Health Net, Inc. Health Plans Positioned for Profitable Growth

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Health Net, Inc. Health PlansPositioned for
Profitable Growth

• Solid Operating Performance in 2000 and Entering
  2001
• New Products Introduced in 2000 and More Planned
  for 2001
• Diligent Focus on Pricing Discipline and
  Product/Market Profitability

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2001 Operating PerformanceHealth Plans Division
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Drivers of Membership Growth

• Diversify the Product Portfolio
• Diversify Market Segments
• Explore Niche Products
• Provide Flexible Benefits Designs to Meet the
  Consumer at the Price They Want to Pay
• Expand Choice Access
• Price Ahead of Cost Trends

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Membership Results By Line of Business
Membership Growth Between Q1 2000 and Q1 2001
Excludes Florida, Washington and Colorado
Medicare Supp is in Medicare
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Membership ResultsBy Product
Commercial Membership Growth Between Q1 2000
and Q1 2001
Excludes Florida, Washington and Colorado
Medicare Supp is in Medicare
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Membership ResultsBy Market Segment
Commercial Membership Growth Between Q1 2000
and Q1 2001
Excludes Florida, Washington and Colorado
Medicare Supp is in Medicare
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Successfully Managing The Shift in Risk

• Pricing That Reflects Medical Cost Trends
• Claims Processing Under Control
• Claims Volume Increased 25 from 1999 to 2000 and
  Projected to Increase 27 in 2001
• Successfully Managing Inventory - Days Work on
  Hand Consistently Under 5 Days
• Increased Staff 25 Over Past 12 Months
• Expanded Outsourced Adjudication Capabilities
• Implemented Technology Enhancements - EDI,
  Auto-Adjudication

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Successfully Managing The Shift in Risk (Cont)

• Enhanced Medical Management Capabilities
• Adding Staff
• Focus on High Risk Physician Groups
• Improved Reporting
• Keeping Providers in Risk Arrangements Where
  Feasible

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Health Net, Inc. Health PlansPositioned for
Profitable Growth

• Solid Operating Performance in 2000 and Entering
  2001
• New Products Introduced in 2000 and More Planned
  for 2001
• Diligent Focus on Pricing Discipline and
  Product/Market Profitability

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Product Strategy Will Deliver Diversified Growth

• Product At Every Price Point - Meet the Customer
  Where They Want To Be
• Diversification
• Choice Products
• Niche Markets
• New Customer Segments
• Affinity Marketing
• Benefit Designs That Maintain Affordability
• Profitable Growth
• Pricing Ahead of Cost Trends
• Medicare Changes

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Offering More Choice ProductsPPO Strategy - West

• California PPO Projected to Grow to 100,000
  Members
• Initial Focus on Individual and Small Group
• Competitive Pricing and Benefit Design
• Strong Alternative to Market Leader
• Product Well Received By Brokers and Consultants

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Offering More Choice ProductsPPO Strategy -
Northeast

• July 1, 2001 Product Effective Date
• Over 70 Plan Designs Will Be Introduced
• Product Flexibility Allows For All Combinations
  of Plan Design
• Focus on Middle Market (50 to 1,500 Lives) Where
  Margins Are Strong
• Products Will Appeal to Price Sensitive Segment
• National Network Access - Leveraging Provider
  Relationships of Sister Plans
• Collaborating With West on National Opportunities

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Maintaining AffordabilityCopay Strategy

• New Copays Copay Increases Across All Services
• Inpatient and Outpatient Surgery Copay
• Emergency Room Copay
• Option to Increase Physician Visit Copay
• Maintains Product Affordability Through Cost
  Sharing
• Expect Price Savings From 3 to 7
• Should Stem Shift to Self-Insurance
• Recent Study(1) Shows More Than Half of Employers
  Will Increase Cost Sharing In Response to Rising
  Costs

(1) Watson Wyatt, Changing Role of Health
Benefits, 2001
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Product Focus in 2002

• National Accounts
• Operations Aligned Across Health Plans
• Internet Capabilities
• ASO and PPO
• National Practice Leaders for National Accounts
  and Labor Trust
• Continued Growth in PPO Membership
• Products at all Price Points
• Significant Win in Large Group Segment
• Niche Products
• Operations Enhancements

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Health Net, Inc. Health PlansPositioned for
Profitable Growth

• Solid Operating Performance in 2000 and Entering
  2001
• New Products Introduced in 2000 and More Planned
  for 2001
• Diligent Focus on Pricing Discipline and
  Product/Market Profitability

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CalPERS

• Proposal Accepted - Maintains Key Account for
  Health Net of California (200,000 Members)
• CalPERS Increased Copays on All Plans, Shaving
  143 Million Off Original HMO Bids
• 13 Rate Increase in Line With Medical Costs
• Benefit Buy-down Reduces Premium Rate Increase to
  7.4 With Same Margin Results
• Gave the Least Credit Moving to the Low Option
  Plan Compared to 3 Largest HMOs

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CalPERS (Cont)

• Five County Exit Will Improve Account
  Profitability - Impacts 21,000 CalPERS Members
• Enrollment Frozen for 2002
• EPO Approach Will Retain Provider Relationships
  For Our Other Members in the Five County Area