Bank of America High Yield Bond & Leveraged Finance Conference May 22, 2002

1. .…a health and consumer services company making people’s lives better Bank of America High Yield Bond & Leveraged Finance Conference May 22, 2002

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 company’s most recent filings with the SEC, including Form 10Q as of March 31, 2002, and Form 10K as of December 31, 2001.

3. .…a health and consumer services company making people’s lives better PacifiCare- largest purchaser of health care services in the western U.S. A Fortune 200 company with • $11 billion in revenue • 2.4 million commercial lives • 835 thousand Medicare+Choice lives • 8.9 million specialty lives

4. Top-Level Strategy Implement near-term corrective action programs HMO Build infrastructure necessary to support expansion of health insurance portfolio Health Services Consumer HealthOrganization Expand scope of organization to offer services beyond traditional health insurance .…a health and consumer services company making people’s lives better

5. .…a health and consumer services company making people’s lives better Primary Challenges 2000-2001 Transition of capitated business model Stabilization of earnings and balance sheet Commercial Growth Strategy Difficult political/regulatory environment in Texas Medicare+Choice reimbursement

6. .…a health and consumer services company making people’s lives better Significant Events 2000-2001 • Turnaround plan milestones • 15% commercial yield increases • improved cost mgmt/visibility • specialty business growth • slowing shift from capitation • improved claims mgmt • lower MLR, increasing EBITDA • Substantial free cash flow generation • Bank extension to 2005 • OPM settlement/litigation dismissal • Secured $150M equity line of credit (Acqua Wellington)

7. .…a health and consumer services company making people’s lives better Medicare+Choice Reimbursement Bush 2003 Budget Proposal • Modifies M+C payment formula to better reflect actual health care costs, and allocate resources to underpaid counties • All plans would receive payment increases equal to national FFS cost growth less 0.5% • Plans in counties that received only 2-3% annualincreases over last 4 years to get 6.5% increase in 2003

8. .…a health and consumer services company making people’s lives better Earnings Improvement 2002 FY Guidance = $3.37-$3.47 $0.88 Note: EPS excludes gains/charges

9. .…a health and consumer services company making people’s lives better Earnings Improvement- Pro Forma

10. .…a health and consumer services company making people’s lives better 1st Quarter 2002 Results Year-over-year operating result comparisons: • Op income, excl. investment income, up 61% y-o-y • Net income up 12% • Specialty company net income up 22% • Increased gross profit margin PMPM • commercial up 37% • M+C up 21% • Commercial premiums PMPM up 15% • cost trends = 12-14% • M+C premiums PMPM up 10% • cost trends = 9%

11. .…a health and consumer services company making people’s lives better Earnings Improvement

12. .…a health and consumer services company making people’s lives better Improved Claims Management

13. .…a health and consumer services company making people’s lives better .…a health and consumer services company making people’s lives better Free Cash Flow (1) Excludes impairment, disposition, restructuring & other charges, OPM credits, and cumulative effect of change in accounting principle (2) Includes $12.3M of bank fees & excludes $12M debt for equity exchange in Q301

14. .…a health and consumer services company making people’s lives better .…a health and consumer services company making people’s lives better Balance Sheet Restructuring • Recent Events • Acqua Wellington agreement • 1st step in restructure process • 2-year credit facility extension • $500M notes • Future Options • Permanent bank refinancing • Convertible debt • Additional equity financing

15. .…a health and consumer services company making people’s lives better .…a health and consumer services company making people’s lives better Balance Sheet Restructuring- New Notes BEFORE AFTER $593 term loan $142 revolver ($55M drawn) LIBOR +500 bp 50 bp int rate step-up @ 7/03 Matures 1/2/05 $250M reductions due by 1/03 $85M 7% FHP bonds due 9/03 $500M 10.75% notes due 6/09 $55M revolver ($0 drawn) $274M term loan No interest rate step-up Credit facility matures 1/05 $85M set aside for FHP bonds

16. .…a health and consumer services company making people’s lives better Earnings in 2002 • FY ‘02 EPS Guidance =$3.37-$3.47 (w/ FAS 142) • Q2 = $0.85-$0.88 • Q1 FAS 142 effect = $0.40 • EOY Membership • Commercial = 2.4 million • M+C = 815 thousand • Specialty = 11 million • Commercial premium • increase high teens before buydowns, mid teens after buydowns

17. .…a health and consumer services company making people’s lives better Earnings in 2002 • Consolidated MLR = 87-88% • commercial = 86-87% • Medicare = 89-90% • SG&A ratio = 11.5%-12% • Medical cost trends: • commercial- low to mid teens • Medicare- high single digits • pharmacy (after buydowns)- • commercial: mid teens • Medicare: negative

18. .…a health and consumer services company making people’s lives better Cash Flow

19. .…a health and consumer services company making people’s lives better .…a health and consumer services company making people’s lives better Summary • Higher pro forma EPS • Increased gross profit margins PMPM • Increased EBITDA • Restructured balance sheet • Declining debt-to-EBITDA • Increased statutory capital • Adequate cash flows and reserves

20. .…a health and consumer services company making people’s lives better Thank you