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CSFB Healthcare Conference The Arizona Biltmore, PhoenixNovember 13, 2003

Howard Phanstiel Howard Phanstiel President and CEOPresident and CEOPacifiCare Health SystemsPacifiCare Health Systems

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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 as of recent filings with the SEC, including the Form 10Q as of September 30, 2003, and the Form 10K as of December 31, September 30, 2003, and the Form 10K as of December 31, 2002.2002.

Cautionary StatementCautionary Statement

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• Medicare Supplement• PBM• Behavioral Health

2003 Market Expansion

2003 Market Expansion

2002 Health Plan + Specialty Companies

2002 Specialty Companies only

2003 Market Expansion

A Fortune 200 company with• $11 billion in revenue• 2.2 million commercial lives• 686K Medicare+Choice HMO lives• 9 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.

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Third Quarter Performance and FY 2003 Guidance

Q302 Q303 2003 Guidance

Operating Revenue $2.8B $2.7B (1%-2%)

MLR Commercial (Private) 86.7% 83.0% 84%-85%Senior (Government) 84.9% 84.6% 84.5%-85.5% Operating MarginCommercial 12.4% 16.4% 15.0%-16.0%Senior 15.3% 15.3% 14.5%-15.0%Specialty & Other 59.9% 48.3% 47.0%-48.0%

EBITDA $109M $142M ~$550M

CFFO -- -- $350-$360M^= 1.4X Net Income

SG&A ratio 13.2% 13.4% 12.5%-13.0%

EPS $1.20 $1.72 $6.00-$6.05

WANS 36.4M 39.2M 39.7M**

** Includes effect of convertible debt equity offering on Q4

^ Assumes CMS continues to make Q1 payment in December of prior year

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2003 Membership & Pricing Guidance

Membership Commercial up 1%-2%, ex-CalPERS M+C down to 680,000 Medicare Supplement doubles from 17,000 to ~35,000

Pricing Commercial pricing up 17% after buydowns ~250 bp M+C premium yield up ~4% Specialty & Other up ~20%

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Free Cash Flow Growth Before Note Redemption

$129

$275

$156

$0

$100

$200

$300

2001* 2002* 2003 est.

Millio

ns

• 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

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Excess Statutory Capital

$218

$276

$375

$550

$100

$200

$300

$400

$500

$600

2000 2001 2002 9/30/03 est

mill

ions

Weighted average company total > 300% RBCWeighted average company total > 300% RBC

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Expanding Commercial Insured Gross Margin

$130

$150

$170

$190

$210

2001 A 2002 A 2003 E

$ P

MP

M

$16.37$16.37

$22.81$22.81

$33.10$33.10

2001-2003 Improvement = $335 million or 65%2001-2003 Improvement = $335 million or 65%

Health Care CostsHealth Care Costs

PremiumPremium

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• Growing Commercial Business

• New product introductions

• Diversify to Individual/ Small/ Mid-sized groups

• Advertising/Branding Campaign

• Build Senior Solutions Products/ Distribution

• Medicare Supplement

• Disease Management

• Caregiver

• Managing M+C cash flow with or without Relief

• Expand Specialty Company Membership

• Organic Growth

• Small Acquisitions

2003 - 2004 Product Leadership Strategy

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Recently Launched Products and Services

• PPOPPO

• Self Directed Health PlanSelf Directed Health Plan

• Medicare SupplementMedicare Supplement

• Self-Funded PPOSelf-Funded PPO

• Tiered HMO Hospital ProductTiered HMO Hospital Product

• Value PlanValue Plan

• Senior Rx Card- complement to Med SuppSenior Rx Card- complement to Med Supp

• PPO DentalPPO Dental

• Medicare PPO (pilot)Medicare PPO (pilot)

• Medicare FFS Disease Mgmt. (pilot) Medicare FFS Disease Mgmt. (pilot)

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Recently Launched Products and Services

• A Solution for CaregiversA Solution for Caregivers

• Healthy Renewal PassHealthy Renewal Pass

• Hospital Quality IndexHospital Quality Index

• Latino Health SolutionsLatino Health Solutions

• Women’s Health SolutionsWomen’s Health Solutions

• African American Health SolutionsAfrican American Health Solutions

• Private Label Life & Disability InsurancePrivate Label Life & Disability Insurance

• Flexible Spending Account Debit CardFlexible Spending Account Debit Card

• Premier Pass (physician concierge service- pilot)Premier Pass (physician concierge service- pilot)

• Extended customer service hoursExtended customer service hours

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Membership & Pricing Trends

• Commercial membership up sequentially despite Commercial membership up sequentially despite modest declines in national accounts tied to slow modest declines in national accounts tied to slow economyeconomy

• gross new small group sales in Q303 up 100% y-o-ygross new small group sales in Q303 up 100% y-o-y

• retention rate higher than expectedretention rate higher than expected

• Expect moderate single digit commercial membership Expect moderate single digit commercial membership increase in 2004 increase in 2004

• Pricing for Jan ‘04 renewals up mid-teens before Pricing for Jan ‘04 renewals up mid-teens before buydowns ~400 bpbuydowns ~400 bp

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Recognition of Quality

• State of CA State of CA reportreport ranks PHS as state’s top network model HMOranks PHS as state’s top network model HMO

• PHS CA, AZ & NV highest rated plans in those states, CA in top PHS CA, AZ & NV highest rated plans in those states, CA in top 10% nationally, in 10% nationally, in NCQA NCQA consumer assessment surveyconsumer assessment survey

• PHS Named as PHS Named as ‘‘Health Financing InnovatorHealth Financing Innovator’’ by FACCT for by FACCT for Quality Index® profilesQuality Index® profiles

• Received Received ‘‘Innovator’s AwardInnovator’s Award’’ from HIAA for Quality Index® from HIAA for Quality Index® profiles, tiered/narrow networks, DM, and NCQA achievementsprofiles, tiered/narrow networks, DM, and NCQA achievements

• ‘‘Best Disease Management ProgramBest Disease Management Program’’ award received from award received from Disease Management Association of AmericaDisease Management Association of America

• Branding/Marketing campaign has resulted in 2 awards:Branding/Marketing campaign has resulted in 2 awards:

• Global AwardGlobal Award in ‘Communication to the Consumer’ category in ‘Communication to the Consumer’ category

• Caddy AwardCaddy Award in ‘Consumer Services’ category in ‘Consumer Services’ category

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Building Our Brands

SecurePacifiCare Horizons

Brand Strength up 19% up 9%Brand Stature up 180% up 144%

Relative Ad SpendingRelative Ad Spending

ResultsResults

36%

16%13%

13%

10%9% 3%

Blue Cross / Blue Shield CignaKaiser AetnaHealth Net UnitedPacifiCare

Source: BrandEconomics®Source: BrandEconomics®

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0

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8

1. The company is making the changes necessary to compete effectively.2. I would recommend the company as a good place to work.3. I am proud to work for the company.4. I am satisfied with the information I receive from local senior mgmt about what’s going on in my part of the company.5. The department I work in is continually improving the quality of work we do. 6. My immediate supervisor gives me honest feedback on my performance.7. My immediate supervisor encourages diversity through an environment where individual differences are valued.8. In my department, taking a calculated risk and failing is better than not taking a risk at all.

All data provided by Genessee Survey Services, Inc.

99% 99% 99% 98% 98% 98% 97% 96%

% Favorable

PHS National Norm

PHS in Top Decile of National Norms forPHS in Top Decile of National Norms for Employee SatisfactionEmployee Satisfaction

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0

10

20

30

40

50

60

70

80

90

9 10 11 12 13 14 15 16

9. The day-to-day decisions in my department demonstrate that quality is a top priority.10. I understand why it is important for the company to value diversity.11. I am satisfied with my opportunity to get a better job at the company.12. I am satisfied with the employee benefits program the company offers.13. The company provides me with a work environment where I can reach my full potential.14. Corporate senior management is up front & honest about issues that may affect employees.15. My immediate supervisor shows appreciation when I do a good job.16. I can see a clear link between my work and the company’s objectives.

All data provided by Genessee Survey Services, Inc.

% Favorable

95% 98% 93% 94% 92% 91% 93% 92%

PHS National Norm

PHS in Top Decile of National Norms forPHS in Top Decile of National Norms for Employee SatisfactionEmployee Satisfaction

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Managing Medicare+Choice

2002 2003 2004

Exits 44 cos.; 5 states 5 cos.; 2 states 0

Affected members 64,000 37,000 0

Premiums up 6.0% ~4% ~4%

Benefits down 5.10% 1.60% ~1%

Mbrship (loss)/gain (~200,000) (~83,000) ~10,000

MLR vs Prior Year down 350 bp flat up

Goal is to maximize cash flow

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Disease Management

Total Membership

17,660

23,700

35,700

10,000

20,000

30,000

40,000

9/30/01 9/30/02 9/30/03

Savings > $117 million over last 12 monthsSavings > $117 million over last 12 months

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Medicare Reform Summary

• Key Benefits to PHS areKey Benefits to PHS are

• ‘‘04 and ‘05 M + C reimbursement increase04 and ‘05 M + C reimbursement increase

• ’’04 prescription drug benefit for low income M + C 04 prescription drug benefit for low income M + C enrolleesenrollees

• ‘‘06 prescription drug benefit also conferred to M + C 06 prescription drug benefit also conferred to M + C enrolleesenrollees

• PBM participation in management of Rx Discount Card PBM participation in management of Rx Discount Card & drug benefit& drug benefit

• Medicare Supplement plans without Prescription Medicare Supplement plans without Prescription benefit not affectedbenefit not affected

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Equity & Debt Value Appreciation

• Stock appreciation since 12/31/01 > 260%

• 10 ¾ % High Yield Note appreciation since issuance: issued at 99.4% recently indicated at ~116% total return since issuance ~30%

$16.30

$27.20

$49.33

$59.25

$10.00

$20.00

$30.00

$40.00

$50.00

6/30/01 6/30/02 6/30/03 11/5/03

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Issuance of 3.8 Million Shares of Common Stock

• Approximately $200 Million net proceeds• Use of proceeds

– $175M redemption of 10 3/4% Senior Notes– accrued interest, redemption premium, other transaction costs.

• Benefits:– Improve cash flow– Improve balance sheet platform for Medicare diversification– Promote credit rating increase

Decrease cost of debt

• EPS effect:– Q4’03 guidance lowered to $0.59-$0.64 due to $17.3 million one-

time expenses and 1.9 million weighted share increase – 2003: Full-year guidance lowered by $0.52 to $6.00-$6.05– 2004: Net Income increases $12 million net of tax; modestly

dilutive to EPS

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Issuance of 3.8 Million Shares of Common Stock

• Why Equity?

• Why Now?

• Credit Ratios – Debt / book cap (9/30/03)

From 33.3% to 25.7%– Debt / EBITDA (LTM 9/30/03)

From 1.5x to 1.1x