sierra health services, inc. a managed care company updated 08/25/06

Sierra Health Services, Sierra Health Services, Inc.Inc.A Managed Care CompanyA Managed Care Company

Updated 08/25/06

Cautionary StatementCautionary StatementStatements in this presentation and verbal statements made by representatives of Sierra that are not historical facts are forward-looking and based on management’s projections, assumptions and estimates; actual results may vary materially. Forward-looking statements are subject to certain risks and uncertainties, which include but are not limited to:

1) potential adverse changes in government regulations, contracts and programs, including the Medicare Advantage program, the Medicare Prescription Drug Plan and any potential reconciliation issues, Medicaid and legislative proposals to eliminate or reduce ERISA pre-emption of state laws that would increase potential managed care litigation exposure;

2) competitive forces that may affect pricing, enrollment, renewals and benefit levels;

3) unpredictable medical costs, malpractice exposure, reinsurance costs and inflation;

4) impact of economic conditions; 5) changes in healthcare reserves; and 6) the amount of actual proceeds to be realized from the note receivable related to

the sale of the workers’ compensation insurance operation. Further factors concerning financial risks and results may be found in documents filed with the Securities and Exchange Commission and which are incorporated herein by reference. Consequently, all of the forward-looking statements made in this presentation or verbally by representatives of Sierra are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Sierra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Sierra or its business or operations. Sierra assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

Disclosure StatementDisclosure Statement

This presentation includes a non-This presentation includes a non-Generally Accepted Accounting Principle Generally Accepted Accounting Principle (GAAP) measure –medical care ratio (GAAP) measure –medical care ratio excluding PDP which under SEC excluding PDP which under SEC Regulation G we are required to reconcile Regulation G we are required to reconcile with GAAP. Reconciliation of this medical with GAAP. Reconciliation of this medical care ratio to GAAP is included in our care ratio to GAAP is included in our earnings press release, which is available earnings press release, which is available on on www.sierrahealth.comwww.sierrahealth.com. .

Other Private (includes self-insured and

PPO) (1)

40%

HMO (2)

18%

Medicaid (1)

6%

Medicare (1)

12%

Military (1)

5%

Uninsured (1)

19%

Nevada Health Insurance Nevada Health Insurance DemographicsDemographics

(1) U.S. Census Bureau (2004) -Total Nevada Population = 2,390,000

(2) Nevada State Health Division, HMO Industry Profile 3/31/06

HMO Membership HMO Membership

(in thousands)

187 202 226254 266

4851

5356

57

3739

5155

56

0

50

100

150

200

250

300

350

400

12/ 31/ 02 12/ 31/ 03 12/ 31/ 04 12/ 31/ 05 6/ 30/ 06

Commercial Medicare Medicaid

272292

330365

9.9% CAGR379

Commercial HMO Sales Commercial HMO Sales GrowthGrowth

Commercial HMO Members: 265,600 Commercial HMO Members: 265,600 2006 Las Vegas Membership Growth: 10,7002006 Las Vegas Membership Growth: 10,700

Expect 6-9% Net Commercial Growth in Expect 6-9% Net Commercial Growth in 20062006

Over 5% YTD through JulyOver 5% YTD through July +66% HMO Market Share in Nevada+66% HMO Market Share in Nevada(1)(1)

78% HMO Market Share in Las Vegas78% HMO Market Share in Las Vegas(1)(1)

Only 18% HMO Penetration StatewideOnly 18% HMO Penetration Statewide(1)(1)

Increasing Competition from PPO OfferingsIncreasing Competition from PPO Offerings


June 30, 2006

501+ (large)63%

51-500 (mid-size)31%

1-50 (small)6%

Health Plan of NevadaHealth Plan of NevadaMembership Membership CharacteristicsCharacteristics(1)(1)

All Others38% School

Districts10%

Gaming20%

Government11%Unions

11%National Accounts

10%

Commercial Employer Group Size Commercial Employer Type Mix

(1) Based on number of subscribers in each category

June 30, 2006

NevadaNevadaCommercial Market Share Commercial Market Share (HMO)(HMO)(1)(1)

Q1-04 Q1-05 Q1-06 Q1-04 Q1-05 Q1-06

Health Plan of Nevada 65.6% 66.2% 66.5% 77.8% 78.9% 78.3%

PacifiCare (United) 8.0% 10.0% 11.7% 9.8% 12.2% 14.3%

Health First 9.0% 8.2% 7.1% - - -

Hometown Health Plan 6.4% 5.9% 6.0% - - -

NevadaCare 6.1% 3.8% 3.3% 7.3% 4.6% 4.0%

Aetna 3.9% 2.9% 2.5% 4.6% 3.4% 2.9%

HMO Nevada (WellPoint) 1.0% 3.0% 2.9% 0.5% 0.9% 0.5%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

HMO Market Penetration 17.5% 17.3% 18.1% 20.5% 19.5% 20.4%

Statewide Clark County

(1) Nevada State Health Division, HMO Industry Profile March 31, 2004, 2005 and 2006

Commercial CostsCommercial Costs

2006 Projected Cost Trends2006 Projected Cost Trends HospitalHospital 6 - 8% 6 - 8% PhysicianPhysician 4 - 5% 4 - 5% Pharmacy Pharmacy 6 - 8% 6 - 8%

OverallOverall 6 - 7% 6 - 7%

Commercial PricingCommercial Pricing

2006 Projected Rate Increases2006 Projected Rate Increases HMOHMO 4 – 6%4 – 6% POSPOS 6 – 8%6 – 8% PPOPPO 6 – 8% 6 – 8%

OverallOverall(1)(1) 5 – 7%5 – 7%

(1) Excludes benefit reductions (buydowns) which will increase the expected yield by approximately 1%-2%

Medicare Sales GrowthMedicare Sales Growth

Medicare HMO Members: 56,900 Medicare HMO Members: 56,900 (6/30/06)(6/30/06)

Expect 4% or Better Net Medicare Growth Expect 4% or Better Net Medicare Growth for 2006for 2006

Approximately 7% yield increase for 2006Approximately 7% yield increase for 2006 + 64% Medicare Market Share Statewide + 64% Medicare Market Share Statewide

and Las Vegas and Las Vegas (1)(1)

Only 32% Medicare HMO Penetration Statewide Only 32% Medicare HMO Penetration Statewide (1)(1)


Nevada Nevada Medicare Market Share (HMO)Medicare Market Share (HMO)(1)(1)

Q1-04 Q1-05 Q1-06 Q1-04 Q1-05 Q1-06


PacifiCare (United) 30.8% 30.4% 29.8% 37.2% 36.7% 35.7%

Hometown Health Plan 6.4% 5.9% 5.5% - - -

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Market Penetration 38.3% 32.0% 31.7% 47.3% 38.4% 37.7%



Medicare CostsMedicare Costs

2006 Projected Cost Trends2006 Projected Cost Trends HospitalHospital 4 - 6% 4 - 6% PhysicianPhysician 4 - 5% 4 - 5% Pharmacy Pharmacy 14 - 16% 14 - 16%

OverallOverall 6 - 7% 6 - 7%

Prescription Drug Plan – Part Prescription Drug Plan – Part DD

Stand-alone Prescription Drug Plan (PDP)

- Sierra Health and Life

-10 states (8 regions)

-NV, CA, AZ, UT, ID, OR, WA, CO, NM, TX

-Auto-enrollment provider in all 8 regions

Prescription Drug Plan – Part Prescription Drug Plan – Part DD

Marketing/EnrollmentMarketing/Enrollment Low premiums, $1 generic co-pay and $250 Low premiums, $1 generic co-pay and $250

brand name deductiblebrand name deductible Enrollment ended May 15, 2006 for PDPEnrollment ended May 15, 2006 for PDP Beneficiaries “locked in” until next enrollment Beneficiaries “locked in” until next enrollment

period for 2007period for 2007 180,300 members June 2006180,300 members June 2006 Continue to expect a pre-tax margin +4% on Continue to expect a pre-tax margin +4% on

revenues of approximately $200 million for revenues of approximately $200 million for 20062006

Year to date pre-tax income of approximately Year to date pre-tax income of approximately $1 million through June 30, 2006$1 million through June 30, 2006

Expect pre-tax income of +$7 million for the Expect pre-tax income of +$7 million for the remaining two quarters of 2006remaining two quarters of 2006

MedicaidMedicaid

Medicaid Members: 56,700 (6/30/06)Medicaid Members: 56,700 (6/30/06) +50% Medicaid HMO Market Share in Nevada +50% Medicaid HMO Market Share in Nevada

(1)(1)

Expect 4-6% Net Medicaid Growth for 2006Expect 4-6% Net Medicaid Growth for 2006 2006 Rates2006 Rates

0.9% rate decrease January 1, 20060.9% rate decrease January 1, 2006 2.6% rate increase July 1, 20062.6% rate increase July 1, 2006

Mandatory 2 Plan Market in NevadaMandatory 2 Plan Market in Nevada Currently Serving CHiPS, TANF, CHAPCurrently Serving CHiPS, TANF, CHAP


Nevada Nevada Medicaid Market Share (HMO)Medicaid Market Share (HMO)(1)(1)

Q1-04 Q1-05 Q1-06 Q1-04 Q1-05 Q1-06


Nevada Care 55.7% 54.0% 48.8% 57.1% 55.7% 50.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Market Penetration 50.5% 47.2% 48.1% 60.0% 55.9% 57.1%



MedicaidMedicaid Awarded new contract July 2006Awarded new contract July 2006 Contract award was not appealedContract award was not appealed Governor of the State of Nevada has signed Governor of the State of Nevada has signed

the contractthe contract New contract effective 11/1/06 through New contract effective 11/1/06 through

6/30/09 with DHCFP option to extend the 6/30/09 with DHCFP option to extend the contract for an additional two yearscontract for an additional two years

State quality and performance audit scores of State quality and performance audit scores of 100% - 2004; 98% - 2002 and 2000100% - 2004; 98% - 2002 and 2000

$51.2$64.1

$88.0$98.1

$23.9 $26.6

$0.0

$25.0

$50.0

$75.0

$100.0

$125.0

2002 2003 2004 2005 Q2-05 Q2-06

HPN Medicaid Revenue HPN Medicaid Revenue GrowthGrowth

24.2% CAGR

(in millions)

Medical SubsidiariesMedical Subsidiaries

Clinical OverviewClinical Overview

Medical Subsidiaries

Family Healthcare Services

(FHS)

Family HomeHospice(FHH)

Total HomeCare of Nevada

(THC)

BehavioralHealthcare Options

(BHO)

Southwest Medical Associates

(SMA)

• Multi-specialty physician group

• 250 Providers

• Provides care services in patient’s home

• Medicare certified home health agency

• Hospice servicing terminally ill patients

• Medicare certified

• Home care products, infusion therapy services, and specialty drugs

• DME

• Specialized mental health/substance abuse services.

• URAC accredited

Las Vegas/Marketplace Las Vegas/Marketplace OpportunitiesOpportunities

Future Growth OpportunitiesFuture Growth Opportunities Population increase of 4-5% in 2006, now at 1.9 millionPopulation increase of 4-5% in 2006, now at 1.9 million Census Bureau Estimate +114% Growth In 25 YearsCensus Bureau Estimate +114% Growth In 25 Years National average of 1%National average of 1%

Mid Size Account GrowthMid Size Account Growth 65 new and expanded companies in Nevada in 200565 new and expanded companies in Nevada in 2005

Collectively employ nearly 2,000 workersCollectively employ nearly 2,000 workers

Expected 1 year economic impact of $360 MillionExpected 1 year economic impact of $360 Million

Improving Medical InfrastructureImproving Medical Infrastructure New Acute HospitalsNew Acute Hospitals

New Cancer Research FacilityNew Cancer Research Facility

New Alzheimers FacilityNew Alzheimers Facility

$1,131.2

$1,291.3

$320.4$400.7

$962.2$862.4

$0.0

$250.0

$500.0

$750.0

$1,000.0

$1,250.0

2002 2003 2004 2005 Q2-05 Q2-06

Medical Premium Revenue Medical Premium Revenue TrendsTrends

14.4% CAGR($ in millions)

(1) Includes $49.7 million in PDP revenue

(1)

Consolidated MCRConsolidated MCR78.8%

76.1% 75.3% 76.5% 78.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2002 2003 2004 2005 YTD6/ 06

Consolidated MCRConsolidated MCRExcluding PDPExcluding PDP

78.8% 76.1% 75.3% 76.5% 76.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2002 2003 2004 2005 YTD6/ 06

Consolidated Medical Consolidated Medical ExpensesExpenses

Physician40%

Pharmacy19%

Other18%

Hospital23%

Twelve Months Ended 6/30/06Twelve Months Ended 6/30/06

Physician44%

Hospital25%

Pharmacy12%

Other19%

Consolidated Medical Consolidated Medical Expenses Excluding PDP Expenses Excluding PDP (1)(1)

Twelve Months Ended 6/30/06Twelve Months Ended 6/30/06

(1) Excludes PDP medical expenses of $95.2 million

$63.5

$119.0

$175.0

$141.9

$44.4$52.5

$0.0

$50.0

$100.0

$150.0

$200.0

2002 2003 2004 2005 Q2-05 Q2-06

40.2% CAGR

Managed Care and Corporate Operations Segment ($ in millions)

Operating IncomeOperating Income

Consolidated Pretax MarginConsolidated Pretax Margin

6.8%

11.4% 11.4%12.2% 12.1%12.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2002 2003 2004 2005 Q2-05 Q2-06

Managed Care and Corporate Operations Segment

$59.7$106.1 $117.3

$89.4$58.3

$190.3

$231.7

$374.6$299.2$265.2

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

$450.0

12/31/02 12/31/03 12/31/04 12/31/05 6/30/06

Non-Regulated Regulated

Cash and InvestmentsCash and Investments

From Continuing Operations ($ in millions)

$382.5

$337.8

$250.0

$388.6

$432.9

Return on Average Equity

28.8%

69.6%

40.6%

49.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2002 2003 2004 2005

Total External DebtTotal External DebtFrom Continuing Operations ($ in millions)

$76

$117

$72 $52

$125

$193

$0

$50

$100

$150

$200

$250

Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Jun-06

Senior Convertible DebenturesSenior Convertible Debentures

$115 MM original issue on March 15, 2003$115 MM original issue on March 15, 2003 2.25% coupon rate2.25% coupon rate Converted $63.5 million from May 19, 2005 Converted $63.5 million from May 19, 2005

through February 1, 2006through February 1, 2006 Issued 6.9 million shares upon conversion (1)Issued 6.9 million shares upon conversion (1) Expensed approximately $1.5 million in prepaid interest Expensed approximately $1.5 million in prepaid interest

for for conversion in 2005conversion in 2005

Expensed deferred financing costs of $1.2 million in Expensed deferred financing costs of $1.2 million in 20052005

(1) Adjusted to reflect 2-for-1 stock split effective December 30, 2005

Stock SplitStock Split Declared a 2-for-1 stock split on December 7, 2005Declared a 2-for-1 stock split on December 7, 2005 In the form of a 100% stock dividendIn the form of a 100% stock dividend Distributed and effective December 30, 2005Distributed and effective December 30, 2005 Authorized shares increased to 120,000,000 with a Authorized shares increased to 120,000,000 with a

$.005 par value$.005 par value Historical earnings per share results have been Historical earnings per share results have been

adjustedadjusted Adjusted theAdjusted the conversion rate for outstanding conversion rate for outstanding

debenturesdebentures Treasury shares were not impacted by this Treasury shares were not impacted by this

dividenddividend

54.1 53.2 56.1

12.6 12.6

4.4 0.92.4

5.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Q2 2004 Q2 2005 Q2 2006

Dilutive Impact of Conversion of Sierra DebenturesDilutive Options and Restrictive Shares OutstandingWeighted Average Common Shares Outstanding

Managing DilutionManaging Dilution(1)(1)

(shares in millions)

71.168.2

62.6


-6.2% CAGR

Share Repurchases from 1/1/03 Share Repurchases from 1/1/03 (1)(1)

Repurchased 25.2 million shares as of 7/25/06

$20.45 average repurchase cost as of 7/25/06

Current bank agreement allows for unlimited share repurchases Based on meeting the required leverage ratio

$64.4 million available as of 7/25/06


2006 Strategic Objectives2006 Strategic Objectives Solidify Regional StrengthSolidify Regional Strength

Continue to Gain Market ShareContinue to Gain Market Share Continue to Expand Medical Delivery SystemContinue to Expand Medical Delivery System

Implement Medicare Advantage Expansion, including Implement Medicare Advantage Expansion, including Prescription Drug Program (Part D)Prescription Drug Program (Part D)

Achieve Commercial Premium Yields +5 to 7% before Achieve Commercial Premium Yields +5 to 7% before benefit buydownsbenefit buydowns

Achieve Commercial Unit Growth +6 to 9%Achieve Commercial Unit Growth +6 to 9%

Achieve EPS of $2.10 to $2.18Achieve EPS of $2.10 to $2.18

Sierra Health Services, Sierra Health Services, Inc.Inc.A Managed Care CompanyA Managed Care Company

Updated 08/25/06

sierra health services, inc. a managed care company updated 08/25/06

Documents

hmo membership

hmo industry profile

hmo market share

sierra health services

forwardlooking statements

representatives of sierra

health plan of nevada65

actual results