Amerigroup 10-Q 2010 Q2 Quarterly report

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

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2010
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File Number001-31574

AMERIGROUP Corporation

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	54-1739323 (I.R.S. Employer Identification No.)
4425 Corporation Lane, Virginia Beach, VA (Address of principal executive offices)	23462 (Zip Code)

Registrant’s telephone number, including area code:

(757) 490-6900

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

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

As of July 30, 2010, there were 51,022,288 shares outstanding of AMERIGROUP’s common stock, par value $0.01 per share.

AMERIGROUP Corporation And Subsidiaries

Table of Contents

Part I.Financial Information
	Item 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	3
		Condensed Consolidated Income Statements for the three and six months ended June 30, 2010 and 2009	4
		Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2010	5
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
	Item 4.	Controls and Procedures	33
Part II.Other Information
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	33
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
	Item 3.	Defaults Upon Senior Securities	34
	Item 4.	(Removed and Reserved)	34
	Item 5.	Other Information	34
	Item 6.	Exhibits	34

2

Part I. Financial Information

Item 1.   Financial Statements

AMERIGROUP Corporation And Subsidiaries

Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)

	June 30,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	409,833		$	505,915
Short-term investments		221,007			137,523
Premium receivables		115,007			104,867
Deferred income taxes		26,779			26,361
Provider and other receivables		37,370			33,083
Prepaid expenses and other		17,688			14,233
Total current assets		827,684			821,982
Long-term investments		773,933			711,196
Investments on deposit for licensure		115,391			102,780
Property, equipment and software, net of accumulated depreciation of $160,410 and $156,693 at June 30, 2010 and December 31, 2009, respectively		97,809			101,002
Other long-term assets		13,550			13,398
Goodwill		260,496			249,276
Total assets	$	2,088,863		$	1,999,634
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Claims payable	$	525,603		$	529,036
Accounts payable		4,844			4,685
Unearned revenue		47,824			98,298
Accrued payroll and related liabilities		55,991			37,311
Accrued expenses and other		127,574			89,967
Total current liabilities		761,836			759,297
Long-term convertible debt		240,427			235,104
Deferred income taxes		7,372			8,430
Other long-term liabilities		10,645			12,359
Total liabilities		1,020,280			1,015,190
Stockholders’ equity:
Common stock, $0.01 par value. Authorized 100,000,000 shares; outstanding 49,850,353 and 50,638,474 at June 30, 2010 and December 31, 2009, respectively		552			546
Additional paid-in capital		513,655			494,735
Accumulated other comprehensive income		2,298			1,354
Retained earnings		700,027			590,632
		1,216,532			1,087,267
Less treasury stock at cost (5,303,442 and 3,956,560 shares at June 30, 2010 and December 31, 2009, respectively)		(147,949	)		(102,823	)
Total stockholders’ equity		1,068,583			984,444
Total liabilities and stockholders’ equity	$	2,088,863		$	1,999,634

See accompanying notes to condensed consolidated financial statements.

3

AMERIGROUP Corporation And Subsidiaries

Condensed Consolidated Income Statements
(Dollars in thousands, except per share data)
(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010		2009			2010		2009
Revenues:
Premium	$	1,428,879	$	1,284,890		$	2,795,646	$	2,502,337
Investment income and other		8,634		6,517			13,516		18,864
Total revenues		1,437,513		1,291,407			2,809,162		2,521,201
Expenses:
Health benefits		1,176,445		1,103,213			2,318,017		2,122,516
Selling, general and administrative		108,189		96,285			225,612		206,660
Premium tax		33,172		34,623			64,644		62,741
Depreciation and amortization		8,905		9,680			17,615		18,006
Interest		4,019		4,232			8,009		8,470
Total expenses		1,330,730		1,248,033			2,633,897		2,418,393
Income before income taxes		106,783		43,374			175,265		102,808
Income tax expense (benefit)		39,570		(6,225	)		65,870		16,300
Net income	$	67,213	$	49,599		$	109,395	$	86,508
Net income per share:
Basic net income per share	$	1.34	$	0.95		$	2.17	$	1.65
Weighted average number of common shares outstanding		50,296,209		52,308,721			50,422,564		52,488,010
Diluted net income per share	$	1.31	$	0.94		$	2.14	$	1.63
Weighted average number of common shares and dilutive potential common shares outstanding		51,318,044		53,029,943			51,235,939		53,224,753

See accompanying notes to condensed consolidated financial statements.

4

AMERIGROUP Corporation And Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity
Six Months Ended June 30, 2010
(Dollars in thousands)
(Unaudited)

									Accumulated
						Additional			Other									Total
	Common Stock					Paid-in			Comprehensive		Retained		Treasury Stock					Stockholders’
	Shares			Amount		Capital			Income		Earnings		Shares		Amount			Equity
Balances at December 31, 2009		50,638,474		$	546	$	494,735		$	1,354	$	590,632		3,956,560	$	(102,823	)	$	984,444
Common stock issued upon exercise of stock options, vesting of restricted stock grants and purchases under the employee stock purchase plan		558,761			6		9,755			—		—		—		—			9,761
Compensation expense related to share-based payments		—			—		9,571			—		—		—		—			9,571
Tax expense related to share-based payments		—			—		(142	)		—		—		—		—			(142	)
Employee stock relinquished for payment of taxes		(46,475	)		—		(264	)		—		—		46,475		(1,450	)		(1,714	)
Common stock repurchases		(1,300,407	)		—		—			—		—		1,300,407		(43,676	)		(43,676	)
Unrealized gain onavailable-for-sale securities, net of tax		—			—		—			944		—		—		—			944
Net income		—			—		—			—		109,395		—		—			109,395
Balances at June 30, 2010		49,850,353		$	552	$	513,655		$	2,298	$	700,027		5,303,442	$	(147,949	)	$	1,068,583

See accompanying notes to condensed consolidated financial statements.

5

AMERIGROUP Corporation And Subsidiaries

Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

	Six Months Ended
	June 30,
	2010			2009
Cash flows from operating activities:
Net income	$	109,395		$	86,508
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,615			18,006
Loss on disposal or abandonment of property, equipment and software		24			412
Deferred tax (benefit) expense		(1,972	)		4,630
Compensation expense related to share-based payments		9,571			8,022
Convertible debt non-cash interest		5,323			4,987
Gain on sale of intangible asset		(4,000	)		—
Gain on sale of contract rights		—			(5,810	)
Other		4,189			(201	)
Changes in assets and liabilities (decreasing) increasing cash flows from operations:
Premium receivables		(10,140	)		(15,683	)
Prepaid expenses, provider and other receivables and other current assets		(6,138	)		(35,928	)
Other assets		(55	)		(439	)
Claims payable		(3,433	)		26,883
Accounts payable, accrued expenses and other current liabilities		41,371			(36,605	)
Unearned revenue		(50,474	)		(18,161	)
Other long-term liabilities		(1,714	)		(2,583	)
Net cash provided by operating activities		109,562			34,038
Cash flows from investing activities:
Proceeds from sale of trading securities		8,992			—
Proceeds from sale ofavailable-for-sale securities		416,066			13,708
Purchase ofavailable-for-sale securities		(575,966	)		(164,351	)
Proceeds from redemption ofheld-to-maturity securities		—			273,125
Purchase ofheld-to-maturity securities		—			(194,851	)
Proceeds from redemption of investments on deposit for licensure		36,007			38,682
Purchase of investments on deposit for licensure		(48,523	)		(42,595	)
Purchase of property, equipment and software		(13,508	)		(15,865	)
Proceeds from sale of intangible asset		4,000			—
Proceeds from sale of contract rights		—			5,810
Purchase of contract rights and related assets		(13,420	)		—
Net cash used in investing activities		(186,352	)		(86,337	)
Cash flows from financing activities:
Repayment of borrowings under credit facility		—			(26,318	)
Net increase (decrease) in bank overdrafts		13,361			(2,492	)
Customer funds administered		1,404			(3,764	)
Proceeds from exercise of stock options and employee stock purchases		9,761			3,729
Repurchase of common stock shares		(43,676	)		(28,555	)
Tax (expense) benefit related to share-based payments		(142	)		918
Net cash used in financing activities		(19,292	)		(56,482	)
Net decrease in cash and cash equivalents		(96,082	)		(108,781	)
Cash and cash equivalents at beginning of period		505,915			763,272
Cash and cash equivalents at end of period	$	409,833		$	654,491
Non-cash disclosures:
Employee stock relinquished for payment of taxes	$	(1,714	)	$	(912	)
Unrealized gain onavailable-for-sale securities, net of tax	$	944		$	296
Auction rate securities pending settlement	$	3,008		$	—

See accompanying notes to condensed consolidated financial statements.

6

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
(Unaudited)

1.  Interim Financial Reporting

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements as of June 30, 2010 and for the three and six months ended June 30, 2010 and 2009 of AMERIGROUP Corporation and its subsidiaries (the “Company”), are unaudited and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position at June 30, 2010 and operating results for the interim periods ended June 30, 2010 and 2009. The December 31, 2009 Condensed Consolidated Balance Sheet was derived from the audited consolidated financial statements as of that date.

The Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2009 contained in the Company’s Annual Report onForm 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2010. The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2010.

2.  Earnings per Share

Basic net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding plus other potentially dilutive securities. The following table sets forth the calculation of basic and diluted net income per share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Basic net income per share:
Net income	$	67,213	$	49,599	$	109,395	$	86,508
Weighted average number of common shares outstanding		50,296,209		52,308,721		50,422,564		52,488,010
Basic net income per share	$	1.34	$	0.95	$	2.17	$	1.65
Diluted net income per share:
Net income	$	67,213	$	49,599	$	109,395	$	86,508
Weighted average number of common shares outstanding		50,296,209		52,308,721		50,422,564		52,488,010
Dilutive effect of stock options and non-vested stock awards (as determined by applying the treasury stock method)		1,021,835		721,222		813,375		736,743
Weighted average number of common shares and dilutive potential common shares outstanding		51,318,044		53,029,943		51,235,939		53,224,753
Diluted net income per share	$	1.31	$	0.94	$	2.14	$	1.63

Potential common stock equivalents representing 883,010 shares and 1,525,327 shares for the three and six months ended June 30, 2010, respectively, were not included in the computation of diluted net income per share

7

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

because to do so would have been anti-dilutive. Potential common stock equivalents representing 2,654,800 shares and 2,460,909 shares for the three and six months ended June 30, 2009, respectively, were not included in the computation of diluted net income per share because to do so would have been anti-dilutive.

The shares issuable upon conversion of the Company’s 2.0% Convertible Senior Notes (the “2.0% Convertible Senior Notes”) due May 15, 2012 which were issued effective March 28, 2007 in the aggregate principal amount of $260,000 (See Note 7) were not included in the computation of diluted net income per share for the three and six months ended June 30, 2010 and 2009 because to do so would have been anti-dilutive.

The Company’s warrants to purchase shares of its common stock sold on March 28, 2007 and April 9, 2007 (See Note 7) were not included in the computation of diluted net income per share for the three and six months ended June 30, 2010 and 2009 because to do so would have been anti-dilutive.

3.  Fair Value Measurements

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, premium receivables, provider and other receivables, prepaid expenses and other current assets, claims payable, accounts payable, unearned revenue, accrued payroll and related liabilities, and accrued expenses and other current liabilities:These financial instruments are carried at cost which approximates fair value because of the short maturity of these items.

Short-term investments, long-term investments, investments on deposit for licensure, cash surrender value of life insurance policies (included in otherlong-term assets), deferred compensation (included in other long-term liabilities) and the forward contract related to certain auction rate securities (included in other long-term assets at December 31, 2009):Fair values for these items are determined based upon quoted market prices or discounted cash flow analyses.

Convertible Senior Notes:  The estimated fair value of the Company’s 2.0% Convertible Senior Notes is determined based upon a quoted market price.

Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are categorized based upon a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Tier Level	Tier Definition
Level 1	Observable inputs such as quoted prices in active markets.
Level 2	Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3	Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Transfers between levels as a result of changes in the inputs used to determine fair value are recognized as of the beginning of the reporting period in which the transfer occurs. There were no transfers between levels for the three and six months ended June 30, 2010.

8

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Assets

The Company’s assets measured at fair value on a recurring basis at June 30, 2010 were as follows:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
Cash equivalents	$	392,514	$	392,514	$	—	$	—
Money market funds		25,600		25,600		—		—
Available-for-sale securities:
Auction rate securities		31,044		—		—		31,044
Certificates of deposit		22,151		—		22,151		—
Commercial paper		11,098		—		11,098		—
Corporate bonds		241,588		—		241,588		—
Debt securities of government sponsored entities		452,718		452,718		—		—
Federally insured corporate bonds		43,817		43,817		—		—
Municipal bonds		263,570		—		263,570		—
U.S. Treasury securities		18,277		18,277		—		—
Total assets measured at fair value	$	1,502,377	$	932,926	$	538,407	$	31,044

The Company’s assets measured at fair value on a recurring basis at December 31, 2009 were as follows:

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
Cash equivalents	$	481,585	$	481,585	$	—	$	—
Auction rate securities (trading)		10,835		—		—		10,835
Forward contract related to auction rate securities		1,165		—		—		1,165
Money market funds		21,978		21,978		—		—
Available-for-sale securities:
Auction rate securities		46,003		—		—		46,003
Certificates of deposit		36,155		—		36,155		—
Commercial paper		8,992		—		8,992		—
Corporate bonds		210,163		—		210,163		—
Debt securities of government sponsored entities		382,976		382,976		—		—
Federally insured corporate bonds		47,008		47,008		—		—
Municipal bonds		165,681		—		165,681		—
U.S. Treasury securities		21,294		21,294		—		—
Total assets measured at fair value	$	1,433,835	$	954,841	$	420,991	$	58,003

9

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

For the three and six months ended June 30, 2010 and 2009, net unrealized gains recorded to accumulated other comprehensive income as a result of changes in fair value for investments classified asavailable-for-sale were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Net unrealized gains recorded to other comprehensive income	$	972	$	1,155	$	1,445	$	898

The following table presents the changes in the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ended June 30, 2010 and December 31, 2009:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Six Months Ended			Twelve Months Ended
	June 30, 2010			December 31, 2009
Balance at beginning of period	$	58,003		$	73,654
Total net realized (losses) gains included in earnings		(290	)		224
Total net unrealized gains included in other comprehensive income		1,541			2,225
Sales and calls by issuers		(28,210	)		(18,100	)
Balance at end of period	$	31,044		$	58,003

At June 30, 2010, the Company did not elect the fair value option available under current guidance for any financial assets and liabilities that were not required to be measured at fair value.

The Company has invested in auction rate securities issued by student loan corporations established by various state governments which are reflected at fair value and included in long-term investments in the accompanying Condensed Consolidated Balance Sheets. The auction events for these securities failed during early 2008 and have not resumed. Therefore, the estimated fair values of these securities have been determined utilizing discounted cash flow analyses as of June 30, 2010. These analyses consider, among other items, the creditworthiness of the issuer, the timing of the expected future cash flows, including the final maturity associated with the securities, and an assumption of when the next time the security is expected to have a successful auction. These securities were also compared, when possible, to other observable and relevant market data. As the timing of future successful auctions, if any, cannot be predicted, auction rate securities are classified as long-term.

During the three and six months ended June 30, 2010 and 2009, proceeds from the sale or call of certain investments in auction rate securities, the net realized gains and the amount of prior period net unrealized losses reclassified from other comprehensive income on a specific-identification basis were as follows (excludes the impact of the forward contract discussed below):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010			2009		2010			2009
Proceeds from sale or call of auction rate securities	$	20,340		$	6,850	$	28,210		$	6,850
Net realized gains recorded in earnings		674			729		875			397
Net unrealized losses reclassified from other comprehensive income, included in realized gains above		(210	)		—		(290	)		—

During the fourth quarter of 2008, the Company entered into a forward contract with a registered broker-dealer, at no cost, which provided the Company with the ability to sell certain auction rate securities to the registered

10

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

broker-dealer at par within a defined timeframe, beginning June 30, 2010. These securities were classified as trading securities because the Company did not intend to hold these securities until final maturity. Trading securities are carried at fair value with changes in fair value recorded in earnings. The value of the forward contract was estimated using a discounted cash flow analysis taking into consideration the creditworthiness of the counterparty to the agreement. The forward contract was included in other long-term assets. As of June 30, 2010, all of the remaining trading securities under the terms of this forward contract were repurchased by the broker-dealer; therefore, the forward contract expired at the end of the period resulting in a realized loss of $1,165 for the six months ended June 30, 2010, which was largely offset by recovery of the related auction rate securities at par.

Liabilities

The 2.0% Convertible Senior Notes are carried at amortized cost. The estimated fair value of the 2.0% Convertible Senior Notes is determined based upon a quoted market price. As of June 30, 2010 and December 31, 2009, the fair value of the borrowings under the 2.0% Convertible Senior Notes was $264,241 and $246,025, respectively, compared to the face value of $260,000.

4.  Short- and Long-term Investments and Investments on Deposit for Licensure

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value foravailable-for-sale short-term investments held at June 30, 2010 and December 31, 2009 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
June 30, 2010:
Certificates of deposit	$	11,000	$	1	$	—	$	11,001
Commercial paper		11,098		—		—		11,098
Corporate bonds		14,556		2		11		14,547
Debt securities of government sponsored entities		131,641		36		1		131,676
Municipal bonds		52,690		10		15		52,685
Total short-term investments	$	220,985	$	49	$	27	$	221,007

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
December 31, 2009:
Certificates of deposit	$	25,000	$	5	$	—	$	25,005
Commercial paper		8,989		3		—		8,992
Corporate bonds		5,605		4		1		5,608
Debt securities of government sponsored entities		80,246		37		10		80,273
Municipal bonds		17,643		5		3		17,645
Total short-term investments	$	137,483	$	54	$	14	$	137,523

11

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value foravailable-for-sale long-term investments held at June 30, 2010 and December 31, 2009 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
June 30, 2010:
Auction rate securities, maturing in greater than ten years	$	33,650	$	—	$	2,606	$	31,044
Corporate bonds, maturing within one year		92,785		559		9		93,335
Corporate bonds, maturing between one year and five years		132,063		2,288		645		133,706
Debt securities of government sponsored entities, maturing within one year		84,517		398		—		84,915
Debt securities of government sponsored entities, maturing between one year and five years		175,456		786		11		176,231
Federally insured corporate bonds, maturing within one year		22,018		159		—		22,177
Federally insured corporate bonds, maturing between one year and five years		21,155		492		7		21,640
Municipal bonds, maturing within one year		16,886		21		—		16,907
Municipal bonds, maturing between one year and five years		47,540		208		48		47,700
Municipal bonds, maturing between five years and ten years		45,819		947		64		46,702
Municipal bonds, maturing in greater than ten years		98,900		705		29		99,576
Total long-term investments	$	770,789	$	6,563	$	3,419	$	773,933

12

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
December 31, 2009:
Auction rate securities, maturing between one year and five years	$	4,000	$	—	$	231	$	3,769
Auction rate securities, maturing in greater than ten years		46,150		—		3,916		42,234
Corporate bonds, maturing within one year		40,117		623		—		40,740
Corporate bonds, maturing between one year and five years		162,017		1,897		99		163,815
Debt securities of government sponsored entities, maturing within one year		87,000		831		11		87,820
Debt securities of government sponsored entities, maturing between one year and five years		163,326		1,142		28		164,440
Federally insured corporate bonds, maturing within one year		22,040		316		—		22,356
Federally insured corporate bonds, maturing between one year and five years		24,200		459		7		24,652
Municipal bonds, maturing within one year		4,969		13		—		4,982
Municipal bonds, maturing between one year and five years		15,271		138		6		15,403
Municipal bonds, maturing between five years and ten years		32,632		300		57		32,875
Municipal bonds, maturing in greater than ten years		94,366		415		5		94,776
U.S. Treasury securities, maturing between one year and five years		2,499		—		—		2,499
Total long-term investments	$	698,587	$	6,134	$	4,360	$	700,361

As of June 30, 2010, the Company has divested all of its trading securities, which consisted only of auction rate securities (see Note 3). The purchase amount, realized gains, realized losses and fair value for trading securities held at December 31, 2009 were as follows:

	Purchase		Realized		Realized		Fair
	Amount		Gains		Losses		Value
December 31, 2009:
Auction rate securities, maturing in greater than ten years	$	12,000	$	—	$	1,165	$	10,835

13

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

As a condition for licensure by various state governments to operate health maintenance organizations (“HMOs”), health insuring corporations (“HICs”) or prepaid health services plans (“PHSPs”), the Company is required to maintain certain funds on deposit, in specific dollar amounts based on either formulas or set amounts, with or under the control of the various departments of insurance. The Company purchases interest-bearing investments with a fair value equal to or greater than the required dollar amount. The interest that accrues on these investments is not restricted and is available for withdrawal. The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for theseavailable-for-sale investments at June 30, 2010 and December 31, 2009 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
June 30, 2010:
Cash equivalents	$	468	$	—	$	—	$	468
Certificates of deposit, maturing within one year		5,000		—		—		5,000
Certificates of deposit, maturing between one year and five years		6,150		—		—		6,150
Money market funds		25,600		—		—		25,600
Available-for-sale securities:
Debt securities of government sponsored entities, maturing within one year		10,423		65		2		10,486
Debt securities of government sponsored entities, maturing between one year and five years		49,117		302		9		49,410
U.S. Treasury securities, maturing within one year		17,547		55		—		17,602
U.S. Treasury securities, maturing between one year and five years		601		74		—		675
Total investments on deposit	$	114,906	$	496	$	11	$	115,391

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
December 31, 2009:
Cash equivalents	$	414	$	—	$	—	$	414
Certificates of deposit, maturing within one year		11,150		—		—		11,150
Money market funds		21,978		—		—		21,978
Available-for-sale securities:
Debt securities of government sponsored entities, maturing within one year		935		—		1		934
Debt securities of government sponsored entities, maturing between one year and five years		49,262		285		38		49,509
U.S. Treasury securities, maturing within one year		16,189		8		13		16,184
U.S. Treasury securities, maturing between one year and five years		2,460		151		—		2,611
Total investments on deposit	$	102,388	$	444	$	52	$	102,780

14

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

The following table shows the fair value of the Company’savailable-for-sale investments with unrealized losses that are not deemed to beother-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2010 and December 31, 2009:

	Less than 12 Months						12 Months or Greater
			Gross						Gross
			Unrealized		Total				Unrealized		Total
	Fair		Holding		Number of		Fair		Holding		Number of
	Value		Losses		Securities		Value		Losses		Securities
June 30, 2010:
Auction rate securities	$	—	$	—		—	$	31,044	$	2,606		9
Corporate bonds		39,180		665		21		—		—		—
Debt securities of government sponsored entities		48,671		23		12		—		—		—
Federally insured corporate bond		—		—		—		4,060		7		1
Municipal bonds		56,842		156		19		—		—		—
Total temporarily impaired securities	$	144,693	$	844		52	$	35,104	$	2,613		10

	Less than 12 Months						12 Months or Greater
			Gross						Gross
			Unrealized		Total				Unrealized		Total
	Fair		Holding		Number of		Fair		Holding		Number of
	Value		Losses		Securities		Value		Losses		Securities
December 31, 2009:
Auction rate securities	$	—	$	—		—	$	46,003	$	4,147		13
Corporate bonds		40,971		100		32		—		—		—
Debt securities of government sponsored entities		44,881		88		13		—		—		—
Federally insured corporate bond		4,076		7		1		—		—		—
Municipal bonds		17,771		71		7		—		—		—
U.S. Treasury securities		9,420		13		2		—		—		—
Total temporarily impaired securities	$	117,119	$	279		55	$	46,003	$	4,147		13

The temporary declines in value at June 30, 2010, are primarily due to fluctuations in short-term market interest rates and the lack of liquidity of auction rate securities. Auction rate securities that have been in an unrealized loss position for greater than 12 months have experienced losses due to the lack of liquidity for these instruments, not as a result of impairment of the underlying debt securities. Additionally, the Company does not intend to sell any of these securities prior to maturity or recovery and it is not likely that the Company will be required to sell these securities prior to maturity. Therefore, there is no indication ofother-than-temporary impairment for these securities as of June 30, 2010.

5.  Market Updates

Medicare Advantage

In June 2010, the Company received approval from the Centers for Medicare and Medicaid Services (“CMS”) to add Tarrant County to its Medicare Advantage service area in Texas, and to add Rutherford County to its

15

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Medicare Advantage service area in Tennessee. In addition, CMS approved expansion of the Company’s Medicare Advantage plans to cover traditional Medicare beneficiaries in addition to the existing special needs beneficiaries already covered in Texas, Tennessee and New Mexico. These approvals allow the Company to begin serving Medicare members in the expanded areas effective January 1, 2011. The Company can give no assurance that its entry into these service areas will be favorable to its results of operations, financial position or cash flows in future periods.

Texas

In May 2010, the Texas Health and Human Services Commission announced that the Company’s Texas health plan was selected through a competitive procurement to expand health care coverage to seniors and people with disabilities in the six county service area surrounding Fort Worth, Texas. Pending final contract negotiations, the Company anticipates an operational start date in early 2011. AMERIGROUP Texas, Inc. will be one of two health plans serving approximately 30,000 STAR+PLUS members in that service area. The Company can give no assurance that its entry into this business will be favorable to its results of operations, financial position or cash flows in future periods.

Tennessee

On March 1, 2010, the Company’s Tennessee health plan began offering long-term care (“LTC”) services to existing members through the State’s TennCare CHOICES program. The program, created as a result of the LTC Community Choices Act of 2008, is an expansion program offered through amendments to existing Medicaid managed care contracts and became effective March 1, 2010. TennCare CHOICES focuses on promoting independence, choice, dignity and quality of life for LTC Medicaid managed care recipients by offering members the option to live in their own homes while receiving LTC and other medical services. The Company can give no assurance that its entry into this business will be favorable to its results of operations, financial position or cash flows in future periods.

South Carolina

On March 1, 2009, the Company’s South Carolina subsidiary, AMERIGROUP Community Care of South Carolina, Inc., sold its rights to serve Medicaid members pursuant to the contract with the State of South Carolina for $5,810, or $3,521, net of the related tax effect, and recorded a gain, which is included in investment income and other revenues in the accompanying Condensed Consolidated Income Statements for the six months ended June 30, 2009. Certain claims run-out and transition obligations exist that continue in 2010. Additional costs incurred to discontinue operations in South Carolina were not material.

6.  Summary of Goodwill and Acquired Intangible Assets

On March 1, 2010, the Company’s New Jersey health plan acquired the Medicaid contract rights and rights under certain provider agreements of University Health Plans, Inc. (“UHP”) for strategic reasons. The purchase price of $13,420 was financed through available cash. The entire purchase price was allocated to goodwill and other intangibles, which includes $2,200 of specifically identifiable intangibles allocated to the rights to the Medicaid service contract and the assumed provider contracts. Intangible assets related to the rights to the Medicaid service contract are being amortized over a period of approximately 117 months based on a projected disenrollment rate of members in this market. Intangible assets related to the provider network are being amortized over 120 months on a straight-line basis.

16

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Theyear-to-date change in the carrying amount of goodwill as a result of the acquisition is as follows:

	Changes in the
	Carrying
	Amount of
	Goodwill
Balance at December 31, 2009:
Goodwill	$	258,155
Accumulated impairment losses		(8,879	)
Net goodwill balance at December 31, 2009		249,276
Goodwill acquired during the six months ended June 30, 2010		11,220
Balance at June 30, 2010:
Goodwill		269,375
Accumulated impairment losses		(8,879	)
Net goodwill balance at June 30, 2010	$	260,496

Other acquired intangible assets, included in other long-term assets in the accompanying Condensed Consolidated Balance Sheets, at June 30, 2010 and December 31, 2009 are as follows:

	June 30, 2010					December 31, 2009
	Gross Carrying		Accumulated			Gross Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Membership rights and provider contracts	$	28,171	$	(25,797	)	$	25,971	$	(25,517	)
Non-compete agreements and trademarks		946		(946	)		1,596		(1,596	)
	$	29,117	$	(26,743	)	$	27,567	$	(27,113	)

During the three months ended June 30, 2010, the Company sold certain trademarks for $4,000. The carrying value net of accumulated amortization of these trademarks was zero.

7.  Convertible Senior Notes

As of June 30, 2010, the Company had $260,000 outstanding in aggregate principal amount of 2.0% Convertible Senior Notes due May 15, 2012, the carrying amount of which was $240,427. The unamortized discount of $19,573 will continue to be amortized over the remaining period until maturity. Concurrent with the issuance of the 2.0% Convertible Senior Notes, the Company purchased convertible note hedges covering, subject to customary anti-dilution adjustments, 6,112,964 shares of its common stock and sold warrants to acquire, subject to customary anti-dilution adjustments, 6,112,964 shares of its common stock at an exercise price of $53.77 per share. The convertible note hedges and warrants are separate transactions which do not affect holders’ rights under the 2.0% Convertible Senior Notes.

8.  Share Repurchase Program

The Board of Directors has authorized the repurchase of up to $200,000 of shares of the Company’s common stock under the Company’s ongoing share repurchase program. The $200,000 authorization is for repurchases made from and after August 5, 2009. Pursuant to this ongoing share repurchase program, the Company repurchased 1,049,827 shares of its common stock and placed them into treasury during the three months ended June 30, 2010 at an aggregate cost of $36,694. During the six months ended June 30, 2010, the Company repurchased and placed into treasury 1,300,407 shares of its common stock at an aggregate cost of $43,676. As of June 30, 2010, the Company had remaining authorization to purchase up to an additional $119,171 of shares of its common stock under this ongoing share repurchase program.

17

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

9. Commitments and Contingencies

Letter of Credit

Effective July 1, 2009, the Company caused a collateralized irrevocable standby letter of credit to be issued in an aggregate principal amount of approximately $17,400 to meet certain obligations under its Medicaid contract in the State of Georgia through its Georgia subsidiary, AMGP Georgia Managed Care Company, Inc. The letter of credit is collateralized through investments held by AMGP Georgia Managed Care Company, Inc.

Florida Medicaid Contract Dispute

Under the terms of the Medicaid contracts with the Florida Agency for Health Care Administration (“AHCA”), managed care organizations are required to have a process to identify members who are pregnant or the newborns of members so that the newborn can be enrolled as a member of the health plan as soon as possible after birth. This process is referred to as the “Unborn Activation Process.”

Beginning in July 2008, AMERIGROUP Florida, Inc. received a series of letters from the Florida Office of the Inspector General (“IG”) and AHCA stating that AMERIGROUP Florida, Inc. had failed to comply with the Unborn Activation Process in each and every instance and, as a result, AHCA had paid approximately $10,600 in Medicaidfee-for-service claims that should have been paid by AMERIGROUP Florida, Inc. The letters requested that AMERIGROUP Florida, Inc. provide documentation to evidence its compliance with the terms of the contract with AHCA with respect to the Unborn Activation Process.

In October 2008, AMERIGROUP Florida, Inc. submitted its response to the letters. In July 2009, the Company received another series of letters from the IG and AHCA stating that, based on a review of the AMERIGROUP Florida, Inc.’s response, they had determined that AMERIGROUP Florida, Inc. did not comply with the Unborn Activation Process and assessed fines against AMERIGROUP Florida, Inc. in the amount of two thousand, five hundred dollars per newborn for an aggregate amount of approximately $6,000. The letters further reserved AHCA’s right to pursue collection of the amount paid for thefee-for-service claims. AMERIGROUP Florida, Inc. appealed these findings and submitted documentation to evidence its compliance with, and performance under, the Unborn Activation Process requirements of the contract. On January 14, 2010, AMERIGROUP Florida, Inc. appealed AHCA’s contract interpretation to the Florida Deputy Secretary of Medicaid that the failure to utilize the Unborn Activation Process for each and every newborn could result in fines. In February 2010, AMERIGROUP Florida, Inc. received another series of letters from the IG and AHCA revising the damages from $10,600 to $3,200 for thefee-for-service claims that AHCA believed they paid. The revised damages include an offset of premiums that would have been paid for the dates of service covered by the claims. The letters also included an updated fine amount which was not materially different from the prior letters.

On May 26, 2010, the Florida Deputy Secretary of Medicaid denied AMERIGROUP Florida, Inc.’s contract interpretation appeal. Following the denial, in June 2010, AMERIGROUP Florida, Inc. received another series of letters from AHCA assessing fines in the amount of two thousand, five hundred dollars per newborn for an aggregate amount of approximately $6,000.

The Company is evaluating its appeal rights and believes that AMERIGROUP Florida, Inc. has substantial defenses to the claims asserted by AHCA and will defend against the imposition of the claims vigorously. The accompanying Condensed Consolidated Financial Statements reflect the Company’s best estimate of its liability related to this issue as of June 30, 2010. However, there can be no assurances that the ultimate outcome of this matter will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Legal Proceedings

Memorial Hermann Litigation

On November 21, 2007, Memorial Hermann Hospital System (“Memorial Hermann”) filed an Original Petition in the District Court of Harris County, Texas against AMERIGROUP Texas, Inc. alleging,inter alia,that AMERIGROUP Texas failed to pay claims for health care services rendered to members in accordance with the

18

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

terms set forth in the contract between the parties. The Original Petition asserted a breach of contract claim and requested damages in the principal amount of $723, plus interest, punitive damages, attorneys’ fees, costs, and other relief. On December 3, 2009, Memorial Hermann filed a Second Amended Petition asserting claims for breach of contract andquantum meruit and requesting damages in the principal amount of $38,400, plus pre-judgment and post-judgment interest, statutory damages, attorneys’ fees, and costs. Memorial Hermann subsequently filed another Petition asserting similar claims and seeking damages of approximately $3,000. AMERIGROUP Texas, Inc. has denied that it is indebted to Memorial Hermann as alleged in the petitions.

On July 29, 2010, AMERIGROUP Texas, Inc. and Memorial Hermann reached a confidential settlement resolving and releasing all claims related to the aforementioned cases which has been reflected in the accompanying Condensed Consolidated Financial Statements. The settlement was not material to our financial position, results of operations or liquidity.

Other Litigation

The Company is involved in various other legal proceedings in the normal course of business. Based upon its evaluation of the information currently available, the Company believes that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on its financial position, results of operations or liquidity.

10.  Comprehensive Earnings

Differences between net income and total comprehensive income resulted from net unrealized gains on the investment portfolio as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Net income	$	67,213	$	49,599	$	109,395	$	86,508
Other comprehensive income:
Unrealized gain onavailable-for-sale securities, net of tax		702		453		944		296
Comprehensive income	$	67,915	$	50,052	$	110,339	$	86,804

11.  Claims Payable

The following table presents the components of the change in claims payable for the periods presented:

	Six Months Ended			Twelve Months Ended
	June 30, 2010			December 31, 2009
Claims payable, beginning of period	$	529,036		$	536,107
Health benefits expense incurred during the period:
Related to current year		2,408,166			4,492,590
Related to prior years		(90,149	)		(85,317	)
Total incurred		2,318,017			4,407,273
Health benefits payments during the period:
Related to current year		1,960,389			4,007,789
Related to prior years		361,061			406,555
Total payments		2,321,450			4,414,344
Claims payable, end of period	$	525,603		$	529,036

19

AMERIGROUP Corporation And Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Health benefits expense incurred during both periods was reduced for amounts related to prior years. The amounts related to prior years include the impact of amounts previously included in the liability to establish it at a level sufficient under moderately adverse conditions that were not needed and the reduction in health benefits expense due to revisions to prior estimates.

12.  Income Taxes

Income tax expense for the three and six months ended June 30, 2010 was $39,570 and $65,870, respectively, as compared to an income tax benefit of $6,225 for the three months ended June 30, 2009 and income tax expense of $16,300 for the six months ended June 30, 2009. Income tax expense for the three and six months ended June 30, 2009 was impacted by the Company reaching agreement with the Internal Revenue Service regarding the tax deductible portion of thequi tamlitigation settlement. This agreement resulted in a tax benefit of approximately $22,400 for the three and six months ended June 30, 2009.

20

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report onForm 10-Q, and other information we provide fromtime-to-time, contains certain “forward-looking” statements as that term is defined by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements regarding our expected future financial position, membership, results of operations or cash flows, our continued performance improvements, our ability to service our debt obligations and refinance our debt obligations, our ability to finance growth opportunities, our ability to respond to changes in government regulations and similar statements including, without limitation, those containing words such as “believes,” “anticipates,” “expects,” “may,” “will,” “should,” “estimates,” “intends,” “plans” and other similar expressions are forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements as a result of, but not limited to, the following factors:

•  our inability to manage medical costs;

•  our inability to operate new products and markets at expected levels, including, but not limited to, profitability, membership and targeted service standards;

•  local, state and national economic conditions, including their effect on the premium rate increase process and timing of payments;

•  the effect of laws and regulations in such laws and regulations governing the health care industry, including the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and any regulations enacted thereunder;

•  changes in Medicaid and Medicare payment levels and methodologies;

•  increased use of services, increased cost of individual services, pandemics, epidemics, the introduction of new or costly treatments and technology, new mandated benefits, insured population characteristics and seasonal changes in the level of health care use;

•  our ability to maintain and increase membership levels;

•  our ability to enter into new markets or remain in our existing markets;

•  changes in market interest rates or any disruptions in the credit markets;

•  our ability to maintain compliance with all minimum capital requirements;

•  liabilities and other claims asserted against us;

•  demographic changes;

•  the competitive environment in which we operate;

•  the availability and terms of capital to fund acquisitions, capital improvements and maintain capitalization levels required by regulatory agencies;

•  our ability to attract and retain qualified personnel;

•  the unfavorable resolution of new or pending litigation; and

•  catastrophes, including acts of terrorism or severe weather.

Investors should also refer to our Annual Report onForm 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”) on February 22, 2010, as updated by Part II —Other Information— Item 1A. —“Risk Factors”of the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2010, filed with the SEC on May 4, 2010, and Part II —Other Information— Item 1A. —“Risk Factors,”herein, for a discussion of risk factors. Given these risks and uncertainties, we can give no assurance that any forward-looking statements will, in fact, transpire, and therefore caution investors not to place undue reliance on them.

21

Overview

We are a multi-state managed health care company focused on serving people who receive health care benefits through publicly sponsored programs, including Medicaid, Children’s Health Insurance Program (“CHIP”), Medicaid expansion programs and Medicare Advantage. We operate in one business segment with a single line of business. We were founded in December 1994 with the objective of becoming the leading managed care organization in the U.S. focused on serving people who receive these types of benefits. We believe that we are better qualified and positioned than many of our competitors to meet the unique needs of our members and the government agencies with whom we contract because of our focus solely on recipients of publicly sponsored health care, our medical management programs and community-based education and outreach programs. We design our programs to address the particular needs of our members, for whom we facilitate access to health care benefits pursuant to agreements with applicable state and Federal government agencies. We combine medical, social and behavioral health services to help our members obtain quality health care in an efficient manner. Our success in establishing and maintaining strong relationships with government agencies, providers and members has enabled us to obtain new contracts and to establish and maintain a leading market position in many of the markets we serve. We continue to believe that managed health care remains the only proven mechanism that improves health outcomes for our members while helping our government customers manage the fiscal viability of their health care programs.

Summary highlights of our second quarter of 2010 include:

•  Membership increased by 181,000 members, or 10.5%, to 1,904,000 members as of June 30, 2010 compared to 1,723,000 members as of June 30, 2009;

•  Total revenues of $1.4 billion for the second quarter of 2010, an 11.3% increase over the second quarter of 2009;

•  Health benefits ratio (“HBR”) of 82.3% of premium revenues for the second quarter of 2010 compared to 85.9% in the second quarter of 2009;

•  Selling, general and administrative expense (“SG&A”) ratio of 7.5% of total revenues for the second quarter of 2010, unchanged from the second quarter of 2009;

•  Cash provided by operations was $109.6 million for the six months ended June 30, 2010;

•  Unregulated cash and investments of $239.5 million as of June 30, 2010;

•  We repurchased 1,049,827 shares of common stock for approximately $36.7 million during the second quarter of 2010 under our ongoing stock repurchase program; and

•  In May 2010, the Texas Health and Human Services Commission announced that our Texas health plan was selected through a competitive procurement to expand health care coverage to seniors and people with disabilities in the six county service area surrounding Fort Worth, Texas. Pending final contract negotiations, we anticipate an operational start date in early 2011.

Our results for the three and six months ended June 30, 2010 reflect the impact of continued membership growth, which we believe is driven by the macroeconomic environment that has increased the number of Medicaid eligible individuals, similar to our experience in 2009. Additionally, increases in premium revenue reflect the impact of a benefit expansion to provide long-term care (“LTC”) services to eligible members in Tennessee, the impact of our first quarter 2010 acquisition in New Jersey and the net effect of premium rate changes from the prior year commensurate with annual contract renewals. Health benefits expense for the three and six months ended June 30, 2010 reflects moderating cost trends for current and prior periods, the latter of which generated revisions of estimates related to prior periods.

Health Care Reform

On March 23, 2010, the Patient Protection and Affordable Care Act was signed into law and on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 was signed into law (collectively, the “Acts”). The Acts provide comprehensive changes to the U.S. health care system, which will be phased in at various stages over the next several years. Among other things, the Acts are intended to provide health insurance to approximately 32 million uninsured individuals of which approximately 16 to 21 million are expected to obtain health insurance through the

22

expansion of the Medicaid program beginning in 2014. Funding for the expanded coverage will initially come largely from the Federal government.

We do not expect the Acts to have a material effect on our results of operations, liquidity or cash flows in 2010; however, we are currently evaluating the provisions of the Acts and believe that the Acts may provide us with significant opportunities for growth in our existing markets and, potentially, in new markets in the future. There can be no assurance that we will realize this growth, or that this growth will be profitable.

There are numerous steps required to implement the Acts, including promulgating a substantial number of new and potentially more onerous regulations that may affect our business. Further, various health insurance reform proposals are also emerging at the state level. Because of the unsettled nature of these reforms and numerous steps required to implement them, we cannot predict what additional health insurance requirements will be implemented at the Federal or state level, or the effect that any future legislation or regulation will have on our business or our growth opportunities. Although we believe the Acts will provide us with significant opportunity, the enacted reforms, as well as future regulations and legislative changes, may in fact have a material adverse affect on our results of operations, financial position or liquidity.

The Acts also include the imposition of significant new non-deductible Federal premium taxes and other assessments on health insurers. If this Federal premium tax is imposed as enacted, and if the cost of the Federal premium tax is not included in the calculation of our premium rates, or if we are unable to otherwise adjust our business model to address this new tax, our results of operations, financial position and liquidity may be materially adversely affected.

Market Updates

Medicare Advantage

In June 2010, we received approval from the Centers for Medicare and Medicaid Services (“CMS”) to add Tarrant County to our Medicare Advantage service area in Texas, and to add Rutherford County to our Tennessee Medicare Advantage service areas. In addition, CMS approved expansion of our Medicare Advantage plans to cover traditional Medicare beneficiaries in addition to the existing special needs beneficiaries already covered in Texas, Tennessee and New Mexico. These approvals allow us to begin serving Medicare members in the expanded areas effective January 1, 2011. We can give no assurance that our entry into these service areas will be favorable to our results of operations, financial position or cash flows in future periods.

Texas

In May 2010, the Texas Health and Human Services Commission announced that our Texas health plan was selected through a competitive procurement to expand health care coverage to seniors and people with disabilities in the six county service area surrounding Fort Worth, Texas. Pending final contract negotiations, we anticipate an operational start date in early 2011. We will be one of two health plans serving approximately 30,000 STAR+PLUS members in that service area. We can give no assurance that our entry into this business will be favorable to our results of operations, financial position or cash flows in future periods.

Tennessee

On March 1, 2010, our Tennessee health plan began offering LTC services to existing members through the State’s TennCare CHOICES program. The program, created as a result of the LTC Community Choices Act of 2008, is an expansion program offered through amendments to existing Medicaid managed care contracts and became effective March 1, 2010. TennCare CHOICES focuses on promoting independence, choice, dignity and quality of life for LTC Medicaid managed care recipients by offering members the option to live in their own homes while receiving LTC and other medical services. We can give no assurance that our entry into this business will be favorable to our results of operations, financial position or cash flows in future periods.

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New Jersey

On March 1, 2010, our New Jersey health plan completed the previously announced acquisition of the Medicaid contract rights and rights under certain provider agreements of University Health Plans, Inc. (“UHP”) for $13.4 million. At June 30, 2010, we served approximately 145,000 members in the State of New Jersey. We can give no assurance that this acquisition will be favorable to our results of operations, financial position or cash flows in future periods.

Contingencies

Florida Medicaid Contract Dispute

Under the terms of the Medicaid contracts with the Florida Agency for Health Care Administration (“AHCA”), managed care organizations are required to have a process to identify members who are pregnant or the newborns of members so that the newborn can be enrolled as a member of the health plan as soon as possible after birth. This process is referred to as the “Unborn Activation Process.”

Beginning in July 2008, AMERIGROUP Florida, Inc. received a series of letters from the Florida Office of the Inspector General (“IG”) and AHCA stating that AMERIGROUP Florida, Inc. had failed to comply with the Unborn Activation Process in each and every instance and, as a result, AHCA had paid approximately $10.6 million in Medicaidfee-for-service claims that should have been paid by AMERIGROUP Florida, Inc. The letters requested that AMERIGROUP Florida, Inc. provide documentation to evidence its compliance with the terms of the contract with AHCA with respect to the Unborn Activation Process. It is our belief that AHCA and the IG sent similar letters to the other Florida Medicaid managed care organizations during this time period.

In October 2008, AMERIGROUP Florida, Inc. submitted its response to the letters. In July 2009, the Company received another series of letters from the IG and AHCA stating that, based on a review of the AMERIGROUP Florida, Inc.’s response, they had determined that AMERIGROUP Florida, Inc. did not comply with the Unborn Activation Process and assessed fines against AMERIGROUP Florida, Inc. in the amount of two thousand, five hundred dollars per newborn for an aggregate amount of approximately $6.0 million. The letters further reserved AHCA’s right to pursue collection of the amount paid for thefee-for-service claims. AMERIGROUP Florida, Inc. appealed these findings and submitted documentation to evidence its compliance with, and performance under, the Unborn Activation Process requirements of the contract. On January 14, 2010, AMERIGROUP Florida, Inc. appealed AHCA’s contract interpretation to the Florida Deputy Secretary of Medicaid that the failure to utilize the Unborn Activation Process for each and every newborn could result in fines. In February 2010, AMERIGROUP Florida, Inc. received another series of letters from the IG and AHCA revising the damages from $10.6 million to $3.2 million for thefee-for-service claims that AHCA believed they paid. The revised damages include an offset of premiums that would have been paid for the dates of service covered by the claims. The letters also included an updated fine amount which was not materially different from the prior letters.

On May 26, 2010, the Florida Deputy Secretary of Medicaid denied AMERIGROUP Florida, Inc.’s contract interpretation appeal. Following the denial, in June 2010, AMERIGROUP Florida, Inc. received another series of letters from AHCA assessing fines in the amount of two thousand, five hundred dollars per newborn for an aggregate amount of approximately $6.0 million. We are evaluating our appeal rights and believe that AMERIGROUP Florida, Inc. has substantial defenses to the claims asserted by AHCA and will defend against the imposition of the claims vigorously. The accompanying Condensed Consolidated Financial Statements reflect our best estimate of our liability related to this issue as of June 30, 2010. However, there can be no assurances that the ultimate outcome of this matter will not have a material adverse effect on the our financial position, results of operations or liquidity.

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Results of Operations

The following table sets forth selected operating ratios. All ratios are shown as a percentage of total revenues with the exception of the HBR. The HBR is being shown as a percentage of premium revenue because there is a direct relationship between the premium received and the health benefits provided:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Premium revenue		99.4	%		99.5	%		99.5	%		99.3	%
Investment income and other		0.6			0.5			0.5			0.7
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Health benefits		82.3	%		85.9	%		82.9	%		84.8	%
Selling, general and administrative expenses		7.5	%		7.5	%		8.0	%		8.2	%
Income before income taxes		7.4	%		3.4	%		6.2	%		4.1	%
Net income		4.7	%		3.8	%		3.9	%		3.4	%

Three and Six Months Ended June 30, 2010 Compared to Three and Six Months Ended June 30, 2009

Summarized comparative financial information for the three and six months ended June 30, 2010 and 2009 is as follows (dollars in millions, except per share data; totals in the table below may not equal the sum of individual line items as all line items have been rounded to the nearest decimal.):

										Three Months				Six Months
	Three Months Ended					Six Months Ended				Ended			��	Ended
	June 30,					June 30,				June 30,				June 30,
										% Change				% Change
	2010		2009			2010		2009		2010-2009				2010-2009
Revenues:
Premium	$	1,428.9	$	1,284.9		$	2,795.6	$	2,502.3		11.2	%			11.7	%
Investment income and other		8.6		6.5			13.5		18.9		32.5	%			(28.4	)%
Total revenues		1,437.5		1,291.4			2,809.2		2,521.2		11.3	%			11.4	%
Expenses:
Health benefits		1,176.4		1,103.2			2,318.0		2,122.5		6.6	%			9.2	%
Selling, general and administrative		108.2		96.3			225.6		206.7		12.4	%			9.2	%
Premium tax		33.2		34.6			64.6		62.7		(4.2	)%			3.0	%
Depreciation and amortization		8.9		9.7			17.6		18.0		(8.0	)%			(2.2	)%
Interest		4.0		4.2			8.0		8.5		(5.0	)%			(5.4	)%
Total expenses		1,330.7		1,248.0			2,633.9		2,418.4		6.6	%			8.9	%
Income before income taxes		106.8		43.4			175.3		102.8		146.2	%			70.5	%
Income tax expense (benefit)		39.6		(6.2	)		65.9		16.3		735.7	%			304.1	%
Net income	$	67.2	$	49.6		$	109.4	$	86.5		35.5	%			26.5	%
Diluted net income per share	$	1.31	$	0.94		$	2.14	$	1.63		39.4	%			31.3	%

Premium Revenue

Premium revenue for the three months ended June 30, 2010 increased $144.0 million, or 11.2%, to $1.4 billion from $1.3 billion for the three months ended June 30, 2009. For the six months ended June 30, 2010, premium revenue increased $293.3 million, or 11.7%, to $2.8 billion from $2.5 billion for the six months ended June 30, 2009. The increase for the three and six months ended June 30, 2010 compared to the three and six months ended

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June 30, 2009 was due in part to significant increases in full-risk membership across the majority of our existing products and markets. These membership increases are partially due to high levels of unemployment and the macroeconomic environment driving increases in the number of people eligible for Medicaid. In addition, premium revenue increased as a result of our entry into the Tennessee TennCare CHOICES program in March 2010 and our acquisition of the Medicaid contract rights from UHP in the State of New Jersey, effective March 2010. Premium revenue for the three and six months ended June 30, 2010 was also favorably impacted by the effect of premium rate and mix changes compared to prior periods and negatively impacted by our decision to exit the aged, blind and disabled (“ABD”) program in the Southwest region of Ohio as well as the State’s election to remove pharmacy coverage from the benefit package, both effective February 2010.

The increase for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 is further attributable to the final phase of the statewide rollout of New Mexico’s Coordination of Long-Term Services program in April 2009 to the Southeast and Northeast regions of New Mexico.

Membership

The following table sets forth the approximate number of members we served in each state as of June 30, 2010 and 2009. Because we receive two premiums for members that are in both the Medicare Advantage and Medicaid products, these members have been counted twice in the states where we operate Medicare Advantage plans.

	June 30,
	2010			2009
Texas(1)		539,000			476,000
Florida		259,000	��		264,000
Georgia		259,000			220,000
Maryland		202,000			183,000
Tennessee		199,000			195,000
New Jersey		145,000			112,000
New York		111,000			111,000
Nevada		72,000			53,000
Ohio		58,000			60,000
Virginia		39,000			29,000
New Mexico		21,000			20,000
Total		1,904,000			1,723,000

(1) Membership includes approximately 14,000 and 13,000 members as of June 30, 2010 and 2009, respectively, under an administrative services only (“ASO”) contract that began June 1, 2009.

As of June 30, 2010, we served approximately 1,904,000 members, reflecting an increase of approximately 181,000 members, or 10.5%, compared to June 30, 2009. The increase is primarily a result of membership growth in the majority of our products and markets driven by a surge in Medicaid eligibility, which we believe was driven by high unemployment and general adverse economic conditions. In addition, our March 2010 acquisition of the Medicaid contract rights from UHP to provide services to additional members in the State of New Jersey resulted in further growth of our New Jersey plan.

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The following table sets forth the approximate number of our members who receive benefits under our products as of June 30, 2010 and 2009. Because we receive two premiums for members that are in both the Medicare Advantage and Medicaid products, these members have been counted in each product.

	June 30,
Product	2010		2009
TANF (Medicaid)(1)		1,337,000		1,189,000
CHIP		274,000		262,000
ABD (Medicaid)(2)		204,000		205,000
FamilyCare (Medicaid)		71,000		54,000
Medicare Advantage		18,000		13,000
Total		1,904,000		1,723,000

(1)	Temporary Assistance for Needy Families.
(2)	Membership includes approximately 14,000 and 13,000 members as of June 30, 2010 and 2009, respectively, under an ASO contract in Texas.

Investment income and other revenue

Investment income and other revenue was $8.6 million and $6.5 million for the three months ended June 30, 2010 and 2009, respectively, and was $13.5 million and $18.9 million for the six months ended June 30, 2010 and 2009, respectively.

Our investment portfolio is comprised offixed-income securities and cash and cash equivalents, which generated investment income totaling $4.8 million and $9.1 million for the three and six months ended June 30, 2010, respectively, compared to $6.1 million and $12.5 million for the three and six months ended June 30, 2009, respectively. The decrease in investment income is primarily a result of decreased rates of return as our fixed-income investments mature and are reinvested in investments with lower returns due to current market rates. We anticipate that our effective yield will remain at or below the current rate as of June 30, 2010 for the foreseeable future, which will result in similar or reduced returns on our investment portfolio in future periods. The performance of our investment portfolio is interest rate driven, and consequently, changes in interest rates affect our returns on, and the fair value of, our portfolio which can materially affect our results of operations or liquidity in future periods.

Included in other revenue for the three and six months ended June 30, 2010 is a $4.0 million gain on the sale of a trademark. Included in other revenue for the six months ended June 30, 2009 is a $5.8 million gain on the sale of the South Carolina contract rights.

Health benefits expenses

Expenses relating to health benefits for the three months ended June 30, 2010 increased $73.2 million, or 6.6%, to $1.2 billion compared to $1.1 billion for the three months ended June 30, 2009. Our HBR decreased to 82.3% for the three months ended June 30, 2010 compared to 85.9% for the same period of the prior year. For the six months ended June 30, 2010, expenses related to health benefits increased $195.5 million, or 9.2%, to $2.3 billion from $2.1 billion for the six months ended June 30, 2009. Our HBR decreased to 82.9% for the six months ended June 30, 2010 compared to 84.8% for the same period of the prior year.

Favorable reserve development due to revisions to estimates for prior periods, net of associated accruals for experience rebate in Texas, applicable medical loss ratio floors and other gain sharing arrangements with our state customers, was the primary driver of the decrease in HBR in both periods. These revisions primarily resulted from the moderation of cost trends compared to the trends expected when developing our estimates for prior periods. In addition, we believe a lighter than normal winter flu season, lower utilization of health services due to severe winter weather in some of our markets, as well as continued moderation of trends in the current period, favorably impacted the ratio. HBR was also favorably impacted by the net effect of premium rate changes from the prior year commensurate with annual contract renewals.

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The following table presents the components of the change in claims payable for the periods presented (in thousands):

	Six Months Ended			Twelve Months Ended
	June 30, 2010			December 31, 2009
Claims payable, beginning of period	$	529,036		$	536,107
Health benefits expense incurred during the period:
Related to current year		2,408,166			4,492,590
Related to prior years		(90,149	)		(85,317	)
Total incurred		2,318,017			4,407,273
Health benefits payments during the period:
Related to current year		1,960,389			4,007,789
Related to prior years		361,061			406,555
Total payments		2,321,450			4,414,344
Claims payable, end of period	$	525,603		$	529,036

Health benefits expense incurred during both periods was reduced for amounts related to prior years. The amounts related to prior years include the impact of amounts previously included in the liability to establish it at a level sufficient under moderately adverse conditions that were not needed and the reduction in health benefits expense due to revisions to prior estimates.

Selling, general and administrative expenses

SG&A for the three months ended June 30, 2010 increased $11.9 million, or 12.4%, to $108.2 million from $96.3 million for the three months ended June 30, 2009. For the six months ended June 30, 2010, SG&A increased 9.2%, to $225.6 million from $206.7 million for the six months ended June 30, 2009. The increase in SG&A is primarily a result of increased salary and benefit expenses due to increased variable compensation accruals as a result of our operating performance during the three and six months ended June 30, 2010 as well as moderate wage, benefits and workforce increases over the prior year.

Our SG&A to total revenues ratio was 7.5% for the three months ended June 30, 2010 and 2009, respectively. Our SG&A to total revenues ratio was 8.0% and 8.2% for the six months ended June 30, 2010 and 2009, respectively. The increase in SG&A expenses for the three and six months ended June 30, 2010 compared to the three and six months ended June 30, 2009 were primarily offset by leverage gained through growth in total revenues.

Premium tax expense

Premium taxes were $33.2 million and $34.6 million for the three months ended June 30, 2010 and 2009, respectively and $64.6 million and $62.7 million for the six months ended June 30, 2010 and 2009, respectively. Premium tax expense in both periods was impacted by a premium tax rate increase in the State of Tennessee effective July 2009. This increase was largely offset by the termination of premium tax in the State of Georgia in October 2009. Effective July 1, 2010, premium taxes in the State of Georgia will be reinstated as a result of recently enacted legislation. Additionally, premium tax expense for the three months ended June 30, 2009 was elevated due to the retroactive adoption of premium tax in the State of New York and one-time adjustments in New Mexico not recurring in the current year. As of June 30, 2010, premium tax rates ranged from 1.75% to 7.50% which includes other premium related surcharges as defined in certain of our markets.

Provision for income taxes

Income tax expense for the three months ended June 30, 2010 was $39.6 million with an effective tax rate of 37.1% compared to an income tax benefit of $6.2 million for the three months ended June 30, 2009 with an effective tax rate of (14.4)%. Income tax expense for the six months ended June 30, 2010 and 2009 was $65.9 million and $16.3 million, respectively, with an effective tax rate of 37.6% and 15.9%, respectively. The effective tax rates for the three and six months ended June 30, 2009 were impacted by our agreement reached with the Internal Revenue

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Service regarding the tax deductible portion of the 2008qui tamlitigation settlement. Excluding the non-recurring benefit of the tax settlement, the effective tax rates for the three and six months ended June 30, 2010 as compared to the three and six months ended June 30, 2009 decreased due to a reduction in the blended state income tax rate.

Significant income tax uncertainties

We continue to evaluate the tax related provisions of the Acts signed into law on March 23, 2010 and March 30, 2010 and do not expect that they will have a material impact on our 2010 tax rate. However, the Acts do contain provisions that we anticipate will impact our tax rate in future years. These provisions include, among others, a limit on the deductibility of compensation paid by health insurers of $0.5 million per year for each officer, director, employee, or other service provider paid in taxable years after 2012 with respect to services performed after 2009 and a non-deductible Federal premium tax on health insurers.

Liquidity and capital resources

We manage our cash, investments and capital structure so we are able to meet the short- and long-term obligations of our business while maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy.

Our primary sources of liquidity are cash and cash equivalents, short- and long-term investments, and cash flows from operations. As of June 30, 2010, we had cash and cash equivalents of $409.8 million, short and long-term investments of $994.9 million and restricted investments on deposit for licensure of $115.4 million. Cash, cash equivalents, and investments which are unregulated totaled $239.5 million at June 30, 2010.

Universal Automatic Shelf Registration

On December 15, 2008, we filed a universal automatic shelf registration statement with the SEC which enables us to sell, in one or more public offerings, common stock, preferred stock, debt securities and other securities at prices and on terms to be determined at the time of the applicable offering. The shelf registration provides us with the flexibility to publicly offer and sell securities at times we believe market conditions make such an offering attractive. Because we are a well-known seasoned issuer, the shelf registration statement was effective upon filing. No securities have been issued under the shelf registration.

Stock Repurchase Program

Under the authorization of our Board of Directors, we maintain an ongoing share repurchase program that allows us to repurchase up to $200.0 million of shares of our common stock from and after August 5, 2009. Pursuant to this ongoing share repurchase program, we repurchased 1,049,827 shares of our common stock at an aggregate cost of $36.7 million and placed them into treasury during the three months ended June 30, 2010. During the six months ended June 30, 2010, we repurchased and placed into treasury 1,300,407 shares of our common stock at an aggregate cost of $43.7 million. As of June 30, 2010, we had remaining authorization to purchase up to an additional $119.2 million of shares of our common stock under the ongoing share repurchase program.

Cash and Investments

Cash provided by operations was $109.6 million for the six months ended June 30, 2010 compared to $34.0 million for the six months ended June 30, 2009. The increase in cash flows was primarily a result of an increase in cash flows generated from working capital changes and an increase in net income. Cash used in operating activities for working capital changes was $28.8 million for the six months ended June 30, 2010 compared to cash used in operating activities for working capital changes of $79.5 million for the six months ended June 30, 2009. The decrease in cash used in operating activities for working capital changes primarily resulted from the impact of variations in the accruals for and payments of variable compensation, the timing of income tax payments, changes in the experience rebate accrual under our contract with the state of Texas and the increase in collections of premium receivables. These impacts were offset in part by the impact of changes in claims payable due to timing of payments and changes in unearned revenues due to timing of receipts from government agencies.

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Cash used in investing activities was $186.4 million for the six months ended June 30, 2010 compared to $86.3 million for the six months ended June 30, 2009. The increase in cash used in investing activities is due primarily to an increase in the net purchases of investments of $87.1 million during the six months ended June 30, 2010 compared to the six months ended June 30, 2009 as well as our acquisition of the Medicaid contract rights from UHP for $13.4 million in March 2010 to provide services to additional members in the State of New Jersey. We currently anticipate total capital expenditures for 2010 to be between approximately $30.0 million and $35.0 million related primarily to technological infrastructure development and enhancement of core systems to increase scalability and efficiency. For the six months ended June 30, 2010, total capital expenditures were $13.5 million.

Our investment policies are designed to preserve capital, provide liquidity and maximize total return on invested assets. As of June 30, 2010, our investment portfolio consisted primarily of fixed-income securities with a weighted average maturity of approximately twenty months. We utilize investment vehicles such as auction rate securities, commercial paper, certificates of deposit, corporate bonds, debt securities of government sponsored entities, Federally insured corporate bonds, U.S. Treasury securities, money market funds and municipal bonds. The states in which we operate prescribe the types of instruments in which our subsidiaries may invest their funds. The weighted average taxable equivalent yield on consolidated investments as of June 30, 2010 was approximately 1.19%. As of June 30, 2010, we had total cash and investments of approximately $1.5 billion.

The following table shows the types, percentages and average Standard and Poor’s (“S&P”) ratings of our holdings within our investment portfolio at June 30, 2010:

				Average S&P
	%			Rating
Auction rate securities		2.0	%		AAA
Cash, bank deposits and commercial paper		4.8	%		AAA
Certificates of deposit		7.5	%		AAA
Corporate bonds		15.9	%		A+
Debt obligations of government sponsored entities, Federally insured corporate bonds and U.S. Treasury securities		34.1	%		AAA
Money market funds		18.3	%		AAA
Municipal bonds		17.4	%		AA+
		100.0	%		AA+

As of June 30, 2010, $31.0 million of our investments were comprised of securities with an auction reset feature (“auction rate securities”) issued by student loan corporations established by various state governments. Since early 2008, auctions for these auction rate securities have failed, significantly decreasing our ability to liquidate these securities prior to maturity. As we cannot predict the timing of future successful auctions, if any, our auction rate securities are classified asavailable-for-sale and are carried at fair value within long-term investments. The weighted average life of our auction rate securities portfolio, based on the final maturity, is approximately twenty-two years. We currently believe that the $2.6 million net unrealized loss position that remains at June 30, 2010 on our auction rate securities portfolio is primarily due to liquidity concerns and not the creditworthiness of the underlying issuers. We currently have the intent to hold our auction rate securities to maturity, if required, or if and when market stability is restored with respect to these investments. During the six months ended June 30, 2010, certain investments in auction rate securities were sold or called for net proceeds of $28.2 million, resulting in a $0.9 million net realized gain recorded in earnings, excluding the loss on the forward contract expiration of $1.2 million related to certain sales of auction rate securities.

Cash used in financing activities was $19.3 million for the six months ended June 30, 2010, compared to $56.5 million for the six months ended June 30, 2009. The decrease in cash used in financing activities of $37.2 million is primarily due to repayments during the first six months of 2009 of $26.3 million of borrowings under our previously maintained Credit Agreement, which was terminated effective August 21, 2009. The decrease in cash used in financing activities was further attributable to an increase in the change in bank overdrafts of $15.9 million, partially offset by an increase in treasury share repurchases of $15.1 million.

We believe that existing cash and investment balances and cash flows from operations will be sufficient to support continuing operations, capital expenditures and our growth strategy for at least 12 months. Ourdebt-to-total

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capital ratio at June 30, 2010 was 18.4%. The financial markets have experienced periods of volatility and disruption. Future volatility and disruption is possible and unpredictable. In the event we need to access additional capital, our ability to obtain such capital may be limited and the cost of any such capital may be significantly higher than in past periods depending on the market condition and our financial position at the time we pursue additional financing.

Convertible Senior Notes

As of June 30, 2010, we had $260.0 million outstanding in aggregate principal amount of 2.0% Convertible Senior Notes (the “2.0% Convertible Senior Notes”) due May 15, 2012. The 2.0% Convertible Senior Notes are governed by an Indenture dated as of March 28, 2007 (the “Indenture”). The 2.0% Convertible Senior Notes are senior unsecured obligations of the Company and rank in right of payment equally with all of our existing and future senior debt and senior to all of our subordinated debt. The 2.0% Convertible Senior Notes bear interest at a rate of 2.0% per year, payable semiannually in arrears in cash on May 15 and November 15 of each year, and mature on May 15, 2012, unless earlier repurchased or converted in accordance with the Indenture.

Upon conversion of the 2.0% Convertible Senior Notes, we will pay cash up to the principal amount of the 2.0% Convertible Senior Notes converted. With respect to any conversion value in excess of the principal amount, we have the option to settle the excess with cash, shares of our common stock, or a combination thereof based on a daily conversion value, as defined in the Indenture. The initial conversion rate for the 2.0% Convertible Senior Notes is 23.5114 shares of common stock per one thousand dollars of principal amount of 2.0% Convertible Senior Notes, which represents a 32.5% conversion premium based on the closing price of $32.10 per share of our common stock on March 22, 2007 and is equivalent to a conversion price of approximately $42.53 per share of common stock. The conversion rate is subject to adjustment in some events but will not be adjusted for accrued interest. In addition, if a “fundamental change” occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of 2.0% Convertible Senior Notes that elects to convert their 2.0% Convertible Senior Notes in connection with such fundamental change.

Concurrent with the issuance of the 2.0% Convertible Senior Notes, we purchased convertible note hedges covering, subject to customary anti-dilution adjustments, 6,112,964 shares of our common stock. The convertible note hedges are expected to reduce the potential dilution upon conversion of the 2.0% Convertible Senior Notes in the event that the market value per share of our common stock, as measured under the convertible note hedges, at the time of exercise is greater than the strike price of the convertible note hedges. Also concurrent with the issuance of the 2.0% Convertible Senior Notes, we sold warrants to acquire, subject to customary anti-dilution adjustments, 6,112,964 shares of our common stock at an exercise price of $53.77 per share. If the average price of our common stock during a defined period ending on or about the settlement date exceeds the exercise price of the warrants, the warrants will be settled, at our option, in cash or shares of our common stock. The convertible note hedges and warrants are separate transactions which do not affect holders’ rights under the 2.0% Convertible Senior Notes.

The principal of our 2.0% Convertible Senior Notes may be repaid with proceeds from debt or equity financing, existing cash and investments, or a combination thereof. If we determine that debt or equity financing is appropriate, our access to these markets may be limited as our results of operations cannot be predicted. Additionally, any disruptions in the credit markets similar to that of the recent recession could further limit our flexibility in planning for, or reacting to, changes in our business and industry and addressing our future capital requirements.

Our access to additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, as well as the possibility that lenders could develop a negative perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain additional financing on favorable terms. This could restrict our ability to: (1) acquire new businesses or enter new markets, (2) service or refinance our existing debt, (3) make necessary capital investments, (4) maintain statutory net worth requirements in the states in which we do business; and (5) make other expenditures necessary for the ongoing conduct of our business.

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Regulatory Capital and Dividend Restrictions

Our operations are conducted through our wholly-owned subsidiaries, which include health maintenance organizations (“HMOs”), one health insuring corporation (“HIC”) and one Prepaid Health Services Plan (“PHSP”). HMOs, HICs and PHSPs are subject to state regulations that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment and amount of dividends and other distributions that may be paid to their stockholders. Additionally, certain state regulatory agencies may require individual regulated entities to maintain statutory capital levels higher than the state regulations. As of June 30, 2010, we believe our subsidiaries are in compliance with all minimum statutory capital requirements. The parent company may be required to fund minimum net worth shortfalls during the remainder of 2010 using unregulated cash, cash equivalents and investments. We believe, as a result, that we will continue to be in compliance with these requirements at least through the end of 2010.

The National Association of Insurance Commissioners (“NAIC”) has defined risk-based capital (“RBC”) standards for HMOs and other entities bearing risk for health care coverage that are designed to measure capitalization levels by comparing each company’s adjusted surplus to its required surplus (“RBC ratio”). The RBC ratio is designed to reflect the risk profile of HMOs. Within certain ratio ranges, regulators have increasing authority to take action as the RBC ratio decreases. There are four levels of regulatory action, ranging from (a) requiring insurers to submit a comprehensive plan to the state insurance commissioner, to (b) requiring the state insurance commissioner to place the insurer under regulatory control. Eight of our eleven states have adopted RBC as the measure of required surplus. At June 30, 2010, our RBC ratio in each of these states exceeded the requirement thresholds at which regulatory action would be initiated. Although not all states had adopted these rules at June 30, 2010, at that date, each of our active health plans had a surplus that exceeded either the applicable state net worth requirements or, where adopted, the levels that would require regulatory action under the NAIC’s RBC rules.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Our Condensed Consolidated Balance Sheets include a certain amount of assets whose fair values are subject to market risk. Due to our significant investment in fixed-income investments, interest rate risk represents a market risk factor affecting our consolidated financial position. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. The financial markets have experienced periods of volatility and disruption, which have impacted liquidity and valuations of many financial instruments. While we do not believe we have experienced material adverse changes in the value of our cash, cash equivalents and investments, disruptions could impact the value of these assets and other financial assets we may hold in the future. There can be no assurance that future changes in interest rates, creditworthiness of issuers, prepayment activity, liquidity available in the market and other general market conditions will not have a material adverse impact on our results of operations, liquidity, financial position or cash flows.

As of June 30, 2010, substantially all of our investments were in high quality securities that have historically exhibited good liquidity which include commercial paper, certificates of deposit, corporate bonds, debt securities of government sponsored entities, Federally insured corporate bonds, U.S. Treasury securities, money market funds and municipal bonds.

The fair value of the fixed-income investment portfolio is exposed to interest rate risk — the risk of loss in fair value resulting from changes in prevailing market rates of interest for similar financial instruments. However, we have the ability to hold fixed-income investments to maturity. We rely on the experience and judgment of senior management to monitor and mitigate the effects of market risk. The allocation among various types of securities is adjusted fromtime-to-time based on market conditions, credit conditions, tax policy, fluctuations in interest rates and other factors. In addition, we place the majority of our investments in high-quality, liquid securities and limit the amount of credit exposure to any one issuer. As of June 30, 2010, an increase of 1% in interest rates on securities with maturities greater than one year would reduce the fair value of those securities by approximately $19.0 million. Conversely, a reduction of 1% in interest rates on securities with maturities greater than one year would increase their fair value by approximately $13.0 million. The above changes in fair value are impacted by securities in our portfolio that have a call provision feature. We believe this fair value presentation is indicative of our market risk

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because it evaluates each investment based on its individual characteristics. Consequently, the fair value presentation does not assume that each investment reacts identically based on a 1% change in interest rates.

Item 4.   Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.  Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls over Financial Reporting.  During the second quarter of 2010, in connection with our evaluation of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we concluded there were no changes in our internal control procedures that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1.   Legal Proceedings

The information required under this Item 1 of Part II is contained in Item 1 of Part I of this Quarterly Report onForm 10-Q in Note 9 to the Condensed Consolidated Financial Statements, and such information is incorporated herein by reference in this Item 1 of Part II.

Item 1A.   Risk Factors

Certain risk factors may have a material adverse effect on our business, financial condition and results of operations and you should carefully consider them. There has been no material change in our risk factors as previously disclosed in Part I, Item 1.A., Risk Factors, of the Company’s Annual Report onForm 10-K for the year ended December 31, 2009 as filed with the SEC on February 22, 2010, as updated by Part II, Item 1A of the Company’s Quarterly Report onForm 10-Q for the quarter ended March 31, 2010, filed with the SEC on May 4, 2010.

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Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Set forth below is information regarding the Company’s stock repurchases during the three months ended June 30, 2010:

							Approximate Dollar
							Value of Shares
					Total Number of		(or Units)
			Average		Shares (or Units)		that May Yet Be
	Total Number of		Price Paid		Purchased as Part of		Purchased Under
	Shares (or Units)		per Share		Publicly Announced		the Plans or
Period	Purchased		(or Unit)		Plans or Programs(1)		Programs(2)
April 1 — April 30, 2010(3)		87,940	$	34.87		67,252	$	153,549,288
May 1 — May 31, 2010		868,312		34.91		868,312		123,240,410
June 1 — June 30, 2010		114,263		35.61		114,263		119,171,402
Total		1,070,515	$	34.98		1,049,827	$	119,171,402

(1)	Shares purchased during the second quarter of 2010 were purchased as part of the Company’s existing authorized share repurchase program. On March 8, 2010, the Company entered into a trading plan in accordance withRule 10b5-1 of the Exchange Act, to facilitate repurchases of its common stock pursuant to its share repurchase program (the“Rule 10b5-1 plan”). TheRule 10b5-1 plan became effective on May 4, 2010 and expires on December 31, 2011, unless terminated earlier in accordance with its terms.
(2)	The ongoing share repurchase program authorized by the Board of Directors allows the Company to repurchase up to $200.0 million of shares of its common stock from and after August 5, 2009. No duration has been placed on the repurchase program and the Company reserves the right to discontinue the repurchase program at any time.
(3)	Our 2009 Equity Incentive Plan allows, upon approval by the plan administrator, equity award recipients to deliver shares of unrestricted Company common stock held by the participant as payment of the exercise price and applicable withholding taxes upon the exercise of stock options or vesting of restricted stock. During April 2010, certain employees elected to tender 20,688 shares to the Company in payment of related withholding taxes upon vesting of restricted stock.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   (Removed and Reserved)

Item 5.   Other Information

None.

Item 6.   Exhibits

The exhibits listed on the accompanying Exhibit Index immediately following the Signatures page are incorporated by reference into this report.

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Signatures

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

AMERIGROUP Corporation

By:  /s/  James G. Carlson

James G. Carlson

Chairman, Chief Executive

Officer and President

Date: August 4, 2010

By:  /s/  James W. Truess

James W. Truess

Chief Financial Officer and

Executive Vice President

Date: August 4, 2010

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EXHIBITS

Exhibits.

The following exhibits, which are furnished with this Quarterly Report onForm 10-Q or incorporated herein by reference, are filed as part of this Quarterly Report onForm 10-Q.

The agreements included or incorporated by reference as exhibits to this Quarterly Report onForm 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Quarterly Report onForm 10-Q not misleading.

Exhibit
Number			Description
	3	.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to exhibit 3.1 to our Registration Statement onForm S-3(No. 333-108831)).
	3	.2	Amended and Restated By-Laws of the Company (incorporated by reference to exhibit 3.1 to our Current Report onForm 8-K filed on February 14, 2008).
	4	.1	Form of share certificate for common stock (incorporated by reference to exhibit 4.1 to our Registration Statement onForm S-1(No. 333-347410)).
	4	.2	Indenture related to the 2.0% Convertible Senior Notes due 2012 dated March 28, 2007, between AMERIGROUP Corporation and The Bank of New York, as trustee (including the form of 2.0% Convertible Senior Note due 2012) (incorporated by reference to exhibit 4.1 to our Current Report onForm 8-K filed on April 2, 2007).
	4	.3	Registration Rights Agreement dated March 28, 2007, between AMERIGROUP Corporation, Goldman Sachs, & Co., as representative of the initial purchasers (incorporated by reference to exhibit 4.2 to our Current Report onForm 8-K filed on April 2, 2007).
	10	.1	Amendment No. 5 to the Contract Risk Agreement between the State of Tennessee and AMERIGROUP Tennessee, Inc. effective March 1, 2010, (incorporated by reference to exhibit 10.1 to our Current Report onForm 8-K filed on May 26, 2010).
	10	.2	AMERIGROUP Corporation Amended and Restated Form 2005 Executive Deferred Compensation Plan between AMERIGROUP Corporation and Executive Associates dated May 15, 2010, (incorporated by reference to exhibit 10.1 to our Current Report onForm 8-K filed on May 18, 2010).
	10	.3	AMERIGROUP Corporation Amended and Restated Form 2005 Non-Employee Director Deferred Compensation Plan between AMERIGROUP Corporation and Non-Executive Associates dated May 15, 2010, (incorporated by reference to exhibit 10.2 to our Current Report onForm 8-K filed on May 18, 2010).
	31	.1	Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated August 4, 2010.
	31	.2	Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated August 4, 2010.
	32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002, dated August 4, 2010.
	101	.INS*	XBRL Instance Document.
	101	.SCH*	XBRL Taxonomy Extension Schema Document.
	101	.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.

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Exhibit
Number			Description
	101	.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
	101	.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
	101	.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* In accordance with Rule 406T ofRegulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

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