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                          PACIFICARE HEALTH SYSTEMS, INC.

                      NON-QUALIFIED DEFERRED COMPENSATION PLAN


        WHEREAS, PacifiCare Health Systems, Inc., (the "Company") desires to
establish a non-qualified deferred compensation plan to provide supplemental
retirement income benefits for a select group of management and highly
compensated employees through deferrals of salary and bonuses, effective as of
December 18, 1997;

        WHEREAS, it is believed that the adoption of this plan providing for
deferral of compensation at the election of each executive will be in the best
interests of the Company;

        WHEREAS, it is the intent of the Company that this Plan shall supersede
any other non-qualified deferred compensation plan, policy or arrangement which
the Company or any of its subsidiaries may have sponsored or made available in
the past; and

        WHEREAS, the Company intends that this plan shall be maintained as a
"top hat" plan described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA;

        NOW, THEREFORE, it is hereby declared as follows:

                                     ARTICLE I
                                    DEFINITIONS

        Whenever the following words and phrases are used in this Plan, they
shall have the meanings specified below.

Section 1.1     "Beneficiary" or "Beneficiaries" for purposes of this Plan shall
have the meaning set forth in Section 6.4.

Section 1.2     "Board of Directors" or "Board" means the Board of Directors of
the Company.

Section 1.3     "Bonus" means any cash incentive compensation or sales
commissions payable to a Participant in addition to the Participant's Salary,
other than the LTPIP Bonus, moving expenses, sign-on bonuses or bonuses paid in
connection with a promotion, prior to any reduction for deferrals to a plan
qualified under Section 125 or Section 401 (k) of the Code.

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Section 1.4     "Change of Control" shall have the meaning set forth in Section
6.3.

Section 1.5     "Class B Common Stock" means the Company's Class B Common Stock,
par value $0.01 per share.

Section 1.6     "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

Section 1.7     "Committee" means the Committee appointed by the Compensation
Committee to administer the Plan in accordance with Article V.

Section 1.8     "Company" means PacifiCare Health Systems, Inc., a Delaware
corporation, or any successor corporation.

Section 1.9     "Compensation Committee" shall mean the Compensation Committee
of the Board of Directors of the Company.

Section 1.10    "Deferral Account" shall mean the amount of Salary and Bonus
deferred under Article III of this Plan, the Interest Rate or Rates credited to
such deferred amounts and the LTPIP Stock Accounts.

Section 1.11    "Disability."  A Participant shall be deemed to be incapacitated
or disabled, if such Participant's incapacity or disability prevents a
Participant from fully performing his duties to an Employer for a period in
excess of 90 days and, after such 90-day period, the Company and a physician,
duly licensed and qualified in the specialty of the Participant's incapacity or
disability, decide in their reasonable judgments, that such incapacity or
disability will be permanent or of such continued duration as to prevent a
Participant from resuming the rendition of services to the Employer for at least
an additional six-month period.

Section 1.12    "Distributable Amount" shall mean having the meaning set forth
in Section 3.8(a).

Section 1.13    "Eligible Employee" shall mean those Employees who satisfy any
of the requirements of Section 2.1.

Section 1.14    "Employee" shall mean any employee (as defined in accordance
with the Treasury Regulations and Revenue Rulings then applicable under Section
3401 (c) of the Code) of an Employer, whether such employee is so employed at
the time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.

Section 1.15    "Employer" means the Company (or any successor by merger,
consolidation or purchase of substantially all of the Company's assets) and any
and all Subsidiaries of the Company.

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Section 1.16    "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.

Section 1.17    "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

Section 1.18    "Fund" or "Funds" means one or more of the funds selected by the
Committee pursuant to Section 3.3(b).

Section 1.19    "Initial Election Period'' for an Eligible Employee means the
30-day period following the later of November 15, 1997 or the receipt by an
Eligible Employee of enrollment material for this Plan.

Section 1.20    "Interest Rate" shall mean, for each Fund, an amount equal to
the net gain or loss on the assets of such Fund during each month.

Section 1.21    "LTPIP" means the Long-Term Performance Incentive Compensation
Plan of the Company, as it may be amended from time to time.

Section 1.22    "LTPIP Bonus" means incentive compensation payable to a
Participant under the LTPIP in addition to the Participant's Salary prior to any
reduction for deferrals to a plan qualified under Section 125 or Section 401(k).

Section 1.23    "LTPIP Stock Account" shall have the meaning specified in
Section 3.5.

Section 1.24    "Participant" means for purposes of this Plan, any Eligible
Employee who satisfies the requirements of Section 3.1.

Section 1.25    "Payment Eligibility Date" means the first day of the month
following the end of the calendar quarter in which a Participant terminates
employment for any reason with all Employers or dies.

Section 1.26    "Plan" means this Non-Qualified Deferred Compensation Plan of
PacifiCare Health Systems, Inc., as it may be amended from time to time.

Section 1.27    "Plan Year" means the 12 consecutive month period beginning on
January 1 and ending on December 31 of the same year.

Section 1.28    "Retirement" or "Retire" for purposes of this Plan means
termination of a Participant's employment from all Employers, which occurs after
the sum of the following two factors meet or exceed 55:  (i) the Participant's
age and (ii) the Participant's number of years of service with all Employers.

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Section 1.29    "Salary" shall mean the Participant's salary prior to any
reduction for deferrals to a plan qualified under Section 125 or Section 401 (k)
of the Code.

Section 1.30    "Social Security Wage Base" means contributions and benefits
base under Section 230 of the Social Security Act in effect for the Plan Year.

Section 1.31    "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

                                     ARTICLE II
                                    ELIGIBILITY

SECTION 2.1     ELIGIBILITY.

        a.      At the effective date of this Plan, an Employee of an Employer
will be eligible to defer payments of Salary and/or Bonus pursuant to the
provisions of this Plan if at the time when an election may be made he or she is
an Employee who the Company has designated to be in one of the five highest
executive pay bands and is scheduled to work at least 32 hours per week.
Notwithstanding any other provisions of this Plan, all Employees who participate
in this Plan for Plan Year 1998 shall continue to be eligible to participate in
this Plan in future Plan Years.

        b.      Subsequent to the effective date of this Plan, a new Employee of
an Employer will be eligible to defer payments of Salary and/or Bonus pursuant
to the provisions of this Plan if at the time when an election may be made:  (i)
he or she has an annual base salary of at least $80,000 and is scheduled to work
at least 32 hours per week; or (ii) he or she is an Employee scheduled to work
at least 32 hours per week designated by the Committee to be eligible to
participate in this Plan so long as such designation does not make this Plan not
eligible for "top hat" plan status.

        An Employee who satisfies the requirements of subsection (a) or (b)
shall be an "Eligible Employee."

                                    ARTICLE III
                              DEFERRAL OF COMPENSATION

SECTION 3.1     PARTICIPATION.

        a.      An Eligible Employee shall become a Participant in this Plan by
(1) electing to defer a portion of his or her Salary and/or Bonus in accordance
with Section

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3.2, and (2) filing a life insurance application form along with his or her
deferral election form.

        b.      During any Plan Year, a Participant who is scheduled to work
more than 20 hours but less than 32 hours per week shall not trigger a
distribution event; provided, however, such Participant will not be able to
continue making deferrals or be eligible to make new deferrals under this Plan
until such time the Participant is scheduled to work at least 32 hours per week.
Any amounts previously deferred by such Participant will continue to be credited
with the Interest Rate or Rates according to the provisions of this Plan.  If a
Participant subsequently is scheduled to work at least 32 hours per week, the
Participant may make an election to defer Salary and/or Bonus for the next Plan
Year.

SECTION 3.2     ELECTIONS TO DEFER COMPENSATION.

        a.      INITIAL ELECTION PERIOD.  Subject to Article II and Section 3.1,
each Eligible Employee may elect to defer Salary and/or Bonus by filing with the
Committee, on a form provided by the Committee, an election that conforms to the
requirements of this Section 3.2, no later than the last day of his or her
Initial Election Period.

        b.      GENERAL RULE.  The amount of compensation which an Eligible
Employee may elect to defer is as follows:

                (i)   Any whole percentage of Salary up to and including 50
        percent of Salary and/or

                (ii)  Any whole percentage of Bonus up to 100 percent.

        c.      MINIMUM DEFERRALS.  For each Plan Year during which an Eligible
Employee is a Participant, the minimum amount that may be elected to be deferred
under Section 3.2(b) is $5,000.  Such minimum may be satisfied by deferring
Salary and/or the Bonus or LTPIP Bonus payable for services rendered for such
Plan Year (even though it may not be paid until the next Plan Year); provided
that if Salary is deferred, the minimum Salary deferral is $5,000.  Accordingly,
if no Salary is deferred for a Plan Year and the total amount of the Bonus or
LTPIP Bonus elected to be deferred with respect to that Plan Year is in fact
less than $5,000, then no portion of the Bonus or LTPIP Bonus shall be deferred.

        d.      EFFECT OF INITIAL ELECTION.  For Participants who are Employees
of an Employer on the effective date of this Plan, an election to defer Salary
and/or Bonus during the Initial Election Period shall be effective with respect
to Salary and/or Bonus earned during the first pay period beginning after the
end of the Initial Election Period.

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For Participants who become Employees of an Employer subsequent to the effective
date of this Plan, an election to defer Salary and/or Bonus during the Initial
Election Period shall be effective with respect to Salary and/or Bonus earned
after the first day of the calendar quarter beginning after the end of the
Initial Election Period.

        e.      DURATION OF DEFERRAL ELECTION. Any Salary and/or Bonus deferral
election made under subsection (a) or subsection (f) of this Section 3.2 shall
be irrevocable and shall apply only to the Salary payable during the Plan Year
and/or Bonus payable with respect to services performed during the Plan Year.
For each subsequent Plan Year, an Eligible Employee may make a new election,
subject to the limitations set forth in this Section 3.2, to defer a percentage
of his or her Salary and/or Bonus. Such election shall be on forms provided by
the Committee and shall be made on or before the December 15 preceding the Plan
Year for which the election is to apply.  Notwithstanding the foregoing, the
Committee may, in its absolute discretion, permit an Eligible Employee to file
an election to defer on or after December 15, if, in its judgment, his or her
failure to do so prior to said date was due to reasonable cause, but in no event
may such election be filed after December 31.  All elections, once made, are
irrevocable.

        f.      ELECTIONS OTHER THAN ELECTIONS DURING THE INITIAL ELECTION
PERIOD. Subject to the minimum deferral requirement of subsection (c) above, any
Eligible Employee who fails to elect to defer Salary and/or Bonus during his or
her Initial Election Period may subsequently become a Participant, and any
Eligible Employee who has terminated a prior Salary deferral election may elect
to again defer Salary and/or Bonus, by filing an election, on a form provided by
the Committee, to defer Salary and/or Bonus as described in this Section 3.2.
An election to defer Salary and/or Bonus must be filed on or before each
December 15 and will be effective for Salary paid after the following January 1
and the Bonus payable with respect to services performed in the Plan Year
beginning on the following January 1.

        g.      LTPIP BONUS.  One year in advance of the end of a LTPIP
performance cycle, an Eligible Employee may elect in writing, to defer receipt
of all or a portion of the LTPIP Bonus, which may be earned under the LTPIP for
that performance cycle.

        h.      REDUCTION OF SALARY AND/OR BONUS.  Upon an election to defer
Salary and/or Bonus, each Participant's Salary, Bonus and/or LTPIP Bonus will be
reduced by the amount elected to be deferred.

SECTION 3.3     INVESTMENT ELECTIONS.

        a.      At the time of making the deferral elections described in
Section 3.2, the Participant shall designate, on a form provided by the
Committee, the types of funds the Participant's Deferral Account will be deemed
to be invested in for purposes of determining the amount of Interest Rate or
Rates to be credited to his or her Account.

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Examples of the types of funds that may be available for investment are:  (i)
Money Market Fund; (ii) Common Stock Fund; (iii) International Equity Fund; (iv)
Balanced Fund; (v) Growth Fund; (vi) Aggressive Growth Fund; (vii) Bond Fund;
and (viii) Global Equity Fund.

        In making the designation pursuant to this Section 3.3, the Participant
may specify that all or any whole percentage of his Deferral Account (at least
10 percent) be deemed to be invested in one or more funds.  Effective as of the
end of any calendar month, a Participant may change the designation made under
this Section 3.3 with respect to amounts contained in his or her Deferral
Accounts or amounts to be credited to his or her Deferral Accounts by current or
future deferrals by filing an election, on a form provided by the Committee, at
least 30 days prior to the end of such month.  If a Participant fails to elect a
type of fund under this Section 3.3, he or she shall be deemed to have elected a
fund similar to a Money Market Fund.

        b.      Although the Participant may designate the type of funds in
subsection (a) above, the Committee shall select from time to time, in its sole
discretion, a commercially available fund similar to the types described in
subsection (a) above to be the Funds.  The Interest Rate of such commercially
available fund or contract shall be used to determine the amount of earnings or
losses to be credited to Participants' Deferral Accounts under Section 3.4.

SECTION 3.4     DEFERRAL ACCOUNT.

        The Committee shall establish and maintain a Deferral Account for each
Participant under the Plan. Each Participant's Deferral Account shall be further
divided into separate subaccounts ("fund subaccounts"), each of which
corresponds to a fund elected by the Participant pursuant to Section 3.3(a).  A
Participant's Deferral Account shall be credited as follows:

        a.      As of the last day of each month, the Committee shall credit the
fund subaccounts of the Participant's Deferral Account with an amount equal to
Salary deferred by the Participant during each pay period ending in that month
in accordance with the Participant's election under Section 3.3(a); that is, the
portion of the Participant's deferred Salary that the Participant has elected to
be deemed to be invested in a certain type of fund shall be credited to the fund
subaccount corresponding to that fund.

        b.      As of the last day of the month in which the Bonus or partial
Bonus would have been paid, the Committee shall credit the fund subaccounts of
the Participant's Deferral Account with an amount equal to the portion of the
Bonus deferred by the Participant's election under Section 3.3(a); that is, the
portion of the Participant's deferred Bonus that the Participant has elected to
be deemed to be invested

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in a particular type of fund shall be credited to the fund subaccount
corresponding to that fund.

        c.      As of the last day of each month, each fund subaccount of a
Participant's Deferral Account shall be credited with earnings or losses in an
amount equal to that determined by multiplying the balance credited to such fund
subaccount as of the last day of the preceding month by the Interest Rate for
the corresponding Fund selected by the Committee pursuant to Section 3.2(b) with
the assumption that all dividends or interest is reinvested at the fair market
value of the Fund at the end of the day in which it would be paid.

        d.      All amounts in a Participant's Deferral Account shall be 100
percent vested at all times.

SECTION 3.5     CREATION OF DEFERRED LTPIP STOCK ACCOUNTS.

        If a Participant elects to defer all or any portion of the LTPIP Bonus,
60 percent of the amount deferred will be credited to the Deferral Account and
approximately 40 percent of the amount defined will be credited to the LTPIP
Stock Account (as defined herein).  The LTPIP Stock Account will be credited
with stock units (the "LTPIP Stock Units") equal to the number of shares of
Class B Common Stock into which the amount deferred is converted based on the
closing price of the Class B Common Stock as of the time the LTPIP Bonus would
have been paid, but for the election to defer under this Plan.  The LTPIP Stock
Units shall be credited to a bookkeeping account, established for this purpose
in the Participant's name (the "LTPIP Stock Account") as of the last day of the
LTPIP performance cycle for which the LTPIP Bonus is earned.  The number of
LTPIP Stock Units shall remain constant over the deferral period except as
adjusted pursuant to Section 3.7.  The number of shares of Class B Common Stock
to be distributed shall equal the number of LTPIP Stock Units credited to the
LTPIP Stock Account at the time the LTPIP Bonus was originally awarded.

SECTION 3.6     ROLLOVERS.

        a.      Participants of the FHP International Corporation Deferred
Compensation Plan, as amended (the "FHP Plan"), who have a positive account
balance, as of December 31, 1997, in the FHP Plan shall have such positive
account balance transferred to and added to an account balance under this Plan;
provided, however, that individuals who are not employees of an Employer as of
December 31, 1997 shall receive a lump sum distribution of any and all amounts
contained in their account balance under the FHP Plan as soon as practicable but
no later than April 1, 1998; provided further, however, that notwithstanding the
preceding provisions, individuals who are receiving salary continuation payments
pursuant to the terms of an employment agreement or through arrangements with an
Employer shall have their

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account balances under the FHP Plan transferred to and added to an account in
this Plan.  Participant's account balances transferred to this Plan shall be
governed by the terms and conditions of this Plan and shall be referred to as
the "FHP Rollover Amount" and shall be credited to such Participant's Deferral
Account as of December 31, 1997.

        b.      Participants of any existing deferred compensation plan
administered by the Company, who have a positive account balance in such plan as
of December 31, 1997 and who are employed by an Employer as of December 31, 1997
shall have such positive account balance transferred to and added to an account
balance under this Plan provided that individuals who are not employees of an
Employer as of December 31, 1997 shall receive a lump sum distribution of any
and all amounts contained in their account balances; provided further, however,
that notwithstanding the preceding provisions, individuals who are receiving
salary continuation payments pursuant to the terms of an employment agreement or
through arrangements with an Employer shall have their account balances under
the Company's existing deferred compensation plan transferred to and added to an
account in this Plan.  Participant's account balances transferred to this Plan
pursuant to this subsection (b) shall be governed by the terms and conditions of
this Plan, shall be referred to as the "Existing PHS Rollover Amount" and shall
be credited to such Participant's Deferral Account as of December 31, 1997.

SECTION 3.7     CHANGE IN COMPANY SHARES.

        If the outstanding shares of Class B Common Stock are hereafter changed
into or exchanged for a different number or kind of shares or other securities
of the Company, or of another company, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or combination of shares, or if the Company distributes a cash or non-cash
dividend to holders of Class B Common Stock or engages in another similar
transaction, the Committee shall make an appropriate and equitable adjustment in
the number and kind of units credited to the LTPIP Stock Account.  Any such
adjustment made by the Committee shall be final and binding upon a Participant,
the Company and all other interested persons.

SECTION 3.8     DISTRIBUTION OF DEFERRED COMPENSATION.

        (a)     In the case of a Participant who terminates employment with all
Employers on or after Retirement or who terminates as a result of a Disability,
the aggregate amount credited to the Deferral Account (the "Distributable
Amount")  shall be paid to the Participant (and after his death to his or her
Beneficiary) in the form of substantially equal quarterly installments over 15
years beginning within 30 days of his or her Payment Eligibility Date.
Notwithstanding the foregoing, a Participant described in the preceding sentence
may elect one of the following optional forms of distribution

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provided that his or her election is filed with the Committee at least one year
prior to his or her termination of employment with all Employers:

                (i)   a single lump sum cash payment payable on the
        Participant's Payment Eligibility Date; or

                (ii)  substantially equal quarterly installments over five or
        ten years beginning on the Participant's Payment Eligibility Date.

        Any such election filed less than one year prior to termination of
employment shall not become effective.

        Notwithstanding this subsection, if the Distributable Amount is $25,000
or less, the Distributable Amount shall automatically be distributed in the form
of a single lump sum cash payment within 30 days of the Participant's Payment
Eligibility Date.  The Participant's Deferral Accounts shall continue to be
credited monthly with Interest Rate or Rates pursuant to Section 3.4 of this
Plan until all amounts credited to his or her Deferral Accounts under this Plan
have been distributed. For all purposes under this Plan, a Participant shall not
be considered terminated from employment with all Employers if the Participant
remains employed by an entity that is an Employer.  However, if the Employee is
employed by an Employer and such Employer ceases to be an Employer as a result
of a sale or other corporate reorganization, such sale or other corporate
reorganization shall be treated as termination of employment with all Employers
unless immediately following such event and without any break in employment the
Participant remains employed by an Employer or the former Employer assumes
liability for the benefit of the Participant.

        (b)     In the case of a Participant who terminates employment with all
Employers prior to Retirement or for reasons other than a Disability, the
Distributable Amount shall be paid to the Participant in the form of a single
lump sum cash payment within 30 days of a Participant's Payment Eligibility
Date; provided, however, that notwithstanding the preceding provision,
individuals who are receiving salary continuation payments pursuant to the terms
of an employment agreement or through arrangements with an Employer shall
continue to be eligible to participate in this Plan until termination of salary
continuation.  Upon termination of salary continuation, the Distributable Amount
shall be paid to such Participate in the form of a single lump cash payment
within 30 days of the Payment Eligibility Date.

        (c)     In the case of a Participant who dies while employed by an
Employer, the Participant's Beneficiary will be paid one and one-half times the
Participant's Deferral Account balance in a single lump sum cash payment. If a
Participant dies after terminating employment with all Employers and while
receiving installment payments

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of his or her Deferral Account balance, the Participant's Deferral Account
balance will continue to be paid in the same form to the Participant's
Beneficiary.

        (d)     A Participant who has not terminated employment with all
Employers may change his or her form of payment applicable to the portion of the
Deferral Account balance attributable to one or more Plan Years to one of the
payment forms permitted by the Plan at least one year prior to his or her
termination of employment with all Employers and, in the case of scheduled early
distributions elected pursuant to Section 3.10, may defer the Scheduled Payment
Dates in accordance with Section 3.10.  Any such election to change form of
payment less than one year prior to termination of employment shall not become
effective.  The Participant's payment election with respect to a given Plan Year
may not be changed after payment of that portion of the Deferral Account balance
has been made or has begun.

        (e)     In the case of a Participant who becomes a Participant in this
Plan as a result of a FHP Rollover and who is receiving salary continuation, the
Distributable Amount of such Participant upon termination of salary continuation
shall be paid to such Participant in the form of a single lump sum cash payment;
provided, however, if such Participant can be deemed to be Retired, then the
Distributable Amount shall be paid to such Participant in accordance with his or
her elections to defer.

SECTION 3.9     UNSCHEDULED EARLY DISTRIBUTIONS.

        A Participant shall be permitted to elect to withdraw amounts from his
or her Deferral Accounts prior to termination of employment with all Employers
("Early Distributions"), subject to the following restrictions:

        a.      The election to take an Early Distribution shall be made by
filing a form provided by and filed with the Committee prior to the end of any
calendar month.

        b.      The amount of the Early Distribution shall in all cases equal 85
percent of the Distributable Amount as of the end of the calendar month in which
the distribution is to be made.

        c.      The amount described in subsection 3.9(b) above shall be paid in
a single lump sum cash payment as soon as practicable after the end of the
calendar month in which the Early Distribution election is made.

        d.      If a Participant receives an Early Distribution pursuant to this
Section 3.9, 15 percent of the Distributable Amount shall be permanently
forfeited and the Company shall have no obligation to the Participant or any
Beneficiary with respect to such forfeited amount.

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        e.      If a Participant receives an Early Distribution, the Participant
will be ineligible to participate in this Plan for the balance of the Plan Year
and for the following Plan Year.

SECTION 3.10    SCHEDULED EARLY DISTRIBUTIONS.

        Participants may elect to have their Salary and/or Bonus deferred during
a given Plan Year be paid on a future date while still employed, provided the
payment date (the "Scheduled Payment Date") is at least two years from the last
day of such Plan Year.  This election shall apply to the Salary and/or Bonus
deferred for the Plan Year specified by the Participant on his or her payment
election and the Interest Rate or Rates credited thereto until the Scheduled
Payment Date.  A Participant may elect a different Payment Date for Salary
and/or Bonus deferred for each Plan Year.  In addition, Scheduled Payment Dates
elected pursuant to this Section 3.10 may be deferred by at least one year, by
filing with the Committee written notice at least one year prior to the
Scheduled Payment Date.  A Participant may elect to defer a Scheduled Payment
Date selected by this Section 3.10 once every two years.  A distribution
pursuant to this Section 3.10 of less than the Participant's entire interest in
the Deferral Account shall be made pro rata from his or her investment fund
subaccounts according to the balances in such subaccounts.  All early
distributions pursuant to this Section 3.10 shall be made in a single lump sum
cash payment.  Notwithstanding the foregoing, if a Participant terminates
employment with all Employers for any reason prior to the date on which a
payment is scheduled to be made pursuant to this Section 3.10, the Participant's
entire Deferral Account balance will be paid pursuant to the provisions of
Section 3.8.

SECTION 3.11    FINANCIAL HARDSHIP WITHDRAWALS.

        The Committee may, pursuant to rules adopted by it and applied in a
uniform manner, accelerate the date of distribution of all or any portion of a
Participant's Deferral Account balance, including amounts in the LTPIP Stock
Account, because of a financial hardship.  A financial hardship means an
unforeseeable, severe financial emergency resulting from (a), a sudden and
unexpected illness or accident of the Participant or his or her dependent (as
defined in Section 152(a) of the Code); (b) loss of the Participant's property
due to casualty; or (c) other similar extraordinary and unforeseeable
circumstances arising out of an event beyond the control of the Participant,
which may not be relieved through other available resources of the Participant,
as determined by the Committee in accordance with uniform rules adopted by it.
Distribution pursuant to this Section 3.11 of less than the Participant's entire
interest in the Plan shall be made pro rata from his or her investment fund
subaccounts according to the balances in such subaccounts.  Subject to the
foregoing, payment of any amount with respect to which a Participant has filed a
request under this Section 3.11 shall be made in a single lump sum cash payment
as soon as practicable after

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approval of such request by the Committee and shall be limited to the amount
necessary to satisfy the financial hardship.  Distributions made pursuant to
this Section 3.11 shall be without penalty.

SECTION 3.12    INABILITY TO LOCATE PARTICIPANT.

        In the event that the Committee is unable to locate a Participant or
Beneficiary within two years following the Participant's Payment Eligibility
Date, the amount allocated to the Participant's Deferral Account shall be
forfeited.  If, after such forfeiture, the Participant or Beneficiary later
claims such benefit, such benefit shall be reinstated without interest or
earnings.

SECTION 3.13    DISTRIBUTIONS UPON A CHANGE OF CONTROL.

        a.      If a Change of Control occurs, the Deferral Account balance of
each Participant will be paid by the Trustee of the Trust (as defined herein) to
the Participant (or Beneficiary) in accordance with such Participants' deferral
election.

        b.      Following a Change in Control, no changes in the Plan, or in any
documents evidencing an election to defer compensation, and no adjustments,
determinations or other exercises of discretion by the Compensation Committee,
the Committee or the Company's board of directors that were made subsequent to
the Change in Control and that would have the effect of diminishing a
Participant's rights or payments under this Plan or this Section 3.13, or of
causing a Participant to recognize income (for federal income tax purposes) with
respect to a Participant's Deferral Account prior to the actual distribution to
a Participant of such Deferral Account, shall be effective.

                                     ARTICLE IV
                                       TRUST

SECTION 4.1     TRUST.

        a.      The Company shall cause the payment of benefits under this Plan
to be made in whole or in part by the Trustee of the PacifiCare Health Systems,
Inc. Rabbi Trust (the "Trust") in accordance with the provisions of this Section
4.1.  As soon as practicable after the end of each Plan Year (but no later than
the tax return due date of the Company for such year), the Employers shall
contribute to the Trust for each Participant an amount equal to the amount
deferred by the Participant for the Plan Year.  Notwithstanding anything
contained herein, contributions to the Trust by each Employer may be made
throughout the Plan Year.

        b.      The Committee shall direct the Trustee to pay the Participant or
his or her Beneficiary at the time and in the amount described in the Article
III.  In the event

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<PAGE>

the amounts held under the Trust are not sufficient to provide the full amount
(excluding amounts described in Section 3.8(c)) payable to the Participant, the
Employers shall pay for the remainder of such amount at the times set forth in
Section 3.8, (excluding amounts described in Section 3.8(c)).

                                     ARTICLE V
                                   ADMINISTRATION

SECTION 5.1     COMMITTEE.

        A number of individuals shall be appointed by, and serve at the pleasure
of, the Compensation Committee as a committee to administer this Plan (the
"Committee"). The number of members comprising the Committee shall be determined
by the Compensation Committee, which may from time to time vary the number of
members. A member of the Committee may resign by delivering a written notice of
resignation to the Compensation Committee. The Compensation Committee may remove
any member by delivering a certified copy of its resolution of removal to such
member. Vacancies in the membership of the Committee shall be filled promptly by
the Compensation Committee.

SECTION 5.2     COMMITTEE ACTION.

        The Committee shall act at meetings by affirmative vote of a majority of
the members of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior to such action, a written consent to the
action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member of the
Committee shall not vote or act upon any matter, which relates solely to himself
or herself as a Participant. The Chairman or any other member or members of the
Committee designated by the Chairman may execute any certificate or other
written direction on behalf of the Committee.

SECTION 5.3     POWERS AND DUTIES OF THE COMMITTEE.

        a.      The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, shall be the
"Plan Administrator" charged with the general administration of the Plan, and
shall have all discretionary authority and powers necessary to accomplish its
purposes, including, but not by way of limitation, the following:

                i.     To select the funds or contracts to be the Funds in
        accordance with Section 3.3(b);

                ii.    To construe and interpret the terms and provisions of
        this Plan;

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<PAGE>

                iii.   To compute and certify to the amount and kind of benefits
        payable to Participants and their Beneficiaries;

                iv.    To maintain all records that may be necessary for the
        administration of the Plan;

                v.     To provide for the disclosure of all information and the
        filing or provision of all reports and statements to Participants,
        Beneficiaries or governmental agencies as shall be required by law;

                vi.    To make and publish such rules for the regulation of this
        Plan and procedures for the administration of this Plan as are not
        inconsistent with, the terms hereof;

                vii.   To appoint a plan administrator or any other agent, and
        to delegate to them such powers and duties in connection with the
        administration of this Plan as the Committee may from time to time
        prescribe; and

                viii.  To take all actions set forth in the Trust agreement,
        including determining whether to hold or discontinue the policies.

SECTION 5.4     CONSTRUCTION AND INTERPRETATION.

        The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to the Company and
any Participant or Beneficiary.  The Committee shall administer such terms and
provisions in a uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan.

SECTION 5.5     INFORMATION.

        To enable the Committee to perform its functions, the Employers shall
supply full and timely information to the Committee on all matters relating to
the compensation of all Participants, their death or other cause of termination,
and such other pertinent facts as the Committee may require.

SECTION 5.6     COMPENSATION, EXPENSES AND INDEMNITY.

        a.      The members of the Committee shall serve without compensation
for their services hereunder.

        b.      The Committee is authorized at the expense of the Company to
employ such legal counsel, as it may deem advisable to assist in the performance
of its duties

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<PAGE>

hereunder. Expenses and fees in connection with the administration of the Plan
shall be paid by the Company.

        c.      To the extent permitted by applicable state law, the Company
shall indemnify and hold harmless the Committee and each member thereof, the
Board of Directors, the Compensation Committee and any delegate of the Committee
who is an employee of the Company against any and all expenses, liabilities and
claims, including legal fees to defend against such liabilities and claims
arising out of their discharge in good faith of responsibilities under or
incident to this Plan, other than expenses and liabilities arising out of bad
faith willful misconduct. This indemnity shall not preclude such further
indemnities as may be available under insurance purchased by the Company or
provided by the Company under any bylaw, agreement or otherwise, as such
indemnities are permitted under state law.

SECTION 5.7     QUARTERLY STATEMENTS.

        Under procedures established by the Committee, a Participant shall
receive a statement with respect to such Participant's Deferral Accounts on a
quarterly basis as of each March 31, June 30, September 30 and December 31.

SECTION 5.8     SUSPENSION OF DEFERRALS.

        At the request of a Participant, the Committee may at its sole
discretion, pursuant to rules adopted by it and applied in a uniform manner,
suspend an election to defer Salary made pursuant to Article III during the Plan
Year for which the election to defer was made because of circumstances arising
out of an event beyond the control of the Participant, as determined by the
Committee in accordance with uniform rules adopted by it.  If the Committee
permits the suspension of an election to defer, a Participant will be ineligible
to participate in this Plan for the balance of the Plan Year and for the
following Plan Year.

SECTION 5.9     CLAIM PROCEDURES.

        a.      Claim.  A person who believes that he or she is being denied a
benefit to which he or she is entitled under this Plan (hereinafter referred to
as "Claimant") may file a written request for such benefit with the Plan
Administrator, setting forth his or her claim.

        b.      Claim Decision.  Upon receipt of a claim, the Plan Administrator
shall advise the Claimant that a reply will be forthcoming within 90 days and
shall, in fact, deliver such reply within such period. The Plan Administrator
may, however, extend the reply period for an additional 90 days for special
circumstances.

                                          16
<PAGE>

        If the claim is denied in whole or in part, the Plan Administrator shall
inform the Claimant in writing, using language calculated to be understood by
the Claimant, setting forth: (A) the specified reason or reasons for such
denial; (B) the specific reference to pertinent provisions of this Plan on which
such denial is based; (C) a description of any additional material or
information necessary for the Claimant to perfect his or her claim and an
explanation why such material or such information is necessary; (D) appropriate
information as to the steps to be taken if the Claimant wishes to submit the
claim for review; and (E) the time limits for requesting a review under
subsection 5.9(c).

        c.      Request for Review.  Within 60 days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Committee review the determination of the Plan Administrator.
The Claimant or his or her duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Committee. If the Claimant does not request a review within
such 60 day period, he or she shall be barred and estopped from challenging the
Plan Administrator's determination.

        d.      Review of Decision.  Within 60 days after the Committee's
receipt of a request for review, after considering all materials presented by
the Claimant, the Committee will inform the Participant in writing, in a manner
calculated to be understood by the Claimant, of its decision setting forth the
specific reasons for the decision and containing specific references to the
pertinent provisions of this Plan on which the decision is based. If special
circumstances require that the 60 day time period be extended, the Committee
will so notify the Claimant and will render the decision as soon as possible,
but no later than 120 days after receipt of the request for review.

                                     ARTICLE VI
                                   MISCELLANEOUS

SECTION 6.1     UNSECURED GENERAL CREDITOR.

        Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interest in any specific
property or assets of any Employer.  Any and all of the assets of each Employer
shall be, and remain, the general unpledged, unrestricted assets of such
Employer.  Each Employer's obligation under this Plan shall be merely that of an
unsecured promise to pay money in the future, and the rights of the Participants
and Beneficiaries shall be no greater than those of unsecured general creditors.
It is the intention of the Company that this Plan (and the Trust described in
Article VI) be unfunded for purposes of the Code and for purposes of Title I of
ERISA.

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<PAGE>

SECTION 6.2     RESTRICTION AGAINST ASSIGNMENT.

        The Employers shall pay all amounts payable hereunder only to the person
or persons designated by the Plan and not to any other person or corporation. No
part of a Participant's Deferral Account shall be liable for the debts,
contracts, or engagements of any Participant, his or her Beneficiary, or
successors in interest, nor shall a Participant's Deferral Account be subject to
execution by levy, attachment, or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate,
sell, transfer, commute, pledge, encumber, or assign any benefits or payments
hereunder in any manner whatsoever. If any Participant, Beneficiary or successor
in interest is adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, commute, assign, pledge, encumber or charge any distribution or
payment from the Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part thereof) to or
for the benefit of such Participant, Beneficiary or successor in interest in
such manner as the Committee shall direct.

SECTION 6.3     CHANGE OF CONTROL.

        For purposes of this Plan, "Change of Control" means the occurrence of
any of the following:  (i) a business combination effectuated through the merger
or consolidation of the Company with or into another entity where the Company is
not the Surviving Organization; (ii) any business combination effectuated
through the merger or consolidation of the Company with or into another entity
where the Company is the Surviving Organization and such business combination
occurred with an entity whose market capitalization prior to the transaction was
greater than 50 percent of the Company's market capitalization prior to the
transaction; (iii) the sale in a transaction or series of transactions of all or
substantially all of the Company's assets; (iv) any "person" or "group" (within
the meaning of Sections 13(d) and 14(d) of the Exchange Act) other than
UniHealth, a California non-profit public benefit corporation ("UniHealth"),
acquires beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act), directly or indirectly, of 20 percent or more of the voting common stock
of the Company and the beneficial ownership of the voting common stock of the
Company owned by UniHealth at that date is less than or equal to the beneficial
ownership interest of voting securities attributable to such other person or
group; (v) a dissolution or liquidation of the Company; or (vi) the Company
ceases to be subject to the reporting requirements of the Exchange Act as a
result of a "going private transaction" (within the meaning of the Exchange
Act).  For purposes hereof, "Surviving Organization" shall mean any entity where
the majority of the members of such entity's board of directors are persons who
were members of the Company's board of directors prior to the merger,
consolidation or other business combination and the senior management of the
surviving entity includes all of the individuals who were the


                                          18
<PAGE>

Company's executive management (the Company's chief executive officer and those
individuals who report directly to the Company's chief executive officer) prior
to the merger, consolidation or other business combination and such individuals
are in at least comparable positions with such entity.  The Committee may make
such determinations and interpretations and adopt such rules and conditions as
it, in its absolute discretion, deems appropriate in connection with a Change in
Control.  All such determinations and interpretations by the Committee shall be
conclusive.

SECTION 6.4     BENEFICIARY.

        For purposes of the this Plan, "Beneficiary" or "Beneficiaries" mean the
person or persons, including a trustee, personal representative or other
fiduciary, last designated in writing by a Participant in accordance with
procedures established by the Committee to receive the benefits specified
hereunder in the event of the Participant's death.  No beneficiary designation
shall become effective until it is filed with the Committee.  If there is no
such designation or if there is no surviving designated Beneficiary, then the
Participant's surviving spouse shall be the Beneficiary.  If there is no
surviving spouse to receive any benefits payable in accordance with the
preceding sentence, the participant's estate shall be the Beneficiary.  In the
event any amount is payable under the Plan to a minor, payment shall not be made
to the minor, but instead be paid (a) to that person's living parent(s) to act
as custodian, (b) if that person's parents are then divorced, and one parent is
the sole custodial parent, to such custodial parent, or (c) if no parent of that
person is then living, to a custodian selected by the Committee to hold the
funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect
in the jurisdiction in which the minor resides.  If no parent is living and the
Committee decides not to select another custodian to hold the funds for the
minor, then payment shall be made to the duly appointed and currently acting
guardian of the estate for the minor or, if no guardian of the estate for the
minor is duly appointed and currently acting within 60 days after the date the
amount becomes payable, payment shall be deposited with the court having
jurisdiction over the estate of the minor.

SECTION 6.5     WITHHOLDING.

        There shall be deducted from each payment made under this Plan or any
other compensation payable to the Participant (or Beneficiary) all taxes which
are required to be withheld by the Company in respect to such payment under this
Plan. The Company shall have the right to reduce any payment (or compensation)
by the amount of cash sufficient to provide the amount of said taxes.

                                          19
<PAGE>

SECTION 6.6     AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION.

        The Compensation Committee may amend, modify, suspend or terminate this
Plan in whole or in part, except that no amendment, modification, suspension or
termination shall have any retroactive effect to reduce any amounts allocated to
a Participant's Deferral Accounts (neither the policies themselves, nor the
death benefit described in Section 3.8(c) shall be treated as allocated to
Deferral Accounts).  In the event that this Plan is terminated, the amounts
allocated to a Participant's Deferral Accounts shall be distributed to the
Participant or, in the event of his or her death, his or her Beneficiary in a
lump sum within 30 days following the date of termination.

SECTION 6.7     GOVERNING LAW.

        This Plan shall be construed, governed and administered in accordance
with the laws of the United States and to the extent not preempted by such law
by the laws of the State of California.

SECTION 6.8     RECEIPT OR RELEASE.

        Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of this Plan shall to the extent thereof, be in
full satisfaction of all claims for benefits under this Plan against the
Committee and the Company. The Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.

SECTION 6.9     EFFECTIVE DATE.

        This Plan shall be effective as of December 18, 1997.


        IN WITNESS WHEREOF, this Plan is adopted as of December 18, 1997.


                                        PACIFICARE HEALTH SYSTEMS, INC.



                                        ---------------------------------

                                        By:

                                        Title:


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