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Goldman Sachs Global Healthcare Conference The Ritz-Carlton, Laguna Niguel Dana Point, California

Goldman Sachs Global Healthcare Conference The Ritz-Carlton, Laguna Niguel Dana Point, California June 10, 2003. Howard Phanstiel Chief Executive Officer PacifiCare Health Systems. Cautionary Statement.

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Goldman Sachs Global Healthcare Conference The Ritz-Carlton, Laguna Niguel Dana Point, California

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  1. Goldman Sachs Global Healthcare Conference The Ritz-Carlton, Laguna Niguel Dana Point, California June 10, 2003 Howard Phanstiel Chief Executive Officer PacifiCare Health Systems

  2. Cautionary Statement The statements made during this presentation that are not historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the risks discussed in the company's most recent filings with the SEC, including the Form 10Q as of March 31, 2003, and the Form 10K as of December 31, 2002.

  3. Specialty Companies only HMO + Specialty companies Looking back… to January 2003 Largest purchaser of health care services in the western U.S. • A Fortune 200 company with • $11 billion in revenue • 2.2 million commercial lives • 700 thousand Medicare+Choice HMO lives • 9 million specialty lives (PBM and Behavioral)

  4. 2003 Market Expansion • Medicare Supplement • Pharmacy Benefit Management • Behavioral Health

  5. Top-Level Strategy • Fix the Core • Operational Control • Profit Margin • MCO Product/Segment Extensions • Full Service Health Insurer • Ancillary Products • 3rd Party Specialty Businesses • Senior Business HMO • Consumer-Aligned Organization • Quality Initiatives • Service Initiatives • Health Plan Designs • Knowing the Consumer Full Service MCO Consumer Health Organization (CHO)

  6. Environmental Scan – Provider Issues Provider Reaction • Squeeze on Government Reimbursement • Decreasing Provider Availability Per Capita • Reduced Marginal Capacity • Providers Seeking Increased Payments from Private Sector • Reduced Capitation / Risk Tolerance

  7. Environmental Scan – Consumer Issues Consumer Reaction • More Knowledgeable Purchaser Base • Increased Information & Choice • Outcome Based Performance Measurement • Transparency of Provider Variation • Emerging Consumer • Increased Consumerism • Demand For Increased Quality • Continued Provider Cost / Quality Variations • Rising Healthcare Premiums

  8. SignatureValue Traditional Plan SignatureValue Select Hospital Plan SignatureOptions Narrow Network SignatureValue Advantage SignatureOptions Traditional Plan Signature Freedom Signature Independence Total Solution/Consumer Aligned Healthcare HMO/EPO PPO SDHP Indemnity Low Cost High Cost • Specialty Offerings • Employer Paid & Endorsed • Healthy Renewal • Pharmacy • Life/STD/LTD • Behavioral • Dental & Vision • Caregiver • Front-End Decision Support • Benefit Selection Pricer • HRA - Health Risk Assessment • Worksite/Web Based Tools • On-Line Enrollment • On-Going Support • Disease Management • Web Administration • Multi-State Admin./ • Travel Assistance • FSA • Healthy Options • Women’s Health

  9. First Quarter Performance and FY 2003 Guidance

  10. Expensing Stock Based Compensation Estimated 2003 EPS impact = $0.25 NOTE: Assumes stock price of $40 on 8/1/03

  11. 100 90 80 70 60 50 40 30 20 10 Institutional Shareholder Services (ISS) Corporate Governance Quotient 2002 2003 0 Index Industry Ranking Index Industry Ranking In 2003, PacifiCare outperformed 95.9% of the companies in the S&P 400 and 97.9% of the companies in the Health Care Equipment and Services group.

  12. Additional 2003 Guidance • CFFO= $320-345 million • 1.4-1.5 X Net Income • Membership • Commercial up ~ 4% ex-CalPERS • M+C down to 670,000 • Medicare Supplement up from 17K to ~ 90K • Revenue • Commercial pricing up 18% after buydowns • M+C premium yield up ~4% • Specialty & Other up ~20%

  13. Free Cash Flow Growth • Free cash flow is defined as net income plus depreciation and amortization, less capital expenditures • Best measure of resources available at Parent to pay down debt, build statutory capital, pursue opportunistic acquisitions • *Excluding non-recurring items

  14. Excess Statutory Capital

  15. New Business UpdateCommercial Gross New Sales

  16. Expanding Commercial Insured Gross Margin $34.28 $22.81 $16.37 2001 – 2003 Improvement of $380M or 74% Revenue PMPM Health Care Cost PMPM

  17. Membership Mix - PacifiCare Vs Total Insured * * Total insured information estimates from: Dun & Bradstreet “Marketplace Gold” database on 5/22/02 & Kaiser Family Foundation website 2000-2001 data

  18. Mix Adjusted Medical Loss Ratio * 88-89% 82-85% 75-78% 65-70% Small Individual Mid/Large National PacifiCare Total Insured * Estimated targeted loss ratios by segment for industry

  19. Managing Medicare+Choice Goal is to maximize cash flow

  20. New Forecasted Gross Profit Goal (after Q103)

  21. Key Balance Sheet Events • Bank facility extended two years, conditionally 4/02 • High yield debt issued 5/02 • Convertible debt issued 11/02 • Interest rate swap on high yield debt 4/03 • Bank facility refinanced 6/03

  22. New $300 Million Bank Facility • Benefits: Pricing, flexibility, extended maturity • Facilities: - Revolver: $150M, 3-yr., L+325 - Term Loan: $150M, 5-yr., L+350 • Purpose: - Refinance existing facilities - General corporate purposes, including permitted acquisitions • Joint Bookrunners & Lead Arrangers - JP Morgan Securities, Inc. - Morgan Stanley Senior Funding, Inc.

  23. April ‘02 April ‘02 November ‘02 November ‘02 March ‘03 Non Secure Horizons Members Non PacifiCare Members 60 18 16 54% 50 48% 14 14% 40 12 40% 10% 10 30 8 8% 26% 20 6 20% 6% 12% 4 10 2 0 0 N=100 N=100 California California Other Markets Other Markets Brand Results Unaided PacifiCare Brand Awareness Q: …which health insurance companies are you familiar with? Source:Ad Tracker, Wave 3 Source:Ad Tracker, Wave 3

  24. April ‘02 December ‘02 Brand Results Attribute Rating Q: Does “Caring is Good, Doing Something is Better” ring true with Secure Horizons and PacifiCare? April ‘02 November ‘02 March ‘03 Secure Horizons Members PacifiCare Members 90 50 80 78% 43% 74% 74% 71% 40 70 62% 36% 34% 60 56% 30 28% 50 40 20 30 20 10 10 0 0 N=100 N=100 California Other Markets California Other Markets Source:Ad Tracker, Wave 4 Source:Ad Tracker, Wave 3

  25. Case Study County of Riverside was a CalPERS account and was the only group that pulled out of CalPERS for 1/1/03 Issue: Competition: PacifiCare was competing with Blue Shield and HealthNet There was no difference in product or price Differentiating Factor: Sales lead believes our TV and OOH campaigns as well our consistent Open Enrollment material gave PacifiCare greater awareness and recognition Result: Blue Shield = 0 members Health Net = 1800 (stayed flat) PacifiCare = 7000 (grew by 4000, largest carrier)

  26. 89% 85% 72% 71% 59% California Pulse Survey – April, 2003 Results National Percentile 99% I would recommend PacifiCare as a good place to work. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% National June, 2001 Jul, 2002 Jan, 2003 Apr, 2003 Average “My experience here at PCC has been a great one. The Company always keeps you involved with changes and keeps you in the loop with the big picture.” “I’ve worked for PacifiCare for approximately 12 years and love this company.” “I have worked here for 9 years. It is the best, fairest and caring employer that I have ever worked for in any industry.”

  27. 85% 82% 75% 79% 67% California Pulse Survey – April, 2003 Results National Percentile 99% I am proud to work for PacifiCare. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% National June, 2001 Jul, 2002 Jan, 2003 Apr, 2003 Average “I believe PacifiCare takes its vision and values seriously and strives as a company to uphold them more than any other company I’ve associated with.” “I find PacifiCare is ethical and truly attempts to be a good corporate partner to our clients, provider and community.” “I am very proud of working at PacifiCare and I make sure that when our commercial is on the air, everyone knows PacifiCare is my employer.”

  28. 83% 81% 69% 70% 66% California Pulse Survey – April, 2003 Results National Percentile 99% I can see a clear link between my work and PacifiCare’s objectives. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% National June, 2001 Jul, 2002 Jan, 2003 Apr, 2003 Average “I understand ‘I am PacifiCare,’ what I do and say directly affects our clients perception of ‘Caring is good, doing something is better.” “There is a clear and strong link between all positions and the PHS objectives.” “I can and do see a link between my work and my department’s objectives.”

  29. Equity & Debt Value Appreciation • Stock appreciation since 12/31/01 ~ 160% • 10 ¾ % High Yield Note appreciation since issuance: • issued at 99.4% • currently trading at ~ 112% • total return since issuance = 23%

  30. Why Invest in PacifiCare? • Counter cyclical industry • Improving operational & financial performance • Expanding product line • Well-positioned for growth • A leader in governance & transparency • P/E ratio reflects excessive discount

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