SEPARATION, CONSULTING AND RELEASE AGREEMENT

Exhibit 10.1

SEPARATION, CONSULTING AND RELEASE AGREEMENT

THIS AGREEMENT IS SUBJECT TO ARBITRATION

     THIS SEPARATION, CONSULTING AND RELEASE AGREEMENT (this “Agreement”) is made and entered into as of September 19, 2008, by and between HealthMarkets, Inc., a Delaware corporation (“HealthMarkets”) and The MEGA Life and Health Insurance Company (“MEGA”), a wholly owned subsidiary of HealthMarkets, (HealthMarkets and MEGA are hereinafter referred to collectively as the “Company”) and David W. Fields (the “Executive”). Unless otherwise defined herein, capitalized terms shall have the meaning specified in the Employment Agreement (as defined below).

     WHEREAS, HealthMarkets and the Executive are parties to an Employment Agreement, dated October 29, 2007 (the “Employment Agreement”);

     WHEREAS, the Executive serves as the President and Chief Operating Officer of HealthMarkets;

     WHEREAS, the Executive’s employment with the Company will terminate pursuant to Section 9(b) of the Employment Agreement on September 19, 2008 (the “Separation Date”);

     WHEREAS, subject to (i) the terms of Section 14 of the Employment Agreement, (ii) the Executive’s continued compliance with the covenants of Section 12 of the Employment Agreement, and (iii) the Executive’s execution of this Agreement, within 21 days after the Separation Date, and non-revocation of the Release (as defined herein) of claims against the Company, set forth in Section 4 of this Agreement, the Executive shall be entitled to receive the payments to be made and the benefits to be received by the Executive pursuant to Section 2 hereof; and

     WHEREAS, pursuant to Section 23 of the Employment Agreement, the Company and the Executive wish to amend the Employment Agreement, effective as of the date first written above, as set forth herein.

     NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Company and the Executive agree as follows:

     1.  Resignation .

1.1. The Executive’s employment with the Company will terminate voluntarily pursuant to Section 9(b) of the Employment Agreement, and the Executive will incur a “separation from service” within the meaning of Section 409A of the Code, on the Separation Date. Effective as of the Separation Date, the Executive hereby resigns from the position of President and Chief Operating Officer of HealthMarkets and from any and all other positions, roles, offices, or titles held by the Executive with, at the direction of, or for the benefit of the Company in accordance with Section 9(e) of the Employment Agreement, and the Company hereby accepts such resignation.

1.2. Except as otherwise provided in the Employment Agreement or as otherwise provided herein, the Employment Agreement, the Employment Term and the Executive’s employment shall terminate as of the Separation Date.

1.3. The Executive shall be entitled to receive the Executive’s Base Salary through September 30, 2008, and on September 30, 2008 shall be entitled to payment equal to such earned but unpaid Base Salary and any accrued and unused vacation time existing on and as such date. Except as otherwise provided pursuant to this Section 1.3, Section 2 hereof, Section 11 of the Employment Agreement, as applicable, and any benefit continuation requirements of applicable laws, the compensation and benefits

obligations of the Company under Sections 4, 5 and 10 of the Employment Agreement shall cease as of September 30, 2008.

1.4. In accordance with Section 12(b) of the Employment Agreement, on or before the Separation Date, the Executive will return to the Company all papers, files, notes, memoranda, keys, access cards, customer lists, records, reports, mobile or cell phones, pagers, mobile electronic mail devices, computers, other tangible and intangible property, computer programs, computer files, data and all other documents and materials, and all copies thereof whether prepared by the Executive or others, which contain Company or HealthMarkets Affiliates (as defined below) information or relate or belong to the Company or any HealthMarkets Affiliate which are in the possession, custody or control of the Executive, other than agreements between the Executive and the Company and documentation pertaining to the Executive’s employee benefits.

1.5. The Executive covenants and agrees that, notwithstanding any other provision of this Agreement, he remains subject to the provisions of Section 12 of the Employment Agreement. The Company and the Executive hereby agree that the parties’ respective rights and obligations under Sections 6, 8, 9, 11, 12, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24 of the Employment Agreement, as may be modified by this Agreement, will survive the termination of the Employment Agreement and the Executive’s employment; but for avoidance of doubt, the remainder of the Employment Agreement will not survive the termination of the Executive’s employment.

1.6. Pursuant to Section 23 of the Employment Agreement, the Executive and the Company agree to amend the Employment Agreement as provided herein.

1.7. The Employment Agreement is hereby amended to add the following at the end of Section 6:

     Any such reimbursement shall be for payments incurred by the Executive prior to the Separation Date and such reimbursement shall be made not later than December 31 ^st of the year following the year in which the Executive incurs the expense. In no event will the amount of expenses so reimbursed by the Company in one year affect the amount of expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year. Each provision of reimbursement pursuant to this Section 6 shall be considered a separate payment and not one of a series of payments for purposes of Section 409A of the Code.

     2.  Severance .

2.1 Subject to Section 16 of the Employment Agreement and the Executive’s execution of this Agreement within 21 days after the Separation Date (which for the avoidance of doubt, shall include the 21 ^st day) and non-revocation of the Release of claims against the Company, the Executive will receive the payments and benefits specified in Section 2 of this Agreement; provided , however , to the extent the Executive has not signed the Release with all periods for revocation expired as provided in Section 9.6 of this Agreement, such determination to be made at the conclusion of the period prescribed above in this Section 2, the Executive will forfeit any right to receive the payments and benefits specified in Section 2.

2.2 Salary Continuation . The Company agrees to pay the Executive an amount equal to $800,000.00 (the “Termination Payments”), such amount to be payable in equal installments payable over the twelve (12) months following the Separation Date (the “Payment Period”). Each payment shall be a separate payment and not one of a series of payments for purposes of Section 409A of the Code. Commencing on the first payroll date following the Effective Date (as defined in Section 9.6 of this Agreement), but in no event later than the period permitted under Treasury Regulations Section 1.409A-3(d), the Termination Payments shall be paid to the Executive in biweekly installments for the duration of the Payment Period, subject to the terms and conditions of Section 2 of this Agreement.

2.3 Bonus Entitlement . The Company agrees to pay the Executive an amount equal to $540,000 (the “Bonus Entitlement Payments”). The Bonus Entitlement Payments will be paid as follows: $124,615.38, payable in bi-weekly installments commencing on the first payroll date following the Effective Date, and $415,384.62 shall be paid in a Lump Sum payment on January 4, 2009. Each payment shall be a separate payment and not one of a series of payments for purposes of Section 409A of the Code.

2.4 Equity Compensation .

     (i) As of the Separation Date, the Executive is not vested in any options granted pursuant to Nonqualified Stock Option Agreement between the Executive and HealthMarkets dated November 26, 2007 and all unvested options shall be immediately cancelled and forfeited.

     (ii) The Company will repurchase the Executive’s shares of HealthMarkets common stock at $24.00 per share on September 30, 2008.

2.5 Welfare Benefits .

     (i) The Executive shall be entitled to continued participation in the Company’s group health plans at the level of participation and coverage in effect at the Executive’s termination of employment (including spousal and eligible dependent coverage) for the number of months equal to the period of continuation coverage the Executive would be entitled to pursuant to Section 4980B of the Code, in accordance with Section 409A of the Code. The Company will charge the Executive a monthly amount equal to the monthly premium payment required to maintain such coverage and, for the first twelve months, will pay the Executive an additional amount on the first payroll date of each calendar month equal to the excess of such monthly premium payment over the amount that the Executive was required to pay for such coverage immediately before the Separation Date, plus an additional amount to gross up such payments to Employee to avoid tax consequences to be determined in accordance with standard Company practice. The Company shall adjust each payment payable to the Executive pursuant to Section 2.2 of this Agreement, to reflect the charge and payment to the Executive described in this paragraph. Each payment shall be a separate payment and not one of a series of payments for purposes of Section 409A of the Code.

     (ii) The Executive shall be entitled to continued participation in the Company’s group health plans at the level of participation and coverage in effect at the Executive’s termination of employment (including spousal and eligible dependent coverage) for the number of months equal to the Payment Period in the Company’s group health plans, in accordance with Section 409A of the Code. The Company will charge the Executive a monthly amount equal to the monthly premium payment required to maintain such coverage. The Company shall charge the Executive a monthly amount that Executive will pay within fifteen (15) days of the invoice.

     (iii) The Executive shall be entitled to continued participation in the Company’s group life and other life insurance plans at the level of participation and coverage in effect at the Executive’s termination of employment (including any employee contribution requirements) for the Payment Period, and the Company shall deduct from each payment payable to the Executive pursuant to Section 2.2 of this Agreement, the amount of any employee contributions necessary to maintain such coverage for the Payment Period, based on any such contributions which were in effect immediately prior to such termination, in accordance with Section 409A of the Code.

Each provision of a benefit pursuant to this Section 2.5 (iii) shall be considered a separate payment and not one of a series of payments for purposes of Section 409A of the Code.

     (iv) The Executive understands that he is not eligible to participate in the Company’s long term disability plan after the Separation Date and agrees to waive and relinquish any entitlement to such participation or any claim to a monetary payment in lieu of such participation.

     (v) Except as otherwise provided by applicable law, notwithstanding anything in this Section 2.5 to the contrary, the Executive’s coverage under the Company’s group health plans will terminate when the Executive becomes covered under any group health plan made available by another employer and covering the same type of benefits. The Executive shall notify the Company within thirty (30) days after becoming covered for any such benefits.

2.6 In the event that the Executive dies while any Termination Payments or any Bonus Entitlement Payments are still payable to the Executive hereunder, unless otherwise provided herein, all such unpaid amounts shall be paid, not later than the tenth (10th) business day following the Executive’s death, to the Executive’s beneficiary as named on the Executive’s beneficiary forms under the Company’s 401(k) Savings and Retirement Plan, or, if no such beneficiary is so named, then to the Executive’s estate, in the form of a lump sum cash payment equal to the sum of the remaining installments of the Termination Payments and the Bonus Entitlement Payments.

     3.  Certain Additional Payments by the Company . Section 11 of the Employment Agreement is modified by adding the following at the end of Section 11:

     Notwithstanding any other provision of this Section 11 or Exhibit C to the contrary, all taxes described in this Section 11 and Exhibit C shall be paid or reimbursed no later than the end of the year following the year in which the applicable taxes are remitted or, in the case of reimbursement of expenses incurred due to a tax audit or litigation to which there is no remittance of taxes, no later than the end of the year following the year in which the audit is completed or there is a final and nonappealable settlement or other resolution of the litigation in accordance with Treasury Regulation Section 1.409A-3(i)(v). Any expenses, including interest and penalties assessed on the taxes described in this Section 11 or Exhibit C, incurred by the Executive shall be reimbursed promptly after the Executive submits evidence of the incurrence of such expenses, which reimbursement in no event will be later than the end of the year following the year in which the Executive incurs the expense, and each provision of reimbursements pursuant to this Section 11 shall be considered a separate payment and not one of a series of payments for purposes of Section 409A of the Code. Any expense reimbursed by the Company in no event will affect the amount of expenses required to be reimbursed by the Company in any other taxable year.

     4.  General Release and Covenant Not to Sue . The provisions of this Section 4 are effective on the Effective Date, as defined in Section 9.6 hereof.

4.1. In consideration of the payments and promises contained in the Executive’s Employment Agreement and this Agreement and in full compromise and settlement of any of the Executive’s potential claims and causes of action relating to or arising out of the Executive’s employment relationship with the Company or the termination of that relationship and any and all other claims or causes of action that the Executive has or may have against HealthMarkets and any HealthMarkets Affiliate (as defined below) up to the date of execution of the release provided in this Section 4 (the “Release”), the Executive hereby knowingly and voluntarily agrees to irrevocably and unconditionally waive and release and forever discharge HealthMarkets and any other entity controlled by, controlling or under common control with HealthMarkets, and their respective predecessors and successors, and their respective directors, officers,

managers, supervisors, employees, shareholders, stockholders, representatives, attorneys, including all other persons or entities acting by, through, under, on behalf of or in concert with any of them (collectively, the “HealthMarkets Affiliates”), from any and all charges, complaints, claims, liabilities, obligations, promises, sums of money, agreements, controversies, damages, actions, lawsuits, rights, demands, sanctions, costs (including attorneys’ fees), losses, debts and expenses of any nature whatsoever including, but not limited to, the Executive’s investment in HealthMarkets common stock, or by reason of any fact, matter, cause or thing whatsoever, including any matter that may be based on the sole or contributory negligence (whether active, passive or gross) of any HealthMarkets Affiliate which the Executive, the Executive’s successors, heirs or assigns had, now have, may have, claimed to have or any time had against the HealthMarkets Affiliates prior to the execution of this Release or related thereto (collectively “Claims”) and the Executive agrees not to assert any such Claims or causes of action; provided however, that in the case of the shareholders and the stockholders, the scope of Claims released is limited to Claims that the Executive, the Executive’s successors, heirs or assigns had, now have, may have, claimed to have or any time had against the shareholders and stockholders solely in their capacity as shareholders or stockholders of HealthMarkets and any other entity controlled by, controlling or under common control with HealthMarkets, and their respective predecessors and successors.

4.2 This complete Release of Claims includes, but is not limited to, the release of all Claims or causes of action arising out of or relating to the Executive’s employer-employee relationship with HealthMarkets, or the termination of that relationship, and any other Claim, including, without limitation, all Claims of alleged breach of express or implied written or oral contract, including without limitation, alleged breach of the Employment Agreement, the HealthMarkets Employee Handbook, or alleged wrongful or constructive discharge; all negligence and tort claims, including without limitation, gross negligence, defamation, emotional distress, fraud, misrepresentation, constructive or wrongful discharge; Claims for salary, benefits, bonuses, severance pay, or vacation pay; or Claims or causes of action arising under any federal, state, or local law, including but not limited to, Claims for discrimination and/or retaliation under any federal, state or local law including Claims arising under the Age Discrimination in Employment Act of 1967, as amended (ADEA); the Older Worker Benefit Protection Act (OWBPA); Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act; Claims for denial or diminishment of benefits under the Employee Retirement Income Security Act; , 29 U.S.C. §§ 2101-2109, the Sarbanes-Oxley Act of 2002, as amended; discrimination and/or retaliation claims under the Texas Labor Code §§ 21,001 et seq., as amended, or Chapter 451,001, et seq. of the Texas Workers’ Compensation Act and any other Claim under any other statutes of the State of Texas, or other jurisdictions, and any and all other Claims of Executive that could have arisen from the Executive’s employment and termination of employment with HealthMarkets.

4.3 The Executive hereby covenants and agrees that the Executive will not indirectly or directly commence, maintain, initiate, prosecute, cause, encourage, assist, volunteer, advise or cooperate with any other person to commence, maintain, initiate, or prosecute any action, lawsuit, proceeding, investigation, or claim before any court, legislative body or committee, or administrative agency (whether state, federal, or otherwise) against any of the HealthMarkets Affiliates for or with respect to any of the Claims that are addressed in this Release. If Executive violates this agreement not to sue, he agrees to pay all of the Company’s costs and expenses, including reasonable attorney fees, related to the defense of any claims except this promise not to sue does not apply to claims that Executive may have under OWBPA and the ADEA. Although Executive is releasing claims that Executive may have under the OWBPA and the ADEA, Executive understands that Executive may challenge the voluntary and knowing nature of this Release under the OWBPA and the ADEA before a court, the Equal Employment Opportunity Commission (EEOC), the National Labor Relations Board (NLRB) or any other federal, state, or local agency charged with enforcement of any employment laws. Executive understands however, that if Executive pursues a claim against the Company under the OWBPA and/or the ADEA, a court has the discretion to determine whether the Company is entitled to restitution, recoupment or set off (hereinafter “reduction”) against a monetary award obtained by Executive in the court proceeding. A reduction never can exceed the amount Executive recovers, or the consideration Executive received for signing this

Agreement, whichever is less. Executive also recognizes that the Company may be entitled to recover costs and attorneys fees incurred by the Company as specifically authorized under applicable law. Executive further understands that nothing in the Release generally prevents Executive from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the EEOC, NLRB or any other federal, state or local agency charged with the enforcement of any employment laws, although by signing this Agreement, Executive waives his right to individual relief based on claims asserted in such a charge or complaint.

4.4. The Executive agrees to release and discharge the Company and the HealthMarkets Affiliates, not only from any and all Claims which he could make on his own behalf, but also those which may or could be brought by any person or organization, on his behalf for monetary relief, and he specifically waives any right to recovery, directly or indirectly, in connection with any class or collective action or representative proceeding in which a claim or claims against the Company for monetary relief may arise, in whole or