentage of premium revenue have declined 0.6% compared with the prior year period. The decline is primarily a result of premium increases and better than expected cost trends. The better than expected cost trends were primarily attributed to lower inpatient utilization.

Selling, general and administrative expense increased as a result of costs related to the new Medicare Part D business in 2006, reporting a full nine months of First Health results in 2006 and recognizing stock option expense related to the adoption of SFAS 123(R). These increases are partially offset by synergies gained subsequent to the acquisition of First Health.

Depreciation and amortization increased as a result of reporting a full nine months of First Health results in 2006 and as a result of an increase in property and equipment over the past twelve months, primarily computer equipment and software related to our First Health business.

Interest expense was higher in the prior year nine month period as a result of the refinancing of our credit facilities during the prior year second quarter. As a result of the refinancing, we wrote off $5.4 million of deferred financing costs in the prior year second quarter related to the original credit facilities associated with the First Health acquisition. Additionally, our debt has declined over the last twelve months and as a result interest expense related to the indebtedness has also declined.

Other income increased as a result of a larger investment portfolio and a rise in interest rates over the last twelve months.

Our provision for income taxes increased due to an increase in earnings. The effective tax rate increased to 37.8% for the nine months ended September 30, 2006 compared to 37.3% for the same period in 2005 primarily as a result of the First Health acquisition. As expected, subsequent to the acquisition, the Company’s earnings have gradually changed among the states that have higher tax rates, with an end result of an increased state tax provision.

Our investment guidelines require our fixed income securities to be investment grade in order to provide liquidity to meet future payment obligations and minimize the risk to the principal. The fixed income portfolio includes government and corporate securities with an average quality rating of “AA+” and an average contractual duration of 2.9 years as of September 30, 2006. Typically, the amount and duration of our short-term assets are more than sufficient to pay for our short-term liabilities and we do not anticipate that sales of our long-term investment portfolio will be necessary to fund our claims liabilities.

Our cash and investments, consisting of cash and cash equivalents and short-term and long-term investments, but excluding deposits of $54.8 million restricted under state regulations, increased $446.9 million to $2.5 billion at September 30, 2006 from $2.0 billion at December 31, 2005.

We have classified all of our investments as available–for–sale. Our investments at September 30, 2006 mature according to their contractual terms, as follows, in thousands (actual maturities may differ because of call or prepayment rights):

Temporary declines in value of investments classified as available-for-sale are netted with unrealized gains and reported as a net amount in a separate component of stockholders’ equity. A decline in fair value below amortized cost that is judged to be other–than–temporary is accounted for as a realized loss and the write down is included in earnings. Realized gains and losses on the sale of investments are determined on a specific identification basis. The current unrealized loss is almost exclusively the result of interest rate increases and not unfavorable changes in the credit ratings associated with these securities. These investments are not in high risk industries or sectors and we intend to hold these investments for a period of time sufficient to allow for a recovery in market value.

The demand for our products and services is subject to many economic fluctuations, risks and uncertainties that could materially affect the way we do business. Please refer to the section entitled “Risk Factors” in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10–K for the year ended December 31, 2005, and Part II, Item 1A, “Risk Factors” of this Form 10–Q for more information. Management believes that the combination of our ability to generate cash flows from operations, cash and investments on hand and the excess funds held in certain of our regulated subsidiaries will be sufficient to fund continuing operations, capital expenditures, debt interest costs, debt principal repayments and any other reasonably likely future cash requirements.

Net cash from operating activities for the nine months ended September 30, 2006, is primarily driven by net earnings, the new Medicare Part D business and a decline in accounts receivable. Total cash inflows from Medicare Part D totaled $232.0 million. This amount included a net receipt of claim reinsurance subsidies from CMS of approximately $208.1 million. The receipt of these subsidies is generally level throughout the year but claim payments related to these subsidies are weighted toward the latter part of the year. Accounts receivable decreased during the nine-month period as a result of strong collections. Offsetting these operating cash inflows during the nine months ended September 30, 2006, was an increase in other receivables and a reduction in accounts payable and other accrued liabilities. Other receivables increased primarily as a result of pharmacy rebate receivables recorded related to the Medicare Part D business and the receivable for the estimate of CMS risk sharing payments. Accounts payable and other accrued liabilities decreased primarily due to payments made for a long–term deferred compensation program, the timing of interest payments on our outstanding debt, and other normal operating activities.

Net cash flow used for investing activities for the nine months ended September 30, 2006, decreased as compared to the prior year period primarily due to the acquisition payment made for First Health in the prior year. The current year nine-month period reflects that certain short-term investments matured, and remained as cash related to a bank conversion at the end of the period and also includes non-recurring payments made for the Provider Synergies acquisition and software license payments.

Projected capital expenditures in 2006 of approximately $65-$75 million consist primarily of computer hardware, software and related costs associated with the development and implementation of improved operational and communication systems.

In February 2006, our Board of Directors approved an increase to the share repurchase program in an amount equal to 5% of our outstanding common stock, thus increasing our repurchase authorization by 8.1 million shares. Under the share repurchase program, we purchased 4.6 million shares of our common stock in 2006 at an aggregate cost of $256.1 million. As of September 30, 2006, the total remaining common shares we are authorized to repurchase under this program is 6.2 million.

Our regulated HMO and insurance company subsidiaries are required by state regulatory agencies to maintain minimum surplus balances, thereby limiting the dividends the parent may receive from our regulated entities. During the nine months ended September 30, 2006, we received $273 million in dividends from our regulated subsidiaries.

The majority of states in which we operate health plans have adopted a risk-based capital (“RBC”) policy that recommends the health plans maintain statutory reserves at or above the ‘Company Action Level’ which is currently equal to 200% of their RBC. We have adopted an internal policy to maintain all of our regulated subsidiaries’ statutory capital and surplus at or above 250% of their RBC and a level of 300% in aggregate (referred to below as “300% of RBC”). Some states in which our regulated subsidiaries operate require deposits to be maintained with the respective states’ departments of insurance. The table below summarizes our statutory reserve information, as of September 30, 2006 and December 31, 2005 (in millions, except percentage data):

The increase in capital and surplus for our regulated subsidiaries is a result of net earnings partially offset by dividends paid to the parent company during the quarter.

We believe that all subsidiaries which incur medical claims maintain more than adequate liquidity and capital resources to meet these short-term obligations as a matter of both Company policy and multiple Department of Insurance regulations.

Excluding funds held by entities subject to regulation and excluding our investment in an equipment leasing limited liability company, we had cash and investments of approximately $458.7 million and $347.2 million at September 30, 2006 and December 31, 2005, respectively. The increase was primarily due to the dividends received from our regulated subsidiaries and earnings from our non-regulated First Health business offset, in part, by the share repurchases discussed previously.

The Medicare Part D program is new in 2006 and because of the benefit plan design of the Medicare Part D program, the results for the quarter and nine months ended September 30, 2006, are not indicative of what the annual results will be. While our risk revenue stream throughout 2006 will be level, the benefit plan design of the Medicare Part D program will not produce a level pattern of claim cost during 2006. As expected, it has produced a higher level of claim costs at the beginning of the year, with declining claim costs through the rest of the year.

Consequently, the first and second quarter results included a loss of $0.06 and $0.01, respectively, per diluted share for the Medicare Part D program. The third quarter results included a gain of $0.07, per diluted share. The fourth quarter results are anticipated to be better than the results of the third quarter.

In 2007, we are expecting a relatively modest 1% increase in our commercial risk membership and growth in our Health Plan based non-risk membership of approximately 5%. In addition, we are expecting our Medicare HMO membership to grow in the range of 5% to 10% and our Medicaid membership to grow in the range of 3% to 5%. For our Part D business, we expect overall membership to be consistent with or slightly favorable to 2006 results.

For 2007, we will offer a new Medicare Advantage Private Fee-For-Service (PFFS) plan in 43 states. Through the combined efforts of our various distribution channels, we expect to generate between 50,000 to 65,000 new PFFS members during 2007 with associated revenue of approximately $500 million.

The Company’s contract with the National Postal Mail Handlers Union requires that the Company fund any Mail Handlers Benefit Plan (the “Plan”) expenses after the Plan’s reserves have been fully utilized. We believe the Plan’s reserves as of September 30, 2006 are sufficient to cover the Plan expenses.

These disclosures should be read in conjunction with the condensed consolidated financial statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other information presented herein as well as in “Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report on Form 10–K for the year ended December 31, 2005.

No material changes have occurred in our exposures to market risk since the date of our Annual Report on Form 10–K for the fiscal year ended December 31, 2005.

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

On January 28, 2005, the Company completed its acquisition of First Health Group Corp. (“First Health”). We continue to modify and evaluate additional processes, information technology systems and other components of internal control over financial reporting resulting from the acquisition of First Health and such evaluation will be reported in management’s annual assessment of internal control over financial reporting in the Company’s 2006 Annual Report on Form 10-K. For the nine months ended September 30, 2006, First Health’s total assets, total revenues and total operating earnings represent approximately 12.6%, 10.9% and 19.3%, respectively, of the consolidated financial statements of the Company.

Excluding First Health, there have been no significant changes in our internal control over financial reporting (as defined in Rule 13a – 15(f) promulgated under the Securities and Exchange Act of 1934) during the quarter ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are a defendant in the provider track of the In Re: Managed Care Litigation filed in the United States District Court for the Southern District of Florida, Miami Division, Multi-District Litigation (“MDL”), No. 1334, in the action captioned, Charles B. Shane., et al., vs. Humana, Inc., et al. This lawsuit was filed by a group of physicians as a class action against Coventry and nine other companies in the managed care industry. The plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), conspiracy to violate RICO and aiding and abetting a scheme to violate RICO. In addition to these federal law claims, the complaint included state law claims for breach of contract, violations of various state prompt payment laws and equitable claims for unjust enrichment and quantum meruit. The trial court dismissed several of the state law claims and ordered all physicians who had an arbitration provision in their provider contracts to submit their direct RICO claims and their remaining state law claims to arbitration. As a consequence of this ruling, the plaintiffs who had arbitration provisions voluntarily dismissed their claims that were subject to arbitration. In its order, the trial court also held that the plaintiffs’ claims of (1) conspiracy to violate RICO and (2) aiding and abetting violations of RICO were not subject to arbitration. The trial court then certified various subclasses of plaintiffs with respect to these two federal law claims.

Seven defendants have entered into settlement agreements with the plaintiffs, which have received final approval from the trial court. On June 16, 2006, the trial court filed an order in the Shane lawsuit which granted summary judgment on all claims in favor of Coventry. The trial court also granted summary judgment on all claims in favor of two other defendants. The plaintiffs have filed a Notice of Appeal of the trial court’s summary judgment order with the Eleventh Circuit Court of Appeals. The Shane lawsuit has triggered the filing of copycat class action complaints by other health care providers such as chiropractors, podiatrists, acupuncturists and other licensed health care professionals. Each of these actions has been transferred to the MDL and have been designated as “tag-along” actions. The court has entered an order which stays all proceedings in the tag-along actions until all pre-trial proceedings in the Shane action have been concluded. Although we can not predict the outcome, we believe that the Shane and the tag-along actions will not have a material adverse effect on our financial position or our results of operations. Management also believes that the claims asserted in these lawsuits are without merit and we intend to defend its position.

Our business, financial condition or results of operations could be materially adversely affected by certain risk factors. Further, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. For discussion of our potential risks or uncertainties, refer to Part I, Item 1A, Risk Factors, included in our Form 10-K for the year ended December 31, 2005. Below is an additional risk factor that should be considered.

We contract with the Centers for Medicare & Medicaid Services to provide Medicare Part D Prescription Drug benefits.

Effective January 1, 2006, we began offering Medicare approved prescription drug plans to Medicare eligible individuals. While we believe we have adequately reviewed our assumptions regarding the Medicare Part D program, our actual results may differ from our assumptions. Risks associated with the Medicare prescription drug plans include:

The following table shows our purchases of our common stock during the quarter ended September 30, 2006 (in thousands, except per share information).

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

Class		Outstanding at October 31, 2006

Common Stock $.01 Par Value		159,354,500

PART I. FINANCIAL INFORMATION
	ITEM 1: Financial Statements
		Consolidated Balance Sheets at September 30, 2006 and December 31, 2005	3
		Consolidated Statements of Operations for the quarters and nine months ended September 30, 2006 and 2005	4
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005	5
		Notes to the Condensed Consolidated Financial Statements	6
	ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
	ITEM 3: Quantitative and Qualitative Disclosures About Market Risk		21
	ITEM 4: Controls and Procedures		21
PART II: OTHER INFORMATION			21
	ITEM 1: Legal Proceedings		21
	ITEM 1A: Risk Factors		22
	ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds		22
	ITEM 3: Not Applicable		23
	ITEM 4: Not Applicable		23
	ITEM 5: Not Applicable		23
	ITEM 6: Exhibits		24
	SIGNATURES		25
	INDEX TO EXHIBITS		26

	Shares	Weighted-Average	Aggregate Intrinsic Value
	(in thousands)	Exercise Price	(in thousands)

Outstanding at January 1, 2006	10,511	$ 29.52
Granted	2,457	$ 51.56
Exercised	(1,318)	$ 16.33
Cancelled and expired	(394)	$ 43.40
Outstanding at September 30, 2006	11,256	$ 35.40	$ 182,404
Exercisable at September 30, 2006	4,329	$ 24.02	$ 119,079

	Three Months Ended		Nine Months Ended
	September 30, 2006	September 30, 2005	September 30, 2006	September 30, 2005

Dividend yield	0.0%	0.0%	0.0%	0.0%
Risk-free interest rate	4.9%	4.2%	4.9%	3.8%
Expected volatility	31.9%	30.0%	34.0%	32.0%
Expected life (in years)	3.8	4.1	4.0	4.2

Options Outstanding (in thousands)				Options Exercisable (in thousands)
		Weighted
	Number	Average	Weighted	Number	Weighted
Range of	Outstanding at	Remaining	Average	Exercisable at	Average
Exercise Prices	9/30/2006	Contractual Life	Exercise Price	9/30/2006	Exercise Price

$ 2.22 - $19.30	2,535	5.0	$ 12.25	2,125	$ 11.01
$19.30 - $31.80	457	7.8	$ 27.28	129	$ 27.02
$32.46 - $32.46	2,921	7.7	$ 32.46	1,377	$ 32.46
$32.60 - $59.01	5,343	9.1	$ 48.69	698	$ 46.42
$2.22 - $59.01	11,256	7.8	$ 35.40	4,329	$ 24.02

		Weighted-Average
	Shares	Grant-Date Fair
	(in thousands)	Value Per Share

Nonvested, January 1, 2006	1,769	$ 38.96
Granted	229	$ 52.04
Vested	(656)	$ 32.73
Forfeited	(85)	$ 44.20

Nonvested, September 30, 2006	1,257	$ 44.25

		Amortized		Fair
As of September 30, 2006		Cost		Value
Maturities:
	Within 1 year	$	283,463	$	282,962
	1 to 5 years		396,446		392,575
	5 to 10 years		245,067		246,186
	Over 10 years		326,161		324,404
Total		$	1,251,137		1,246,127
	Equity investment accounted for under the equity method				53,646
Total short-term & long-term investments				$	1,299,773

	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares That May Yet Be Purchased Under The Plan or Program ⁽²⁾

July 1-31, 2006	-	$	-	-	6,169
August 1-31, 2006	-	$	-	-	6,169
September 1-30, 2006	1	$	52.93	-	6,169

Totals	1	$	52.93	-	6,169

⁽¹⁾ Purchased in connection with the vesting of restricted stock awards to satisfy employees’ minimum statutory tax withholding obligations.
⁽²⁾ These shares are under a stock repurchase program previously announced on December 20, 1999, as amended. In February 2006, our Board of Directors approved an increase to the repurchase authorization in an amount equal to 5% of our outstanding common stock, thus increasing our repurchase authorization by 8,135 thousand shares.

Exhibit
No.		Description of Exhibit

10.1		Amended Coventry Health Care, Inc. 2004 Incentive Plan.

10.2		Form of Amendment to Coventry Health Care, Inc. Non–Qualified Stock Option Agreement.

10.3		Form of Amendment to Coventry Health Care, Inc. Restricted Stock Agreement.

31.1		Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Dale B. Wolf, Chief Executive Officer and Director.

31.2		Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Shawn M. Guertin, Executive Vice President, Chief Financial Officer and Treasurer.

32		Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 made by Dale B. Wolf, Chief Executive Officer and Director and Shawn M. Guertin, Executive Vice President, Chief Financial Officer and Treasurer

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


		COVENTRY HEALTH CARE, INC.

		(Registrant)

Date:	November 8, 2006	/s/ Dale B. Wolf
		Dale B. Wolf
		Chief Executive Officer and Director


Date:	November 8, 2006	/s/ Shawn M. Guertin
		Shawn M. Guertin
		Executive Vice President, Chief Financial Officer and Treasurer


Date:	November 8, 2006	/s/ John J. Ruhlmann
		John J. Ruhlmann
		Senior Vice President and Corporate Controller

		Quarters Ended September 30,		Nine Months Ended September 30,
		2006	2005	2006	2005
Net earnings		$ 147,517	$ 133,065	$ 403,951	$ 375,212
Other comprehensive gain:
	Holding gain (loss):	15,635	(10,350)	671	(12,610)
	Reclassification adjustment	(2)	34	455	(2,179)
	Sub-total	15,633	(10,316)	1,126	(14,789)

	Tax (provision) benefit	(6,096)	4,023	(439)	5,768

Comprehensive income		$ 157,054	$ 126,772	$ 404,638	$ 366,191