Merrill Lynch Annual Health Care ConferenceDecember 1, 2004The Waldorf Astoria, New York City

PacifiCare Health SystemsPacifiCare Health SystemsGregory W. ScottGregory W. ScottExecutive Vice President andExecutive Vice President andChief Financial OfficerChief Financial Officer

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

• Medicare Supplement• PBM• Behavioral Health

2004 Market Expansion

Continued Market Expansion

2003 Health Plan + Specialty Companies

2003 Specialty Companies only

2004 Planned Specialty Company Expansion

A Fortune 200 company with 2004 goals of:

• $12 billion in revenue• 2.3 million commercial lives• 704K Medicare Advantage lives• 11.8 million specialty lives

Largest purchaser of health care services in the Western U.S.Largest purchaser of health care services in the Western U.S.

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

$301-$306$301-$306

$360-$375$360-$375

Excess Statutory Capital

$218$276

$609

$375

$737

$50

$250

$450

$650

$850

2000 2001 2002 2003 09/30/04

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

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

CUSTOMERSATISFACTION

C O N S U M E R

C

E

M

U

S

N

O

R

Delivering Consumer Aligned Value Propositions

Maximizing Cost & Quality Outcomes

CONCENTRATED PURCHASING POWER

INTEGRATED DISEASE MANAGEMENT PROGRAMS

BEST IN CLASS NETWORKS

DEMAND SIDE INTERVENTIONS

TIERED & NARROW NETWORKS

PROVEN MEDICAL MANAGEMENT CAPABILITY

SUPERIOR HEALTH CARE

COST MGMT

$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

Integrated Disease Management Programs

SUPERIOR HEALTH CARE

COST MGMT

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

DATA DRIVEN OUTCOMES

Quality Index® Profile of Hospitals 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 CUSTOMERSATISFACTION

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 Solution CONSUMER DRIVEN TOTAL

SOLUTION

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

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

Increase specialty company external membership

• Prescription Solutions- Medicare Part D

• Behavioral health

• Dental & Vision

Strategy for Profit Growth

• 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

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

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

American Medical Security Group (AMS)

• Adds ~314K ISG PPO lives- 13% commercial member increase

• Lower cost operations on scalable ISG platform

• Network of 32,000 independent agents increases distribution for PHS products/services

• $100 million in excess statutory capital

• Commercial growth/diversification balances Medicare Advantage business

• Geographic expansion diversifies away from CA

• Potential network & PBM synergies

ISG Market Segment Acquisitions

Pacific Life’s Group Health Business

• Leverages AMS acquisition

• Adds ~140K small/large group PPO lives- 6% commercial member increase

• Network of 30,000 agents increases distribution for PHS products/services

• Commercial growth/diversification balances Medicare Advantage business

• Geographic expansion diversifies away from CA

• 90% member overlap w/ combined PHS/AMS = network synergies

ISG Market Segment Acquisitions

2004 Markets

AMS Markets

AMS Highlights• $700 million in revenue • 1,400 employees• 315,000 medical members• 218,000 dental, 130,000 life• Key markets (TX, IL, FL)• Independent Broker Network of 32,000 Agents

2004 Markets

AMS Markets

AMS Highlights• $700 million in revenue • 1,400 employees• 315,000 medical members• 218,000 dental, 130,000 life• Key markets (TX, IL, FL)• Independent Broker Network of 32,000 Agents

Geographic expansion/Increased distribution

PHS current 8 health plan marketsPHS current 8 health plan markets

PHS Only Markets

2004 Markets - Pre Acquisition

Geographic expansion/Increased distribution

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

PHS Only Markets

2005 Markets - Post AMS Acquisition

AMS Only MarketsPHS & AMS Overlaps

Geographic expansion/Increased distribution

Significant additional overlap w/ Pacific Life Significant additional overlap w/ Pacific Life acquisitionacquisition

PHS Only Markets

2005 Markets - Post Acquisitions

AMS Only MarketsPHS/AMS/Pac Life Overlaps

Medicare Advantage Timeline

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

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

• Benchmark rates issued first Monday in April ’05Benchmark rates issued first Monday in April ’05

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

Medicare Advantage Part DMedicare Advantage Part D Stand alone Part D administrationStand alone Part D administration

Medicare Advantage Timeline

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

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

• Benchmark rates issued first Monday in April ’05Benchmark rates issued first Monday in April ’05

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

Medicare Advantage Part DMedicare Advantage Part D Stand alone Part D administrationStand alone Part D administration

(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

Prescription Solutions Unaffiliated Membership

630

1,129

1,635

2,071

2,528

0

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 9/30/04

Mill

ion

s

(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

Merrill Lynch Annual Health Care Conference

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