UNITED STATES
                 SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C.  20549

                              FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
               OF THE SECURITIES EXCHANGE ACT OF 1934

            For the quarterly period ended June 30, 1999

                                 OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
               OF THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ________ to ________

                   Commission File Number 1-13248

                   RIGHTCHOICE MANAGED CARE, INC.
       (Exact name of registrant as specified in its charter)

                 Missouri                           43-1674052
     (State or other jurisdiction of      (IRS Employer Identification No.)
     incorporation or organization)

1831 Chestnut Street, St. Louis, Missouri           63103-2275
  (Address of principal executive offices)          (Zip Code)

     Registrant's telephone number, including area code     (314) 923-4444


                       Not Applicable
     (Former name, former address and former fiscal year, if changed
     since last report)

      Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:

             Title of each class              Outstanding at July 31, 1999

     Class A Common Stock, $0.01 par value          3,710,426 shares
     Class B Common Stock, $0.01 par value         14,962,500 shares


                   RIGHTCHOICE MANAGED CARE, INC.
                    Second Quarter 1999 Form 10-Q
                          Table of Contents



PART  I.      FINANCIAL INFORMATION                                  PAGE

  ITEM 1.  Financial Statements

           Consolidated Balance Sheets as of June 30, 1999
              and December 31, 1998                                    3

           Consolidated Statements of Income for the Three
              and Six Months Ended June 30, 1999 and 1998              4

           Consolidated Statements of Changes in Shareholders'
              Equity for the Three and Six Months Ended
              June 30, 1999 and 1998                                   5

           Consolidated Statements of Cash Flows for the
              Six Months Ended June 30, 1999 and 1998                  6

           Notes to Consolidated Financial Statements                  7

     ITEM 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations                   22

     ITEM 3.  Quantitative and Qualitative Disclosures About Market
                Risks                                                 33

PART II.      OTHER INFORMATION

     ITEM 1.  Legal Proceedings                                       34

     ITEM 2.  Changes in Securities                                   34

     ITEM 3.  Defaults Upon Senior Securities                         34

     ITEM 4.  Submission of Matters to a Vote of Security Holders     34

     ITEM 5.  Other Information                                       35

     ITEM 6.  Exhibits and Reports on Form 8-K                        35

SIGNATURES                                                            36



PART I.FINANCIAL INFORMATION
ITEM 1.Financial Statements

                   RIGHTCHOICE MANAGED CARE, INC.
                     CONSOLIDATED BALANCE SHEETS
          (in thousands, except shares and per share data)

               ASSETS                  June 30, 1999  December 31, 1998
                                       (unaudited)
Current assets:
  Cash and cash equivalents              $ 35,848        $   39,409
  Investments available for sale          193,858           208,281
  Receivables from members                 74,301            68,024
  Receivables from related parties         21,169            18,294
  Deferred income taxes                     7,355             4,798
  Other assets                             19,154            19,818
     Total current assets                 351,685           358,624
Property and equipment, net                56,570            58,234
Deferred income taxes                      11,985            11,583
Investments in affiliates                   5,587             5,729
Goodwill and intangible assets, net        72,872            74,508
    Total assets                         $498,699          $508,678

   LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Medical claims payable                $ 107,288         $ 109,986
  Unearned premiums                        56,844            56,407
  Accounts payable and accrued expenses    62,593            64,754
  Current portion of long-term debt        10,000            10,000
  Payables to related parties              23,968            26,194
  Reserve for loss contract                 8,154             9,052
  Obligations for employee benefits         3,078             2,954
  Income taxes payable                     11,069            10,485
  Obligations under capital leases          3,284             4,254
     Total current liabilities            286,278           294,086
Reserve for loss contract                   3,631             7,259
Long-term debt                             28,063            33,063
Obligations for employee benefits          25,355            24,338
Obligations under capital leases            4,786             4,058
     Total liabilities                    348,113           362,804

Shareholders' Equity:
  Preferred Stock, $.01 par,
      25,000,000 shares authorized,
      no shares issued and outstanding
  Common Stock:
      Class A, $.01 par, 125,000,000
      shares authorized, 3,737,500
      shares issued, 3,710,426 shares
      outstanding                              37                37
      Class B, convertible, $.01 par,
      100,000,000 shares authorized,
      14,962,500 shares issued and
      outstanding                             150               150
  Additional paid-in capital              132,635           132,635
  Retained earnings                        20,897            12,313
  Treasury stock, 27,074 Class A
      shares, at cost                       (383)             (383)
  Accumulated other comprehensive income  (2,750)             1,122
     Total shareholders' equity           150,586           145,874
     Total liabilities and
        shareholders' equity             $498,699          $508,678

    See accompanying Notes to Consolidated Financial Statements.

<TABLE>
                   RIGHTCHOICE MANAGED CARE, INC.
            CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
          (in thousands, except shares and per share data)


<CAPTION>
                                                        Three Months Ended       Six Months Ended
                                                             June 30,                June 30,
                                                         1999        1998        1999        1998
<S>                                                    <C>         <C>         <C>         <C>
Revenues:
 Premium                                               $178,274    $173,665    $357,492    $347,359
 Fees and other income                                   20,937      18,153      41,732      36,311
       Total revenues                                   199,211     191,818     399,224     383,670
Operating expenses:
 Health care services                                   147,237     144,347     293,985     288,828
 Commissions                                              7,458       8,333      15,367      16,070
 General and administrative (excludes depreciation and
 amortization and excludes net intercompany charges of
 $3,214, $2,906, $6,254 and $6,035, respectively,
 allocated to Blue Cross and Blue Shield of Missouri)    35,780      35,144      72,340      71,424
 Depreciation and amortization                            4,189       4,609       8,383       9,212
       Total operating expenses                         194,664     192,433     390,075     385,534
Operating income (loss)                                   4,547       (615)       9,149     (1,864)

Investment income:
 Interest and dividends                                   3,504       3,840       6,711       7,657
 Realized (losses) gains, net                             (717)         144       (449)         699
       Total investment income, net                       2,787       3,984       6,262       8,356

Other:
 Interest expense                                         (941)     (1,126)     (2,009)     (2,276)
 Other income (expense), net                                248       (111)         556        (26)
       Total other, net                                   (693)     (1,237)     (1,453)     (2,302)

Income before provision for income taxes                  6,641       2,132      13,958       4,190
Provision for income taxes                                2,734         930       5,374       2,020
Net income                                           $    3,907    $  1,202    $  8,584    $  2,170


Weighted average common shares outstanding           18,673,000  18,672,000  18,673,000  18,672,000

Basic and diluted earnings per share                 $     0.21  $     0.06  $     0.46  $     0.12


          See accompanying Notes to Consolidated Financial Statements.
</TABLE>

<TABLE>
                   RIGHTCHOICE MANAGED CARE, INC.
                 CONSOLIDATED STATEMENTS OF CHANGES
                 IN SHAREHOLDERS' EQUITY (UNAUDITED)
                    (in thousands, except shares)

<CAPTION>
                                                                                                 Accumulated
                                                              Additional                           Other
                                              Common Stock     Paid In    Retained   Treasury   Comprehensive
                                           Class A   Class B   Capital    Earnings     Stock       Income      Total
<S>                                        <C>       <C>      <C>         <C>        <C>          <C>        <C>
Balance at December 31, 1997                 $37      $150    $132,640      $6,653     $(404)       $1,789   $140,865

Comprehensive loss:
 Net income                                                                    968                                968

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax credit of $690                                                                      (1,252)    (1,252)

Comprehensive loss                                                                                              (284)

Balance at March 31, 1998                     37       150     132,640       7,621      (404)          537    140,581

Comprehensive income:
 Net income                                                                  1,202                              1,202

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax expense of $731                                                                       1,323      1,323

Comprehensive income                                                                                            2,525

Balance at June 30, 1998                      37       150     132,640       8,823      (404)        1,860    143,106

Comprehensive income:
 Net income                                                                  3,490                              3,490

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax credit of $188                                                                        (368)      (368)

 Minimum pension liability
 adjustment, net of income tax
 credit of $199                                                                                      (370)      (370)

Comprehensive income                                                                                            2,752

1,426 shares issued under the
company's stock option plan                                        (5)                     21                      16

Balance at December 31, 1998                  37       150     132,635      12,313      (383)        1,122    145,874

Comprehensive income:
 Net income                                                                  4,677                              4,677

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax credit of $1,068                                                                    (1,890)    (1,890)

Comprehensive income                                                                                            2,787

Balance at March 31, 1999                     37       150     132,635      16,990      (383)        (768)    148,661

Comprehensive income:
 Net income                                                                  3,907                              3,907

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax credit of $1,120                                                                    (1,982)    (1,982)

Comprehensive income                                                                                            1,925

Balance at June 30, 1999                     $37      $150    $132,635     $20,897     $(383)     $(2,750)   $150,586

                                  See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                   RIGHTCHOICE MANAGED CARE, INC.
          CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                           (in thousands)

                                                    For the six months ended
                                                            June 30,
                                                  1999                   1998
Cash flows from operating activities:
   Net income                                   $  8,584             $   2,170
   Adjustments to reconcile net income to
   net cash (used in) provided by operating
   activities:
     (Credit) provision for deferred
       income taxes                                (771)                 1,985
     Depreciation and amortization                 8,383                 9,212
     Undistributed losses (earnings)
       of affiliates                                 142                  (38)
     Loss (gain) on sale of investments              449                 (699)
     Amortization of premiums and
       accretion of discounts, net                   291                    52
     (Gain) loss on sale of property
       and equipment                               (231)                     1
   (Increase) decrease in certain assets:
     Receivables from members                    (6,277)               (1,325)
     Receivables from related parties            (2,875)               (3,526)
     Other assets                                    848               (5,337)
   (Decrease) increase in certain liabilities:
     Medical claims payable                      (2,698)                 1,753
     Unearned premiums                               437               (4,597)
     Accounts payable and accrued expenses       (2,161)                 2,103
     Payables to related parties                 (2,226)                 4,203
     Reserve for loss contract                   (4,526)               (4,526)
     Obligations for employee benefits             1,141                 1,339
     Income taxes payable                            584                 (826)
Net cash (used in) provided by
  operating activities                             (906)                 1,944
Cash flows from investing activities:
   Proceeds from matured investments:
     Fixed maturities                              3,400                15,060
   Proceeds from investments sold:
     Fixed maturities                            120,910               124,943
     Equity securities                               521
     Other                                             8                 4,408
   Investments purchased:
     Fixed maturities                          (111,985)             (140,634)
     Equity securities                           (5,000)                 (548)
     Other                                         (231)                 (399)
   Proceeds from property and
         equipment sold                               11                     6
   Property and equipment purchased              (3,154)               (5,749)
Net cash provided by (used in)
  investing activities                             4,480               (2,913)
Cash flows from financing activities:
   Payments of long-term debt                    (5,000)
   Payments of capital lease obligations         (2,135)               (2,692)
Net cash used in financing activities            (7,135)               (2,692)
Net decrease in cash and cash equivalents        (3,561)               (3,661)
Cash and cash equivalents at
   beginning of period                            39,409                29,872
Cash and cash equivalents at end of period      $ 35,848             $  26,211

Supplemental Disclosure of Cash Information:
   Interest paid                                $  2,000             $   2,321
   Income taxes paid (refund received), net        5,560               (2,131)
Supplemental Schedule of Noncash
Investing and Financing Activities:
   Equipment acquired through capital leases    $  4,116             $     662
   Disposal of equipment under capital leases      2,223

    See accompanying Notes to Consolidated Financial Statements.

                   RightCHOICE Managed Care, Inc.
             Notes to Consolidated Financial Statements
                             (unaudited)

1. Financial Statement Presentation

The interim consolidated financial statements included herein have
been prepared by RightCHOICE Managed Care, Inc. (the company or
RightCHOICE) without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the SEC).  Certain
information and footnote disclosures, normally included in the
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to
such SEC rules and regulations; however, the management of the
company believes that the disclosures herein are adequate to make
the information presented not misleading.  In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the consolidated financial
position of the company with respect to the interim consolidated
financial statements, and the consolidated results of its operations
and its cash flows for the interim periods then ended, have been
included.  The results of operations for the interim periods are not
necessarily indicative of the results for the full year.

2.  Contingencies

OPM AUDIT

The company, through its subsidiary, HMO Missouri, Inc.
(BlueCHOICE), contracts with the Office of Personnel Management
(OPM) to provide or arrange health services to federal employees
under the Federal Employees Health Benefits Program (FEHBP).  FEHBP
is the second largest customer group (after the Missouri
Consolidated Health Care Plan or MCHCP, discussed further herein) of
BlueCHOICE.  OPM conducts periodic audits to, among other things,
verify that the premiums established under the OPM contract were
established in compliance with the community rating and other
requirements under the FEHBP.

On August 8, 1995, the company received a draft audit report from
the OPM regarding the audit, conducted in 1994, of the FEHBP
operations of BlueCHOICE for the years 1989 through 1994.  The audit
dealt primarily with a comparison of premium rates charged to the
FEHBP to rates charged by BlueCHOICE to other similarly sized
groups.  The OPM draft audit report indicates that BlueCHOICE has a
potential liability of $7.5 million to the FEHBP.  The company
responded to the draft report in November of 1995 following an in-
depth analysis of the issues.  In 1998, BlueCHOICE received
correspondence from the U.S. Department of Justice requesting a
meeting with BlueCHOICE regarding in excess of $6.5 million in
payments (alleged overcharges) received during the reconciliation
process for the years 1990 through 1994, plus interest thereon.  On
June 17, 1999, the company, the U.S. Department of Justice and the
OPM reached a preliminary agreement to resolve these audit issues.
BlueCHOICE has agreed to pay $6 million to resolve all of the audit
issues, which amount was previously reserved, and no penalties were
imposed.  The company expects that the final agreement will be
completed during third quarter of 1999.  In the event that the
parties fail to complete a final agreement in accordance with their
preliminary agreement, there can be no assurance that the resolution
of these findings will not have a material adverse effect on the
company and the market for its stock.

LITIGATION OF BLUE CROSS AND BLUE SHIELD OF MISSOURI WITH THE MISSOURI
ATTORNEY GENERAL AND DEPARTMENT OF INSURANCE AND RELATED ACTIONS,
SETTLEMENT EFFORTS AND PROPOSED REORGANIZATION

In August 1994, Blue Cross and Blue Shield of Missouri (BCBSMo) created
the company as a for-profit subsidiary.  BCBSMo transferred certain
of its assets to the company, and offered to the public 20 percent
of the common stock of the company (such events are referred to
collectively as the Reorganization and Public Offering).  Although the
Director (the Director) of the Missouri Department of Insurance (DOI) formally
approved the Reorganization and Public Offering on April 14, 1994,
the Director and the DOI subsequently claimed that the
Reorganization and Public Offering violated state laws and that
BCBSMo was obligated to transfer all of its assets, including all of
the stock of the company that it owned, to the State of Missouri or a charity
designated by the State of Missouri.  The Director and the DOI
threatened to bring legal action, seek a receivership or terminate
BCBSMo's insurance license unless BCBSMo agreed to surrender its
assets.

BCBSMo's extensive efforts to resolve the dispute without litigation
were unsuccessful.  On May 13, 1996, BCBSMo filed a declaratory
judgment action in the Circuit Court of Cole County Missouri (the
Circuit Court) against the Director, the DOI and the Missouri
Attorney General (the Missouri Attorney General was a necessary
party due to his sole authority to enforce nonprofit corporation
laws).  This litigation is described more fully below under
"Litigation relating to the Reorganization and Public Offering."

AGREEMENT FOR SETTLEMENT OF CERTAIN LITIGATION MATTERS AND
REORGANIZATION OF THE COMPANY

Status of Proposed Settlement Agreements

Following many developments in the litigation described below, on
April 22, 1998, the company, BCBSMo, the Missouri Attorney General,
the Director, and the DOI announced a conceptual framework to
resolve all outstanding litigation and regulatory issues among the
parties.  The definitive settlement agreements were entered into on
September 20, 1998, and subsequently modified on March 12, 1999 (as
amended, the amended settlement agreements).  The amended settlement
agreements would, if consummated, resolve all outstanding litigation
and regulatory issues between the company, BCBSMo and their
affiliates and the State of Missouri described below and create a
charitable independent health care foundation.

The amended settlement agreements include a number of significant
conditions and contingencies, including approval by the Circuit
Court.  During an informal status hearing of the Circuit Court on
March 15, 1999, Judge Thomas J. Brown, III stated on the record that
he has continued concerns about the amended settlement agreements.
The litigation, which remains on appeal to the Missouri Supreme
Court, is described below.  See "Litigation relating to the
Reorganization and Public Offering."

The principal terms of the amended settlement agreements include the
following:

* BCBSMo would, through a series of transactions, (i) transfer its
  insurance-related assets, contracts and agreements and related
  liabilities to a wholly owned subsidiary of the company; (ii)
  convert to a for-profit corporation; (iii) reincorporate in
  Delaware; and (iv) merge with the company.  Approximately 20 percent of the
  outstanding common stock of the resulting entity (referred to as new
  RightCHOICE) would be owned by the company's current public
  shareholders and approximately 80 percent of the outstanding shares of
  RightCHOICE would be owned by a charitable independent health care
  foundation (which equals the current aggregate ownership interests of the
  public shareholders and BCBSMo, respectively, in the equity of the company).

* BCBSMo would pay approximately $12.78 million to the charitable
  independent health care foundation (in addition to $175,000 paid by
  RightCHOICE).

* The charitable independent health care foundation would be required
  to liquidate its shares of new RightCHOICE stock over a prescribed
  period of time not to exceed seven years under a divestiture plan.
  The proceeds would be used for health care purposes.  The charitable
  independent health care foundation would be required to reduce its
  ownership of new RightCHOICE stock to less than 50 percent of the
  total outstanding stock of new RightCHOICE within three years of the
  closing of the reorganization, subject to possible extension, and to
  less than 20 percent of the total outstanding stock of new
  RightCHOICE within five years of the closing of the reorganization,
  subject to possible extension.  The proceeds would be used for
  health care purposes.  All but up to 5 percent of the shares of new
  RightCHOICE stock owned by the charitable independent health care
  foundation would be subject to a voting trust that would, with
  certain exceptions, effectively vest voting control of such shares
  of new RightCHOICE stock owned by the charitable independent health
  care foundation in the board of directors of new RightCHOICE.

* The charter documents of new RightCHOICE would include the "basic
  protections" required by the Blue Cross and Blue Shield Association
  (BCBSA) of all of its for-profit licensees to insure independence from the
  direction, control and influence of the charitable independent
  health care foundation or any other shareholder.  The "basic
  protections" would include limitations on the amount of new
  RightCHOICE stock that may be owned by certain categories of
  shareholders -- (i) no "institutional" shareholder may own 10
  percent or more of the voting power of new RightCHOICE, (ii) no "non-
  institutional" shareholder may own 5 percent or more of the voting
  power of new RightCHOICE, and (iii) no shareholder may own 20
  percent or more of the equity of new RightCHOICE (with certain
  exceptions in the case of the charitable independent health care
  foundation as described above).  Any shares owned by a shareholder
  in excess of the applicable ownership limits could be redistributed
  by new RightCHOICE.

The transactions contemplated by the amended settlement agreements
are subject to a number of significant conditions and contingencies,
including approval by the Circuit Court, various regulators and the
shareholders of the company, the receipt of rulings from the IRS or
tax opinions regarding the tax-free nature of the transactions, and
the satisfactory resolution of certain other litigation involving
the company and BCBSMo (including the Sarkis Litigation described
below, which was dismissed by the St. Louis Circuit Court on
November 4, 1998, but is on appeal).  See "Litigation relating to
the Reorganization and Public Offering" below.  The amended
settlement agreements provide that the company and BCBSMo, together
with the DOI and the Missouri Attorney General, shall move in an
appropriate court proceeding for approval of the amended settlement
agreements and the proposed reorganization described therein.  See
"Litigation relating to the Reorganization and Public Offering"
below.

The summary of the amended settlement agreements is qualified in its
entirety by reference to the settlement agreements and the amended
settlement agreements and the related exhibits, which are included
as exhibits to the company's Current Reports on Form 8-K filed with
the SEC on September 23, 1998, and March 15, 1999, respectively.

Appointment of Special Master

On April 22, 1998, the company, BCBSMo, the Missouri Attorney
General and the Director announced the conceptual framework for the
proposed settlement.  Following that announcement, Judge Brown of
the Circuit Court indicated that he had substantial reservations
about the settlement as proposed in the conceptual framework and
that any final settlement would be scrutinized very carefully.

On September 20, 1998, the settlement agreements were executed, and
courtesy copies were provided to the Circuit Court.  BCBSMo and the
company together with the DOI and Missouri Attorney General had
intended to file a motion with the Circuit Court seeking approval of
the settlement agreements and the proposed reorganization described
therein, following the remand of the litigation to the Circuit
Court.

Notwithstanding the fact that the litigation had not yet been
remanded to the Circuit Court, on October 29, 1998, the Circuit
Court "acting on its own motion" issued an Order (the October 29
Order) in the litigation.  The October 29 Order provided for, among
other things, the appointment of Robert G. Russell as
receiver/custodian pendente lite to, among other things, take
exclusive possession and control of all of the issued and
outstanding shares of the company's common stock owned by BCBSMo.
The October 29 Order cited concerns by the Circuit Court about the
fairness of the transactions set forth in the settlement agreements,
alleged conflicts of interest and the need for an independent
examination of the proposed settlement and related issues.   The
October 29 Order also approved the engagement of legal counsel and
an investment banker to advise the receiver/custodian.  Had the
October 29 Order not been void "from the beginning" as described
below, a number of significant and adverse consequences would have
resulted, including the automatic termination of the company's Blue
Cross and Blue Shield licenses and a resultant event of default
under the company's Credit Agreement.  A copy of the October 29
Order is attached as an exhibit to the company's Current Report on
Form 8-K filed with the SEC on November 2, 1998.

On November 2, 1998, BCBSMo filed a motion to vacate the October 29
Order and supporting memorandum.  BCBSMo alleged therein that (i)
the Circuit Court lacked jurisdiction to issue the October 29 Order
because the case was still pending before the Missouri Supreme
Court; (ii) the Circuit Court issued the order without notice and an
opportunity to be heard; (iii) there were no exigent circumstances
that would warrant the appointment of a receiver without due
process; and (iv) the appointment of the receiver had the effect of
frustrating the purpose for which the receiver was to be appointed,
namely, the preservation of the nonprofit assets of BCBSMo.  Copies
of the motion and memorandum are attached as exhibits to the
company's Current Report on Form 8-K filed with the SEC on November
6, 1998.

On November 2, 1998, BCBSA filed a complaint against the company,
its subsidiaries and BCBSMo in the United States District Court for
the Northern District of Illinois alleging that the appointment of
the receiver/custodian pendente lite caused the automatic
termination of the licenses to use the Blue Cross and Blue Shield
service marks.  The complaint alleged service mark infringement and
breach of license agreements as a result of the company's continued
use of the Blue Cross and Blue Shield service marks following the
issuance of the October 29 Order.  The BCBSA later dismissed its
complaint (as described below under "Status of Blue Cross and Blue
Shield trademark licenses").

On November 4, 1998, the Circuit Court issued an Order (the November
4 Order) vacating the October 29 Order and declaring it to be void
ab initio (or "from the beginning").  The Circuit Court, in issuing
the November 4 Order, acknowledged that the significant and adverse
consequences that could have resulted from the October 29 Order were
unintended.  On November 4, 1998, the Circuit Court also issued an
Order (the November 4 Special Master Order) appointing Robert G.
Russell as special master for the purpose of collecting and
analyzing information related to the proposed settlement.  The
November 4 Special Master Order also approved the engagement of
legal counsel and such financial advisors as are approved by the
court to advise the special master.  The effect of the November 4
Order was to void the October 29 Order as if it never existed.  The
special master, at that time, had expressed his interest in
providing that the company would continue its business in the normal
course during his review.  Copies of the November 4 Order and the
November 4 Special Master Order are attached as exhibits to the
company's Current Report on Form 8-K filed with the SEC on November
6, 1998.

On November 6, 1998, the Circuit Court entered an Order of Reference
(the November 6 Order), among other things, directing the special
master to collect and analyze information as to the options and
alternatives available to the Circuit Court for disposition of the
remaining issues in the litigation, including, but not limited to,
an examination of the settlement agreements.  The special master was
also directed to address several concerns of the Circuit Court that
were originally outlined in the October 29 Order.  The special
master was further directed to investigate issues concerning the
Blue Cross and Blue Shield licenses and trademarks and the company's
Credit Agreement.  A copy of the November 6 Order is attached as an
exhibit to the company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.

On November 19, 1998, the Blue Cross and Blue Shield license
agreements were reinstated with addenda that provided, among other
things, that the licenses would terminate on March 11, 1999, unless
extended by the Board of Directors of the BCBSA.  On March 11, 1999,
the BCBSA Board of Directors extended the licenses until June 17,
1999.  On June 17, 1999, the BCBSA Board of Directors extended the
licenses until September 17, 1999.  See "Status of Blue Cross and
Blue Shield trademark licenses" below.

As part of his investigation, the special master conducted a series
of public hearings on December 4, December 16, and December 22,
1998, and on February 4, 1999, where evidence related to the
proposed settlement and other subjects was presented.  At the public
hearing on December 16, representatives of Blue Cross and Blue Shield of
Kansas City presented an "alternative" to the proposed settlement
agreement by suggesting that the Kansas City plan would acquire the
assets of BCBSMo, including the stock of the company that it owns.
The Kansas City plan's proposal provided for a purchase price of
$13.50 per share for the shares of the company held by the public
and $15.25 per share for the other shares held by BCBSMo.  The
proposal included a number of conditions, such as a financing
contingency and an obligation that all litigation of BCBSMo be
resolved.  This proposal was not made directly to the company or
BCBSMo.

Following the completion of the hearings and other investigation, on
February 10, 1999, the special master issued his 47-page report (the
report of the special master) which recommended that the settlement
agreement "not be approved in its present form" and that the Circuit
Court "withhold a ruling on the settlement agreement to give the
parties and the amici curiae an opportunity to meet and confer, and
engage in a good faith effort to address" concerns that were noted
in the report of the special master.  While the special master
stated that "there are many things to commend the Settlement
Agreement for the Court's approval," he indicated he had concerns
with its terms that prevented him from recommending approval.  Among
the concerns he identified in his report were:

* Whether the charitable independent health care foundation that would
  be created if the settlement were implemented would receive full
  value of the present assets of BCBSMo;

* Whether a contemplated method of divestiture of the new RightCHOICE
  shares to be held by the charitable independent health care
  foundation -- sale of the shares over time pursuant to a Voting
  Trust and Divestiture Agreement and Registration Rights Agreement
  -- would yield full value for the shares;

* Whether the proposed provisions for governance of the charitable
  independent health care foundation were reasonable; and

* Whether the provisions for the purposes of the charitable
  independent health care foundation were justified.

Following the report of the special master, the parties and the
amici curiae discussed the concerns noted therein.  On March 12,
1999, the company, BCBSMo, the Missouri Attorney General, and the
DOI entered into an Amendment to Settlement Agreement (the
amendment).  The parties to the amended settlement agreements,
together with certain consumer groups that had participated in the
public hearings, filed with the Circuit Court a joint motion seeking
approval of the amended settlement agreements.

On March 12, 1999, the parties also filed with the Circuit Court
their respective objections and comments to the report of the
special master.  In its objections, BCBSMo asserted that the special
master made certain erroneous factual and unjustified legal
conclusions in the report and requested the Circuit Court to approve
the amended settlement agreements.

At an informal hearing on March 15, 1999, Judge Brown expressed
continued concern about the amended settlement agreements.  In
response, BCBSMo and the Missouri Attorney General separately
petitioned the Missouri Supreme Court to enter an order and stay,
respectively, limiting the actions of the Circuit Court to the
consideration of the amended settlement agreements.   On March 24,
1999, the counsel to the special master, on behalf of the Circuit
Court, responded to the applications of BCBSMo and the Missouri
Attorney General to the Missouri Supreme Court requesting additional
time to respond more fully to the application and indicating that
the requested writ was not necessary or appropriate.  On March 24,
1999, the Missouri Supreme Court declined the request of BCBSMo and
the motion of the Missouri Attorney General.  The litigation is on
appeal to the Missouri Supreme Court and that appeal was unaffected
by the March 24, 1999 actions of the Missouri Supreme Court.

There can be no assurance that the transactions contemplated by the
amended settlement agreements will receive the necessary court
approval, that all conditions and contingencies included in the
amended settlement agreements will be satisfied, or that the
transactions set forth in the amended settlement agreements will be
effected.  The failure to consummate the transactions contemplated
by the amended settlement agreements could have a material adverse
effect on the company and the market for its stock.

The summary of the Circuit Court's Orders set forth herein is
qualified in its entirety by reference to the Orders, which are
included as exhibits to the company's Current Report on Form 8-K
filed with the SEC on November 2, 1998, and November 6, 1998, and
the company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.

The litigation described below under the captions "Litigation
relating to the Reorganization and Public Offering," "Litigation
relating to corporate status of BCBSMo" and "Litigation relating to
the Market Conduct Study and Copayment Calculations" would be
settled in the event that the transactions contemplated by the
amended settlement agreements are consummated.  There can be no
assurance, however, that such transactions will be consummated.
Failure to do so or to otherwise resolve the litigation described
below in a manner satisfactory to the company could have a material
adverse effect on the company and the market for its stock.

Litigation relating to the Reorganization and Public Offering

As described above, in August 1994, BCBSMo effectuated the
Reorganization and Public Offering.  Although the Director formally
approved the Reorganization and Public Offering on April 14, 1994,
the Director and the DOI subsequently claimed that the
Reorganization and Public Offering violated Missouri state laws and
that BCBSMo was obligated to transfer all of its assets, including
all of the stock of the company that it owned, to the State of
Missouri or a charity designated by the State of Missouri.  The
Director and the DOI threatened to bring legal action, seek a
receivership, or terminate BCBSMo's insurance license unless BCBSMo
surrendered its assets.

BCBSMo's extensive efforts to resolve the dispute without litigation
were unsuccessful.  On May 13, 1996, BCBSMo filed a declaratory
judgment action in the Circuit Court against the Director, the DOI
and the Missouri Attorney General (the Missouri Attorney General was
a necessary party due to his sole authority to enforce nonprofit
corporation laws).  The action sought a declaratory judgment that
BCBSMo followed all applicable laws and regulations in the
Reorganization and Public Offering resulting in the creation of the
company.  It also sought a permanent injunction forbidding the DOI
from refusing to renew BCBSMo's license or taking other
administrative action against BCBSMo to pressure it into paying a
"toll charge" or "charitable asset assessment" or any other fee as a
result of the Reorganization and Public Offering.

On June 13, 1996, the Director and the DOI filed an answer and
counterclaims.  The answer set forth several affirmative defenses,
including alleged fraud and negligent misrepresentation with respect
to the application filed by BCBSMo seeking approval of the
Reorganization and Public Offering.  The counterclaims alleged
violations of certain health services corporation and nonprofit
corporation statutes.  The Director's and the DOI's counterclaims
sought, among other things: (i) permanent injunctions against
BCBSMo; (ii) imposition of a trust on BCBSMo's assets for public
benefit purposes; (iii) return of profits from Medigap policies
reinsured with a subsidiary; and (iv) an accounting of all assets
transferred by BCBSMo.

On June 20, 1996, the Missouri Attorney General filed an answer and
counterclaim alleging that the Reorganization and Public Offering,
and its continued operations through the company and its
subsidiaries, exceeded BCBSMo's statutory purposes.  The Missouri
Attorney General requested a declaration that BCBSMo exceeded its
lawful authority and sought such relief as the Circuit Court would
determine to be appropriate under the circumstances based on a
statute that authorizes judicial dissolution or less drastic
alternative relief in the Circuit Court's discretion.

On September 9, 1996, the Circuit Court granted BCBSMo's motion for
summary judgment against the Director and the DOI, rejected all of
the Director's and the DOI's affirmative defenses (including
allegations of fraud), issued a permanent injunction against the
Director and the DOI and declared that: (i) under Missouri law the
Director and the DOI had no authority to demand that BCBSMo make a
payment as a result of the Reorganization and Public Offering; (ii)
under Missouri law the Director and the DOI had no jurisdiction to
take any action, the practical effect of which would be to amend,
modify or reverse the Director's April 14, 1994 final administrative
approval of the Reorganization and Public Offering; (iii) under
Missouri law, the Director and the DOI had no jurisdiction to take
any administrative action, including, but not limited to, revoking,
suspending or refusing to renew BCBSMo's Certificate of Authority
based in any way on the Reorganization and Public Offering or
BCBSMo's refusal to make payment as the Director and the DOI had
demanded; and (iv) (A) BCBSMo was a mutual benefit type of nonprofit
corporation rather than a public benefit type of nonprofit
corporation; (B) the Reorganization and Public Offering were
authorized under all laws applicable to nonprofit health services
corporations; and (C) BCBSMo did not owe the State or any person or
entity a "toll charge," "charitable asset settlement" or any other
payment as a result of the Reorganization and Public Offering (the
September 9 Order).  On December 30, 1996, the Circuit Court issued
orders (described more fully below) modifying the findings and
declarations set forth in (iv) above, on the grounds that it was
legally unnecessary to resolve such issues because the Circuit Court
had already ruled against the Director and the DOI for other
reasons.

The September 9 Order permanently enjoined the Director and the DOI
from, among other things, (i) revoking, suspending or refusing to
renew BCBSMo's insurance license based in any part upon the
Reorganization and Public Offering; (ii) commencing a valuation of
BCBSMo's assets and demanding a payment as a result of the
Reorganization and Public Offering; (iii) commencing any
administrative hearing or making any administrative determination
based in any part upon the Reorganization and Public Offering; (iv)
instituting any seizure, receivership, conservatorship or similar
action or proceeding against BCBSMo based in any part upon the
Reorganization and Public Offering; and (v) taking any other action,
however denominated, against BCBSMo based in any part upon the
Reorganization and Public Offering.  Although the injunctive relief
described above remains in place, the Circuit Court's December 30
Orders (described below) clarify that the injunction does not
prohibit the Director and the DOI from asserting that the post-
Reorganization and Public Offering operations of BCBSMo may violate
the health services corporation laws (even though such operations
may have been affected by the Reorganization and Public Offering).

On August 28, 1996, the Director and the DOI filed an amended answer
asserting a new counterclaim that the Reorganization and Public
Offering were not reasonably designed to serve any of BCBSMo's
purposes as a health services corporation and sought a declaration
that BCBSMo had exceeded or abused the authority conferred upon it
by law.  Under this counterclaim, the Director and the DOI sought an
order to rehabilitate BCBSMo or, in the alternative, injunctive
relief.

On October 18, 1996, the Missouri Attorney General filed a motion
for leave to file an amended counterclaim against BCBSMo that sought
a declaration that BCBSMo was a public benefit corporation, not a
mutual benefit corporation, and requested an order that BCBSMo amend
its Articles of Incorporation accordingly.  The Circuit Court
granted the Missouri Attorney General's motion for leave to file the
amended counterclaim, which remains pending.

On December 30, 1996, the Circuit Court issued five orders (the
December 30 Orders):  (i) denying BCBSMo's motion for summary
judgment against the Missouri Attorney General; (ii) granting the
Missouri Attorney General's motion for partial summary judgment
against BCBSMo; (iii) denying BCBSMo's supplemental motion for
summary judgment against the Director and the DOI on their amended
counterclaim; (iv) granting the Director's and the DOI's motion for
summary judgment against BCBSMo on their amended counterclaim; and
(v) modifying, in part, the Circuit Court's previous September 9
Order.  The December 30 Orders declared that (i) BCBSMo had
continued to exceed or abuse its statutorily permissible purposes
and the authority conferred on it by law; and (ii) BCBSMo is subject
to judicial dissolution proceedings, but that prior to ordering
dissolution, the Circuit Court is required to consider whether there
are alternatives to dissolution and whether dissolution is in the
public interest or is the best way of protecting the interests of
its members.

The Circuit Court also (i) certified the December 30 Orders and the
September 9 Order, as modified, for immediate appeal; (ii) held in
abeyance further proceedings on the Missouri Attorney General's
counterclaim pending appeal; and (iii) stayed the legal effect of
the order granting the Director and the DOI summary judgment pending
the filing of an appeal bond (which BCBSMo promptly filed).

On August 4, 1998, the Missouri Court of Appeals entered its opinion
affirming the judgments entered December 30, 1996.

On September 20, 1998, the company and certain of its affiliates
entered into various settlement agreements with the Missouri
Attorney General and certain state agencies, including the DOI.  The
settlement agreements, as amended, are described above under "Status
of Proposed Settlement Agreements."  If consummated, the amended
settlement agreements would resolve the outstanding litigation and
regulatory disputes between the company and its affiliates and the
State of Missouri, including the litigation related to the
Reorganization and Public Offering, and create a charitable
independent health care foundation.

On November 4, 1998, the Circuit Court appointed the special master.
Matters with respect to the special master are described above under
"Appointment of Special Master."

On November 24, 1998, the Supreme Court of Missouri granted the
motion of BCBSMo to accept transfer of the litigation related to the
Reorganization and Public Offering and, as a result of this action,
the opinion of the Missouri Court of Appeals dated August 4, 1998,
(referred to above) has been vacated.  The Missouri Supreme Court
will decide the appeals as if they were original appeals in that
Court.

During an informal status hearing of the Circuit Court on March 15,
1999, Judge Brown stated on the record that he has continued
concerns about the amended settlement agreements.  In response to
those comments, on March 19, 1999, BCBSMo petitioned the Missouri
Supreme Court to enter an Order of Prohibition directed to Judge
Brown to limit his actions in the litigation to the consideration of
the amended settlement agreements while the case is on appeal to the
Missouri Supreme Court.  The Missouri Attorney General filed a
similar motion to stay seeking to limit the actions of the Circuit
Court.  On March 24, 1999, the Missouri Supreme Court declined the
request of BCBSMo to grant a writ of prohibition, and the request of
the Missouri Attorney General.  The litigation, which is on appeal
to the Missouri Supreme Court, was unaffected by the March 24, 1999
denial.

Although the Missouri Supreme Court initially had stayed the
briefing schedule for 120 days in the proceedings before it in order
to permit the proceedings in the Circuit Court concerning review of
the settlement agreements to go forward, that stay was lifted and a
briefing schedule established.  It is expected that briefing of the
appeal will be completed and oral argument heard by the Missouri
Supreme Court during the third quarter of 1999.

Subscriber class action litigation

On March 15, 1996, a suit (the Sarkis Litigation) was filed in the
Circuit Court of the City of St. Louis, Missouri (the St. Louis
Circuit Court), by Anthony J. Sarkis, Sr. and James Hacking
individually and on behalf of a purported class of (i) subscribers
in individual or group health plans insured or administered by
BCBSMo or the company, and (ii) all persons and/or entities who
benefited from BCBSMo's tax-exempt status (the Sarkis plaintiffs).
The petition named the company, BCBSMo, HealthLink, Inc.
(HealthLink, a subsidiary of the company), and certain officers of
the company as defendants.  The named plaintiffs later abandoned
their claim to represent all persons or entities that benefited from
BCBSMo's tax-exempt status.

The Sarkis plaintiffs' claims relate to an alleged conversion of
BCBSMo from a not-for-profit entity to a for-profit entity and
payment of excessive compensation to management.  The petition
further alleges that certain amendments to BCBSMo's Articles of
Incorporation were improper.  The petition also alleges the purchase
of HealthLink was at an excessive price and that HealthLink operates
under contracts providing for illegal discounts by health care
providers.  The Sarkis plaintiffs sought restitution, compensatory
damages and punitive damages in unspecified amounts, as well as
injunctive and other equitable relief.

On November 4, 1998, the St. Louis Circuit Court issued its judgment
and order granting the motion of the defendants to dismiss the
action for lack of standing and entering judgment in favor of the
defendants.  The Sarkis plaintiffs appealed the St. Louis Circuit
Court's order.  Appellate briefing is under way and it is expected
that the case will be submitted to the Appellate Court for decision
sometime during the third quarter of 1999.

The Sarkis plaintiffs have also filed a motion to intervene in the
actions described above under "Litigation relating to the
Reorganization and Public Offering" and below under "Litigation
relating to corporate status of BCBSMo."

The obligations of the parties to consummate the transactions
contemplated by the amended settlement agreements are conditioned
upon, among other things, satisfactory final resolution of the
Sarkis Litigation.

Litigation relating to corporate status of BCBSMo

On November 3, 1997, BCBSMo filed an action in the Circuit Court
against the Missouri Attorney General seeking declarations that (1)
BCBSMo is a mutual benefit type of nonprofit corporation under
Chapter 355 of the Missouri Revised Statutes; and (2) BCBSMo does
not hold its assets in constructive, charitable, or other trust for
the benefit of the public generally, but rather holds its assets for
the benefit of its subscribers.  The action was filed in response to
continued public and private statements by the Missouri Attorney
General, the DOI and others that BCBSMo was a public benefit type of
nonprofit corporation that held its assets for the benefit of the
public generally.  The Missouri Attorney General has filed an answer
and counterclaim seeking a declaration that BCBSMo is a public
benefit type of nonprofit corporation.

On June 10, 1998, Anthony Sarkis and James Hacking (plaintiffs in
the Sarkis Litigation described above under "Subscriber class action
litigation") moved to intervene in this action as plaintiffs.
Sarkis and Hacking are or have been subscribers of BCBSMo.  They
sought to intervene, contending that the present parties to the
action would not adequately represent their interests in the
resolution of the question whether BCBSMo is a public benefit or a
mutual benefit corporation.  Thereafter, BCBSMo moved to file an
amended petition adding Sarkis, Hacking and the Director of the DOI
as parties to the action.  For its relief, BCBSMo sought a
declaration of its status as a public benefit or mutual benefit
corporation.  The Circuit Court granted BCBSMo's motion to file the
amended petition on August 17, 1998.

On September 16, 1998, Sarkis and Hacking filed an application for
change of judge under Missouri civil court procedure.  They
contended that they were entitled as a matter of right to disqualify
Judge Brown from further proceedings in the action.  The Missouri
Attorney General resisted this application.  On October 15, 1998,
Judge Brown denied the motion to disqualify himself.  He directed
the parties to prepare a discovery schedule that would have had this
lawsuit prepared for trial by December 21, 1998, which was
subsequently extended.

On November 5, 1998, Sarkis and Hacking filed an application with
the Missouri Court of Appeals seeking to prohibit Judge Brown from
proceeding further in the case.  The Missouri Court of Appeals
denied that application.  Sarkis and Hacking then applied to the
Missouri Supreme Court, which also denied their application.  This
litigation remains pending before Judge Brown and the parties have
filed Stipulations of Facts and the Missouri Attorney General has
filed a Motion for Summary Judgment.

If BCBSMo is declared to be a mutual benefit type of nonprofit
corporation that does not hold its assets for the benefit of the
public generally, BCBSMo would be required to exercise its ownership
interest in the company consistent with the best interests of
BCBSMo's subscribers, subject to any final rulings made in the
litigation described elsewhere herein.  If BCBSMo is declared to be
a public benefit type of nonprofit corporation or if it is declared
that BCBSMo holds assets for the benefit of the public generally,
BCBSMo would be required to exercise its ownership interest in the
company consistent with the best interests of the public at large.
In either event, BCBSMo could be dissolved, or required to dispose
of some or all of the shares of the company's stock that it owns at
times and in quantities that could be detrimental to the market for
the company's stock.  Also, either the DOI or the Missouri Attorney
General could take actions against BCBSMo based upon such
declarations (such as seeking the appointment of a receiver to
safeguard assets, which, like dissolution, could result in the
termination of the company's licenses to use the Blue Cross and Blue
Shield trade names and service marks and trigger a termination fee
and a notice to members thereunder) which, if successful, could have
a material adverse effect upon the company and the market for its
stock.  See "Status of Blue Cross and Blue Shield trademark
licenses."

Litigation relating to the Market Conduct Study and Copayment
Calculations

In April 1996, the DOI issued a market conduct report to the
company.  The report cited the company and BCBSMo for not complying
with certain insurance statutes and regulations, including those
that relate to the Small Employer Health Insurance Availability Act,
coordination of benefits and copayment calculations.  The company
responded to the report in May 1996.  The company and the DOI have
had discussions relating to the issues contained in the report from
May 1996 to February 1998.  On February 11, 1998, the DOI filed a
Notice of Institution of Case requesting the Director to issue a
cease and desist order, an order requiring the payment of a monetary
penalty, an order to cease marketing and/or an order suspending or
revoking the certificate of authority of the company and BCBSMo.
The company has alleged in the action described above under
"Litigation relating to the Reorganization and Public Offering" that
the market conduct study was not conducted for legitimate purposes
of regulatory oversight but rather as a pretext to either revoke or
refuse to renew BCBSMo's license to operate as a health services
corporation and thus to improperly pressure and coerce BCBSMo in
connection with the litigation described above under "Litigation
relating to the Reorganization and Public Offering."  The DOI has
stated that the company should refund excess premium payments to the
small groups, pay additional refunds to members for copayment
calculations made prior to January 1996, and take certain actions
relating to coordination of benefits.  The issue relating to the
manner in which the company calculated copayment amounts prior to
January 1996 was the subject of a class action suit, titled Kelly v.
Blue Cross and Blue Shield of Missouri, and subsequent settlement.
BCBSMo settled the case in 1995 and paid the majority of the total
settlement amount of $5 million.  The company believes it has
resolved this issue through the court-approved class action
settlement and intends to vigorously defend this action if required.
The DOI has issued a stay of the market conduct proceeding pending
approval of the amended settlement agreements described above.

On February 9, 1998, the Missouri Attorney General filed suit
against the company, BCBSMo, BlueCHOICE, Healthy Alliance Life
Insurance Company (HALIC, a subsidiary of the company), and
Preferred Health Plans of Missouri, Inc. (a subsidiary of the
company) in the Circuit Court seeking injunctive relief,
compensatory damages and civil penalties under Missouri's
Merchandising Practices Act for the way in which the company
disclosed and marketed copayment amounts prior to January 1996.  The
factual allegations in the Missouri Attorney General's suit are the
same as the copayment issues in the DOI Market Conduct Study Action
and the same issue that was the subject of a court-approved class
action suit settlement in the Kelly v. Blue Cross and Blue Shield of
Missouri case.  The company discontinued the copayment practices in
January 1996.  The company believes it has already paid the
restitution damages requested in the settlement of the class action
suit.  BCBSMo and the company believe the claims are without merit
and intend to vigorously defend the action if required.  This action
was dismissed by the Missouri Attorney General without prejudice
pending the approval of the amended settlement agreements described
above.

Status of Blue Cross and Blue Shield trademark licenses

On March 11, 1999, and again on June 17, 1999, the Board of
Directors of the BCBSA unanimously voted to extend the company's
licenses to use the Blue Cross and Blue Shield service marks until
September 17, 1999, the date of the next scheduled meeting of the Board
of Directors of BCBSA.  At a meeting held on November 19, 1998, the Board of
Directors of BCBSA approved the reinstatement, effective as of
October 29, 1998, of the licenses to use the Blue Cross and Blue
Shield service marks, granted to the company, BCBSMo, and two wholly
owned subsidiaries of the company, HALIC and BlueCHOICE (the
licensed affiliates) subject to the "board to board" extension of
the license term.  The approval clarified the rights of the company
and its licensed affiliates to continue uninterrupted the use of the
service marks following actions taken by the BCBSA which resulted
from the October 29 Order.

The October 29 Order (as described above under "Appointment of
Special Master") provided for the appointment of Robert G. Russell
as receiver/custodian pendente lite to, among other things, take
exclusive possession and control of all of the issued and
outstanding shares of the company's Class B Common Stock, all of
which is owned by BCBSMo.  On November 2, 1998, the BCBSA notified
the company and its licensed affiliates that their licenses to use
the Blue Cross and Blue Shield service marks had terminated
automatically pursuant to their terms on October 29, 1998, as a
result of the October 29 Order, and filed a Complaint against the
company and its licensed affiliates alleging inter alia service mark
infringement and breach of license agreements as a result of the
continued use of the service marks following the issuance of the
October 29 Order (the BCBSA Complaint).  On November 4, 1998, after
BCBSMo filed a motion to vacate the October 29 Order and supporting
memorandum, the Circuit Court issued the November 4 Order and the
November 4 Special Master Order.  The November 4 Order set aside the
October 29 Order and declared it to be void ab initio, or "void from
the beginning."  The November 4 Special Master Order  appointed
Robert G. Russell as special master for the purpose of collecting
and analyzing information related to the proposed settlement of the
litigation described above.  On November 6, 1998, the Court issued
an Order of Reference for the special master.  As a result of the
November 4 Order, the BCBSA agreed to dismiss the BCBSA Complaint.

Each of the reinstated license agreements approved by the BCBSA on
November 19, 1998 included an addendum that provided, among other
things, that the licenses granted under such license agreements
would be reviewed by the BCBSA at the next regularly scheduled
meeting of the BCBSA Board of Directors (originally, March 11, 1999,
and pursuant to extensions, September 17, 1999).  If on or before
such date, the BCBSA did not extend the termination dates for the
license agreements until the next regularly scheduled meeting of the
BCBSA Board of Directors after such date, or otherwise modify the
addenda, the license agreements would have terminated.  This "board-
to-board" extension of the license agreements has been adopted in
conjunction with the issuance of reinstated licenses granted to
other BCBSA licensees following a license termination.  There can be
no assurances that the BCBSA will take the necessary and appropriate
action to extend the license agreements beyond September 17, 1999,
or any time thereafter.

The licenses of the company and its licensed affiliates, and the
addenda thereto effective as of October 29, 1998, are attached as
Exhibits 10.6.5 - 10.13.4 to the company's Current Report on Form 8-
K filed with the SEC on November 24, 1998.

The licenses (which include the primary licenses granted to BCBSMo
and the controlled affiliate licenses to the company, HALIC and
BlueCHOICE) give these companies the right to use the Blue Cross and
Blue Shield names, trademarks and service marks in connection with
health insurance products marketed and sold in BCBSMo's licensed
operating area (consisting of 85 counties in eastern and central
Missouri).  The licenses require BCBSMo, the company and the
licensed affiliates to pay license fees to BCBSA for the use of the
trademarks.

In January 1997, interim and temporary licenses were granted to
BCBSMo and its affiliates after notification by the BCBSA that the
prior licenses had automatically terminated in connection with the
litigation relating to the Reorganization and Public Offering
described above under "Litigation relating to the Reorganization and
Public Offering" (the Litigation).  The interim and temporary
licenses were later replaced by reinstated full licenses granted in
March 1998.

Each of the licenses provides that it automatically terminates if,
among other things:  (i) the DOI or another regulatory agency
assumes control of the licensee or delinquency proceedings are
instituted; (ii) a trustee, interim trustee, receiver or other
custodian for any of BCBSMo's or the BCBSA's property or business is
appointed, or (iii) an action is instituted by any governmental
entity or officer against the licensee seeking dissolution or
liquidation of its assets or seeking the appointment of a trustee,
interim trustee, receiver or custodian for any of its property or
business, which is consented or acquiesced to by the licensee or is
not dismissed within 130 days of the licensee being served with the
pleading or document commencing the action, provided that if the
action is stayed or its prosecution enjoined, the 130-day period is
tolled for the duration of the stay or injunction, and provided
further that the BCBSA's Board of Directors may toll or extend the
130-day period at any time prior to its expiration.  Each trademark
license also provides that it may be terminated by BCBSA if, among
other things, the licensee fails to meet certain quality control
standards or minimum capital or liquidity requirements.  Pursuant to
the Addendum, which became part of the reinstated license agreements
following the November 19, 1998 BCBSA Board meeting, an automatic
termination will also occur (i) if the BCBSA Board does not take
action to extend the licenses on or before September 17, 1999, the
date of the next regularly scheduled BCBSA Board meeting, and (ii)
upon any judicial act that (a) provides for or approves a
transaction pursuant to which a person, entity or group other than
the licensees of BCBSA, acquires the ability to select the majority
of the members of the Board of Directors of BCBSMo, the company or
certain of its affiliates or otherwise gains control of BCBSMo, the
company or such affiliates, or (b) changes the composition of, or
the voting rights of the members of the Board of Directors of
BCBSMo, the company or such affiliates.  The foregoing provision
does not apply to a settlement or resolution of the Litigation that
complies with all BCBSA rules, regulations and standards and is
approved by or conditioned on the approval of the BCBSA.  In
addition, the licenses may be terminated if BCBSMo, the company, or
certain subsidiaries of the company are unable to achieve certain
financial benchmarks as required by the BCBSA.

The affiliate licenses are derivative of the primary licenses and
automatically terminate if the primary licenses terminate.
According to their terms, if a license is terminated, BCBSMo, the
company and its controlled affiliates are jointly liable to BCBSA
for payment of a termination fee in an amount equal to $25 times the
number of licensed enrollees of the terminated entity and its
licensed controlled affiliates, and must give written notice of such
termination to their enrollees.  The termination fee is reduced in
accordance with a formula set forth in the primary licenses if
another plan is licensed by BCBSA in BCBSMo's exclusive service
area.  In connection with the reinstatement described above, the
BCBSA waived the application of these provisions to the alleged
automatic termination resulting from the entry of the October 29
Order.

In March 1998, BCBSMo and BCBSA agreed that the primary licenses
were reinstated as if a suit seeking dissolution had been served on
BCBSMo but the 130-day period for automatic termination described
above was tolled.  The tolling was to continue for as long as the
stay entered in the Litigation remained in full force and effect.
Under the Addendum that became part of the reinstated license
agreements at the November 19, 1998 BCBSA Board meeting, the
automatic termination provision relating to the stay would no longer
be controlling; rather, the licenses are on a "board-to-board"
basis, which means that on or before the next regularly scheduled
meeting of the BCBSA Board (expected to be held on September 17,
1999) the Board must take action to extend the licenses or else the
licenses will automatically terminate on September 17, 1999.
Although the licenses were previously extended at prior meetings,
there can be no assurances that the BCBSA Board will take the action
necessary to extend the licenses on or before the September 17, 1999
meeting as part of the "board-to-board" review.

The company believes that the exclusive right to use the Blue Cross
and Blue Shield trademarks provides it and its controlled affiliates
with a significant marketing advantage in BCBSMo's licensed
operating area, the loss of which would have a material adverse
effect on the company and the market for its stock.  In addition,
the loss of the licenses would be an event of default under the
company's Credit Agreement which, if not waived or otherwise
addressed, could result in a material adverse effect on the company
and the market for its stock.

In connection with the amended settlement agreements described above
under "Status of Proposed Settlement Agreements," BCBSMo and the
company have filed a request with the BCBSA to transfer its primary
license to new RightCHOICE as part of the transactions contemplated
by the amended settlement agreements. The BCBSA has conditionally
approved the transfer as proposed.  There can be no assurance that
the transactions contemplated by the amended settlement agreements
will receive the necessary court approval as an acceptable
alternative to dissolution of BCBSMo, that all conditions and
contingencies included in the amended settlement agreements will be
satisfied, or that the transactions set forth in the amended
settlement agreements will be effected.  The failure to consummate
the transactions contemplated by the amended settlement agreements
could have a material adverse effect on the company and the market
for its stock.

Other contingencies

In addition to the matters described above, from time to time in the
ordinary course of business, the company and certain of its
subsidiaries are parties to various legal proceedings, including the
claims of its members arising from health plan benefit coverage
issues for certain services under evolving theories of liability.
The financial and operational impact that such evolving theories of
recovery will have on the managed care industry generally, or the
company in particular, is presently unknown.

3.  Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is effective for all fiscal years beginning after June
15, 2000.  Earlier application of SFAS No. 133 is encouraged but
should not be applied retroactively to financial statements of prior
periods.  The company believes that the adoption of SFAS No. 133
will not have a material impact on the company's financial position
or results of operations.

In March 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1, "Accounting for Computer
Software Developed For or Obtained For Internal Use," which is
effective for fiscal years beginning after December 15, 1998.  The
SOP requires preliminary stage project costs to be expensed as
incurred.  Once a project is in the application development stage,
the SOP requires all external direct costs for materials and
services and payroll and related fringe benefit costs to be
capitalized, and subsequently amortized over the estimated useful
life of the project.  The adoption of SOP 98-1 did not have a
material impact on the company's financial position or results of
operations.

In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning
after December 15, 1998.  The SOP requires that certain costs of
start-up activities, including organization costs, should be
expensed as incurred.  The company has adopted SOP 98-5 in the first
quarter of 1999 and this adoption did not have a material impact on
the company's financial position or results of operations.

4.  Provision for Income Taxes

The company's effective income tax rates of 41.2 percent and 43.6
percent for the second quarter of 1999 and 1998, respectively, and
38.5 percent and 48.2 percent for the first half of 1999 and 1998,
respectively, presented in the Consolidated Statements of Income
were affected by non-deductible goodwill amortization.  In addition,
during the first quarter of 1999, the company reversed its deferred
tax asset valuation allowance of $112,000.  Based upon all the
available evidence, management believes that it is more likely than
not that the company will realize all of its deferred tax assets,
and accordingly, no valuation allowance has been provided against
such assets as of June 30, 1999.  In addition, for the second
quarter and first half of 1999, the company's state income tax
provision was favorably impacted due to a change in the filing
status for the State of Missouri.

5.  Earnings Per Share

Basic earnings per share are computed by dividing net income by the
weighted average number of common and common equivalent shares
outstanding during the year.  Diluted earnings per share are
calculated by dividing net income by the number of weighted average
shares outstanding plus additional shares representing stock
distributable under stock-based compensation plans using the
treasury stock method.  There were 54,368 and 41,071 dilutive
potential common shares for the second quarter of 1999 and 1998,
respectively and 57,183 and 18,802 dilutive potential common shares
for the first half of 1999 and 1998, respectively, that were added
to the weighted average number of shares outstanding in order to
compute diluted earnings per share.

6.  Comprehensive Income

The components of other comprehensive income for the three and six
month periods ended June 30, 1999 and 1998 are as follows:


                                          Three months ended  Six months ended
                                               June 30,           June 30,
                                           1999        1998    1999       1998
                                            (in thousands)     (in thousands)
Unrealized holding (losses)
   gains arising during period,
   net of taxes                        $(2,442)     $1,416   $(4,165)     $ 525
Less:  reclassification adjustment
   for losses (gains) included in
   net income, net of taxes                 460       (93)        293     (454)
Net unrealized (losses) gains on
   securities                          $(1,982)     $1,323   $(3,872)     $  71

7.  Segment information

The company operates in two segments which it defines as
underwritten and self-funded.  The company's underwritten segment
includes a comprehensive array of products including PPO, POS, HMO,
Medicare supplement, managed indemnity and specialty managed care
coverages.  The company's self-funded segment includes TPA and ASO
services for self-insured organizations.  All of the company's
revenues, both underwritten premiums and self-funded fees and other
income, are derived from domestic (United States) sources and no
single customer accounts for more than 10 percent of total revenues.

Operating income for the company's underwritten segment is
determined by deducting from premium revenue the health care service
costs, commissions, and general and administrative expenses that are
attributable to that segment's operations.  Operating income for the
self-funded segment is determined by deducting from fees and other
income the commissions and general and administrative expenses
attributable to the segment.  Expenses not directly traceable to an
industry segment are allocated on a consistent and reasonable basis
utilizing membership, groups, claims, and other key drivers.
Corporate identifiable assets by segment include only receivables
from members since the company does not produce more detailed
information by segment internally.  Intersegment revenues are not
material.  Financial information by segment is as follows (in
thousands):

Three months ended June 30, 1999     Underwritten  Self-funded  Consolidated
Revenues                               $178,722     $ 20,489      $199,211
Operating (loss) income                 (1,174)        5,721         4,547
Depreciation and amortization expense     2,855        1,334         4,189
Identifiable assets                      50,181       24,120        74,301

Six months ended June 30, 1999       Underwritten  Self-funded  Consolidated
Revenues                               $357,940     $ 41,284      $399,224
Operating (loss) income                 (3,359)       12,508         9,149
Depreciation and amortization expense     5,726        2,657         8,383

Three months ended June 30, 1998     Underwritten  Self-funded  Consolidated
Revenues                               $173,400     $ 18,418      $191,818
Operating (loss) income                 (4,662)        4,047         (615)
Depreciation and amortization expense     3,289        1,320         4,609
Identifiable assets                      42,797       18,547        61,344

Six months ended June 30, 1998       Underwritten  Self-funded  Consolidated
Revenues                               $347,108     $ 36,562      $383,670
Operating (loss) income                (11,206)        9,342       (1,864)
Depreciation and amortization expense     6,583        2,629         9,212

8.  Change in estimate

Based upon management's periodic review of the useful lives of its
various assets, the company's estimate of the useful life of various
modules of its capitalized software changed from 5 years to 7 years,
effective with the beginning of 1999.  Management believes that this
change will more appropriately match the amortization expense of the
software with the periods in which the software is utilized.  This
change in estimate on an after-tax basis resulted in an increase to
the company's net income for the second quarter and first half of
1999 of approximately $0.6 million, or $0.03 per share, and $1.2
million or $0.06 per share, respectively.



ITEM 2.  Management's Discussion and Analysis
      of Financial Condition and Results of Operations

Results of Operations


THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.


EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT
ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS, FINANCIAL
CONDITION OR BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL
RESULTS, FINANCIAL CONDITION OR BUSINESS, OR THE RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR BUSINESS CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS.  FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR BUSINESS."


The following table sets forth premium revenue by product group for
the three and six month periods ended June 30, 1999 and 1998
(unaudited):


                                      Three Months Ended      Six Months Ended
                                           June 30,               June 30,
Product Group                         1999         1998     1999          1998
                                      (in thousands)         (in thousands)
PPO:
  Alliance PPO                     $ 50,891      $ 47,143  $101,047   $ 95,133
  AllianceChoice POS                 40,952        37,631    81,070     73,743
HMO (includes other POS)             50,891        51,821   104,393    104,146
Medicare supplement                  23,275        24,055    46,863     48,248
Managed indemnity                       900         2,298     1,851      4,666
Other specialty services             11,365        10,717    22,268     21,423
Total premium revenue               178,274       173,665   357,492    347,359
ASO/Self-funded and other income     20,937        18,153    41,732     36,311
Total revenues                     $199,211      $191,818  $399,224   $383,670


The following table sets forth selected operating ratios. The
medical loss ratio is shown as a percentage of health care services
expense over premium revenue.  All other ratios are shown as a
percentage of premium revenue and fees and other income combined:


                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      1999         1998     1999         1998
Operating revenues:
  Premium revenue                     89.5%        90.5%    89.5%        90.5%
  Fees and other income               10.5%         9.5%    10.5%         9.5%
                                     100.0%       100.0%   100.0%       100.0%
Operating expenses:
  Medical loss ratio                  82.6%        83.1%    82.2%        83.1%
  Commission expense                   3.7%         4.3%     3.8%         4.2%
  General and administrative expense
      (includes depreciation and
      amortization)                   20.1%        20.7%    20.2%        21.0%
  Adjusted general and administrative
      expense (excludes depreciation
      and amortization)               18.0%        18.3%    18.1%        18.6%


Membership

The following table sets forth membership data and the
percent change in membership:

                                              June 30,
Product Group                            1999         1998       %
Underwritten:
 PPO:
  Alliance PPO                          143,014      143,367   (0.2)%
  AllianceChoice POS                    124,906      131,809   (5.2)
 HMO:
  Commercial (includes other POS)       126,579      134,950   (6.2)
  BlueCHOICE Senior                       5,125        5,647   (9.2)
 Medicare supplement                     54,968       59,498   (7.6)
 Managed indemnity                        2,054        5,530  (62.9)
                                        456,646      480,801   (5.0)
Self-funded:
 PPO                                     45,792       45,969   (0.4)
 HMO                                      7,694       10,683  (28.0)
 ASO (includes HealthLink):
  Workers' Compensation                 492,000      373,109    31.9
  Other ASO*                          1,205,898    1,102,532     9.4

Total Membership                      2,208,030    2,013,094     9.7%

* does not include 387,814 and 454,823 as of June 30, 1999 and 1998,
respectively, relating to additional third-party administrator
members that are part of The EPOCH Group, L.C. (Epoch), a joint
venture with Blue Cross and Blue Shield of Kansas City formed in
December 1995.

Comparison of 1999 Results to 1998 Results

Revenues

Premium revenue increased $4.6 million, or 2.7 percent, in the
second quarter of 1999 in comparison to the second quarter of 1998.
For the first half of 1999, premium revenue increased $10.1 million,
or 2.9 percent, in comparison to the first half of 1998.  As
described below, components of premium revenue were affected by
shifts in product mix, rate increases, and other factors, and as a
result, such changes may not be indicative of future periods.  The
company will continue to strive to establish its commercial premium
rates based on anticipated health care costs.  Depending on the
level of future competition, customer acceptance of the company's
premium increases, future health care cost trends or other factors,
there can be no assurance that the company will be able to price its
products consistent with health care cost trends.

PPO revenues increased $7.1 million in the second quarter of 1999 as
compared to the second quarter of 1998 -- $10.7 million due to a 12.2
percent increase in net premium rates partially offset by a $3.6
million decrease resulting from a 3.4 percent decrease in member
months.  For the first half of 1999, PPO revenues increased $13.2
million as compared to the first half of 1998 -- $21.1 million due to
a 12.2 percent increase in net premium rates partially offset by a
$7.9 million decrease resulting from a 3.9 percent decrease in member
months.  Net rates increased due in part to the company's targeted
general group renewal rate increases averaging 7 percent to 18
percent during enrollment periods in the second half of 1998 and the
first half of 1999.  Alliance PPO membership decreased by 353 members
from June 30, 1998 to June 30, 1999 while AllianceChoice POS
membership decreased by 6,903 over the same time period.  Net
membership decreases are due primarily to the company's
aforementioned pricing strategy during the second half of 1998 and the
first half of 1999.  The company also began offering PPO products in
Illinois at the end of the first quarter of 1997.  Included in the
Alliance PPO member count are 9,600 PPO Illinois members as of
June 30, 1999, an increase of 5,000 from June 30, 1998.

HMO premium revenue decreased $0.9 million or 1.8 percent in the
second quarter of 1999 as compared to the second quarter of 1998 --
$5.1 million due to an 8.4 percent decrease in member months
partially offset by a $4.2 million increase resulting from a 7.2
percent increase in net premium rates.  For the first half of 1999,
HMO revenues increased $0.2 million or 0.2 percent as compared to
the first half of 1998 -- $10.8 million due to a 9.8% increase in
net premium rates partially offset by a $10.6 million decrease
resulting from an 8.7 percent decrease in member months.  Net
premium rates increased in part due to the company's targeted
general rate increases averaging 7 percent to 18 percent during
enrollment periods in the second half of 1998 and the first half of
1999.  Actual net rate increases are affected by the status of a
large group (the Missouri Consolidated Health Care Plan or MCHCP),
comprised of 38,700 members as of June 30, 1999, with which the
company has limited ability to increase premium rates.  Membership
in MCHCP increased by 6,800 from June 30, 1998 to June 30, 1999.
The company's HMO membership in non-MCHCP products decreased over
the same time period by 15,700 members, or 14.4 percent.  Membership
decreases in non-MCHCP products were driven primarily by the
company's aforementioned pricing strategy during the second half of
1998 and the first half of 1999.

Premium revenue from Medicare supplement decreased by $0.8 million
in the second quarter of 1999 as compared to the second quarter of
1998.  Member months decreased by 7.4 percent partially offset by a
4.5 percent increase in net premium rates.  For the first half of
1999, premium revenue decreased by $1.4 million as compared to the
first half of 1998.  Member months decreased by 7.1 percent
partially offset by a 4.5 percent increase in net premium rates.
Membership in the company's Medicare supplement products has
decreased in part due to subscribers opting for Medicare-risk
programs, similar to the company's BlueCHOICE Senior product, in
which medical benefits are at least as comprehensive as Medicare
benefits for persons eligible to receive Medicare (parts A and B) at
no additional cost to the member.

Managed indemnity premium revenue decreased by $1.4 million in the
second quarter of 1999 as compared to the second quarter of 1998
primarily due to a 65.4 percent decline in member months.  For the
first half of 1999, premium revenue decreased by $2.8 million due to
a 65.1 percent decline in member months.  Member month declines are
consistent with the company's strategy to move toward more highly
managed care products.  With the exception of a short-term medical
product, the company no longer sells managed indemnity coverage, but
continues to renew coverage for those members who are enrolled in
these managed indemnity programs.

Revenue from other specialty services increased $0.6 million or 6.0
percent in the second quarter of 1999 as compared to the second
quarter of 1998 due to a 14.8 percent increase in net premium rates
partially offset by a 7.6 percent decline in member months.  For the
first half of 1999, revenues increased $0.8 million as compared to
the first half of 1998 due to a 14.1 percent increase in net premium
rates partially offset by an 8.9 percent decline in member months.
Membership in the company's specialty products has decreased as a
result of the decreases in the company's underwritten medical
products.  The large rate increases relate to the company's drug
products, including AllianceRx, and correspond to the high levels of
prescription utilization and trends that the company, as well as the
industry as a whole, have experienced in recent years.

Fees and other income from administrative services only/self-funded
and network services increased by $2.8 million in the second quarter
of 1999 as compared to the second quarter of 1998.  For the first
half of 1999, fees and other income increased $5.4 million as
compared to the first half of 1998.  These increases are primarily due
to increased 1999 revenues from HealthLink, Inc. (HealthLink), the
company's network rental and managed care service subsidiary, of
$3.2 million and $6.8 million for the second quarter and first half
of 1999, respectively, as compared to the same periods of 1998.
HealthLink's revenues increased due to an 18.3 percent increase in
members from June 30, 1998 to June 30, 1999.  HealthLink's increases
to fees and other income were partially offset by decreases to revenue
caused by the loss of approximately 21,300 members, from June 30, 1998
to June 30, 1999, in the company's other self-funded business (excluding the
membership in the company's Epoch joint venture), a substantial
portion of which enrolled in the HealthLink network.

Operating Expenses

The overall medical loss ratio decreased from 83.1 percent in the
second quarter of 1998 to 82.6 percent in the second quarter of
1999.  The overall medical loss ratio decreased from 83.1 percent in
the first half of 1998 to 82.2 percent in the first half of 1999.
The overall medical loss ratio has decreased, in part, due to the
company's pricing strategy.  For the second quarter and first half
of 1999, the premium per member per month increased by 9.4 percent
and 10.0 percent, respectively, and the net medical cost per member
per month increased by 8.7 percent and 8.8 percent compared to the
second quarter and first half of 1998, respectively.

The company continues its efforts to modify its pharmacy benefits
management program and recontract with physicians and ancillary
service providers.  The drug cost trend was approximately ten to
twenty percent in the second quarter and first half of 1999, driven
by a combination of factors, including introduction of new drug
therapies; physicians' use of newer, more expensive drugs; and
physicians' decreased use of generic drugs in favor of specific
drugs promoted by pharmaceutical companies.  The company is
continuing its effective strategy for controlling drug costs by
utilizing a three-tier drug benefit design that allows members to
make choices among generic, formulary, or other brand name drugs,
albeit at different member copayment levels.  Approximately 61
percent of the company's underwritten members with a drug benefit
were enrolled in the three-tiered pharmacy benefit programs as of
June 30, 1999.  In the second quarter and first half of 1999, the
company has recognized 22 percent and 25 percent savings,
respectively, on the three-tier program as compared to the two-tier
drug program.  Physician education, utilization and prescribing
pattern analysis will be increased through an on-site nurse reviewer
and expanded physician profiling services through the company's new
pharmacy benefit contract which runs through 2002.  The company will
also continue its hospital, physician and service recontracting
strategy, using the more detailed data and analysis available
through the company's information and operations strategy (IOS).
There can be no assurance that the company's initiatives to control
future increases in medical cost trends to improve the medical loss
ratio will be effective.

Commission expense decreased by $0.9 million, or 10.5 percent, in
the second quarter of 1999 as compared to the second quarter of
1998.  For the first half of 1999, commission expense decreased by
$0.7 million, or 4.4 percent, as compared to the first half of 1998.
The commission expense ratio decreased from 4.3 percent for the
second quarter of 1998 to 3.7 percent for the second quarter of
1999.  The commission expense ratio decreased from 4.2 percent for
the first half of 1998 to 3.8 percent for the first half of 1999.

General and administrative expenses (excluding depreciation and
amortization) increased by $0.6 million, or 1.8 percent in the
second quarter of 1999 as compared to the second quarter of 1998.
For the first half of 1999, these expenses increased by $0.9
million, or 1.3 percent, as compared to the first half of 1998.
This increase is partially due to increases of $1.6 million and $3.6
million in HealthLink expenses in the second quarter and first half
of 1999, respectively, as compared to the comparable periods of
1998.  HealthLink's increased expenses are directly attributable to
HealthLink's geographic and member expansion efforts.  HealthLink's
increases are partially offset by the company's general and
administrative cost control efforts.

Depreciation and amortization expenses decreased by $0.4 million in
the second quarter of 1999 as compared to the second quarter of
1998.  For the first half of 1999, depreciation and amortization
expenses of $8.4 million represented a decrease of $0.8 million as
compared to the first half of 1998.  Amortization expenses for
completed components of the company's information and operations
strategy (IOS) project decreased by $0.2 million and $0.4 million in
the second quarter and first half of 1999, respectively, as compared
to the same periods in 1998, due in part to the company's change in
the estimated useful life of the capitalized software costs from
five to seven years.  See Note 8 of the Notes to Consolidated
Financial Statements of Item I, which description is incorporated
herein by reference.

Operating Income

Operating income increased by $5.2 million in the second quarter of
1999 in comparison to the second quarter of 1998.  For the first
half of 1999, operating income increased by $11.0 million as
compared to the first half of 1998.

Net Investment Income

The second quarter 1999 net investment income of $2.8 million
represents a $1.2 million decrease over the second quarter of 1998,
inclusive of a $0.9 million decrease in net realized gains.  For the
first half of 1999, net investment income decreased by $2.1 million
as compared to the first half of 1998 inclusive of a reduction in
net realized gains of $1.1 million.  The remaining decrease in
investment income in the second quarter and first half of 1999 is
due to a $25.0 million reduction in investments available for sale
as of June 30, 1999 as compared to June 30, 1998, as well as lower
investment yields due to lower market interest rates in 1999 as
compared to 1998.

Provision for Income Taxes

The company's effective income tax provision rates were 41.2 percent
and 43.6 percent for the second quarter of 1999 and 1998,
respectively.  For the first half of 1999 and 1998, the effective
income tax provision rates were 38.5 percent and 48.2 percent,
respectively.  The company's effective income tax rates for 1999 and
1998 were affected by non-deductible goodwill amortization.  In
addition, during the first quarter of 1999, the company reversed its
deferred tax asset valuation allowance of $0.1 million.  In
addition, for the second quarter and first half of 1999, the
company's state income tax provision was favorably impacted due to a
change in the filing status for the State of Missouri.

Net Income

The company's net income of $3.9 million, or $0.21 per share, for
the second quarter of 1999 represents an increase of $2.7 million
compared to second quarter 1998 net income of $1.2 million, or $0.06
per share.  For the first half of 1999, the company's net income of
$8.6 million, or $0.46 per share, represents a $6.4 million increase
compared to net income of $2.2 million, or $0.12 per share, for the
first half of 1998.


Liquidity and Capital Resources

The company's working capital as of June 30, 1999 was $65.4 million,
an increase of $0.9 million from December 31, 1998.  The increase is
partially attributable to the $8.6 million of net income for the
first half of 1999.  Depreciation and amortization expenses related
to noncurrent assets were $8.4 million.  The company capitalized
$3.2 million of costs for property and equipment purchases, $2.0
million of which relates to capitalized IOS development costs.  The
company's unrealized net appreciation of investments available for
sale decreased by $3.9 million in the first half of 1999.  In
addition, the company repaid $5.0 million of the debt from the
company's reducing revolving credit facility.

Net cash used in operations totaled $0.9 million for the six months
ended June 30, 1999.  The company's net income was $8.6 million
which included (on a before-tax basis) $0.4 million of net realized
losses from the sale of investments and $8.4 million of depreciation
and amortization expenses.  In addition, receivables from members,
accounts payable and accrued expenses, medical claims payable, and
net intercompany payables were affected by the timing of operating
cash payments and receipts, intercompany tax settlements, as well as
changes in membership and utilization and claims payment trends.
Receivables from members increased by $6.3 million in part due to an
increase of $2.7 million related to HealthLink receivables, rate
increases related to the company's underwritten products, and other
timing factors.  Accounts payable and accrued expenses decreased by $2.2
million due in part to annual broker bonuses that are paid in the
first quarter of each year as well as to payments made to company
employees pursuant to its annual incentive programs.  Medical claims
payable decreased by $2.7 million due in part to a concerted effort
by the company to decrease the lag time between when a claim is
processed and when the claim is paid.  Net intercompany payables
decreased by $5.1 million due to the timing of operating cash
receipts and payments and intercompany tax settlements, among other
things.

On August 29, 1997, the company reported the commencement of the
litigation with MCHCP and estimated losses (giving effect to all
possible renewal terms of the MCHCP contract without requested rate
increases) in the range of $30 million to $40 million.  In the third
quarter of 1997, the company took a pre-tax charge of $29.5 million,
which was based on actuarial estimates, including projected limited
rate increases, and projected enrollment and medical cost trends
accounted for through the year 2000 in accordance with generally
accepted accounting principles.  The company was advised by the
Missouri Department of Insurance (DOI) in March 1998, that the
entire amount of the reserve for the MCHCP contract recorded by the
company for projected losses under the contract through the year
2000, must, for statutory accounting purposes, be recorded by the
company's subsidiary, HMO Missouri, Inc. (BlueCHOICE), on its
statutory filings with the DOI.  With the prior regulatory approval
of the DOI, BlueCHOICE issued surplus notes to the company in the
amount of $29 million to ensure the statutory solvency of
BlueCHOICE.  On August 6, 1999, the MCHCP executed an amendment to
the contract providing a rate increase that is anticipated to be
approximately 21 percent for public entities, modified rate factors
for state employees, and modification of the pharmacy benefit,
effective January 1, 2000, for the 2000 contract year.  While
management of the company believes the current provision for losses
is adequate, particularly in light of the rate increases provided on
August 6, 1999 and the expected future departure of a large public
entity group from the MCHCP, if the actual public entity membership
in MCHCP grows at a rate in excess of the rate used in the actuarial
estimates, or if the projected limited rate increases and medical
cost trends should differ materially from those assumed in the
actuarial estimates, then the amount of the reserve recorded to date
could be insufficient to cover all future losses which may be
associated with the MCHCP contract, and such losses could have a
material adverse effect on the company and the market for its stock.
In the first quarter of 1999, the company completed a reinsurance
arrangement between its subsidiaries, Healthy Alliance Life
Insurance Company (HALIC) and BlueCHOICE, whereby HALIC will
reinsure MCHCP losses that exceed certain thresholds over the
remaining term of the current MCHCP contract.  The company
anticipates that this arrangement will assist in mitigating the risk
that additional surplus notes or other funding will need to be
provided to the company's BlueCHOICE subsidiary.

The company's commitment and borrowings under its current revolving
credit facility (the Credit Agreement) were $38.1 million as of June
30, 1999 and are scheduled to reduce by $2.5 million on a quarterly
basis until August 10, 2000, at which time all remaining
borrowings are to be repaid.  The company is currently involved in
negotiations to amend the terms of the Credit Agreement, which the
company expects to complete before the end of 1999.  The company
expects that such amendment will include favorable pricing changes,
an extension of the commitment termination date, and lower quarterly
commitment reductions.  However, no assurance can be given that an
amendment will be completed or that any such amendment will include
an extension of the commitment termination terms or any other
favorable terms.

In the first six months of 1999, the company incurred capitalized
expenditures of $2.0 million on its information and operations
strategy (IOS) project.  The company anticipates that it will expend
approximately $8 million to $9 million for capitalized costs
associated with the IOS project in 1999 and subsequent years to
complete the project.

Recent Developments

Year 2000 issue

The company has a program to evaluate its major systems, processes
and equipment to minimize the possibility of a material disruption
to its business due to Year 2000 problems (e.g., the difficulties of
certain computers, computer programs and other equipment to
distinguish between the year 1900 and the year 2000).  The program
was initiated in 1996 and includes an inventory of software,
hardware and related infrastructure components; assessments and
decisions to retire, replace or remediate these elements as well as
to establish how critical they are to continued operations; a
strategy to conduct integrated testing of critical applications and
technology infrastructure; and the development of contingency plans.

The inventory and assessment phases of the Year 2000 program are
substantially complete and include information technology such as
application software on various platforms (mainframe, midrange and
personal computer); system software and data/voice communication
networks; as well as facility equipment such as elevators, security
and building control systems.  Although the company is increasing
its use of client server applications, the majority of its
application and system software uses a mainframe platform with COBOL
programming.  The company believes that at June 30, 1999,
approximately 95 percent of these COBOL programs were Year 2000
ready.  The remainder of the COBOL programs are expected to be Year
2000 ready by September 30, 1999, rather than March 31, 1999, as
previously reported, which reflects a decision by management to
remediate an additional limited amount of code relating to runout in
the conversion to client server-based managed care software for HMO
products.  Resources have been reserved for this work and therefore
the company does not anticipate conflicting resource demands.  The
balance of the company's other material system modifications is
expected to be completed by September 30, 1999, with substantially
all of these modifications currently under way.  The company's plan
for completion of this project is partially dependent upon the work
of third parties.  The company has limited internal exposure to
equipment with embedded technology and expects any significant
affected equipment to be ready before January 1, 2000.

Integrated testing of purchased or internally developed
applications, hardware, operating systems and other support software
began in the fourth quarter of 1998.  This integrated testing
(including the leap year test) includes advancing the hardware dates
forward to several key dates in the year 2000.  Testing of this
nature is expected to continue through September 1999.  In order to
decrease the company's risk, the company expects to restrict the
amount of software and hardware changes implemented in the fourth
quarter of 1999.  For any changes required during that period, the
company will continue to conduct Year 2000 integrated testing.

The total cost associated with the modifications required to become
Year 2000 ready is estimated to be approximately $12 million to $13
million.  The company is expensing all costs associated with these
changes as they are incurred.  From 1996 through June 30, 1999, the
company has cumulatively expensed $10.7 million on this project,
with $3.3 million expensed in the first six months of 1999.  These
costs are being funded internally through operating cash flows or
investment sales and represent less than 10 percent of the company's
information technology budget over the life of the Year 2000
program.

In addition to internal Year 2000 implementation activities, some of
the company's computer systems and business operations are provided
by outside suppliers.  As part of the program, the company is asking
for the readiness status of its critical vendors, providers and
suppliers.  There can be no assurance that there will not be a
material adverse effect on the company if critical vendors,
suppliers and providers, such as major health care providers, third
parties performing delegated services or utility companies do not
convert their systems in a timely manner and in a way that is
compatible with the company's systems.

The company's operations would be significantly impacted by
incomplete or untimely resolution of Year 2000 issues, whether
caused by internal or external action.  The company uses automated
systems to process claims, prepare invoices, collect and remit
payments, maintain membership data, perform utilization management
and many other processes.  In the worst case, the company's
inability to perform these basic operating activities in an accurate
and timely manner would have a material adverse effect on the
company's revenues, liquidity and results of operations, although
the company is unable to estimate the total financial impact.

The company has completed initial contingency plans, in the event
that full Year 2000 readiness for critical business functions is not
achieved.  However, there can be no assurance that the company or
any third party upon which the company depends will be able to
achieve Year 2000 readiness or will have sufficient contingency
plans, which could have a material adverse effect on the company and
the market for its stock.

The projected cost of the Year 2000 program and the expected
completion dates are based on management's best estimates and may be
updated as additional information becomes available.  These
estimates were derived using numerous assumptions of future events,
including the availability of certain resources and other factors.
There can be no guarantee these estimates will be achieved, and
actual results could differ materially from expected results.

Recently issued accounting standards

See the description under the same caption in Note 3 of the Notes to
Consolidated Financial Statements of Item I, which description is
incorporated herein by reference.

Operating outlook

The following statement is based on short-term expectations.  The
statement is forward-looking and actual results may differ
materially.  Reference is made to the information set forth under
the caption "Factors that May Affect Future Results of Operations,
Financial Condition or Business" that follows.

The company anticipates that it will exceed its 1999 target of 60
percent earnings growth over 1998, even with the expected
seasonality of a challenging third quarter.

The company's ability to deliver this performance target is
dependent on, among other things, achieving targeted sales to new
members and retention rates at higher prices, and realizing
projected medical and overhead cost savings.

Contingencies

See the description under the same caption in Note 2 of the Notes to
Consolidated Financial Statements of Item I, which description is
incorporated herein by reference.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS

The statements included in this Quarterly Report regarding future
financial performance and results and the other statements herein
that are not historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended.  Such statements may include, but are not limited to,
projections of earnings, revenues, income or loss, capital
expenditures, plans for future operations and financing needs,
matters relating to the proposed settlement agreements, as amended,
as well as assumptions relating to the foregoing.  Forward-looking
statements are inherently subject to risks and uncertainties, some
of which cannot be predicted or quantified.  Future events and
actual results, performance and achievements could differ materially
from those set forth in, contemplated by or underlying the forward-
looking statements.  Factors that could cause actual results to
differ materially (the Cautionary Statements) include, but are not
limited to, those set forth below.  Should one or more of the risks
or uncertainties set forth below materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially
from those indicated.  Undue reliance should not be placed on the
Cautionary Statements, which speak only as of the date of this
Quarterly Report.  The company undertakes no obligation to release
publicly any revisions to the forward-looking statements after the
date of this Quarterly Report to reflect events or circumstances
after the date of this Quarterly Report or to reflect the occurrence
of unanticipated events.

Contingencies

Reference is made to the information detailed in Note 2 entitled,
"Contingencies" of Part I, Item 1, under the captions:  OPM audit;
Litigation of Blue Cross and Blue Shield of Missouri with the Missouri
Attorney General and Department of Insurance and Related Actions,
Settlement Efforts and Proposed Reorganization; and Agreement for
settlement of certain litigation matters and reorganization of the
company.  All information under these captions and all subcaptions
thereunder is incorporated by reference in its entirety in this
section.  In addition, the risk factors that follow describe various
other contingencies that should be read in conjunction with such
information.

Credit Agreement Restrictions

The company's revolving Credit Agreement with its existing lenders
contains certain restrictions on the company and its subsidiaries,
including requirements as to the maintenance of net worth and
certain financial ratios, restrictions on payment of cash dividends
or purchases of stock, restrictions on acquisitions, dispositions
and mergers, restrictions on additional indebtedness and liens,
limitations on indebtedness of the company's subsidiaries,
maintenance of the licenses to use Blue Cross and Blue Shield names
and marks and certain other matters.  There can be no assurance that
the company will be able to achieve and maintain compliance with the
prescribed financial ratio tests or other requirements of the
revolving Credit Agreement.  The failure to obtain any waivers or
amendments that might be needed in the future to remain in
compliance with such requirements could, among other things, reduce
the company's ability to respond to adverse industry conditions and
could have a material adverse effect on the company's operations,
financial condition or business.  As described under the caption in
Note 2 entitled "Contingencies - Agreement for settlement of certain
litigation matters and reorganization of the company - Status of
Blue Cross and Blue Shield Trademark Licenses" of Part I, Item 1,
the loss of the licenses would result in an event of default under
the Credit Agreement.  As discussed in "Liquidity and Capital
Resources," the company is negotiating an amendment to the terms of
the Credit Agreement, which the company expects to complete before
the end of 1999.  The company's commitment and borrowings under the
current Credit Agreement were $38.1 million as of June 30, 1999 and
are scheduled to reduce by $2.5 million on a quarterly basis until
August 10, 2000, at which time all remaining borrowings
are to be repaid.  There can be no assurance that the company will
be able to finalize a proposed amendment to the Credit Agreement and
that any such amendment will include an extension of the commitment
termination terms or any other favorable terms.

MCHCP issues

The Missouri Consolidated Health Care Plan (MCHCP), which is a
Missouri public agency that purchases health care coverage for
employees of the State of Missouri and of selected public entities
that have been admitted into the MCHCP, is currently the largest
customer group served by BlueCHOICE, a subsidiary of the company.
The company is contractually bound to serve the MCHCP members
through the year 2000 at rates originally contracted for in 1995,
with annual rate increases which are far less than necessary to
permit the company to recover its costs in serving those members,
even though on August 6, 1999, the MCHCP executed an amendment to
the contract providing a rate increase that is anticipated to be
approximately 21 percent for public entities, modified rate factors
for state employees, and modification of the pharmacy benefit,
effective January 1, 2000, for the 2000 contract year.

In the third quarter of 1997, the company took a pre-tax charge of
$29.5 million, which was based upon actuarial estimates, including
projected limited rate increases, and projected enrollment and
medical cost trends accounted for through the year 2000 in
accordance with generally accepted accounting principles.
Management of the company reviews the adequacy of this reserve on an
ongoing basis.  If the actual number of the company's members
through MCHCP grows at a rate in excess of the rate used in the
company's actuarial estimates (whether due to the increase generally
in MCHCP members, decrease in the number of MCHCP contractors or
otherwise), or if the projected limited rate increases and medical
cost trends should differ materially from those assumed in the
company's actuarial estimates, then the amount of the reserve
recorded to date could be insufficient to cover all future losses
that may be associated with the MCHCP contract, and such losses
could have a material adverse effect on the company and the market
for its stock.

In addition, the company's revolving Credit Agreement (described
above) provides that the company's subsidiaries, including
BlueCHOICE, may not issue surplus notes to the company in an
aggregate principal amount in excess of $40 million.  As the
aggregate principal amount of surplus notes issued by such
subsidiaries to the company currently approximates $40 million, any
additional funding required by any subsidiaries of the company,
including BlueCHOICE, as a result of additional losses or reserves
associated with the MCHCP contract, or otherwise, must, absent
approval of the lenders under the Credit Agreement, be funded from
sources other than surplus notes.  No assurances can be given that
such approval would be granted or that additional sources of funding
could be obtained.  See "Credit Agreement Restrictions" above.  In
the first quarter of 1999, the company completed a reinsurance
arrangement between its subsidiaries, HALIC and BlueCHOICE, whereby
HALIC will reinsure MCHCP losses that exceed certain thresholds over
the remaining term of the current MCHCP contract.  The company
anticipates that this arrangement will assist in mitigating the risk
that additional surplus notes or other funding will need to be
provided to the company's BlueCHOICE subsidiary.

Escalating Health Care Costs

The company's profitability depends in large part on predicting and
effectively managing medical costs under its managed care plans.  A
variety of external factors affecting the delivery and cost of
health care, including increased costs and utilization of high-
technology diagnostic testing and treatments, the increasing cost
and utilization of prescription medications, the rising costs of
malpractice insurance, efforts in the medical community to avoid
malpractice claims, higher operating costs of hospitals and
physicians, the aging of the population and other demographic
characteristics, changes in federal and state health care
regulations, and major epidemics may adversely affect the company's
ability to predict and control health care costs and claims.  Other
relevant factors affecting the company's ability to control health
care costs include higher outpatient and drug utilization, medical
and drug cost trends, and growth of business in regions with less
cost-efficient networks.

Government Regulations and Health Care Reform

The company operates its managed health care business principally
through wholly owned subsidiaries whose business is subject to
extensive federal, state and local laws and regulations.  There can
be no assurance that the company will be able to obtain or maintain
required governmental approvals or licenses or that any current or
proposed federal and state legislation or other regulatory reform
that increase the regulatory requirements imposed on the company and
its subsidiaries will not have a material adverse effect on the
company's business or results of operations in the future.

Competition and Consolidation

The health care industry is highly competitive.  The company has
numerous competitors in its PPO, POS and HMO operations, many of
which have substantially greater financial and other resources than
the company.  Because the company's existing business operations
(excluding its HealthLink subsidiary) are primarily confined to
markets within or contiguous to the state of Missouri, the company
currently is unable to subsidize losses in these markets with
profits from other markets.  The company believes that certain
larger, national competitors are able to subsidize losses in the
Missouri market with profits from other markets in which they
operate and may pursue such a strategy in the company's markets in
an effort to increase their market share.  Health care providers are
consolidating into larger health care delivery enterprises and their
increased bargaining power may lead to a reduction in the gross
margins of the company's products and services.  The company also
faces competition in its markets from a trend among some health care
providers to combine and form their own networks in order to
contract directly with employer groups and other prospective
customers for the delivery of health care services.

Potential Nonrenewal of Subscriber and Provider Agreements

The company's profitability is dependent upon its ability to obtain
and maintain contracts with employee groups and individual consumers
that generally are renewable annually.  The company's profitability
is also dependent, in large part, on its ability to contract on
favorable terms with hospitals, physicians and other health care
providers.  There can be no assurance that the employee groups,
individual consumers, subscribers or providers will renew their
contracts or enter into new contracts with the company or, in the
case of provider contracts, will not seek terms that are less
profitable to the company in connection with any such renewal.

Control by BCBSMo

BCBSMo has voting control on all stockholder actions, including the
sale or merger of the company, a sale of substantially all of its
assets and the election of all of the company's directors.  BCBSMo
may have interests with respect to its ownership of the company that
diverge from those of the company's public shareholders.  There can
be no assurance that the company will not be adversely impacted by
the control that BCBSMo has with respect to matters affecting the
company.

Dependence on Key Management

The company depends to a significant extent on key management
members.  There can be no assurance that the loss of current key
management would not result in a material adverse effect on the
company's results of operations, financial condition or business.

Variability of Operating Results and Stock Price

The company's results of operations could be adversely affected by
the timing of new product and service introductions, competitive
pricing pressures, contract renegotiations with customers and
providers, fluctuations in the medical loss ratio (due to changes in
utilization, timing of submission of claims presented for payment in
the period and the unpredictability of unusually large claims),
increases in commission expense and general and administrative
expenses, changes in interest rates, acquisitions, governmental and
regulatory actions, overall market conditions, and other factors.
The company's stock price may experience significant price and
volume fluctuations in response to these and other internal and
external factors that cause variations in its results of operations
and in the volatility of the stock markets generally.

Year 2000 Issue

Reference is made to the information included under the caption
"Recent Developments - Year 2000 issue," of Part I, Item 2, which
information is incorporated by reference in its entirety in this
section.  There can be no assurance that the company or any third
party upon which the company depends will be able to achieve Year
2000 readiness or will have sufficient contingency plans, which
could have a material adverse effect on the company and the market
for its stock.

Additional Factors

Additional risks and uncertainties that may affect future results of
operations, financial condition or business of the company include,
but are not limited to:  demand for and market acceptance of the
company's products and services; the effect of economic and industry
conditions on prices for the company's products and services and its
cost structure; the ability to develop and deliver new products and
services and adapt existing products and services to meet customer
needs and expectations; the ability to keep pace with technological
change, including developing and implementing technological advances
timely and cost effectively in order to lower its cost structure, to
provide better service and remain competitive; adverse publicity, or
negative reports by brokerage firms, industry and financial analysts
regarding the company, its parent or BCBSA or their products or
services that may have the effect of reducing the reputation,
goodwill or customer demand for, or confidence in, the company's
products or services; the ability to attract and retain capital for
growth and operations on competitive terms; the financial and
operational impact that evolving theories of recovery, including
punitive damage theories, related to coverage reimbursement
decisions for various treatments, may have on the managed care
industry generally, or the company in particular; and changes in
accounting policies and practices.

ITEM 3.     Quantitative and Qualitative Disclosures About Market Risks

There have been no material changes in market risk exposures that
affect the quantitative and qualitative disclosures presented in the
company's annual report on Form 10-K for the year ended December 31,
1998.



PART II.    OTHER INFORMATION

ITEM 1.     Legal Proceedings

Note 2, "Contingencies" of Part I, Item 1, contains a description of
various pending and threatened claims involving the company and its
affiliates, including a description of the subscriber class action
lawsuit filed on March 15, 1996, litigation with the Missouri
Department of Insurance (DOI), the Director of the DOI, and the
Missouri Attorney General, and other legal proceedings, which
descriptions are incorporated by reference herein.  Also, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors that May Affect Future Results of
Operations, Financial Condition or Business."

ITEM 2.     Changes in Securities

             None.

ITEM 3.     Defaults Upon Senior Securities

             None.

ITEM 4.     Submission of Matters to a Vote of Security Holders

      a)  The Annual Meeting of Shareholders of the company was
          held on May 11, 1999.

      b)  Three Class II directors of the company were elected for
          three year terms by the shareholders at the annual
          meeting.  The three newly elected directors are:

Nominee                 Number of Votes

Ronald G. Evens, M.D.     152,316,727
John A. O'Rourke          152,308,840
Roger B. Porter, Ph.D.    152,316,727

The following directors' terms continued in effect after the meeting:

William H.T. Bush               Norman J. Tice
Earle H. Harbison, Jr.          Gloria W. White

      c)  The following matter was also voted by the shareholders
          at the annual meeting:

Approval of a proposed Amendment to the Articles of Incorporation
to set the number of Directors at seven and to thereafter permit
the number of Directors of the company to be fixed in the manner
provided in the Bylaws of the company.

                  For             Against       Abstentions
Votes cast:   152,251,226         77,896           8,205

      d)  The following matter was also voted by the shareholders
          at the annual meeting:

Approval of a proposal to increase the total number of shares of
the company's Class A Common Stock that may be issued under the
1994 Equity Incentive Plan.

                  For        Against       Abstentions     Not Voted
Votes cast:   151,546,579    283,380          6,600         500,768

ITEM 5.     Other Information

             None.

ITEM 6.     Exhibits and Reports on Form 8-K

     a)      Exhibits

Exhibit
Number       Exhibit

The following exhibits are submitted herewith:

10.1  Summary of Approved Changes to the Blue Cross Primary License Agreement.

10.2  Summary of Approved Changes to the Blue Shield Primary License Agreement.

10.3  Summary of Approved Changes to the Blue Cross Controlled
      Affiliate License Agreement.

10.4  Summary of Approved Changes to the Blue Shield Controlled
      Affiliate License Agreement.

10.5  Basic Program Document of the Nonqualified Deferred
      Compensation Program sponsored by INVESCO Retirement Plan
      Services.

10.6  Adoption Agreement for the company's Executive Nonqualified
      Deferred Compensation Program.

10.7  Adoption Agreement for the company's Directors Nonqualified
      Deferred Compensation Program.

10.8  Adoption Agreement for the Blue Cross and Blue Shield of
      Missouri Board of Trustees Nonqualified Deferred
      Compensation Program.

27    Financial Data Schedule (Electronic Filing Only).

      b)     Reports on Form 8-K:

None filed during the three months ended June 30, 1999.

                             SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



                               RIGHTCHOICE MANAGED CARE, INC.
                               Registrant


Date:  August 13, 1999         By:  [s] SANDRA VAN TREASE
                                    Sandra Van Trease
                                    Chief Financial Officer,
                                    Senior Executive Vice President and
                                    Chief Operating Officer

Date:  August 13, 1999         By:  [s] ANGELA  F. BRALY
                                    Angela F. Braly
                                    Executive Vice President,
                                    General Counsel and
                                    Corporate Secretary