UBS Annual Global Health Care Services ConferenceFebruary 15, 2005The Plaza, New York City

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

A Fortune 200 company with:• $12 billion in revenue• 2.6 million commercial lives• 704K Medicare Advantage lives• 11.8 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 AMS acquisition28 Additional medical states after AMS acquisition

PHS Only Markets

2005 Markets – Post-AMS Acquisition

AMS Only MarketsPHS & AMS Overlaps

Completed 12/04 Completed 12/04

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

American Medical Security Group (AMS)

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

• Lower cost PPO 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 & cross sell 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

• 55% member overlap w/ PHS; 95% overlap w/ combined PHS/AMS = network synergies

ISG Market Segment Acquisitions

2005 Guidance- Excluding Pacific Life

• Commercial mbrshp. growth: 3.0%-3.5%• Medicare Advantage ending mbrs: 743K• Revenue increase:15%• 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 = 36%-37%

• EBITDA: $745-$770 million• CFFO:$500-$525 million• Free Cash Flow: $320-$335 million• SG&A ratio: 12.5%-13%• Depreciation/Amortization: $85 million • Capital expenditures: $120-$125 million• Net Income: $360-$375 million• Average outstanding shares: 98.8 million• EPS: $3.64-$3.80

• Q1 = $0.85-$0.89• Tax rate: 39.1%

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

= 19%-24% = 19%-24% Net Income GrowthNet Income Growth

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

$360-$375$360-$375

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

HMODIVERSIFIED INSURANCE COMPANY

CONSUMER HEALTH

ORGANIZATION

PacifiCare Vision

The rise of HSAs & CDHPs

• Continued cost shifting to employees, but without a value proposition

• 5% HSA penetration rate by 12/31/06

• HSAs appeal to healthy/wealthy

• HSAs likely to replace traditional PPO vs. HMO

• Hewitt survey finds: • 61% of employers likely to offer HSAs in near future• 93% of employees willing to take more responsibility for health

care decisions

• Not total replacement, but additional option

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

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

SignatureFreedom Growth

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

• 75% from Small Group (2 to 50 employees)

• 90% from customers new to PacifiCare

82,172 Members82,172 Members82,172 Members82,172 Members

• Participants are using appropriate levels of preventive services

43%60%

125%

0%

20%

40%

60%

80%

100%

120%

140%

Physician OfficeVisits Physical Exams Well Baby Exams

vs. PPO (High Ded - $1,500)

Emerging SignatureFreedom Utilization Results

PacifiCare data is normalized (age/sex) incurred claims from 8/03 to 7/04 paid through 10/04

(23%)

(38%)

(25%) (24%)

(40%)

(30%)

(20%)

(10%)

0%

10%

InpatientAdmits

InpatientDays ER visits Ambulance

vs. PPO (High Ded - $1,500)

PacifiCare data is normalized (age/sex) incurred claims from 8/03 to 7/04 paid through 10/04

Emerging SignatureFreedom Utilization Results

• Participants are using appropriate levels of preventive services

Specialty company growth

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

illi

on

s

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, ~ $860M 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%

Medicare opportunities

Medicare Advantage HMO/ Private FFS

Part D Administration

Medicare Supplement

Medicare Advantage Regional PPO

Local Medicare Advantage growth- Timeline

• All 2006 plan applications due All 2006 plan applications due March 23rdMarch 23rd

• ’’06 Benchmark HMO rates issued 06 Benchmark HMO rates issued April 4April 4thth (Parts A/B) (Parts A/B)

• Health plan bids for Parts A, B & D due Health plan bids for Parts A, B & D due June 6June 6thth

• National average monthly Part D bid announced National average monthly Part D bid announced August 3August 3rdrd

• CMS benefit plan approval CMS benefit plan approval September 14thSeptember 14th

• CMS website launches comparative plan data CMS website launches comparative plan data October 13thOctober 13th

Medicare opportunities

Medicare Advantage HMO

• MLR rises from ~86% in ’04, to 87.5%-88.5% in ’05• Focus on increasing membership vs. margins• 2006 growth depends on flexibility with benefit structure• Growth initiatives:

• Preferred provider relationships• Broker distribution• Geographic expansion• Value Plans• Community & faith-based organization marketing• Small acquisitions

Medicare opportunities

Medicare Advantage Private FFS

• Entering as many as 16 states by the end of 2005 • Nearly identical to MA HMO program, but no contracted

provider network

• Health Plans pay providers at Medicare FFS rates

Part D Administration- Potential market

• Approximately 42 million Medicare eligibles in the U.S.

• MA penetration ~12% = 5 million

• Eligible for FFS Part D ~ 37 million• Includes ~6 million dual eligibles to be auto-enrolled• Penalty for not enrolling = 1% per month

• In terms of drug spend, 42 million seniors equivalent of 150 commercial lives

Medicare opportunities

Medicare opportunities

Part D Administration- PHS capabilities

• Captive PBM w/ external focus

• 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

Medicare opportunities

Part D Administration- Short term considerations

Costs for:• Building up infrastructure

• IT, software, processing• Local MA and Part D Administration

• Building up customer service platform

• Marketing expenses

✔✔ ✔✔

✔✔ ✔✔

✔✔

FixedFixed VariableVariable

Total ~$50 millionTotal ~$50 millionNot included in

Not included in

’05 guidance

’05 guidance