Title: CIBC 15th Annual Health Care Conference
1CIBC 15th Annual Health Care Conference November
9, 2004 The Plaza, New York City
PacifiCare Health Systems Brad Bowlus President
and CEO, Health Plans Division
2Cautionary 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
filed as of September 30, 2004, and the Form10K
filed as of December 31, 2003.
3Continued Market Expansion
Largest purchaser of health care services in the
western United States
- Fortune 200 company w/ 2004 Goals of
- 12 billion in revenue
- 2.3 million commercial lives
- 704 thousand senior lives
- 11.8 million specialty lives
2004 Markets
Medical Specialty Companies
Specialty Companies Only
Planned Specialty Expansion
4Earnings Growth
360-375
301-306
Excluding effect of the adoption of FAS 142
relating to the amortization of goodwill
Includes proposed acquisition of American Medical
Security Group
5Excess Statutory Capital
Average of 400 RBC in core HMO states
62004 Trends- YTD through September 30th
- Net income up 30 from 03, excluding 03
favorable prior period development - Commercial business, year-over-year
- Membership up 84K or 4.6
- CA membership up 7
- MLR down 20 basis points
- Aggregate gross margin up 14.3
- Medicare Advantage business, year-over-year
- Membership up 1
- MA MLR up 150 basis points, at low end of revised
2004 guidance - SGA down 20 basis points Year-over-Year
- Commercial premiums up 9.2 PMPM, over health
care cost PMPM of 8.3, excluding 03 favorable
prior period development - 04 premium increase guidance 8.5 - 9
7PacifiCare Vision
8Increases in Health Insurance Premiums Compared
to Other Indicators, 1988-2004
2.3
2.2
Source KFF/HRET Survey of Employer-Sponsored
Health Benefits 1999-2004 KPMG Survey of
Employer-Sponsored Health Benefits 1993,1996
HIAA 1988-1990 Bureau of Labor Statistics, CPI
(US City Avg of Annual Inflation) 1988-2004
Bureau of Labor Statistics Seasonally Adjusted
1988-2004
9All Key Stakeholders Looking for Solutions
Employers
Government
Physicians
Consumers
- Angry about
- Economics
- Hassles
- Professional autonomy
Unhappy about costs
- Worried about
- Ability to access care when needed
- Hassles
Imposed legislative/ regulatory actions to
restrict aggressive intervention and mandate
benefits
PacifiCares Value Propositions and Consumer
Aligned Health Care
10 Delivering Consumer Aligned Value Propositions
C
SUPERIOR HEALTH CARE COST MGMT
DATA DRIVEN OUTCOMES
O
N
S
C O N S U
M E R
CONSUMER DRIVEN TOTAL SOLUTION
DELIGHTING THE CUSTOMER
U
M
E
R
11Maximizing Cost Quality Outcomes
BEST IN CLASS NETWORKS
DEMAND SIDE INTERVENTIONS
Cost
Quality
TIERED NARROW NETWORKS
CONCENTRATED PURCHASING POWER
PROVEN MEDICAL MANAGEMENT CAPABILITY
INTEGRATED DISEASE MANAGEMENT PROGRAMS
12Integrated Disease Management Programs
Rolling 12 Months Savings 120 Million
Cumulative DM Savingsfrom 12/00 Program
Inception 295M
3.5M
3.6M
DM Outcome Report September 2004
13PAAX PacifiCare AdvancedAnalytixSM
- Demographic Info - Medical
Claims - Pharmacy Claims - Clinical Encounters -
Health Risk Assessment - Disease Management -
Direct Lab Feeds - Satisfaction Survey
14Quality Index Profile of Hospitals
15Highly Satisfied Commercial Members
Source MSBR / CSA Satisfaction Details
16Consumer Driven Total Solution
17Consumer Aligned Product Leadership
- SignatureFreedom engages members to
- Become better consumers of healthcare
- Be accountable for their decisions
- Manage their own health and adopt healthy
lifestyles
18SignatureFreedom Plan Design
Rx 10 generic35 brand
Employee Responsibility 1,000 to 2,000
Out-of-Network 50
In-Network 70
19SignatureFreedom Growth
70,300 Members
- Approximately 10 from groups that did not
previously offer insurance - gt 70 from Small Group (2 to 50 employees)
- 90 from customers new to PacifiCare
20Spending Account Model Comparison
Model
HSA Health Savings Account
HRA Health Reimbursement Account
Signature Freedom (SDHP)
Key Features
Employees enrolled in HDHP
Eligibility
All Employees
All Employees
Employee or employer or combination
Employer Only
PacifiCare
Contributor
Account Carryover
Yes or No
Yes
Yes
Ability to Withdraw for Non-Health Care
No
Yes
No
Ability to Earn Investment
No
Yes
No
21Strategy for Profit Growth
- Grow commercial business through consumer-aligned
products and ISG segment expansion - Build Senior Solutions products/distribution
- Medicare Advantage growth
-
- Specialty company external member growth
- Prescription Solutions
- Behavioral health
- Dental Vision
22Growth of Commercial Business
Diversification through new Individual/Small
Group sales
2004
23American Medical Security (AMS) Overview
Individual and Small Group Health Insurer
Headquartered in Green Bay, Wisconsin
2004 Markets
- AMS Highlights
- 700 million in revenue
- 315,000 medical members
- 218,000 dental, 130,000 life
24Acquisition of American Medical Security (AMS)
28 Additional medical states after AMS acquisition
25Acquisition of American Medical Security Group
- Transaction Summary
- Price 32.75 cash per AMS share 502M total
- Expected Close Early 2005
- Financing 400M new term loan 160M internal
cash - Accretion Net Income guidance increased by
10-15M to 360-375M - Required Approvals AMS shareholders
- Hart
Scott Rodino - WI GA
DOIs
26Acquisition of American Medical Security Group,
Inc.
- Key Considerations/Value Drivers
- Diversifies PHS by product, geography customer
- MC reduced from 37 to 33 of total gross margin
- CA enrollment declines from 62 to 56 of total
- Commercial membership (ISG) up 13
- Expansion of PPO into 29 states D.C.
- Enhances broker distribution facilitates cross-
sell - 32,000 independent brokers
- Cross sell opportunity for MC, Med Supp,
SignatureFreedom
27Acquisition of American Medical Security Group,
Inc.
- Key Considerations/Value Drivers
- Acquire additional AMS product/functional
expertise - ISG underwriting
- HSA, Group Life, Disability Dental products
- Provides low cost, scalable platform to further
expand ISG business
28Medicare Advantage Timeline
- Health Plan ACRs for 2005 submitted 9/13/04
- PPO and PDP regions defined Nov - Dec 04
- Benchmark rates issued first Monday in April 05
- Health Plan RFPs due first Monday in June 05
-
- New prescription drug benefit starts 1/1/06
29Prescription Solutions Revenue Growth
661
472
322
403
394
(in millions)
340
239
172
339
231
232
Internal Revenue
External Revenue
Breakout of internal vs. external revenue is
not available prior to CY 2002
30Mail Service Revenue Mail Order Penetration
600
543
500
387
400
341
328
296
(in millions)
300
24.8
25.0
200
20.6
20.3
18.7
18.4
100
0
2000A
2001A
2002A
2003A
2004E
31Room for P/E Multiple Expansion
2004 Average 2005 Average
Comparison as of 10/27/04
32CIBC 15th Annual Health Care Conference
Thank You