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                                                                   EXHIBIT 10.07


                              CONSULTING AGREEMENT

     This CONSULTING AGREEMENT, dated as of January 1, 2001 (this "Agreement"),
is made and entered into by and between PacifiCare Health Systems, Inc., a
Delaware corporation ("Company"), and DAVID REED, an individual ("Consultant"),
with reference to the following facts:

                                    PREAMBLE

     A. The Company desires to engage Consultant, as a consultant on an
independent contracting basis, to act as the Chairman of the Board of Directors
of the Company and to assist the Company in the area of executive and strategic
management including, without limitation, assistance in strategic planning and
transitional management and direction; and

     B. Consultant desires to accept such engagement, in accordance with the
terms and subject to the conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the above premises and the covenants
and promises exchanged by the parties hereinbelow, the Company and Consultant
hereby agree as follows:

                                    ARTICLE 1

                               CONSULTING SERVICES

     1.1 Duties. The Company hereby engages Consultant as an independent
contractor to provide the Company with services as Chairman of the Company's
Board of Directors. As Chairman, Consultant shall be responsible for working
with and assisting the Executive Committee in carrying out its responsibilities.
The Chairman is the primary line of communication between management and the
Company's Executive Committee. The Chairman is responsible for (i) oversight of
and communicating and coordinating with the Company's Chief Executive Officer in
the discharge of his or her duties; (ii) for communicating with and reporting to
the Company's Board of Directors; and (iii) responding or determining with the
Company's Executive Committee who should respond to investor relations and media
inquiries. Consultant agrees to perform those services described above (the
"Consulting Services"), and Consultant hereby accepts such engagement. In
connection with the performance of the Consulting Services, Consultant shall do
and perform any and all services, acts, or things incident thereto which may be
necessary, advisable, or appropriate to fully perform the Consulting Services.

     1.2 Method of Performing Services. Consultant shall perform the Consulting
Services as an independent consultant and the method, details, and means of
performing the Consulting Services shall be determined by Consultant in his sole
discretion.

     1.3 Devotion of Skills and Time. Consultant shall use its best efforts,
skills, and abilities to perform the Consulting Services. While Consultant may
perform services for other clients as he sees fit, Consultant shall not engage
in any activities during the term of this Agreement which would unreasonably
interfere with his performance of the Consulting Services as required hereunder
or which would interfere with his fiduciary obligations as Chairman of the Board
of Directors.

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                                    ARTICLE 2

                              TERM AND TERMINATION

     2.1 Term. The term of this Agreement (the "Term") shall commence on January
1, 2001 and shall continue until the earlier of: (1) Consultant's resignation
from or failure to be reelected as Chairman of the Board of Directors of the
Company; or (2) this Agreement's termination in accordance with Section 2.2
below.

     2.2 Termination. This Agreement may be terminated only as follows:

         2.2.1 Written Election. Either the Company or Consultant may terminate
this Agreement at any time, without cause, upon sixty (60) calendar days prior
written notice to the other party.

          2.2.2 Automatic Termination. This Agreement shall automatically
terminate upon the bankruptcy, insolvency, death or mental incapacity of
Consultant.

          2.2.3 Breach. The Company, in its sole discretion, may terminate this
Agreement "for cause" effective upon written notice to Consultant if Consultant
has committed a material default under, or a breach of, this Agreement, has
committed an act of gross misconduct, or has breached his fiduciary duties. For
the purposes of this Agreement, the term "act of gross misconduct" shall mean
the commission of any theft offense, misappropriation of funds, dishonest or
fraudulent conduct, or the use of any Confidential Information (as defined in
Section 5.2) in violation of the provisions of Article 5 below.

          2.2.4 Nonpayment. Consultant, in his sole discretion, may terminate
this Agreement effective upon written notice to the Company if the Company fails
to pay the Compensation (as defined in Section 3.1) to Consultant within thirty
(30) calendar days of the applicable payment's due date.

     2.3 Effect of Termination. No termination of this Agreement shall affect or
impair Consultant's right to continue to receive compensation earned through the
effective date of this Agreement's termination. No termination of this Agreement
shall relieve Consultant from his obligations arising under Article 5 of this
Agreement.

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                                    ARTICLE 3

                                  COMPENSATION

     3.1 Payment of Consultant Fees. In consideration of the Consulting Services
performed on the Company's behalf by Consultant during the Term of this
Agreement, the Company shall pay Consultant annual compensation of $125,000, in
12 equal monthly installments, payable on the first of each month.

     3.2 Participation in Stock Option Plan. Consultant, as Chairman of the
Board of Directors of the Company, is an officer of the Company and therefore
shall be entitled to participate in the stock option plan for non-employee
Directors, and receive stock options at the same time(s) as Directors receive
stock options. As Chairman of the Board of Directors, Consultant shall be
entitled to twice as many options per grant as other members of the Board,
subject to the approval of the Board of Directors.

     3.3 Fees for Attending Board and Committee Meetings. As Chairman of the
Board of Directors, Consultant shall be entitled to payment of all fees
customarily paid to the Chairman of the Board, which include but are not
necessarily limited to: (1) an annual retainer of $40,000; (2) twice the $1,200
fee to which other members of the Board are entitled for attendance at meetings
of the Board; (3) the same $1,000 fee that other committee members receive for
attendance at meetings of any committee of the Board of which Consultant is a
member; (4) twice the $1,000 fee received by other committee members for
attendance at meetings of any Board committee of which Consultant is Chairman.
Consultant understands and agrees that the various fees set forth above are
subject to change from time to time by the Board of Directors of the Company.

     3.4 State and Federal Taxes. Consultant acknowledges and agrees that, as an
independent contractor, he will be responsible for paying all required state and
federal income taxes, social security contributions, self-employment taxes, and
other mandatory taxes and contributions and that the Company shall neither
withhold any amounts from the Compensation for such taxes or pay such taxes on
Consultant's behalf.

                                    ARTICLE 4

                           RELATIONSHIP OF THE PARTIES

     The Company and Consultant acknowledge and agree that the following
provisions shall further define and limit the scope of their relationship.

     4.1 Independent Contractors. The Company and Consultant acknowledge and
agree that Consultant enters into this Agreement as, and shall continue to be,
an independent contractor of the Company and, other than being an officer of the
Company by virtue of his position as Chairman of the Board of Directors of the
Company, and as authorized by the Board of Directors, Consultant is not, and
shall not become, an employee, officer, agent, joint venturer, partner, or owner
of the Company or of any of the Company's affiliates. Nothing in this Agreement
should be construed as establishing the relationship of employer and employee
between the Company (or any affiliate of the Company) and


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Consultant. Without limiting the generality of the foregoing, the Company and
Consultant each acknowledges and agrees that Consultant is not an employee of
the Company for state or federal tax purposes and that Consultant is not
entitled to any benefits accorded the Company's employees, including, without
limitation, worker's compensation, disability insurance, or vacation or sick
pay. Each party to this Agreement is and shall remain professionally and
economically independent of the other. However, Consultant may receive those
benefits provided by the Company to members of the Board of Directors.

     4.2 Liability for Obligations. Nothing contained in this Agreement shall
cause, or be construed as causing, either party hereto to be liable or
responsible for any debt, liability, or obligation of the other party owed to
any third party, unless such liability or responsibility is assumed in writing
by the party sought to be charged therewith. Each party shall be solely
responsible for and shall hold the other party harmless against any obligation
for payment of wages, salaries, or other compensation (including, without
limitation, all state, federal, and local taxes and mandatory employee
benefits), insurance, and voluntary employment related or other contractual or
fringe benefits as may be due and payable to the party to, or on behalf of, such
party's employees, agent, or contractors.

                                    ARTICLE 5

                               GENERAL PROVISIONS

     5.1 Notices. Any and all notices, requests, invoices, consents, demands or
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given and received (i) when
delivered, (regardless of where delivery is made) if delivered personally,
including personal delivery by commercial courier (ii) when delivered, if sent
by United States registered or certified mail (return receipt requested), or
(iii) on the second following business day, if sent by United States Express
Mail or overnight courier, in the case of (ii) or (iii) to the parties at the
following addresses (or at such other addresses as shall be specified by like
notice) with postage or delivery charges prepaid:

     If to the Company:

     PacifiCare Health Systems, Inc.
     3120 Lake Center Drive
     Santa Ana, California  92704
     Attn: Chief Executive Officer

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     If to Consultant:

     David Reed
     24602 Santa Clara Avenue
     Dana Point, California  92629

     5.2 Amendments; Waiver. This Agreement shall be amended, modified,
revised or supplemented only by a dated written instrument executed by the
Company and Consultant. No waiver of any provision of this Agreement shall be
effective unless evidenced by a dated, written instrument executed by the party
against whom enforcement is sought. No waiver of any provision hereof shall be
construed as a further or continuing waiver of such provision or any other
provision hereof.

     5.3 Integrated Agreement. This Agreement constitutes the final written
integrated expression of all the agreements between the Company (and any
affiliate of the Company) and Consultant with respect to Consultant's engagement
as a consultant with the Company and is a complete and exclusive statement of
those terms. This Agreement supersedes all prior or contemporaneous written or
oral memoranda, arrangements, agreements, contracts, communications or
understandings between the parties hereto relating to the subject matter hereof.
Any representations, promises, warranties, or statements made by either party
which differ in any way from the terms of this Agreement shall be given no force
or effect. The parties specifically represent, each to the other, that there are
no additional or supplemental agreements or contracts between them related in
any way to the matters herein contained.

     5.4 Severability. In the event that any provision in this Agreement shall
be found by a court or governmental authority of competent jurisdiction to be
invalid, illegal or unenforceable, such provision shall be construed and
enforced as if it had been narrowly drawn so as not to be invalid, illegal or
unenforceable, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.

     5.5 Assignment. Because of the personal nature of the services to be
rendered hereunder, this Agreement may not be assigned, in whole or in part, by
Consultant. Subject to the foregoing limitation, this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
heirs, legatees, devisees, executors(trixes), administrators, legal
representatives, successors and assigns.

     5.6 Section Headings. The section and article headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.

     5.7 Gender. The use of any gender in referring to any person on this
Agreement shall apply to that individual or entity whether such is masculine,
feminine, or neuter. Hence, the use of the words "it" or "its," "him" or "his,"
or "her" or "hers" shall be interchangeable when the context so requires.

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     5.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to
principals of conflicts of law.

     5.9 Confidentiality of Certain Information. Consultant acknowledges and
agrees that, during the term of his engagement with the Company, Consultant may
have access to certain individually identifiable personal information which is
in the Company's possession for the purpose of the Company's performance of its
business, and that Consultant and his assistants, employees and agents shall
maintain the confidentiality of all such information and shall, in the
performance of the Consulting Services, abide by all state and federal laws
applicable to the confidentiality of such information.

     5.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be considered one and the same agreement.

     IN WITNESS WHEREOF, the Company and Consultant have executed this Agreement
on and as of the date first written above.

The Company:                            PacifiCare Health Systems, Inc.
                                        A Delaware corporation



                                        By:
                                            ------------------------------------

                                        Title:
                                               ---------------------------------


Consultant:                             ----------------------------------------
                                        David Reed

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