1. Eighth Annual Wall Street Comes to Washington Roberta W. Goodman First Vice President Merrill Lynch Global Securities Research Refer to important disclosures at the end of this report. Analyst Certification on slide 49. Investors should assume that Merrill Lynch is seeking or will seek investment banking or other business relationships with the companies in this report. Roberta W. Goodman First Vice President Merrill Lynch Global Securities Research Refer to important disclosures at the end of this report. Analyst Certification on slide 49. Investors should assume that Merrill Lynch is seeking or will seek investment banking or other business relationships with the companies in this report.

2. Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Topics to Address Refer to important disclosures at the end of this report.

3. Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Topics to Address Refer to important disclosures at the end of this report.

4. Premium and Cost Trends, 1990-2003E Refer to important disclosures at the end of this report. 2003 Pricing Stabilizing; 2004 Should Moderate, but Follow Cost Trend Cost Trend Inflection Point Reached in 2002

5. Components of the Medical Cost Trend Refer to important disclosures at the end of this report.

6. Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Topics to Address Refer to important disclosures at the end of this report.

7. Cost-Sharing Low By Historical Standards Refer to important disclosures at the end of this report. Out-Of-Pocket Costs as % of National Health Expenditures

8. But More Visible in Current Economic Climate Refer to important disclosures at the end of this report. Annual Change, Total Health Expenditures as % of GDP

9. Product Design: Evolution or Revolution? Self-Funding and Vendor Consolidation Increased Cost Sharing: Impacts Demand “At the Margin” per Rand Corporation Studies Tiered (or Narrowed) Networks: Increases Contracting Leverage, But Adoption Slow and Providers Resistant “Consumer Directed Plans” Engage the Consumer, But Not a Panacea (and Not Without Side Effects) … The Key Issue Remains the Complex Needs of Patients with Catastrophic Illness/Multiple Morbidities Self-Funding and Vendor Consolidation Increased Cost Sharing: Impacts Demand “At the Margin” per Rand Corporation Studies Tiered (or Narrowed) Networks: Increases Contracting Leverage, But Adoption Slow and Providers Resistant “Consumer Directed Plans” Engage the Consumer, But Not a Panacea (and Not Without Side Effects) … The Key Issue Remains the Complex Needs of Patients with Catastrophic Illness/Multiple Morbidities Refer to important disclosures at the end of this report.

10. Elasticity of Demand Exists Source: JAMA 288(4) Annual Per-Member Drug Costs Refer to important disclosures at the end of this report.

11. Care/Disease Management Refer to important disclosures at the end of this report. Focus on Costly Diseases  Commonly: CHF, Asthma, Diabetes  Less Frequently: High Risk Pregnancy, Depression, Oncology Issues  Data Integrity and Clinical Approach Are Key  Compliance Rates  Measurement of Impact  Multiple Morbidity Patients

12. Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Topics to Address Refer to important disclosures at the end of this report.

13. Administrative Expense Ratio Trends, 1990-2002 Refer to important disclosures at the end of this report.

14. Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Topics to Address Refer to important disclosures at the end of this report.

15. Focusing on Cash Flows & Capital Returns Public Companies Focused on Balance Sheet Improvements (Share Repurchases, Debt Reduction) to Improve ROE and ROIC Blues: Conversions and Association Requirements Minimal Expansion Focus: Withdrawals the Rule, Acquisitions and De Novo Start-Ups the Exception Near-Term Conditions Unlikely to Produce a Down-Turn in the (So-Called) Underwriting Cycle Public Companies Focused on Balance Sheet Improvements (Share Repurchases, Debt Reduction) to Improve ROE and ROIC Blues: Conversions and Association Requirements Minimal Expansion Focus: Withdrawals the Rule, Acquisitions and De Novo Start-Ups the Exception Near-Term Conditions Unlikely to Produce a Down-Turn in the (So-Called) Underwriting Cycle Refer to important disclosures at the end of this report.

16. Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Premium and Cost Fundamentals Product Design: Evolution or Revolution? Efficiency Gains Capital Deployment Public Policy and Industry Implications Topics to Address Refer to important disclosures at the end of this report.

17. Medicare Reform and Prescription Drugs Actuarial Soundness Required for Participation  Payment Levels/Growth Must Reflect Underlying Costs  Adverse Selection Problems  Service Area Integrity Benefit Flexibility Required Competitive Bid Structures Problematic Actuarial Soundness Required for Participation  Payment Levels/Growth Must Reflect Underlying Costs  Adverse Selection Problems  Service Area Integrity Benefit Flexibility Required Competitive Bid Structures Problematic Refer to important disclosures at the end of this report.

18. Sources Used American Association of Health Plans Bureau of Economic Analysis Center for Studying Health System Change Centers for Medicare & Medicaid Services Interstudy Milliman USA Rand Corporation SEC filings Merrill Lynch Estimates American Association of Health Plans Bureau of Economic Analysis Center for Studying Health System Change Centers for Medicare & Medicaid Services Interstudy Milliman USA Rand Corporation SEC filings Merrill Lynch Estimates

19. Analyst Certification I, Roberta W. Goodman, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Refer to important disclosures at the end of this report.

20. Investment Rating Distribution: Health Care Group (as of 31 December 2002) Coverage UniverseCountPercentInv. Banking Relationships*Count Percent Buy9754.80%Buy4142.27% Neutral7140.11%Neutral1216.90% Sell95.08%Sell111.11% Investment Rating Distribution: Global Group (as of 31 December 2002) Coverage UniverseCountPercentInv. Banking Relationships*Count Percent Buy111043.46%Buy39135.23% Neutral123648.39%Neutral31925.81% Sell2088.14%Sell4320.67% * Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months. Price charts for the equity securities referenced in this research report are available at http://www.ml.com/research/pricecharts.asp, or call 1-888-ML-CHART to have them mailed. [AET, ATH, CI, CVH, FHCC, HNT, HUM, MME, OHP, PHSY, UNH, WLP] MLPF&S or one or more of its affiliates acts as a market maker for the recommended securities to the extent that MLPF&S or such affiliate is willing to buy and sell such securities for its own account on a regular and continuous basis. [AET, ATH, OHP, UNH] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years. [AET, ATH, CI, UNH, WLP] MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months. [AET, ATH, CI, CVH, FHCC, HNT, HUM, MME, OHP, UNH, WLP] MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company within the next three months. 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