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4th Annual Investor Conference

4th Annual Investor Conference. GOVERNMENT AND SPECIALTY SERVICES DIVISION Jeffrey J. Bairstow President. May 16, 2001. 4 Point Review. Solid performance in 2000 Positioned for consistent results in 2001-2003 Opportunity to reduce costs in base business through technology applications

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4th Annual Investor Conference

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  1. 4th Annual Investor Conference GOVERNMENT AND SPECIALTY SERVICES DIVISION Jeffrey J. Bairstow President May 16, 2001

  2. 4 Point Review • Solid performance in 2000 • Positioned for consistent results in 2001-2003 • Opportunity to reduce costs in base business through technology applications • Opportunity to increase growth and profitability through new products

  3. Overview of Division Core Assets HNFS - Health Net Federal Services: Administers the TRICARE Health Care Program to approximately 1.5 million military dependents in 11 states under the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) MHN - Managed Health Network: Provides behavioral health care services to more than 10 million lives nationwide (Risk, ASO, and EAP)

  4. Overview of Division (Continued) Other Segments EOS - Employer & Occupational Services: Provides a broad range of administrative services primarily to the workers’ compensation industry HBI - Health Benchmarks, Inc: A health information services company that provides services to managed care organizations, pharmaceutical & biotechnology companies, & self-insured employers. DentiCare/AVP: Provides dental and vision care management services to more than 800,000 lives.

  5. 2001 Highlights • Achieved global settlement with Department of Defense to reduce receivables to $64 million on 3/31/01 • Expanded MHN membership to over 10 million members • Successfully integrated IPS operations into Health Plan Operations

  6. Roster of Panel Jeff Bairstow President, Government & Specialty Services Division Jim Woys President, HN Federal Services Jonathan Scheff, M.D. SVP & Chief Medical Officer, HN Federal Services Ben Yates VP & Chief Financial Officer, HN Federal Services Dave Buhler Chief Administrative Officer, MHN Jim Jones SVP, Sales & Marketing, MHN Mike Berlin VP Business Development, New Ventures Group

  7. HNFS - Health Net Federal Services Presenter: Jim Woys President, HNFS

  8. 1 Central 10 5 2 9 4 3 TRICARE Regions Region 11 Annual Revenue: $160M Eligibles: 244,000 Ext. term 3/002/02 11 Regions CA/HI/AK Annual Revenue: $530M Eligibles: 608,000 Ext. term 4/013/03 Region 6 Annual Revenue: $560M Eligibles: 611,000 Ext. term 11/0010/02 6

  9. TRICARE Contract Extension Summary • Financial terms of current extensions • Increased profit rates • Increased administrative prices • Re-basing health costs and trends • More favorable risk sharing provisions • Elimination of capitation arrangements • Contractual terms of extensions improve predictability of earnings and receivable levels • Additional two-year extensions likely

  10. TRICARE Government Receivable Expectations for 2001…. Accounts receivable levels to be <$125 million Management focused on maintaining low level of Government investment & maintaining operating cash flow $334 $321 $290 $273 $ in millions <$125 $64 1997 1998 1999 2000 3/31/01 2001

  11. TRICARE Net Investment Expectations for 2001…. Net investment = Government receivable less Government payable less claims payable $111 $10 $89(Estimated) $ in millions $57 $89 $127 1997 1998 1999 2000 3/31/01 2001

  12. Opportunity to Reduce Cost Through Innovation Solutions • Medical Management System • On-Line Billing and Enrollment • Provider Connectivity • Questium • Enterprise Portal (HN Connect) Digital Claims Engine Opportunities

  13. New Business Opportunities • Sales & licensing of new products to other TRICARE Regions/payers/customers • On-line enrollment • Questium • Medical management system • Veterans Administration opportunity • Repricing arrangements • At-Risk or ASO arrangements similar to DoD • Care delivery operations • DoD Program Changes • TRICARE for Life

  14. HNFS Opportunity: VA Healthcare Spend Will Increasingly be Outsourced 1999: $19.1 billion 2003: $24.0 billion 2007: $32.7 billion Direct Care vs.. Purchased Care $28,700 m88% $18,500 m97% $22,500 m94% Direct CarePurchased Care $630 m3% $1,500 m6% $4,000 m12%

  15. MHN - Managed Health Network Presenter: Dave Buhler Chief Administrative Officer

  16. MHN - A National Company National Network Revenue $250M Lives 10,000,000 East 3,000,000 Central 2,000,000 West 5,000,000 Providers 33,000 Facilities 1,300 Offices 43

  17. MHN Covered Lives

  18. Positioned for Consistent Results 2001-2003 • Expanded to over 10 million members in 2001- #5 behavioral health organization in market share • Continued strength in EAP product line - #2 market share • Web automation through Questium

  19. Opportunity to Reduce Cost Through Innovation Solutions Through Self Service • Questium Life • Provider connectivity • Enterprise portal(HN Connect) Opportunities

  20. MHN - Managed Health Network Human Capital Solutions Presenter: Jim Jones SVP, Sales and Marketing

  21. The Next Behavioral Health Opportunity Current Industry Focus: Future Industry Focus: $81BN of direct costs $500BN of indirect costs • Indirect Costs • Aberrant behaviors • Reduced productivity & performance • Drives reduced competitive advantage • Direct Costs • Health care • Administration $5BN Mature Market Opportunity $25-50BN New Market Opportunity

  22. MHN is Well-Positioned to Attack This New Market • Leverage national employer distribution channel • Penetrate six million member commercial client base • Use strategic partnerships to accelerate market penetration and expand reach into new markets Why MHN? Market Validation: Market Entry: • 25 years as a leader in helping people change behavior • MHN products and services that can be repositioned to impact indirect costs • Core competency in integrating and managing an array of professional service partners • A scaleable delivery platform--Questium • Current clients, both large and mid-size, very receptive to idea • Clients see it as an extension of our leading EAP market position • Health Net a pilot client • Recently signed first external client

  23. QUESTIUM Personal and Professional Life Services Competitive Points of Differentiation • Self-generated referrals and authorizations • On-line access to authorization and utilization history • Wide range of interactive self-care behavioral programs • Broad spectrum of personal and organizational tools/services

  24. Government & Specialty Services Summary • Executed on stated plan in 2000 • 2001-2003 positioned for consistent results • Upside from revenue and cost reduction initiatives

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