Title: '04 prescription drug benefit for low income M C enrollee
1(No Transcript)
2Cautionary 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 as
of September 30, 2003, and the Form 10K as of
December 31, 2002.
3 2003 Market Expansion
Largest purchaser of health care services in the
Western U.S.
2003 Market Expansion
- Medicare Supplement
- PBM
- Behavioral Health
- A Fortune 200 company with
- 11 billion in revenue
- 2.2 million commercial lives
- 686K MedicareChoice HMO lives
- 9 million specialty lives
2002 Health Plan Specialty Companies
2003 Market Expansion
4Third Quarter Performance and FY 2003 Guidance
52003 Membership Pricing Guidance
- Membership
- Commercial up 1-2, ex-CalPERS
- MC down to 680,000
- Medicare Supplement doubles from 17,000 to
35,000 - Pricing
- Commercial pricing up 17 after buydowns 250 bp
- MC premium yield up 4
- Specialty Other up 20
6Membership Pricing Trends
- Commercial membership up sequentially despite
modest declines in national accounts tied to slow
economy - gross new small group sales in Q303 up 100 y-o-y
- retention rate higher than expected
- Expect moderate single digit commercial
membership increase in 2004 - Pricing for Jan 04 renewals up mid-teens before
buydowns 400 bp
7Issuance of 3.8 Million Shares of Common Stock
- Approximately 200 Million net proceeds
- Use of proceeds
- 175M redemption of 10 3/4 Senior Notes
- accrued interest, redemption premium, other
transaction costs. - Benefits
- Improve cash flow
- Improve balance sheet platform for Medicare
diversification - Promote credit rating increase
- Decrease cost of debt
- EPS effect
- Q403 guidance lowered to 0.59-0.64 due to
17.3 million one-time expenses and 1.9 million
weighted share increase - 2003 Full-year guidance lowered by 0.52 to
6.00-6.05 - 2004 Net Income increases 12 million net of
tax modestly dilutive to EPS
8Issuance of 3.8 Million Shares of Common Stock
- Why Equity?
- Why Now?
- Credit Ratios
- Debt / book cap (9/30/03)
- From 33.3 to 25.7
- Debt / EBITDA (LTM 9/30/03)
- From 1.5x to 1.1x
9Free Cash Flow Growth Before Note Redemption
- Free cash flow is defined as net income plus
depreciation and amortization, less capital
expenditures - Best measure of resources available at Parent to
pay down debt, build statutory capital, pursue
opportunistic acquisitions
- Excluding non-recurring items
10Excess Statutory Capital
Weighted average company total gt 300 RBC
11Expanding Commercial Insured Gross Margin
Premium
33.10
22.81
16.37
Health Care Costs
2001-2003 Improvement 335 million or 65
122003 - 2004 Product Leadership Strategy
- Growing Commercial Business
- New product introductions
- Diversify to Individual/ Small/ Mid-sized groups
- Advertising/Branding Campaign
- Build Senior Solutions Products/ Distribution
- Medicare Supplement
- Disease Management
- Caregiver
- Expanded Specialty Company Membership
- Organic growth
- Small acquisitions
13Recently Launched Products and Services
- PPO
- Self Directed Health Plan
- Medicare Supplement
- Self-Funded PPO
- Tiered HMO Hospital Product
- Value Plan
- Senior Rx Card- complement to Med Supp
- PPO Dental
- Medicare PPO (pilot)
14Recently Launched Products and Services
- A Solution for Caregivers
- Healthy Renewal Pass
- Hospital Quality Index
- Latino Health Solutions
- Womens Health Solutions
- African American Health Solutions
- Private Label Life Disability Insurance
- Flexible Spending Account Debit Card
- Premier Pass (physician concierge service-
pilot) - Extended customer service hours
15Building Our Brands
Relative Ad Spending
Results
Source BrandEconomics
16New Forecasted Gross Profit Goal (after Q203)
17Managing MedicareChoice
Before Medicare reform bill revisions in
progress
18Medicare Reform Summary
- Key Benefits to PHS are
- 04 and 05 M C reimbursement increase
- 04 prescription drug benefit for low income M
C enrollees - 06 prescription drug benefit also conferred to M
C enrollees - PBM participation in management of Rx Discount
Card drug benefit - Medicare Supplement plans without Prescription
benefit not affected
19Medicare Strategy 2004 and Beyond
Before Reform Maximize Cash Flow
Current Strategy
Growth
New life for strengthened MedicareChoice program
20MedicareChoice After Reform
Focus on growth from membership expansion rather
than margin expansion 2004-- modest net income
growth (5-5.5 premium increase) 2005-- keep
pace with cost trend (high single digit
increase) 2006-- substantial new reimbursement
with Rx benefit
21 Medicare Reform Bill
- Passed by Congress 11/25/03
- Will be signed by Bush in Dec. 03
- CMS county calculations
- Revised ACRs
- Increased reimbursements to begin 3/04
- Drug card to start 4/04
- PPO/PDP regions announced by 1/1/05
- PDP/MA regulations in early 05
- Drug benefit new private plan options start
1/1/06
22 Medicare Disease Management Pilot Program
- HeartPartners- collaboration of PHS, Prescription
Solutions, QMED, Alere Medical, Inc. - Enroll up to 15,000 members w/ heart condition
starting 1/04 - Estimated revenue 120 million in 2004 up to
1 billion over 3 years
23Disease Management
Savings gt 117 million over last 12 months
24Equity Debt Value Appreciation
- Stock appreciation since 12/31/01 300
- 10 ¾ High Yield Note appreciation since
issuance - issued at 99.4
- recently indicated at 116
- total return since issuance 30