Safe Harbor Statement

1
(No Transcript)
2
Safe Harbor 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 companys
most recent filings with the SEC, including Form
10Q as of June 30, 2002, and Form 10K as of
December 31, 2001.
3
(No Transcript)
4
PacifiCare- largest purchaser of health care
services in the western U.S.
2002 Markets

• A Fortune 200 company with
• 11 billion in revenue
• 2.4 million commercial lives
• 800 thousand MedicareChoice lives
• 9 million specialty lives

5
2003 Market Expansion

• Medicare Supplement
• Pharmacy Benefit Management
• Behavioral Health

6
3rd 2002 Quarter Results

• Reported EPS 1.20 vs. consensus of 0.84
• EPS up 29 year-over-year on FAS 142 adjusted
  basis
• Operating income, excluding net investment
  income, up 66 y-o-y
• Cash flow from operations 189 million, up 136
  y-o-y

7
3rd 2002 Quarter Results

• Consolidated medical loss ratio 85.8, down 340
  basis points y-o-y
• EBITDA 109.3 million, up 22 y-o-y
• EBITDA up 23 vs. prior quarter
• SGA ratio 13, up 250 basis points y-o-y
• Full year 2002 EPS guidance raised from
  3.37-3.47 to 3.90

8
Earnings Improvement
Reported EPS
NOTE 2001 EPS figure adjusted to FAS 142
comparable basis Q202 adjustment relates to
investment impairments
9
Operating Profit Improvement
Investment Income (52) Operating
Profit 74
Investment Income (19) Operating
Profit 66
Adjusted for SFAS 142 change in accounting for
goodwill as if adopted January 1, 2001 and
excludes impairment, disposition, restructuring,
OPM and other charges/credits
10
Drivers of 2002 Operating Profit Improvement
11
Growth in Specialty Company Unaffiliated
Membership
Up 30
Up 9
12
Improved Free Cash Flow
Free cash flow is defined as net income plus
depreciation amortization less capital
expenditures
Excluding non-recurring items
13
Increase in Excess Statutory Capital
14
Lower Debt to EBITDA Ratio
2.4x
1.66x
NOTE Debt to EBITDA ratios based on annualized
current quarter EBITDA Q202 Q302 debt total
excludes FHP bonds due to cash collateral account

15
SGA

• 3rd quarter SGA ratio 13, up 250 basis
  points y-o-y
• 40 million in 3rd quarter costs are
  non-recurring
• litigation-related accruals
• incentive compensation accrual
• 4th quarter SGA will include
• Seasonal open enrollment costs
• Marketing costs
• 2003
• Continued investment in future state new
  products

16
Debt Restructured

• Bank Credit Facility
• January 03 maturity date extended 2 years
• 461 million reduction of outstanding balance YTD
  02
• High Yield Notes
• 200 million offer increased to 500 million
• 10 ¾ coupons, priced to yield 10 7/8 mature
  June 07 maturity
• FHP bonds
• 43 million remaining balance covered by cash
  collateral account

17
Recent Events

• Keystone Health Plan partners with PacifiCare
  Behavioral Health
• Effective 11/1/02
• Covers gt 200,000 Keystone enrollees in PA
• Readers Digest agreement with Senior Solutions
• Exclusive endorsement of Secure Horizons
  Medicare Supplement products
• Access to customer database with gt 100 million
  households
• Working with Readers Digest to offer additional
  products

18
Recent Events

• WebMD agreement with Prescription Solutions
• Agreement is with WebMD sub, MedE America, which
  has 4 million lives
• Prescription Solutions to provide mail order
  prescriptions OTC medications
• 300K members initially additional mbrs. over
  next year
• International Brotherhood of Teamsters agreement
• Prescription Solutions endorsed as preferred PBM
• Covers gt250 Taft-Hartley trusts with gt 1.4
  million lives

19
Recent Events

• Significant new commercial case wins
• 65,000 new Large Group National Accounts
  members effective January 1, 2003
• Includes Wells Fargo, IBM, Verizon
  Communications, LAUSD, County of Riverside and
  Fidelity National
• 17,000 new members from County of San Diego
  effective October 2002
• Commercial HMO membership YTD is 85,000 gt plan

20
New Products

• Value Network
• Designed to lower premiums 6-16
• Smaller network than standard HMO, but up to 4
  times larger than Kaiser in CA
• Self Directed Health Plan
• Access to PPO
• Combines employer funded medical spending account
  catastrophic coverage
• Stand Alone Rx Plan
• No deductible no annual max
• Covers 400 medications, mostly generic
• Discounts of 15-30 on other drugs
• MC PPO Demonstration Project
• Active in 2 counties in AZ and NV
• Only participating plan in CA
• Medicare Disease Management Demonstration Project
• Targets up to 15,000 CHF patients

21
Changes to MedicareChoice
Goal is to maximize cash flow
22
2003 Guidance

• Higher commercial membership, excluding loss of
  CalPERS
• Lower Commercial MLR
• Commercial premium PMPM increase equal to or
  slightly higher than 2002
• MedicareChoice MLR higher
• Continued investments in IT, new products
• Continued rapid growth in unaffiliated specialty
  company membership

23
Thank You