UBS Annual Global Health Care Services Conference

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UBS Annual Global Health Care Services
Conference February 15, 2005 The Plaza, New York
City
PacifiCare Health Systems Gregory W.
Scott Executive Vice President and Chief
Executive Officer
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Cautionary 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.
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Strategy of a growth company
PHS 8 health plan markets before acquisitions

• A Fortune 200 company with
• 12 billion in revenue
• 2.6 million commercial lives
• 704K Medicare Advantage
• lives
• 11.8 million specialty lives

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Expansion through recent acquisitions
28 Additional medical states after AMS acquisition
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Expansion through recent acquisitions
Significant additional overlap with Pacific Life
acquisition
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ISG Market Segment Acquisitions

• American Medical Security Group (AMS)
• Adds 314K ISG PPO lives- 13 commercial member
  increase
• Lower cost PPO operations on scalable ISG
  platform
• Network of 32,000 independent agents increases
  distribution for PHS products/services
• 100 million in excess statutory capital
• Commercial growth/diversification balances
  Medicare Advantage business
• Geographic expansion diversifies away from CA
• Potential network, PBM cross sell synergies

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ISG Market Segment Acquisitions

• Pacific Lifes Group Health Business
• Leverages AMS acquisition
• Adds 140K small/large group PPO lives- 6
  commercial member increase
• Network of 30,000 agents increases distribution
  for PHS products/services
• Commercial growth/diversification balances
  Medicare Advantage business
• Geographic expansion diversifies away from CA
• 55 member overlap w/ PHS 95 overlap w/
  combined PHS/AMS network synergies

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2005 Guidance- Excluding Pacific Life
Includes effect of FAS 123R on equity based
compensation
Commercial mbrshp. growth 3.0-3.5 Medicare Advantage ending mbrs 743K Revenue increase15 MLRs Consolidated 84-85 Private Commercial 81-82 Private Senior 73-74 Government Senior 87.5-88.5 Gross Margins Commercial 18-19 Senior 11.5-12.5 Specialty Other 36-37 EBITDA 745-770 million CFFO500-525 million Free Cash Flow 320-335 million SGA ratio 12.5-13 Depreciation/Amortization 85 million Capital expenditures 120-125 million Net Income 360-375 million Average outstanding shares 98.8 million EPS 3.64-3.80 Q1 0.85-0.89 Tax rate 39.1
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Earnings growth
360-375
303
Excluding effect of the adoption of FAS 142
relating to the amortization of goodwill
Includes acquisition of American Medical Security
Group proposed acquisition of Pacific Lifes
group health insurance business
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PacifiCare Vision
Planned evolution from a traditional health maintenance organization into a leading consumer health organization
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The rise of HSAs CDHPs

• Continued cost shifting to employees, but without
  a value proposition
• 5 HSA penetration rate by 12/31/06
• HSAs appeal to healthy/wealthy
• HSAs likely to replace traditional PPO vs. HMO
• Hewitt survey finds
• 61 of employers likely to offer HSAs in near
  future
• 93 of employees willing to take more
  responsibility for health care decisions
• Not total replacement, but additional option

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PacifiCare offers a total solution
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SignatureFreedom Plan Design
Rx 10 generic35 brand
Employee Responsibility 1,000 to 2,000
Out-of-Network 50
In-Network 70
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SignatureFreedom Growth
82,172 Members

• Approximately 10 from groups that did not
  previously offer insurance
• 75 from Small Group (2 to 50 employees)
• 90 from customers new to PacifiCare

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Emerging SignatureFreedom Utilization Results

• Participants are using appropriate levels of
  preventive services

PacifiCare data is normalized (age/sex) incurred
claims from 8/03 to 7/04 paid through 10/04
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Emerging SignatureFreedom Utilization Results

• Participants are using appropriate levels of
  preventive services

PacifiCare data is normalized (age/sex) incurred
claims from 8/03 to 7/04 paid through 10/04
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Specialty company growth
Prescription Solutions Unaffiliated Membership
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Specialty company growth
1,647
Breakout of internal vs. external revenue is
not available prior to CY 2002. Revenue
increases related to a change in contracting
methodology from the gross method to the net
method for retail prescription drug transactions
50M in 2004, 860M in 2005 mainly for PHS
contract.
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Specialty company growth
25.3
26.0
20.6
20.3
18.4
18.7
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Medicare opportunities

• Medicare Advantage HMO/ Private FFS
• Part D Administration
• Medicare Supplement
• Medicare Advantage Regional PPO

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Local Medicare Advantage growth- Timeline

• All 2006 plan applications due March 23rd
• 06 Benchmark HMO rates issued April 4th (Parts
  A/B)
• Health plan bids for Parts A, B D due June 6th
• National average monthly Part D bid announced
  August 3rd
• CMS benefit plan approval September 14th
• CMS website launches comparative plan data
  October 13th

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Medicare opportunities

• Medicare Advantage HMO

• MLR rises from 86 in 04, to 87.5-88.5 in 05
• Focus on increasing membership vs. margins
• 2006 growth depends on flexibility with benefit
  structure
• Growth initiatives
• Preferred provider relationships
• Broker distribution
• Geographic expansion
• Value Plans
• Community faith-based organization marketing
• Small acquisitions

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Medicare opportunities

• Medicare Advantage Private FFS

• Entering as many as 16 states by the end of 2005
• Nearly identical to MA HMO program, but no
  contracted provider network
• Health Plans pay providers at Medicare FFS rates

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Medicare opportunities

• Part D Administration- Potential market

• Approximately 42 million Medicare eligibles in
  the U.S.
• MA penetration 12 5 million
• Eligible for FFS Part D 37 million
• Includes 6 million dual eligibles to be
  auto-enrolled
• Penalty for not enrolling 1 per month
• In terms of drug spend, 42 million seniors
  equivalent of 150
  commercial lives

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Medicare opportunities

• Part D Administration- PHS capabilities

• Captive PBM w/ external focus
• Broad distribution capabilities
• State-of-the-art mail facility
• National pharmacy network
• Risk-based business model
• 10 years of senior prescription drug data
• Managed care tools to control costs, improve
  outcomes
• Additional marketing channels
• Direct TV/radio advertising
• Direct mail
• Recent acquisitions
• Broker distribution

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Medicare opportunities

• Part D Administration- Short term considerations

• Costs for
• Building up infrastructure
• IT, software, processing
• Local MA and Part D Administration
• Building up customer service platform
• Marketing expenses

Fixed
Variable
?
?
?
?
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Not included in 05 guidance