Sierra Health Services, Inc. A Managed Care Company Updated 10/25/06.

Sierra Health Services, Sierra Health Services, Inc.Inc.A Managed Care CompanyA Managed Care Company

Updated 10/25/06

Cautionary StatementCautionary StatementStatements in this presentation and verbal statements made by representatives of Sierra that are not historical facts are forward-looking and based on management’s projections, assumptions and estimates; actual results may vary materially. Forward-looking statements are subject to certain risks and uncertainties, which include but are not limited to:

1) potential adverse changes in government regulations, contracts and programs, including the Medicare Advantage program, the Medicare Prescription Drug Plan and any potential reconciliation issues, Medicaid and legislative proposals to eliminate or reduce ERISA pre-emption of state laws that would increase potential managed care litigation exposure;

2) competitive forces that may affect pricing, enrollment, renewals and benefit levels;

3) unpredictable medical costs, malpractice exposure, reinsurance costs, changes in provider contracts and inflation;

4) impact of economic conditions; 5) changes in healthcare reserves; and 6) the amount of actual proceeds to be realized from the note receivable related to

the sale of the workers’ compensation insurance operation. Further factors concerning financial risks and results may be found in documents filed with the Securities and Exchange Commission and which are incorporated herein by reference. Consequently, all of the forward-looking statements made in this presentation or verbally by representatives of Sierra are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Sierra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Sierra or its business or operations. Sierra assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

Disclosure StatementDisclosure Statement

This presentation includes the following non-This presentation includes the following non-Generally Accepted Accounting Principle Generally Accepted Accounting Principle (GAAP) measures (GAAP) measures Medical care ratio excluding PDP Medical care ratio excluding PDP Days in claims payable excluding PDPDays in claims payable excluding PDP Cash flow adjusted for timing of CMS paymentsCash flow adjusted for timing of CMS payments

which under SEC Regulation G we are required which under SEC Regulation G we are required to reconcile with GAAP. to reconcile with GAAP.

Other Private (includes self-insured and

PPO) (1)

40%

HMO (2)

18%

Medicaid (1)

6%

Medicare (1)

12%

Military (1)

5%

Uninsured (1)

19%

Nevada Health Insurance Nevada Health Insurance DemographicsDemographics

(1) U.S. Census Bureau (2004) -Total Nevada Population = 2,390,000

(2) Nevada State Health Division, HMO Industry Profile 6/30/06

HMO Membership HMO Membership

(in thousands)

187 202 226 254 274

4851

5356

57

3739

5155

57

0

50

100

150

200

250

300

350

400

450

12/ 31/ 02 12/ 31/ 03 12/ 31/ 04 12/ 31/ 05 9/ 30/ 06

Commercial Medicare Medicaid

272292

330365

9.9% CAGR

388

Commercial HMO Sales Commercial HMO Sales GrowthGrowth

Commercial HMO Members: 273,600 Commercial HMO Members: 273,600 2006 Las Vegas Membership Growth: 18,3002006 Las Vegas Membership Growth: 18,300

Expect 8-9% Net Commercial Growth in Expect 8-9% Net Commercial Growth in 20062006

Over 8% YTD through OctoberOver 8% YTD through October Expect 3-5% Net Commercial Growth in Expect 3-5% Net Commercial Growth in

20072007 +66% HMO Market Share in Nevada+66% HMO Market Share in Nevada(1)(1)

78% HMO Market Share in Las Vegas78% HMO Market Share in Las Vegas(1)(1)

Only 18% HMO Penetration StatewideOnly 18% HMO Penetration Statewide(1)(1)


September 30, 2006

501+ (large)63%

51-500 (mid-size)31%

1-50 (small)6%

Health Plan of NevadaHealth Plan of NevadaMembership Membership CharacteristicsCharacteristics(1)(1)

All Others40% School

Districts9%

Gaming20%

Government11%Unions

11% National Accounts

9%

Commercial Employer Group Size Commercial Employer Type Mix

(1) Based on number of subscribers in each category

September 30, 2006

NevadaNevadaCommercial Market Share Commercial Market Share (HMO)(HMO)(1)(1)

Q2-04 Q2-05 Q2-06 Q2-04 Q2-05 Q2-06

Health Plan of Nevada 66.2% 66.3% 66.9% 78.3% 78.9% 78.7%

PacifiCare (United) 8.1% 10.4% 12.0% 9.8% 12.7% 14.5%

Health First 8.8% 8.1% 7.0% - - -

Hometown Health Plan 6.3% 5.8% 5.8% - - -

NevadaCare 5.9% 3.6% 3.0% 7.2% 4.4% 3.6%

Aetna 3.7% 2.8% 2.4% 4.2% 3.2% 2.7%

HMO Nevada (WellPoint) 1.0% 3.0% 2.9% 0.5% 0.8% 0.5%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

HMO Market Penetration 17.7% 17.6% 18.3% 20.7% 19.8% 20.7%

Statewide Clark County

(1) Nevada State Health Division, HMO Industry Profile June 30, 2004, 2005 and 2006

Commercial CostsCommercial Costs

2007 Projected Cost Trends2007 Projected Cost Trends Contracted HospitalsContracted Hospitals 3 - 6% 3 - 6% (1)(1)

PhysicianPhysician 4 - 5%4 - 5% Pharmacy Pharmacy 5 - 9%5 - 9%

OverallOverall 5 - 7% 5 - 7% (1)(1)

(1) Does not include any impact from increased costs related to non-contracted hospitals

Commercial PricingCommercial Pricing

2007 Projected Rate Increases2007 Projected Rate Increases HMOHMO 3 – 5%3 – 5% POSPOS 5 – 7%5 – 7% PPOPPO 7 – 9% 7 – 9%

OverallOverall 5 – 7%5 – 7%(1)(1)

(1) Includes benefit reductions (buydowns) which increase the expected yield by approximately 1%

Medicare Sales GrowthMedicare Sales Growth

Medicare Advantage Medicare Advantage (1) (1) Members: 58,700 Members: 58,700 (9/30/06)(9/30/06)

Expect 4% or Better Net Medicare Growth for Expect 4% or Better Net Medicare Growth for 20062006

Expect 3-5% Net Medicare Growth for 2007Expect 3-5% Net Medicare Growth for 2007 Approximately 7% yield increase for 2006Approximately 7% yield increase for 2006 Approximately 1% yield increase for 2007Approximately 1% yield increase for 2007 Approximately 64% Medicare Market Share Approximately 64% Medicare Market Share

Statewide and Las Vegas Statewide and Las Vegas (2)(2)

Only 32% Medicare HMO Penetration Statewide Only 32% Medicare HMO Penetration Statewide (2)(2)

(1) Medicare Advantage includes both HMO and PPO Members(2) Nevada State Health Division, HMO Industry Profile 6/30/06

Nevada Nevada Medicare Market Share (HMO)Medicare Market Share (HMO)(1)(1)

Q2-04 Q2-05 Q2-06 Q2-04 Q2-05 Q2-06


PacifiCare (United) 30.5% 30.5% 30.5% 36.7% 36.6% 36.3%

Hometown Health Plan 6.1% 5.8% 5.4% - - -

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Market Penetration 38.3% 32.4% 32.1% 47.3% 38.8% 38.4%



Medicare CostsMedicare Costs

2007 Projected Cost Trends2007 Projected Cost Trends ContractedContracted Hospitals Hospitals 3 - 6% 3 - 6% (1)(1)

PhysicianPhysician 3 - 4%3 - 4% Pharmacy Pharmacy 6 - 8%6 - 8%

OverallOverall 3 - 5% 3 - 5% (1)(1)

(1) Does not include any impact from increased costs related to non-contracted hospitals

Prescription Drug Plan – Part D Prescription Drug Plan – Part D 20062006

Marketing/EnrollmentMarketing/Enrollment 183,300 members September 2006183,300 members September 2006 Auto-enrollment provider in all 10 statesAuto-enrollment provider in all 10 states Income of approximately $6 million for the Income of approximately $6 million for the

nine months ended September 30, 2006nine months ended September 30, 2006 Expect pre-tax income of $4- $7 million for Expect pre-tax income of $4- $7 million for

the remaining quarter of 2006the remaining quarter of 2006 Cash shortfall of approximately $5 million Cash shortfall of approximately $5 million

per month during 2006per month during 2006 Final reconciliation and payment expected Final reconciliation and payment expected

Q3 2007Q3 2007

Prescription Drug Plan – Part D Prescription Drug Plan – Part D 20072007

Stand-alone PDP30 states and the District of ColumbiaAuto-enrollment provider in AZ, CA(1), CO, ID, NV(1), OR, UT, WALimited marketing effortYear over year earnings expected to be flat

(1) Will not receive new auto-enrollees for 2007

MedicaidMedicaidMedicaid Members: 57,000 (9/30/06)Medicaid Members: 57,000 (9/30/06)

+50% Medicaid HMO Market Share in Nevada +50% Medicaid HMO Market Share in Nevada (1)(1)

Expect 4-6% Net Medicaid Growth for 2006Expect 4-6% Net Medicaid Growth for 2006 Expect 3-5% Net Medicaid Growth for 2007Expect 3-5% Net Medicaid Growth for 2007 Expected 2007 rate increase of approximately 2%, Expected 2007 rate increase of approximately 2%,

consistent with expected medical costs.consistent with expected medical costs. Mandatory 2 Plan Market in NevadaMandatory 2 Plan Market in Nevada Currently Serving CHiPS, TANF, CHAPCurrently Serving CHiPS, TANF, CHAP New contract effective 11/1/06 through 6/30/09 with New contract effective 11/1/06 through 6/30/09 with

DHCFP option to extend the contract for an additional DHCFP option to extend the contract for an additional two yearstwo years


Nevada Nevada Medicaid Market Share (HMO)Medicaid Market Share (HMO)(1)(1)

Q2-04 Q2-05 Q2-06 Q2-04 Q2-05 Q2-06


Nevada Care 54.7% 51.9% 47.6% 56.1% 53.3% 48.6%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Market Penetration 51.5% 46.7% 48.0% 60.7% 55.4% 57.0%



$51.2$64.1

$88.0$98.1

$25.0 $28.4

$0.0

$25.0

$50.0

$75.0

$100.0

$125.0

2002 2003 2004 2005 Q3-05 Q3-06

HPN Medicaid Revenue HPN Medicaid Revenue GrowthGrowth

24.2% CAGR

(in millions)

Medical SubsidiariesMedical Subsidiaries

Clinical OverviewClinical Overview

Medical Subsidiaries

Family Healthcare Services

(FHS)

Family HomeHospice(FHH)

Total HomeCare of Nevada

(THC)

BehavioralHealthcare Options

(BHO)

Southwest Medical Associates

(SMA)

• Multi-specialty physician group

• 250 Providers

• Provides care services in patient’s home

• Medicare certified home health agency

• Hospice servicing terminally ill patients

• Medicare certified

• Home care products, infusion therapy services, and specialty drugs

• DME

• Specialized mental health/substance abuse services.

• URAC accredited

Las Vegas/Marketplace Las Vegas/Marketplace OpportunitiesOpportunities

Future Growth OpportunitiesFuture Growth Opportunities Population increase of 4-5% in 2006, now at 1.9 millionPopulation increase of 4-5% in 2006, now at 1.9 million Census Bureau Estimate +114% Growth In 25 YearsCensus Bureau Estimate +114% Growth In 25 Years National average of 1%National average of 1%

Mid Size Account GrowthMid Size Account Growth 65 new and expanded companies in Nevada in 200565 new and expanded companies in Nevada in 2005

Collectively employ nearly 2,000 workersCollectively employ nearly 2,000 workers

Expected 1 year economic impact of $360 MillionExpected 1 year economic impact of $360 Million

Improving Medical InfrastructureImproving Medical Infrastructure New Acute HospitalsNew Acute Hospitals

New Cancer Research FacilityNew Cancer Research Facility

New Alzheimers FacilityNew Alzheimers Facility

$1,131.2

$1,291.3

$327.1$405.6

$962.2$862.4

$0.0

$250.0

$500.0

$750.0

$1,000.0

$1,250.0

2002 2003 2004 2005 Q3-05 Q3-06

Medical Premium Revenue Medical Premium Revenue TrendsTrends

14.4% CAGR($ in millions)

(1) Includes $43.3 million in PDP revenue

(1)

Consolidated MCRConsolidated MCR78.7%

76.1% 75.3% 76.5% 77.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2002 2003 2004 2005 YTD9/ 06

Consolidated MCRConsolidated MCRExcluding PDPExcluding PDP

78.7% 76.1% 75.3% 76.5% 76.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2002 2003 2004 2005 YTD9/ 06

Consolidated Medical Consolidated Medical ExpensesExpenses

Physician39%

Pharmacy21%

Other17%

Hospital23%

Twelve Months Ended 9/30/06Twelve Months Ended 9/30/06

Physician43%

Hospital26%

Pharmacy12%

Other19%

Consolidated Medical Consolidated Medical Expenses Excluding PDP Expenses Excluding PDP (1)(1)

Twelve Months Ended 9/30/06Twelve Months Ended 9/30/06

(1) Excludes PDP medical expenses of $135.5 million

$63.5

$119.0

$175.0

$141.9

$44.3$55.0

$0.0

$50.0

$100.0

$150.0

$200.0

2002 2003 2004 2005 Q3-05 Q3-06

40.2% CAGR

Managed Care and Corporate Operations Segment ($ in millions)

Operating IncomeOperating Income

Consolidated Pretax MarginConsolidated Pretax Margin

6.8%

11.4% 11.4%12.2% 12.6%12.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2002 2003 2004 2005 Q3-05 Q3-06

Managed Care and Corporate Operations Segment

$59.7$106.1 $117.3

$89.4 $66.4

$190.3

$231.7$304.6

$299.2$265.2

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

$450.0

12/ 31/ 02 12/ 31/ 03 12/ 31/ 04 12/ 31/ 05 9/ 30/ 06

Non-Regulated Regulated

Cash and InvestmentsCash and Investments

From Continuing Operations ($ in millions)

$382.5

$337.8

$250.0

$388.6 $371.0

Total External DebtTotal External DebtFrom Continuing Operations ($ in millions)

$76

$117

$193

$125

$52 $44

$0

$50

$100

$150

$200

$250

Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Sep-06

Senior Convertible DebenturesSenior Convertible Debentures $115 MM original issue on March 15, 2003$115 MM original issue on March 15, 2003 2.25% coupon rate2.25% coupon rate Converted $71.5 million from May 19, 2005 Converted $71.5 million from May 19, 2005

through September 18, 2006through September 18, 2006 Issued 7.8 million shares upon conversion Issued 7.8 million shares upon conversion (1)(1)

Expensed approximately $1.5 million in prepaid interest Expensed approximately $1.5 million in prepaid interest for for conversion in 2005 and $180,000 in 2006conversion in 2005 and $180,000 in 2006

Expensed deferred financing costs of $1.2 million in Expensed deferred financing costs of $1.2 million in 2005 and $83,000 in 20062005 and $83,000 in 2006

(1) Adjusted to reflect 2-for-1 stock split effective December 30, 2005

53.0 56.7 56.4

12.6 7.8

3.3 0.81.7

5.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Q3 2004 Q3 2005 Q3 2006

Dilutive Impact of Conversion of Sierra DebenturesDilutive Options and Restrictive Shares OutstandingWeighted Average Common Shares Outstanding

Managing DilutionManaging Dilution(1)(1)

(shares in millions)

68.966.2

62.7


-4.6% CAGR

Share Repurchases from 1/1/03 Share Repurchases from 1/1/03 (1)(1)

Repurchased 25.2 million shares as of 10/25/06

$20.45 average repurchase cost as of 10/25/06

Current bank agreement allows for unlimited share repurchases Based on meeting the required leverage ratio

$139.4 million available as of 10/25/06


2007 Strategic Objectives2007 Strategic Objectives

Achieve Commercial Premium Yields of 4 to 6% before benefit buydowns

Achieve Commercial Unit Growth of 3 to 5%

Manage appropriately out of network hospital costs

Implement Medicare Advantage Expansion, including Private Fee-For-Service plan.

Manage an expected increase in consolidated MCR of 100 to 150 bps

Achieve EPS of $2.28 to $2.35

Reconciliation of non GAAP measuresReconciliation of non GAAP measuresMedical care ratio (excluding PDP)Medical care ratio (excluding PDP)(1)(1)

GAAPOther Medical PDP Reporting

Medical premiums 362,312$ 43,306$ 405,618$ Professional Fees 13,300 - 13,300 Total medical premiums and professional fees 375,612 43,306 418,918

Medical expenses 290,329 33,365 323,694 Medical care ratio (medical expenses/premiums and professional fees) 77.3% 77.0% 77.3%


Medical premiums 1,065,746$ 154,980$ 1,220,726$ Professional Fees 39,097 - 39,097 Total medical premiums and professional fees 1,104,843 154,980 1,259,823

Medical expenses 846,260 135,498 981,758 Medical care ratio (medical expenses/premiums and professional fees) 76.6% 87.4% 77.9%

Non-GAAP Items

Non-GAAP ItemsThree Months Ended September 30, 2006

Nine Months Ended September 30, 2006

(1) The Company believes that reflecting the ratio excluding the effects of the PDP provides a more comparable measure of our medical care ratio to our historical results.

Reconciliation of non GAAP measuresReconciliation of non GAAP measuresDays in claims payable (excluding PDP)Days in claims payable (excluding PDP)


Medical claims payable 139,564$ 8,400$ 147,964$ Medical expenses 279,911$ 41,634$ 321,545$ Days in Qtr 91 91 91 Medical exp per day 3,076 458 3,533Days in claims payable 45 18 42


Medical claims payable 150,374$ 6,889$ 157,263$ Medical expenses 290,329$ 33,365$ 323,694$ Days in Qtr 92 92 92Medical exp per day 3,156 363 3,518Days in claims payable 48 19 45

Non-GAAP Items

Non-GAAP ItemsThree Months Ended June 30, 2006

Three Months Ended September 30, 2006

(1) The Company believes that reflecting days in claims payable excluding the effects of the PDP provides a more comparable measure to our historical results.

Reconciliation of non GAAP measuresReconciliation of non GAAP measuresCash flow adjusted for timing of CMS Cash flow adjusted for timing of CMS paymentspayments(1)(1)

For the ThreeMonths Ended

9/30/2006GAAP net cash provided by operating activities (46,194)$ Add: July CMS payments received in June 80,616 Cash flow from operations adjusted for the timing of payments from CMS 34,422$

(1)The Company believes that reflecting three months of CMS payments provides a more useful measure of cash provided by operations during the three-month period.

Sierra Health Services, Sierra Health Services, Inc.Inc.A Managed Care CompanyA Managed Care Company

Updated 10/25/06

Sierra Health Services, Inc. A Managed Care Company Updated 10/25/06.

Documents

hmo membership hmo membership

hmo market share

net commercial growth

forwardlooking statements

cautionary statements

representatives of sierra

las vegas membership

hmo industry profile