4th Annual Investor Conference

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4th Annual Investor Conference
DYNAMIC MARKETS, COMPELLING OPPORTUNITIES

• May 16, 2001

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Cautionary Statement
The matters discussed in this release contain
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, that involve
risks and uncertainties. All statements other
than statements of historical information
provided herein may be deemed to be
forward-looking statements. Without limiting the
foregoing, the words believes, anticipates,
plans, expects and similar expressions are
intended to identify forward-looking statements.
Factors that could cause actual results to differ
materially from those reflected in the
forward-looking statements include, but are not
limited to, the risks discussed in the Risk
Factors and Cautionary Statements sections
included within the Company's most recent Annual
Report on Form 10-K filed with the SEC and the
risks discussed in the Company's other filings
with the SEC. Readers are cautioned not to place
undue reliance on these forward-looking
statements, which reflect management's analysis,
judgment, belief or expectation only as of the
date hereof. The Company undertakes no
obligation to publicly revise these
forward-looking statements to reflect events or
circumstances that arise after the date hereof.
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4th Annual Investor Conference
FINANCE Steven P. Erwin EVP and Chief Financial
Officer

• May 16, 2001

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• Looking Back to 2000
• Q1 2001 Highlights
• Expectations for 2001
• 2002 Operating Performance Goals
• Hot Topics

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• Looking Back to 2000
• Q1 2001 Highlights
• Expectations for 2001
• 2002 Operating Performance Goals
• Hot Topics

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Q1 2001 - Positioned for Growth

• Improved Health Plan Operations
• Health Plan Enrollment Up 8.7
• Commercial Revenue PMPMs Up Over 10
• MCR Stable
• Efficient Operating Cost Management
• SGA Ratio Declined 90 Basis Points to 14.5
• Expense Increases Focused on Infrastructure-Relate
  d Initiatives and Membership Growth

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Q1 2001 - Positioned for Growth

• Resolution of the Government Receivable
• Collected 284 Million Net Receivable Down to
  65 Million From 334 Million at Year-End 2000
• Stronger Balance Sheet
• Debt to Total Capital At 36.8 in Q1 2001
• Investment Grade Ratings From SP and Moodys
• Issued 400 Million of 10-Year Notes on April 12,
  2001

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• Looking Back to 2000
• Q1 2001 Highlights
• Expectations for 2001
• 2002 Operating Performance Goals
• Hot Topics

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Expectations for 2001

• EPS Between 1.55 - 1.58 (17 - 19 Growth Over
  2000)
• Enrollment Growth
• Stable Health Plan MCR
• Improving SGA Ratio
• Strengthening Capital Structure
• Record Cash Flow From Operations
• Capital Expenditure Spending Focused on
  Efficiency Initiatives

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EPS Growth - New GAAP
1.74 - 1.77
1.53
1.29
17 - 19
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• Excluding One-Time Charges/Gains
• Shaded Area Impact of Goodwill Amortization

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Same Store Health Plan Enrollment Growth
Membership Growth Will Slow as Increases in
California and Northeast Will Offset Expected
Decreases in Arizona
4,0XX
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Stable Total Health Plan MCR Expected to Continue
in 2001
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SGA Decline to Continue in 2001
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New 10-Year Notes

• Issued 400 Million on April 12
• Bullet Maturity Due in April 2011
• Offering Upsized From 300 Million
• Coupon Rate of 8.375 (All-in Cost of 8.54)
• 100 of Proceeds Reduced Revolver Outstandings
• Investment Grade Rating From Moodys (Baa3) and
  from SP (BBB-)

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Bank Revolver

• New 700 Million Facility Being Negotiated One
  Year Ahead of Maturity
• Down From Current 1.356 Billion Facility Size
• New Maturity May 2006 (Expected)
• Pricing at Libor 112.5 bps (vs. Current 125
  bps)
• Purpose
• Funding General Corporate Activities (Working
  Capital, etc.)
• Provides Liquidity Cushion of 400 - 500 Million

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Strengthening Capital Structure in 2001

• Total Debt Level Below 600 Million by Year End
  2001
• Long-Term Debt to Capital Ratio Expected to Be In
  The Low 30 Range by Year-end at or Below 30 in
  2002 and Beyond
• New 10-Year Notes Provide Stable Funding Source
• Bank Revolver Expected to Be Renewed One Year
  Ahead of Maturity

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Total Debt Has Decreased Over 610 Million, or
Nearly 50, and Debt to Capital Ratio Has Dropped
from 63.0 in Q4 1998 to 36.8 in Q1 2000
Debt to Total Capital
63.0
(In Thousands)
36.8
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Cash Flow from Operations
2001 Will Nearly Equal 1999 And 2000 Combined
663
(in millions)
(25)
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Capital Expenditure Process

• Capital Expenditure Process Review Rigor
  Implemented in 1999
• Business Cases Developed and Submitted for Review
• Includes Internal Rates of Return on Cash Flow
  Analysis
• Screening Process at Division Management Level
• All Cases Greater than 500K Submitted to
  Executive Management Committee for Review and
  Approval

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Capital Expenditure Spending
Targeted CapEx Spending Will Increase in 2001 for
Information Technology and New Ventures Group
Initiatives
( Millions)
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• Looking Back to 2000
• Q1 2001 Highlights
• Expectations for 2001
• 2002 Operating Performance Goals
• Hot Topics

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2002 Operating Performance Goals

• 1.80-1.85 EPS in 2002 New GAAP of 1.99 -
  2.04 in 2002 (Consensus Average is 1.83 2.02
  Under New GAAP)
• Revenue Growth With Focus on Improving Margins
• Stable MCR
• Declining SGA Ratio

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Ongoing Performance Expectations

• Profitable Enrollment Growth Based on Optimum
  Price / Product Profile
• Stable MCR and Efficient SGA Management
• Increasing Positive Cash Flow from Operations
• Continued Debt Reductions

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• Looking Back to 2000
• Q1 2001 Highlights
• Expectations for 2001
• 2002 Operating Performance Goals
• Hot Topics

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Hot Topics

• Excess Cash and Cash Flow
• Days Claims Payable
• Share Repurchase Viewpoint
• ROE Growth

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Hot Topics

• Excess Cash Determinants
• Excess Cash Cash Above Required Statutory
  Capital Levels and Cash at Non-Regulated Entities
  
• Risk-Based Capital National Association of
  Insurance Commissioners (NAIC) Approved Model for
  Assessing the Appropriate Capital Levels for
  Regulated Entities and is Based on Business Risk
  and Other Risk Factors
• 150 - 200 of RBC Prompts Regulatory Action
  Health Plan Required to Submit Corrective Action
  Plan
• 200 of RBC Required Company RBC Statutory
  Surplus
• 300 of RBC Health Net Target Operating Levels
  That Includes a Margin

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Cash - Where Is It?
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Excess Cash

• At 12/31/00, Health Net Has Approximately 160
  Million of Surplus in Excess of Statutory
  Requirements
• Health Net Typically Carries Additional 100
  Million of Cash in the Non-Regulated Entities
• Therefore, Total Excess Cash is Approximately
  260 Million

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Cash Flow - Where Does It Go?

• Enterprise Free Cash Flow is Consolidated Cash
  Flow From Operations Less CapEx Spending
• Parent Company Free Cash Flow is Dividend-Based
  and Includes Other Sources and Uses

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Claims Payable Review

• Claims Payable Has Three Key Components
• Medical Claims Inventory or Backlog
• Incurred But Not Reported (IBNR) Reserves
• Adjudicated But Unpaid Claims
• Business Reasons for a Decline in Days Claims
  Payable (DCP)
• Paydown of Medical Claims Backlog
• Change in Product, Geographical or Provider Mix
• Timing of Medical Payments (Quarterly, Monthly,
  Weekly)

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ROE Growth
Quarterly / Annual ROE
Consistent Improvement In ROE From Profitable Top
Line Growth, Stable MCR, Improving SGA Ratio,
and Debt Paydowns