1

Brad BowlusPresident, CEO

PacifiCare Health Plans

.…a health and consumer services company making people’s lives better

Commercial Growth and Product Strategy

2

...Everything Matters!

For The First Time In The Industry,“Consumerism” Will Drive The Marketplace

.…a health and consumer services company making people’s lives better

Brand New Day

Member Consumer

Participant Purchaser

3 .…a health and consumer services company making people’s lives better

Current Position - “Western US Total Solution”

2.6M Commercial PHS Members PPO Network Coverage Available Nationally Prescription Solutions & PBM Available In All States

CO - 218,000 / 18% / #3

AZ - 137,000 / 12% / #4

WA - 82,000 / 8% / #3

OR - 94,000 / 11% / #4

NV - 35,000 / 13% / #2

CA - 1,679,000 / 13% / #3

OK - 89,000 / 25% / #2

TX - 222,000 / 9% / #4

Commercial HMO Membership / HMO Market Share / HMO Rank

WA

OR

CA

NV

AZ

CO

OK

TX

Source: Membership data from Company disclosure as of 6/30/01; market share data from Interstudy Publications HMO Directory. Excludes Guam membership.

4 .…a health and consumer services company making people’s lives better

Western Region Demographics

• 28% Of Total US Population In 8 States That Comprise PHS Primary Service Areas

• Fastest Growing Demographics In US Through 2015

Percentage Of Total US Population

Source: US Census Bureau

6.0%

15.1%

8.5%

0.0%

5.0%

10.0%

15.0%

20.0%

Non PHS ServiceAreas

PHS Service Areas Total US

Population Growth Rate Through 2015

Non-PHS Operating Areas72%

28% PHS Operating Areas

5 .…a health and consumer services company making people’s lives better

PacifiCare Strengths

• Expanding Gross Margins In All Markets

• Recognized As HMO & Retiree Market Leader

• Differentiated Contiguous West Coast Presence

• $11 billion In Concentrated Purchasing Power

• Integrated Disease And Medical Management Programs With Proven Results

• NCQA Leadership Position Within Industry

• First To Provide Outcome-Based Information (Quality Index™)

• Proven, Trusted Brand Among Consumers, Brokers And Providers

6 .…a health and consumer services company making people’s lives better

Positioned for “Single Source Solution”

• Alternative Medical Products With An Array Of Cost, Access, And Benefit Features

• Product Configurations Which Combine Clinical Quality And Consumer Accountability

• Cost And Quality Information Through Quality Index

• Comprehensive Specialty Product Offerings

• Enhanced Service And Expanded Functionality

• Consistent Set Of Baseline Services, Irrespective of Medical Choice

7 .…a health and consumer services company making people’s lives better

The Total Solution- Consumer Aligned Healthcare Framework

Web-Based Decision Support/Consumer Information on Quality

Multi-State Product Administration

Spending Account Administration with Equity Carryover (FSA Debit, MSA)

Women's Health Solution Features and Buy Up Products

Integrated HRA & Disease/Medical Management Programs

Pharmacy, Life/Disability, Dental, Vision, and Behavioral Products

High/Low Managed Benefit Designs

Ba

se

lin

e P

rod

uc

ts a

nd

Se

rvic

es

(Av

ail

ab

le A

cro

ss

Co

re)

Co

re M

ed

ica

lP

rod

uc

ts

CostLow High

Modular Approach to Benefit Selection & Enrollment

Alternative Funding (ASO)

IndemnityPPO

Narrow Network

HMO

Tiered Network

HMO

Current HMO

Catastrophic Plan

8

Consumer Aligned Healthcare

Consumer Ability To:

– Select Plan On Basis Of Service, Provider, Benefits And Cost

– Select A Plan Across A Spectrum Of Choices Balancing True Insurance Versus Consumption

– Make Informed Choices About Treatment And Lifestyle Alternatives

Front-EndDecision Support

• HRA• Quality Index™

• Provider Directory• On-Line Enrollment

• Benefit Selection

Front-EndDecision Support

• HRA• Quality Index™

• Provider Directory• On-Line Enrollment

• Benefit Selection

Array of Medical Choices- Cost,

Access & Benefit Choice

• HMO• PPO

• Catastrophic• Indemnity

Array of Medical Choices- Cost,

Access & Benefit Choice

• HMO• PPO

• Catastrophic• Indemnity

Front-EndDecision Support

On-GoingAdministrative

And Care Support

Specialty Offering’s

Employer Paid& Endorsed

Array of Medical

Choices- Cost, Access &

Benefit Choice

On-GoingAdministrative

And Care Support

• Disease Management• Web Administration• Multi-State Admin /

Travel Assistance• FSA

On-GoingAdministrative

And Care Support

• Disease Management• Web Administration• Multi-State Admin /

Travel Assistance• FSA

Specialty Offering’sEmployer Paid

& Endorsed

• Complementary Medicine• Women’s Health

•Pharmacy• Life / STD/ LTD

• Behavioral •Dental & Vision

Specialty Offering’sEmployer Paid

& Endorsed

• Complementary Medicine• Women’s Health

•Pharmacy• Life / STD/ LTD

• Behavioral •Dental & Vision

9 .…a health and consumer services company making people’s lives better

HMO Design

• First To Market With Narrow And Tiered Networks (CA)

• Narrow And Tiered Configurations, When Combined With “Benefit Buydown Plans”, Generate Year 1 Savings From 8% To 20%

• Couple Segmented Products With Quality Index™ Profile Information To Empower Consumers

• Emphasis On “Managed Benefit” Designs Versus “Managed Care”

2-Tier HMOPhysicians + Hospitals

Qu

alit

y

Cost

Preferred Non- Preferred

10 .…a health and consumer services company making people’s lives better

• Position Product On The Basis Of Service, Allowing For “Hassle-Free” Administration

• Total Employer Solution: Every Sale Of A New PPO Member Generates 2 HMO Members (Currently)

• Establish Flexible Funding Arrangements To Meet Needs Of Large Case Business (July, 2002)

• Rollout Of Small Group PPO In August, 2002

13+ Million PPO Members Enrolled With Competitors Operating In PHS Markets

2.5 Million PHS Commercial

HMO membership

PPO Design

11 .…a health and consumer services company making people’s lives better

• Catastrophic Coverage Combined With A Spending Account Of Pretax Dollars And Surplus Rollover

• Lowest Option Plan Allowing Consumers To Make Choices On The Basis Of Service, Provider, And Benefits At The Time Of Service

• The PacifiCare Advantage:• Total Risk Umbrella• Network Access• Supporting / Integrated Ancillaries

• Access To Medical & Disease Management

• Leadership In Quality Reporting Allows PHS To Differentiate From Competition Via Partnering With Consumer

• Product Rollout For 1/03 Effectives; Long Term Adoption (3-5 Years) Strategy

Catastrophic

Catastrophic Plan $50 - $125

HMO $125 - $225

PPO $200 - $300

Price Point Range PMPM

12 .…a health and consumer services company making people’s lives better

Commercial Segment Strategy

• Targeted Tactics And Growth By Defined Segments - National, Large Group, Small Group And Individual

• New Positioning As Employer “Total Solution”

– Array Of Choices That Increase Consumer Engagement And Access

– Management Of Benefit Designs, Disease Management, And Network Configuration to Address Long Term Medical Inflation

– Web-Based Support Applications And Ease Of Administration

– Integrated Specialty Company Offerings With Buy-up Alternatives

– Integrated HRA & Disease Management Programs

13 .…a health and consumer services company making people’s lives better

Segment Strategy: National Accounts

Market Opportunity: 13+ Million Enrollees In PHS Service Areas

• Position As “Best In Class Geographic Solution” Vs. “Slice Play”

• Capitalize On Strong Outcome Based Reputation In Segment

• Competitive Differentiation Based On West Coast Depth

• Attack 5,000+ Employee Accounts By Emphasizing Total Solution And Enhanced Outcomes

• Expansion Into Defined Contribution For 1/1/03 Effectives

14 .…a health and consumer services company making people’s lives better

Case Example - National Accounts

• 5,000+ Employer Case, With Operations Throughout US

• Sole Carrier Offering For Prior 15 Years

• Critical Decision: Single Source Carrier Vs. Best In Class Geographic Offering

• PacifiCare Value Proposition: Best In Class By Geography Based On Service, Access And Economics

• PacifiCare Marketed As West Coast Offering Based On Long-Term Cost Management & Service

• Result: PacifiCare Growth Of 15,000+ Members In Both HMO And PPO Products

15 .…a health and consumer services company making people’s lives better

Segment Strategy: Large Group Accounts

• Market Opportunity: 16+ Million Enrollees In PHS Service Areas

• Position As “Total Solution”

• Ancillary Products On Sponsored & Endorsed Basis

• Unique Multi-State Capabilities

• Multi-State Opportunities In PHS Primary Service Areas:

– 4,000+ Companies, 2 Million Employees, 4+ Million Members

• Expansion Into ASO, Defined Contribution For 1/1/03 Effectives

• “Turnkey” Approach For Employer Administration

16 .…a health and consumer services company making people’s lives better

Case Example - Large Group

• 500+ Employer Case, With Operations In Arizona, California, Oklahoma, and Oregon

• Multiple Carriers; Segmented Offering For Prior 5 Years

• Critical Decision: Single Source Carrier Vs. “Slice Play”

• PacifiCare Value Proposition: Single Source Carrier Offering Best In Class By Geography

• PacifiCare Marketed Based On Administration, Long-Term Cost Management & Service

• Result: PacifiCare Growth of 3,000+ Members In Both HMO, POS and Ancillary products

17 .…a health and consumer services company making people’s lives better

Segment Strategy: Individual And Small Group

Market Opportunity: 12+ Million Enrollees In PHS Service Areas

• Position As “Single Source Solution”

• Automated Administration / Renewal

• Banded Underwriting Approach

• Maintain Affordability Using Benefit Design

• Multiple Choice Of Benefits And Price Points

• Voluntary Ancillary Coverages

18 .…a health and consumer services company making people’s lives better

Key Take Home

• “Western US Total Solution”

• “Total Solution” Product Line Now In Place

• Unique Position Based On Quality Outcome Based Information, Seamless Multi-State Administration And Integrated Disease And Medical Management Programs

• New & Experienced Market Leadership To Execute “One Company Vision”

• Significant Investment In Branding

• Well Positioned For Growth!