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Sierra Reports 2nd Quarter 2006 Earnings of $0.54 Per Diluted Share; 2006 Earnings Guidance Raised to $2.10 to $2.18

July 25, 2006

Sierra Health Services Inc. (NYSE:SIE)

2nd Quarter Highlights

— Year-to-Date Commercial Membership Up 4.5%

— Year-to-Date Medicare Advantage Membership Up 3.4%

— Medical Premium Revenues Up 25% From Q2 2005

— Pre-Tax Income from Core Managed Care Operations Up Over 26%

From Q2 2005

— Year-to-Date Earnings Per Share Up 12%

Sierra Health Services Inc. (NYSE:SIE) reported today that net income for the quarter ended June 30, 2006 was $33.5 million or $0.54 per diluted share, compared to $33.8 million or $0.51 per diluted share for the same period in 2005, an earnings per share increase of 6%. Included in the second quarter of 2005 was $12.0 million in operating income from the company’s expired military health services operations segment. Pre-tax income from the company’s core managed care and corporate operations segment was $51.5 million, compared to $40.7 million for the second quarter of 2005, an increase of over 26%.

Total revenues for the quarter were $424.4 million, compared to $348.0 million for the same period in 2005, an increase of 22%. Medical premium revenues were $400.7 million, compared to $320.4 million for the same period in 2005, an increase of 25%.

In the second quarter, Sierra’s medical care ratio was 77.8%, a 180 basis point increase from the 76.0% reported in the same period in 2005 and a 90 basis point sequential decrease from the 78.7% reported in the first quarter of 2006. The year-over-year increase in the medical care ratio is primarily due to the impact of medical expenses related to the Medicare Part D Prescription Drug Program (PDP). In the second quarter, this program had a medical care ratio of 83.9%, down significantly from the 97.5% reported in the first quarter of 2006. Exclusive of the PDP, the company’s medical care ratio was 76.9%, a 90 basis point increase from the 76.0% reported in the same period in 2005. The company believes that reflecting the medical care ratio excluding the effects of the PDP provides a more comparable measure of this ratio to its historical results.

Sierra’s medical claims payable balance decreased to $148.0 million at June 30, 2006, compared to $162.3 million at March 31, 2006. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 42 days for the second quarter of 2006, compared to 44 days for the same period in 2005 and 43 days sequentially. The decrease in days in claims payable is due to the shorter payment cycle associated with the pharmacy claims related to the PDP.

As a percentage of premium revenue, general and administrative expenses for the second quarter of 2006 improved 60 basis points to 12.6% from 13.2% for the same period in 2005.

Cash flow from operations for the six months ended June 30, 2006, was $140.1 million, which includes seven months of payments from the Centers for Medicare and Medicaid Services (CMS). Adjusted for the timing of payments from CMS, cash flow from operations for the six-month period was $59.5 million. Cash flow from operations was $10.5 million for the quarter, compared to $16.0 million for the same period in 2005. The decrease in cash from operations for the second quarter was primarily due to the timing of payments for the Medicare PDP and the impact of the change in cash flow presentation of the tax benefit for stock based compensation.

During the quarter, Sierra purchased 923,000 shares of its common stock in the open market for $36.6 million, at an average price of $39.72. Since January 2006, the company has repurchased 3.1 million shares for $127.8 million, at an average price of $40.91. The current available and authorized balance for future share repurchases is $64.4 million.

In the second quarter of 2006, the company’s core commercial HMO membership grew by 1.8%, or 4,800 lives. For the first six months of the year, commercial membership grew by 4.5%, or 11,400 lives. In the quarter, Medicare Advantage membership, which includes both HMO and PPO membership, grew by 1.6%, or 900 lives. For the first six months of the year, Medicare Advantage membership grew by 3.4%, or 1,900 lives. Sierra’s Medicare PDP membership was 180,300 at June 30, 2006. Of this amount, approximately 90% were auto-enrolled as dual eligible members. Medicaid membership increased 3.1% or 1,700 lives in the second quarter.

“As we move through 2006, we remain confident that we will meet our initial projections for enrollment growth and earnings,” said Anthony M. Marlon, M.D., chairman, president and chief executive officer of Sierra. “The continued growth dynamics of the commercial market in Nevada, combined with our recent re-selection as one of the state’s Medicaid managed care plans, bode well for another successful year.”

Sierra had previously announced that it expected to earn between $2.05 and $2.15 per fully diluted share for the year 2006. The company now expects to earn between $2.10 and $2.18 per fully diluted share for 2006.

Sierra will host a conference call with investors, analysts and the general public on Wednesday, July 26 at noon (Eastern time). Interested parties can access the call by dialing 888-988-9162 (using the passcode: EARNINGS). Listeners may also access the call free over the Internet by visiting the investors page of Sierra’s Web site at www.sierrahealth.com.

Sierra Health Services Inc., based in Las Vegas, is a diversified healthcare services company that operates health maintenance organizations, indemnity insurers, preferred provider organizations, prescription drug plans and multispecialty medical groups. Sierra’s subsidiaries serve more than 800,000 people through health benefit plans for employers, government programs and individuals. For more information, visit the company’s Web site at www.sierrahealth.com.

Statements in this news release 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) a competitor’s successful bid protest of the recently awarded Medicaid contract with the state of Nevada; 3) competitive forces that may affect pricing, enrollment, renewals and benefit levels; 4) unpredictable medical costs, malpractice exposure, reinsurance costs and inflation; 5) impact of economic conditions; 6) changes in healthcare reserves; and 7) 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 press release 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.

 SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Earnings Report (In thousands, except per share data) (Unaudited)                                 Three Months Ended   Six Months Ended                                     June 30,            June 30,                               -------------------  -------------------                                  2006      2005       2006      2005                               ---------  --------  --------- --------- Medical premiums              $400,664  $320,395  $ 815,108 $ 631,750 Military contract revenues          --     9,952         --    16,311 Professional fees               12,882    10,116     25,797    19,969 Investment and other revenues   10,892     7,564     21,781    15,856                               --------- ---------  --------- --------- Total revenues                 424,438   348,027    862,686   683,886                               --------- ---------  --------- ---------  Medical expenses               321,545   251,233    658,064   496,188   Medical care ratio              77.8%     76.0%      78.3%     76.1%   (Medical expenses/premiums    and professional fees)  Military contract expenses          --    (1,734)       138     2,373 General and administrative  expenses                       50,422    42,158    101,623    83,631                               --------- ---------  --------- ---------  Operating income                52,471    56,370   102,861   101,694 Interest expense                (1,002)   (4,349)   (1,778)   (5,980) Other income (expense), net          9       302       (24)      401                               --------- ---------  --------- ---------  Income before income taxes      51,478    52,323   101,059    96,115 Provision for income taxes     (17,944)  (18,487)  (34,854)  (32,874)                               --------- ---------  --------- --------- Net income                    $ 33,534  $ 33,836  $ 66,205  $ 63,241                               ========= =========  ========= =========  Net income per common share   $   0.60  $   0.62  $   1.16 $    1.18  Net income per common share  assuming dilution            $   0.54  $   0.51  $   1.05 $    0.94  Weighted average common  shares outstanding             56,074    54,398    56,896    53,824 Weighted average common  shares outstanding assuming   dilution                      62,597    67,782    63,525    68,016     PERIOD END MEMBERSHIP                                Number of Members                                   at June 30,                               -------------------                                  2006     2005                               --------- ---------   HMO:     Commercial                 265,600   245,100     Medicare                    56,900    54,700     Medicaid                    56,700    52,000   PPO:     Commercial                  29,800    27,400     Medicare                     1,300        --   Medicare Part D              180,300        --   Medicare supplement           14,000    16,100   Administrative services      219,700   190,400                               --------- ---------   Total membership             824,300   585,700                               ========= =========   SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited)                                                     June 30,  Dec. 31,                                                       2006      2005                                                    --------- --------- ASSETS Current assets:   Cash and cash equivalents                       $  96,855 $  88,059   Investments                                       284,945   281,250   Accounts receivable                                13,940    14,501   Current portion of deferred tax asset              27,576    23,949   Prepaid expenses and other current assets          64,481    30,596                                                   --------- --------- Total current assets                                487,797   438,355  Property and equipment, net                          71,149    71,357 Restricted cash and investments                      18,080    18,252 Goodwill                                             14,782    14,782 Deferred tax asset (less current portion)            13,978    13,266 Note receivable                                      47,000    47,000 Other assets                                        101,319    65,834                                                    --------- --------- Total assets                                      $ 754,105 $ 668,846                                                    ========= =========  LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:   Accrued and other current liabilities           $  81,496 $  58,238   Trade accounts payable                              1,873     2,347   Accrued payroll and taxes                          26,562    21,469   Medical claims payable                            147,964   135,867   Unearned premium revenue                          114,157    49,067   Current portion of long-term debt                     110       106                                                   --------- --------- Total current liabilities                           372,162   267,094  Long-term debt (less current portion)                71,750    52,307 Other liabilities                                    65,120    65,193                                                    --------- --------- Total liabilities                                   509,032   384,594                                                    --------- ---------  Commitments and contingencies  Stockholders' equity:   Common stock                                          349       346   Treasury stock                                   (489,366) (377,190)   Additional paid-in capital                        420,768   400,287   Accumulated other comprehensive loss               (3,875)   (1,750)   Retained earnings                                 317,197   262,559                                                    --------- --------- Total stockholders' equity                          245,073   284,252                                                    --------- --------- Total liabilities and stockholders' equity        $ 754,105 $ 668,846                                                    ========= =========  SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)                                                     Six Months Ended                                                          June 30,                                                    -------------------                                                        2006     2005                                                    --------- --------- Cash flows from operating activities:   Net income                                      $  66,205  $ 63,241   Adjustments to reconcile net income to net cash      provided by operating activities:     Depreciation                                      8,239     7,496     Excess tax benefits from share-based payment      arrangements                                   (10,260)       --     Other adjustments                                 4,393     4,780     Other current assets                            (34,485)    7,558     Medical claims payable                           12,097     2,184     Other current liabilities                        20,255   (18,441)     Unearned premium revenue                         65,090   (34,562)     Changes in other assets and liabilities           8,563     9,334                                                    --------- --------- Net cash provided by operating activities           140,097    41,590                                                    --------- ---------  Cash flows from investing activities:   Capital expenditures, net of dispositions          (8,179)   (5,952)   Purchase of investments, net of proceeds          (36,268)  (83,232)                                                    --------- --------- Net cash used for investing activities              (44,447)  (89,184)                                                    --------- ---------  Cash flows from financing activities:   Payments on debt and capital leases                   (53)  (10,053)   Proceeds from other long-term debt                 20,000        --   Purchase of treasury stock                       (127,780)  (50,864)   Excess tax benefits from share-based payment    arrangements                                      10,260        --   Exercise of stock in connection with stock plans   10,719    13,314                                                    --------- --------- Net cash used for financing activities              (86,854)  (47,603)                                                    --------- ---------  Net increase (decrease) in cash and cash  equivalents                                          8,796   (95,197) Cash and cash equivalents at beginning of period     88,059   207,619                                                    --------- --------- Cash and cash equivalents at end of period        $  96,855  $112,422                                                    ========= ========= 

Reconciliation of Non-GAAP Financial Measures

Operating Cash Flow

In this press release, the company presented operating cash flow, adjusted for the timing of payments from the Centers for Medicare and Medicaid Services (CMS). These are non-GAAP financial measures. The company received seven months of payments from CMS in the first six months of 2006 as the July CMS payments were received at the end of June. The company received five months of payments from CMS in the first six months of 2005 as the January CMS payments were received at the end of December 2004. The company believes that reflecting six months of CMS payments provides a more useful measure of cash provided by operations during the six-month period. The following is a reconciliation to the most directly comparable GAAP financial measure:

                                                     Six Months Ended                                                         June 30,                                                      2006      2005                                                    --------- ---------  GAAP net cash provided by operating activities    $ 140,097 $  41,590 Add: January CMS payments received in December           --    40,845 Less:  July CMS payments received in June           (80,616)       --                                                    --------- --------- Cash flow from operations adjusted for the timing of payments from CMS                       $  59,481 $  82,435                                                    ========= ========= 

Medical Care Ratio

In this press release, the company presented the medical care ratio, excluding the effects of the Medicare Part D prescription drug program (PDP). This is a non-GAAP financial measure. The company believes that reflecting the ratio excluding the effects of the PDP provides a more comparable measure of its medical care ratio to its historical results. The following is a reconciliation to the most directly comparable GAAP financial measure:

                                  Three Months Ended June 30, 2006                              ----------------------------------------                                    Non-GAAP Items           GAAP                              -------------------------- -------------                              Other Medical     PDP        Reporting                              ------------- ------------ ------------- Medical premiums             $    351,013  $    49,651  $   400,664 Professional fees                  12,882           --       12,882                              ------------- ------------ ------------- Total medical premiums and  professional fees                363,895       49,651      413,546  Medical expenses                  279,911       41,634      321,545 Medical care ratio (medical  expenses/premiums and professional fees)                                      76.9%        83.9%        77.8%                                      Six Months Ended June 30, 2006                               ----------------------------------------                                     Non-GAAP Items           GAAP                               -------------------------- -------------                               Other Medical     PDP        Reporting                               ------------- ------------ ------------- Medical premiums              $    703,434  $   111,674  $   815,108 Professional fees                   25,797           --       25,797                               ------------- ------------ ------------- Total medical premiums and  professional fees                 729,231      111,674      840,905  Medical expenses                   555,931      102,133      658,064 Medical care ratio (medical  expenses/premiums and  professional fees)                   76.2%        91.5%        78.3% 

Debt to Capitalization Ratio

The company disclosed its debt to capitalization ratio excluding the effects of its 2 1/4% senior convertible debentures. This is a non-GAAP financial measure. The company believes that reflecting this ratio excluding the effects of the debentures, which if redeemed by the debenture holders can be converted by the company to equity, provides a more useful measure of its debt to capitalization ratio. The following is a reconciliation to the most directly comparable GAAP financial measure:

                                    GAAP          Non-GAAP Items                                ------------ -------------------------                                Reporting     Debentures    Revised                                ------------ ------------ ------------ Total debt (less senior  convertible debentures)       $    20,360  $        --  $    20,360 Senior convertible debentures       51,500      (51,500)          --                                ------------ ------------ ------------ Total debt                          71,860      (51,500)      20,360  Stockholders' equity               245,073       51,500      296,573                                ------------ ------------ ------------ Total debt plus stockholders'  equity                        $   316,933  $        --  $   316,933                                ============ ============ ============  Debt to capitalization ratio  (total debt/total debt and  stockholders' equity)                22.7%                      6.4% 



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