CIBC 15th Annual Health Care ConferenceNovember 9, 2004The Plaza, New York City

PacifiCare Health SystemsPacifiCare Health SystemsBrad BowlusBrad BowlusPresident and CEO, President and CEO, Health Plans DivisionHealth Plans Division

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 Form 10Q filed as of recent filings with the SEC, including the Form 10Q filed as of September 30, 2004, and the Form10K filed as of December September 30, 2004, and the Form10K filed as of December 31, 2003. 31, 2003.

Cautionary StatementCautionary Statement

Largest purchaser of health care Largest purchaser of health care services in the western United Statesservices in the western United States

Fortune 200 company w/ 2004 Goals of:• $12 billion in revenue• 2.3 million commercial lives• 704 thousand senior lives• 11.8 million specialty lives

Medical & Specialty Companies

Continued Market Expansion

2004 Markets

Planned Specialty Expansion

Specialty Companies Only

Earnings Growth

Net Income

$243

$139

$19

$0

$100

$200

$300

$400

2001 2002* 2003 2004 est. 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 proposed acquisition of American Medical Security Group ^ Includes proposed acquisition of American Medical Security Group

$301-$306$301-$306

$360-$375$360-$375

Excess Statutory Capital

$218$276

$609

$375

$743$723

$50

$250

$450

$650

$850

2000 2001 2002 2003 6/30/04 9/30/04 est.

mill

ion

s

Average of 400% RBC in core HMO statesAverage of 400% RBC in core HMO states

2004 Trends- YTD through September 30th

• Net income up 30% from ‘03, excluding ‘03 favorable prior period development

• Commercial business, year-over-year • Membership up 84K or 4.6%• CA membership up 7% • MLR down 20 basis points • Aggregate gross margin up 14.3%

• Medicare Advantage business, year-over-year• Membership up 1% • MA MLR up 150 basis points, at low end of revised 2004 guidance

• SG&A down 20 basis points Year-over-Year

• Commercial premiums up 9.2% PMPM, over health care cost PMPM of 8.3%, excluding ’03 favorable prior period development

• ‘04 premium increase guidance 8.5% - 9%

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

HMODIVERSIFIED INSURANCE COMPANY

CONSUMER HEALTH

ORGANIZATION

PacifiCare Vision

2000 2001-2002 2003-2004

HMO FocusDeployed Product

Leadership Strategy Solidified Total Solution

Approach

Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999-2004; KPMG Survey of Employer-Sponsored Health Benefits: 1993,1996; HIAA: 1988-1990; Bureau of Labor Statistics, CPI (US City Avg of Annual Inflation) 1988-2004; Bureau of Labor Statistics; Seasonally Adjusted: 1988-2004

Increases in Health Insurance Premiums Compared to Other Indicators, 1988-2004

11.2%

18.0%

0.8%

13.9%12.9%

10.9%

8.2%

5.3%

8.5%

12.0%

14.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1988 1990 1992 1994 1996 1998 2000 2002 2004

Health Insurance PremiumsWorkers EarningsOverall Inflation

2.3%

2.2%

Unhappy about costs

Imposed legislative/ regulatory actions to restrict aggressive intervention and mandate benefits

Angry about• Economics• Hassles• Professional

autonomy

Worried about

• Ability to access care when needed

• Hassles

Employers GovernmentPhysicians Consumers

PacifiCare’s Value Propositions

and Consumer Aligned Health Care

All Key Stakeholders Looking for Solutions

SUPERIOR HEALTH CARE

COST MGMT

DATA DRIVEN OUTCOMES

CONSUMER DRIVEN TOTAL

SOLUTION

DELIGHTING THE CUSTOMER

C O N S U M E R

C

E

M

U

S

N

O

R

Delivering Consumer Aligned Value Propositions

Maximizing Cost & Quality OutcomesDelight

the Customer

Superior HCC Mgmt

Consumer Total

Solution

Data Driven

Outcomes

CONCENTRATED PURCHASING POWER

INTEGRATED DISEASE MANAGEMENT PROGRAMS

BEST IN CLASS NETWORKS

DEMAND SIDE INTERVENTIONS

TIERED & NARROW NETWORKS

PROVEN MEDICAL MANAGEMENT CAPABILITY

$3.5

$70.4M $15.6M $2.6M

$22.7M

$3.9M

CHF COPD CADCancer NICU ESRD

Cumulative DM Savings

from 12/00 Program Inception$295M

Cumulative DM Savings

from 12/00 Program Inception$295M

DM Outcome Report September 2004

$3.5M

Rolling 12 Months Savings = $120 Million

$3.6M

Delight the

Customer

Superior HCC Mgmt

Consumer Total

Solution

Data Driven

OutcomesIntegrated Disease Management Programs

PAAXPAAX

-Member Centric

-Integrated Data Sources

- Episode Grouping

- Risk Adjustment

- Predictive Modeling

-Benchmarking

- Multiple Units of Analysis

- Demographic Info - Medical Claims- Pharmacy Claims- Clinical Encounters- Health Risk Assessment- Disease Management- Direct Lab Feeds- Satisfaction Survey

- Demographic Info - Medical Claims- Pharmacy Claims- Clinical Encounters- Health Risk Assessment- Disease Management- Direct Lab Feeds- Satisfaction Survey

Health Services Reports

Marketing & Sales Reports

Actuary & Underwriting Reports

Provider & Network Reports

PAAX – PacifiCare AdvancedAnalytixSM Delight

the Customer

Superior HCC Mgmt

Consumer Total

Solution

Data Driven

Outcomes

Quality Index® Profile of HospitalsDelight

the Customer

Superior HCC Mgmt

Consumer Total

Solution

Data Driven

Outcomes

68.1%

78.9%

82.0%

61.0%

66.0%

71.0%

76.0%

81.0%

86.0%

2002 2003 2004

Source: MSBR / CSA Satisfaction Details

Highly Satisfied Commercial Members Delight the

Customer

Superior HCC Mgmt

Consumer Total

Solution

Data Driven

Outcomes

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

SDHP

HMO/EPOPPO

Indemnity

Consumer Driven Total SolutionDelight

the Customer

Superior HCC Mgmt

Consumer Total

Solution

Data Driven

Outcomes

• SignatureFreedom engages members to:

Become better consumers of healthcare

Be accountable for their decisions

Manage their own health and adopt healthy lifestyles

Consumer Aligned Product Leadership

Employee Responsibility$1,000 to $2,000

In-Network70%

Out-of-Network50%

Self Directed Account$1,000

Covered Services (apply to deductible):• Physician Office Visits

• Wellness & Preventive Care• Office-based Diagnostic Tests

AnnualDeductible

$2,000

In-Network70%

PPOBenefit

Plan

100% After Coinsurance Maximum

$$ Employee Responsibility$1,000 to $2,000

Out-of-Network50%

Rx$10

generic$35

brand

SignatureFreedom Plan Design

• Approximately 10% from groups that did not previously offer insurance

• > 70% from Small Group (2 to 50 employees)

• 90% from customers new to PacifiCare

SignatureFreedom Growth

0

10000

20000

30000

40000

50000

60000

70000

80000

Me

mb

ers

hip

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Individual

NV/WA/OR

TX/OK/AZ

CO

CA

PHS

70,300 Members70,300 Members

Key Features

Model HSA – Health Savings Account

Eligibility

Contributor

Account Carryover

Ability to Withdraw for Non-Health Care

No

Yes Yes or No Yes

Yes No

Employees enrolled in HDHP

Ability to Earn Investment

NoYes No

HRA – Health Reimbursement

Account

Signature Freedom(SDHP)

All Employees All Employees

Employee or employer or combination

Employer Only PacifiCare

Spending Account Model Comparison

• Grow commercial business through consumer-aligned products and ISG segment expansion

• Build Senior Solutions products/distribution

• Medicare Advantage growth

• Specialty company external member growth

• Prescription Solutions

• Behavioral health

• Dental & Vision

Strategy for Profit Growth

Growth of Commercial Business

Diversification through new Individual/Small Group salesDiversification through new Individual/Small Group sales

2131 31

4047

42 40

01020304050

Q103 Q203 Q303 Q403 Q104 Q204 Q304

20032003 20042004

American Medical Security (AMS) Overview

Individual and Small Group Health Insurer Individual and Small Group Health Insurer Headquartered in Green Bay, WisconsinHeadquartered in Green Bay, Wisconsin

2004 Markets

AMS MarketsAMS Highlights• $700 million in revenue • 315,000 medical members• 218,000 dental, 130,000 life

Acquisition of American Medical Security (AMS)

28 Additional medical states after AMS acquisition28 Additional medical states after AMS acquisition

PHS Only Markets

2005 Markets - Post Acquisition

AMS Only MarketsPHS & AMS Combined Markets

Transaction SummaryTransaction Summary

• Price: $32.75 cash per AMS share; ~$502M total

• Expected Close: Early 2005

• Financing: $400M new term loan + ~$160M internal cash

• Accretion: Net Income guidance increased by $10-$15M to $360-$375M

• Required Approvals: AMS shareholders

Hart Scott Rodino

WI & GA DOIs

Acquisition of American Medical Security Group

Acquisition of American Medical Security Group, Inc.

Key Considerations/Value DriversKey Considerations/Value Drivers

• Diversifies PHS by product, geography & customerDiversifies PHS by product, geography & customer

• M+C reduced from 37% to 33% of total gross marginM+C reduced from 37% to 33% of total gross margin

• CA enrollment declines from 62% to 56% of totalCA enrollment declines from 62% to 56% of total

• Commercial membership (ISG) up 13%Commercial membership (ISG) up 13%

• Expansion of PPO into 29 states + D.C.Expansion of PPO into 29 states + D.C.

• Enhances broker distribution & facilitates cross- sellEnhances broker distribution & facilitates cross- sell

• 32,000 independent brokers32,000 independent brokers

• Cross sell opportunity for M+C, Med Supp, Cross sell opportunity for M+C, Med Supp, SignatureFreedomSignatureFreedom

Acquisition of American Medical Security Group, Inc.

Key Considerations/Value DriversKey Considerations/Value Drivers

• Acquire additional AMS product/functional expertiseAcquire additional AMS product/functional expertise• ISG underwritingISG underwriting

• HSA, Group Life, Disability & Dental productsHSA, Group Life, Disability & Dental products

• Provides low cost, scalable platform to further Provides low cost, scalable platform to further expand ISG businessexpand ISG business

Medicare Advantage Timeline

• Health Plan ACRs for 2005 submitted 9/13/04

• PPO and PDP regions defined: Nov - Dec ’04

• Benchmark rates issued first Monday in April ’05

• Health Plan RFPs due first Monday in June ’05 • New prescription drug benefit starts 1/1/06

(in

mi l

lio

ns )

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

Internal Revenue External Revenue

$340

$394 $403

$472

$661

$172$239

$322

$231 $232$339

0

100

200

300

400

500

600

700

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

Prescription Solutions Revenue Growth

(in

mil

lio

ns)

$296$341 $328

$387

$543

24.8%

$0

$100

$200

$300

$400

$500

$600

2000A 2001A 2002A 2003A 2004E

18.7% 20.3% 20.6%

25.0%

18.4%

Mail Service Revenue & Mail Order Penetration

Room for P/E Multiple Expansion

0.0

4.0

8.0

12.0

16.0

20.0

UNH SIE WC AET WLP ATH HNT HUM PHS CVH CI

2004

2005

2004 Average2004 Average

2005 Average2005 AverageComparison as of 10/27/04Comparison as of 10/27/04

CIBC 15CIBC 15thth Annual Health Care Conference Annual Health Care Conference

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