Bear Stearns 2005 London Health Care ConferenceMay 10, 2005The Four Seasons, London

PacifiCare Health SystemsPacifiCare Health SystemsGregory W. ScottGregory W. ScottExecutive Vice President and CFOExecutive Vice President and CFO

The statements made during this presentation that are not The statements made during this presentation that are not historical facts are forward-looking statements within the historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Factors that could cause number of risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, but actual results to differ materially from expectations include, but are not limited to, the risks discussed in the company's most are not limited to, the risks discussed in the company's most recent filings with the SEC, including the Form10K filed as of recent filings with the SEC, including the Form10K filed as of December 31, 2004. December 31, 2004.

Cautionary StatementCautionary Statement

A Fortune 200 company with:• $12 billion in revenue• 2.6 million commercial lives• 715K Medicare Advantage lives• 10 million specialty lives

Strategy of a growth company

PHS 8 health plan markets before acquisitionsPHS 8 health plan markets before acquisitions

PHS Only Markets2004 Markets – Pre-AMS Acquisition

Expansion through recent acquisitions

28 Additional medical states after American 28 Additional medical states after American Medical Security Group acquisitionMedical Security Group acquisition

PHS Only Markets

2005 Markets – Post-AMS Acquisition

AMS Only MarketsPHS & AMS Overlaps

A Fortune 200 company with 2005 goals of:• $14.1 billion in revenue• 2.7 million commercial lives• 743K Medicare Advantage lives• 11.8 million specialty lives

Expansion through recent acquisitions

Significant additional overlap with Pacific Life Significant additional overlap with Pacific Life acquisition acquisition

PHS Only Markets

2005 Markets - Post Acquisitions

AMS Only MarketsPHS/AMS/Pac Life Overlaps

1Q ‘05 Close 1Q ‘05 Close Target Target

• Adds a total of more than 370K ISG PPO lives = 15% commercial member increase

• Focus on important ISG market segment

• Expanded network of independent agents increases distribution for PHS products/services

• Commercial growth/diversification balances Medicare Advantage business

• Geographic expansion diversifies outside of CA

Benefits of AMS and Pacific Life acquisitions

Earnings growth

Net Income

$243

$139

$19

$0

$100

$200

$300

$400

2001 2002* 2003 2004 2005 est.^

* Excluding effect of the adoption of FAS 142 relating to the amortization of goodwill* Excluding effect of the adoption of FAS 142 relating to the amortization of goodwill

^ Includes acquisition of American Medical Security Group & proposed acquisition of ^ Includes acquisition of American Medical Security Group & proposed acquisition of Pacific Life’s group health insurance business Pacific Life’s group health insurance business

$303$303

$370-$385$370-$385

2005 Guidance

• Commercial mbrshp. growth: 5.0%-6.0%• Medicare Advantage ending mbrs: 743K• Revenue increase:17.5%-18.5%• MLRs

• Consolidated = 84%-85%• Private Commercial = 81%-82%• Private Senior = 73%-74%• Government Senior = 87.5%-88.5%

• Gross Margins• Commercial = 18%-19%• Senior = 11.5%-12.5%• Specialty & Other = 38%-39%

• EBITDA: $750-$775 million• CFFO:$500-$525 million• Free Cash Flow: $320-$335 million• SG&A ratio: 12.75%-13.25%• Depreciation/Amortization: $89 million • Capital expenditures: $130-$135 million• Net Income: $365-$380 million• Average outstanding shares: 98.8 million• EPS: $3.70-$3.85

• Q2 = $0.92-$0.97• Tax rate: 38.8%

Includes effect of FAS 123R on equity based compensationIncludes effect of FAS 123R on equity based compensation

= 20%-25% = 20%-25% Net Income GrowthNet Income Growth

Planned evolution from a traditional health maintenance organization into a leading consumer health organization

HMODIVERSIFIED INSURANCE COMPANY

CONSUMER HEALTH

ORGANIZATION

PacifiCare Vision

On-Going Support -Care Management

•Disease Mgmt/ Web Admin•Health Credits

•Women’s Health•Flexible Spending Account•Ethnic Diversity Programs

Specialty Offerings•Pharmacy

•Dental & Vision•Behavioral

•Life/STD/LTD•Caregiver

•PAN

Front End Decision Support

•Quality Index Profiles•Benefit Selection Pricer•Health Risk Assessment

•Worksite/Web Based Tools•On-Line Enrollment

Low Cost High Cost

Signature Freedom

Signature Independence

SignatureValueSelect Hospital

PlanSignatureValue

Advantage

SignatureOptionsAdvantage

SignatureValueTraditional

PlanSignatureOptions

TraditionalPlan

HSA/SDHP

HMO/EPOPPO

Indemnity

PacifiCare offers a total solution

Specialty company growth- Pharmacy Benefit

Management Company (PBM)

630

1,130

1,640

2,070

2,560

3,500

0

1,000

2,000

3,000

4,000

2000 2001 2002 2003 2004 2005E

Mill

ions

Prescription Solutions’ Unaffiliated MembershipPrescription Solutions’ Unaffiliated Membership

Specialty company growth

Prescription Solutions' Revenue

$340 $394 $403

$704$472

0

500

1000

1500

2000

2000A* 2001A* 2002A 2003A 2004A^ 2005E^

$ M

illio

ns

Internal External

* Breakout of internal vs. external revenue is not available prior to CY 2002.

^ Revenue increases related to a change in contracting methodology from the gross method to the net method for retail prescription drug transactions ~$50M in 2004, ~ $890M in 2005 mainly for PHS contract.

$1,647$1,647

Mail Service Revenue & Mail Order Penetration

$296$341 $328

$387

$537$602

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005E

$ M

illio

ns

Specialty company growth

18.7%18.7%20.3%20.3% 18.4%18.4%

20.6%20.6%

26.0%26.0%

25.3%25.3%

Specialty company growth- Recent PBM recognition

Among MCOs: Top rated PBM on 5 of 8 evaluation factorsAmong MCOs: Top rated PBM on 5 of 8 evaluation factors - Recent - Recent Flashpohler Research surveyFlashpohler Research survey

Of 2nd tier PBMs, mentioned more than any other PBMOf 2nd tier PBMs, mentioned more than any other PBM - CSFB report, - CSFB report, 10/0410/04

Outperforms the industry in pharmacy management; and doing an Outperforms the industry in pharmacy management; and doing an excellent job regarding its primary functions: rebates, network excellent job regarding its primary functions: rebates, network

management, mail service and generic fill ratesmanagement, mail service and generic fill rates - - CapGemini CapGemini Benchmarking study, 2004Benchmarking study, 2004

#2 among all PBMs in mail order satisfaction#2 among all PBMs in mail order satisfaction – – PCMA 2004PCMA 2004

Rx Benefit Innovation Award-Rx Benefit Innovation Award- The Pharmacy Benefit Management Institute The Pharmacy Benefit Management Institute

Medicare opportunities

Medicare Advantage HMO/ Private Fee for Service

Part D Administration- Prescription Drug Plan (PDP)

Medicare Supplement

Medicare Advantage Regional PPO

Medicare opportunities

Medicare Advantage HMO

• Goals of Medicare Modernization Act

• Stabilize membership through increased benefits and provider payments• Nationwide ’04 MA Risk member increase = 98,500• PHS had 3 of 4 fastest growing plans in U.S.• PHS had 22K net adds in ’04; target growth in ’05 = 39K

• Position MA for growth in 2006• Broker distribution• Geographic expansion• Preferred provider relationships = Value Plans• Community & faith-based organization marketing• Small acquisitions • CMS demonstration project

Part D Administration- Potential market

National Market(Millions)

6.0

8.1

9.8

11.8

DualEligibles

LowIncome

GroupRetiree

All Other

PHS Assumed 2006 National Enrollment(Millions)

6.0

3.6

7.4

35.7 million35.7 million

17 million17 million

Medicare opportunities

+Group Retiree = ??M

Part D Administration- Model of potential market share

• PHS to offer benefits nationally, in all 34 PDP regions

• Assume 10 national/large PDPs + 3 regional PDPs in each region

• Assume equal distribution of 17 million assumed ’06 membership

Example:

Medicare opportunities

• Potential revenue excludes additional subsidies for low income, institutionalization, etc.

• PHS will issue specific guidance late 2005

6-8% $1.3-$2.2 billion with PBM mail order revenue

Pro Rata Annualized 1st Year

Market Share Revenue Opportunity

Medicare opportunities

Part D Administration- PHS capabilities

• Captive PBM w/ external focus (new mail order facility in planning)

• Broad distribution capabilities• State-of-the-art mail facility• National pharmacy network

• Risk-based business model

• 10 years of senior prescription drug data

• Managed care tools to control costs, improve outcomes

• Additional marketing channels• Direct TV/radio advertising• Direct mail• Recent acquisitions• Broker distribution