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 September 30, 1997

                                 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 September 30, 1997

     Class A Common Stock, $0.01 par value     3,709,000 shares
     Class B Common Stock, $0.01 par value    14,962,500 shares

                   RIGHTCHOICE MANAGED CARE, INC.
                    Third Quarter 1997 Form 10-Q
                          Table of Contents


PART  I.      FINANCIAL INFORMATION                                PAGE

     ITEM 1.  Financial Statements

           Consolidated Balance Sheets as of September 30, 1997
           and December 31, 1996                                     3

           Consolidated Statements of Income for the Three and Nine
Months
           Ended September 30, 1997 and 1996                         4

           Consolidated Statements of Cash Flows for the Nine Months
           Ended September 30, 1997 and 1996                         5

           Notes to Consolidated Financial Statements                6

     ITEM 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                   15


PART II.      OTHER INFORMATION

     ITEM 1.  Legal Proceedings                                     31

     ITEM 2.  Changes in Securities                                 31

     ITEM 3.  Defaults Upon Senior Securities                       31

     ITEM 4.  Submission of Matters to a Vote of Security Holders   31

     ITEM 5.  Other Information                                     31

     ITEM 6.  Exhibits and Reports on Form 8-K                      31

SIGNATURES                                                          33






PART I.FINANCIAL INFORMATION
ITEM 1.Financial Statements

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


                                          September 30,    December 31,
                                              1997            1996
  ASSETS                                   (unaudited)
Current assets:
  Cash and cash equivalents                  $9,903      $  33,418
  Investments available for sale            242,324        262,216
  Receivables from members                   57,454         54,767
  Receivables from related parties           16,070         17,073
  Deferred income taxes                       5,051            591
  Other assets                               19,578         13,193
     Total current assets                   350,380        381,258
Property and equipment, net                  60,559         51,248
Deferred income taxes                        10,247          6,247
Investments in affiliates                     9,362          9,370
Goodwill and intangible assets, net          81,725         84,021
    Total assets                           $512,273       $532,144

   LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Medical claims payable                   $115,619      $ 111,833
  Unearned premiums                          50,050         52,699
  Accounts payable and accrued expenses      63,015         68,844
  Payables to related parties                16,194         17,149
  Reserve for loss contract                   8,197
  Obligations for employee benefits           3,725          3,864
  Income taxes payable                       11,258         12,801
  Obligations under capital leases            4,946          5,224
     Total current liabilities              273,004        272,414
Reserve for loss contract                    19,851
Long-term debt                               47,000         62,000
Obligations for employee benefits            20,478         21,244
Obligations under capital leases              6,430          3,532
     Total liabilities                      366,763        359,190

Shareholders' Equity:
  Common Stock:
     Class A, $.01 par,
     125,000,000 shares authorized,
     3,737,500 shares issued,
     3,709,000 and 3,714,400
     shares outstanding, respectively           37             37
     Class B, $.01 par, 100,000,000
     shares authorized,
     14,962,500 shares issued and
     outstanding                               150            150
  Additional paid-in capital               132,640        132,640
  Retained earnings                         11,814         30,687
  Treasury stock, 28,500 and 23,100
  Class A shares, respectively, at cost       (404)          (326)
  Unrealized net appreciation of
  investments available for sale             1,273          9,766
     Total shareholders' equity            145,510        172,954
     Total liabilities and               
     shareholders' equity                 $512,273       $532,144

    See accompanying Notes to Consolidated Financial Statements.

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

                                  Three Months Ended       Nine Months Ended
                                     September 30,           September 30,
                                   1997        1996          1997        1996
Revenues:
 Premium                       $163,726    $148,363      $485,714    $439,720
 Fees and other income           16,766      15,425        47,241      43,416
       Total revenues           180,492     163,788       532,955     483,136

Operating expenses:
 Healthcare services            143,131     133,343       411,588     359,943
 Commissions                      7,524       6,590        21,879      19,409
 General and administrative
 (excludes depreciation and 
 amortization and excludes net inter-
 company charges allocated to Blue
 Cross and Blue Shield of Missouri
 of $1,911, $2,663, $6,535, and
 $9,186, respectively)           34,539      33,320       104,092      95,363
 Depreciation and amortization    5,243       3,772        15,645      10,815
 Charge for loss reserves        29,510                    29,510
 Amortization of loss reserves   (1,462)                   (1,462)
 Non-recurring relocation charges    74         540         2,970       3,283
       Total operating expenses 218,559     177,565       584,222     488,813
 Operating loss                 (38,067)    (13,777)      (51,267)     (5,677)

Investment income:
 Interest and dividends           4,262       3,416        12,008      10,515
 Realized gains, net                524         135        16,584       3,122
    Total investment income, net  4,786       3,551        28,592      13,637

Other:
 Interest expense                (1,056)     (1,556)       (3,378)     (4,153)
 Other (expense) income, net       (185)         12          (488)         93
    Total other, net             (1,241)     (1,544)       (3,866)     (4,060)


 (Loss) income before provision
 for income taxes               (34,522)    (11,770)      (26,541)      3,900

 (Benefit) provision for
 income taxes                   (11,766)     (3,914)       (7,668)      2,247

 Net (loss) income             $(22,756)    $(7,856)     $(18,873)     $1,653

 Weighted average
 common shares outstanding   18,672,000  18,677,000    18,673,000  18,679,000

 (Loss) earnings per share       $(1.22)      $(.42)       $(1.01)       $.09


     See accompanying Notes to Consolidated Financial Statements.

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

                                           For the nine months ended,
                                                September 30,
                                             1997             1996
Cash flows from operating activities:
   Net (loss) income                     $(18,873)          $1,653
   Adjustments to reconcile net
   (loss) income to net cash (used in)
     provided by operating activities:
   (Credit) provision for deferred        
     income tax benefits                   (3,786)           4,586
   Depreciation and amortization           15,645           10,815
   Undistributed losses of affiliates         374               48
   Gain on sale of investments            (16,584)          (3,122)
   Amortization of premiums and          
     accretion of discounts, net              (49)             369
   (Gain) loss on sale of property     
     and equipment                            (72)              47
   (Increase) decrease in certain assets:
   Receivables from members                (2,687)           6,845
   Receivables from related parties         1,003           12,227
   Other assets                            (8,041)          (8,853)
   Increase (decrease) in certain liabilities:
   Medical claims payable                   3,786           27,099
   Unearned premiums                       (2,649)          (4,277)
   Accounts payable and accrued expenses   (5,829)          (6,183)
   Payables to related parties               (955)         (10,565)
   Reserve for loss contract               28,048
   Obligations for employee benefits         (906)             439
   Income taxes payable                    (1,543)          (9,260)
Net cash (used in) provided by
operating activities                      (13,118)          21,868
Cash flows from investing activities:
   Proceeds from matured investments:
     Fixed maturities                         535            5,725
   Proceeds from investments sold:
     Fixed maturities                     220,797          188,381
     Equity securities                     40,734           20,432
     Other                                 32,469
   Investments purchased:
     Fixed maturities                    (269,164)        (188,774)
     Equity securities                       (230)         (22,341)
     Other                                 (1,784)          (1,596)
   Investment in Healthcare InterChange      (366)          (3,055)
   Additional investment in Epoch                             (196)
   Payment for purchase of                              
     HealthLink HMO, net of cash acquired                     (198) 
   Redemption of HealthLink affiliate                          500
   Proceeds from property and         
     equipment sold                           556               16
   Property and equipment purchased       (14,282)         (14,240)
Net cash provided by (used in)
  investing activities                      9,265          (15,346)
Cash flows from financing activities:
   Purchase of Class A Treasury stock         (78)             (60)
   Repayment of borrowings under      
     revolving credit facility            (15,000)
   Payments of capital lease obligations   (4,584)          (3,561)
Net cash used in financing activities     (19,662)          (3,621)
Net (decrease) increase in cash and   
  cash equivalents                        (23,515)           2,901
Cash and cash equivalents at
  beginning of period                      33,418           21,132
Cash and cash equivalents at end of          
  period                                   $9,903          $24,033

Supplemental Disclosure of Cash Information:
   Interest paid                           $3,769           $3,962
   Income taxes paid (refund          
     received), net                        (2,339)           6,602

Supplemental Schedule of Noncash
Investing and Financing Activities:
   Equipment acquired through                
     capital leases                        $9,730             $867
   Disposal of equipment under           
     capital leases                         2,526

     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) 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. (d/b/a
BlueCHOICE), contracts with the Office of Personnel Management
(OPM) to provide or arrange health services under the Federal
Employees Health Benefits Program (FEHBP) for federal
employees.  OPM is the second largest customer group (after
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. At this time, management is unable to determine
the final dollar amount which may be required to resolve the
audit findings; however, management believes that it has made
adequate provisions to cover the contingency, and the final
amount will not have a material impact on the financial
position of the company.

Subscriber class action litigation

On March 15, 1996, a suit was filed in the Circuit Court of
the City of St. Louis, Missouri, 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 Blue Cross and Blue Shield of Missouri
(BCBSMo, the class B shareholder of the company) or the
company, and (ii) all persons and/or entities who benefited
from BCBSMo's tax-exempt status. The complaint names the
company, BCBSMo, HealthLink, Inc. (HealthLink, a subsidiary of
the company), and certain officers of the company as
defendants.

The 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 complaint
further alleges that certain amendments to BCBSMo's Articles
of Incorporation were improper. The complaint 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 plaintiffs seek
restitution, compensatory damages and punitive damages in
unspecified amounts, as well as injunctive and other equitable
relief.

The company and the other defendants removed the case to the
United States District Court for the Eastern District of
Missouri on May 26, 1996, and filed an answer on May 31, 1996.
On August 8, 1996, the district court granted plaintiff's
motion to remand.  In May 1997, plaintiffs filed an amended
petition alleging breach of contract by the company.  The
company again removed the case to United States District Court
for the Eastern District of Missouri.  Plaintiffs are taking
action to again have the case remanded to state court.  BCBSMo
and the company believe the claims are without merit and
intend to vigorously defend the action.

Litigation with DOI and Attorney General

In August 1994, BCBSMo transferred certain assets to the
company in connection with an offering to the public of 20% of
the common stock of the company (such events are referred to
collectively as the Reorganization and Public Offering).
Although the Director of the Missouri Department of Insurance
(DOI) formally approved the Reorganization and Public Offering
on April 14, 1994, the Director and 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 its RightCHOICE stock, to the State
of Missouri or a charity designated by the State of Missouri.
The Director and DOI threatened to bring legal action, seek a
receivership or terminate BCBSMo's insurance license unless
BCBSMo gave up its assets.

BCBSMo's extensive efforts to settle this dispute were
unsuccessful.  On May 13, 1996, BCBSMo filed a declaratory
judgment action in the Circuit Court of Cole County, Missouri
(the Court) against the Director, DOI and the Missouri
Attorney General (the Attorney General was a necessary party
due to his sole authority to enforce nonprofit corporation
laws).

The Director and DOI filed an answer and counterclaims on June
13, 1996. The answer sets 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
allege violations of certain health service corporation and
nonprofit corporation statutes. The Director and 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.

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

On September 9, 1996 (the September 9 Order), the Court
granted BCBSMo's motion for summary judgment against the
Director and DOI, rejected all of the Director and DOI's
affirmative defenses (including allegations of fraud), issued
a permanent injunction against the Director and DOI and
declared that: (i) under Missouri law the Director and DOI
have 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 DOI have no jurisdiction to take
any action, the practical effect of which is 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 DOI have 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 and the consequences
thereof or BCBSMo's refusal to make a payment as the Director
and DOI have demanded; and (iv) (A) BCBSMo is 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 does
not owe the State or any person or entity a "toll charge,"
"charitable asset settlement" or any other payment as a result
of the August 1994 Reorganization and Public Offering.  On
December 30, 1996, the Court issued orders modifying the
findings and declarations set forth in (iv) above, on the
grounds that it was legally unnecessary to resolve such issues
since the Court had already ruled against the Director and DOI
for other reasons.

The September 9 Order permanently enjoined the Director and
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. This injunctive
relief remains in place, but the Court's December 30 Orders
(described below) clarify that the injunction does not
prohibit the Director and 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 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
seeking a declaration that BCBSMo has exceeded or abused its
authority conferred upon it by law. Under this counterclaim,
the Director and DOI seek an order to rehabilitate BCBSMo or,
in the alternative, injunctive relief.

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

On December 30, 1996, the court issued three orders (the
December 30 Orders):  (i) denying BCBSMo's motion for summary
judgment against the Attorney General; (ii) granting the
Attorney General's motion for partial summary judgment against
BCBSMo; (iii) denying BCBSMo's supplemental motion for summary
judgment against the Director and DOI on their amended
counterclaim; (iv) granting the Director and DOI's motion for
summary judgment against BCBSMo on their amended counterclaim;
and (v) modifying, in part, the Court's previous September 9
Order as described above.  The December 30 Orders declared
that (i) BCBSMo has 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 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 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 Attorney General's
counterclaim pending appeal; and (iii) stayed the legal effect
of the order granting the Director and DOI summary judgment
pending the filing of an appeal bond (which BCBSMo promptly
filed). On January 9, 1997, BCBSMo filed a notice of appeal of
the December 30 Orders. On January 21, 1997, the Director and
DOI filed a notice of appeal of the September 9 Order, as
modified. Both appeals are pending; briefing will continue
through December 1997 and an appellate hearing is not likely
to be scheduled before January 1998.

Notwithstanding the December 30 Orders, the company still
believes that the counterclaims of the Director, DOI and the
Attorney General are without merit and that BCBSMo's legal
position is strong. If, however, BCBSMo does not prevail on
appeal in overturning the summary judgment in favor of the
Attorney General, it may be subject to dissolution proceedings
if the Court determines that no reasonable alternatives to
dissolution exist.  Likewise, BCBSMo could be unsuccessful on
the appeal of the relief already granted against the Director
and DOI or in its defense of the Attorney General's amended
counterclaim. Any of the foregoing could have a material
adverse effect on the company and the market for the company's
stock. See also "Contingencies - Status of Blue Cross and Blue
Shield trademark licenses."

On November 3, 1997, BCBSMo filed an action in the 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 Attorney General, the DOI
and others that BCBSMo is a public benefit type of nonprofit
corporation which holds its assets for the benefit of the
public generally.  See above in this section, "Litigation with
DOI and Attorney General."  The Attorney General has not yet
filed an answer or other response in this action.

BCBSMo believes its legal position is strong, that it
ultimately will be declared to be a mutual benefit type of
nonprofit corporation, and that it holds no assets for the
benefit of the public generally.  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 will be free to continue to exercise its ownership
interest in the company consistent with the best interests of
BCBSMo's subscribers, subject to any rulings made in the
litigation described above in this section, "Litigation with
the DOI and Attorney General."

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, however, BCBSMo might be
required to exercise its ownership interest in the company
consistent with the best interests of the public at large,
which could result in a determination to dispose of some or
all of the company's shares at times and in quantities that
could be detrimental to the market for the company's stock.
Also, if this were to occur, either the DOI or the Attorney
General could take actions against BCBSMo based upon such
declarations (such as seeking the appointment of a receiver to
safeguard assets deemed dedicated to the public which could
result in the termination of the company's licenses to use the
"Blue Cross" and "Blue Shield" tradenames 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 the
company's stock.  See "Contingencies - Status of Blue Cross
and Blue Shield Trademark Licenses."

Status of Blue Cross and Blue Shield trademark licenses

BCBSMo has  exclusive trademark licenses (the Primary
Licenses), and the company, Healthy Alliance Life Insurance
Company (HALIC) and BlueCHOICE have exclusive controlled
affiliate licenses (the Affiliate Licenses), with the national
Blue Cross and Blue Shield Association (BCBSA) giving them 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 trademark licenses require BCBSMo, the
company and its controlled affiliates to pay license fees to
BCBSA for the use of the trademarks. 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 the company's stock.

The Affiliate Licenses are derivative of the Primary Licenses
and automatically terminate if the Primary Licenses terminate.
Each trademark license provides that it automatically
terminates if, among other things:  (i) DOI or another
regulatory agency assumes control of the licensee; or (ii) an
action is instituted against  the licensee  seeking
dissolution or liquidation or seeking the appointment of a
trustee, receiver or custodian, which is not dismissed within
60 days of being instituted. 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.
According to their terms, if a trademark 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.

Although the 60-day period contemplated by (ii) in the
immediately preceding paragraph would have expired on August
20, 1996, ongoing discussion with BCBSA did not give any
indication that BCBSMo's pending litigation against the
Attorney General, the Director and DOI described above (the
Litigation) would have any impact on the retention of the
licenses. On or about January 9, 1997, however, BCBSA notified
BCBSMo that the Primary Licenses and the Affiliate Licenses
had automatically terminated because a counterclaim in the
Litigation seeking dissolution of BCBSMo had been pending for
60 days. BCBSMo believes that the Litigation did not trigger
the automatic termination provisions of the licenses and that
such licenses remain in full force and effect, and has
strongly stated this position to BCBSA.  BCBSMo based its
legal position upon, among other things: (i) the fact that the
Attorney General's claim against BCBSMo seeks alternatives to
dissolution, not the dissolution of BCBSMo; (ii) the fact that
the trial court stayed the legal effect of the rulings adverse
to BCBSMo in the Litigation pending their appeal and that
there is no threat of the type contemplated by the licenses
until the appeal is decided; (iii) Missouri franchise laws
that mandate 90 days prior written notice of termination of
the trademark licenses; and (iv) based upon the prior
statements, actions and inaction of BCBSA, equitable
principles of waiver, estoppel and laches prevent termination
of the licenses. BCBSA decided to resolve the issue without
litigation and to give BCBSMo, the company and its controlled
affiliates the uninterrupted right to use the "Blue Cross" and
"Blue Shield" names, trademarks and service marks by granting
them new interim and temporary licenses (thereby placing them
in substantially the same position as if no termination had
taken place). BCBSMo, the company and its controlled
affiliates agreed to accept the benefits and rights under such
new licenses, while reserving and in no manner waiving their
rights under the Primary Licenses and the Affiliate Licenses.

The interim licenses gave BCBSMo, the company and its
previously licensed controlled affiliates the right to
continue to use the trademarks from the effective date of the
purported automatic termination of the Primary Licenses and
the Affiliate Licenses until the date the temporary licenses
were approved by the board of BCBSA. On January 20, 1997, the
board of BCBSA granted new temporary licenses to BCBSMo, the
company and its previously licensed controlled affiliates to
continue to use the "Blue Cross" and "Blue Shield" names,
trademarks and service marks. The temporary licenses initially
provided that they would automatically terminate upon the
expiration or termination of the stay of the Litigation
entered on December 30, 1996.  However, BCBSA subsequently
agreed to amend the temporary licenses to provide that even if
the stay expires or terminates, the temporary licenses
continue from BCBSA board meeting to board meeting with
continuation dependent upon the affirmative vote of the BCBSA
board at each meeting.

Pursuant to the temporary licenses, BCBSMo agreed not to bring
any action against BCBSA arising out of the purported
automatic termination or the granting of the interim and
temporary licenses for so long as BCBSMo remains a licensee,
whether temporary or permanent, of BCBSA. BCBSA also agreed
that the provisions of the Primary Licenses and the Affiliate
Licenses requiring payment of the $25 per enrollee termination
fee and notice of termination to each enrollee shall not apply
so long as BCBSMo remains a licensee, whether temporary or
permanent, of BCBSA.

BCBSA agreed to grant to BCBSMo, the company and its
previously licensed controlled affiliates full trademark
licenses if and when (i) the Litigation is resolved in a
manner that is in the best interests of BCBSA, the trademarks
and the other Blue plans, and (ii) BCBSMo, the company and its
previously licensed controlled affiliates are then in
compliance with the terms of such full licenses and with BCBSA
rules and regulations.

As a result of the issuance of the temporary licenses, BCBSMo,
the company, HALIC and BlueCHOICE have the right to continue
to use the "Blue Cross" and "Blue Shield" names, trademarks
and service marks  However, if BCBSMo is not successful in its
appeal of the December 30 Orders issued in the Litigation and
the BCBSA board fails to take action at a subsequent board
meeting to continue the licenses, the company may lose the
right to use such names, trademarks and service marks, and
would trigger the obligation of the company and its affiliates
to pay the $25 per enrollee termination fee and provide
notification of termination to enrollees which would have a
material adverse effect on the company and the market for the
company's stock. See "Contingencies - Litigation with DOI and
Attorney General."  At the present time, the company has no
reason to believe that the BCBSA board would fail to take such
action.

Litigation with MCHCP

On August 28, 1997, the company brought suit against the
Missouri Consolidated Health Care Plan (MCHCP) and its
trustees in the Circuit Court of Cole County, Missouri.  MCHCP
is a Missouri public agency which purchases health care
coverage for employees of the State and of selected public
entities which have been admitted into the MCHCP.  In 1995,
the company, after bidding on certain Requests for Proposal
from MCHCP, was awarded a contract to furnish various managed
care products to employees of the State and to public
entities.  The contract was for an initial one-year term with
four one-year renewal terms.  The respective rights of the
parties to renew the contract and the applicable rates for any
such renewal term are presently in dispute.  MCHCP has
purported to renew the contract for the years 1997 and 1998.

In its lawsuit, the company contends that under the language
of the applicable contract, MCHCP has express and implied
duties to negotiate the amount of any rate increase that might
become effective for each succeeding one-year renewal term.
It is the company's position that if no agreements to the
negotiated rates can be reached, MCHCP's sole remedy is to
request bids from other insurers.  It further contends that
MCHCP has breached that duty by renewing the contract from
year to year while allowing only limited rate increases,
without negotiation.  The company further contends that MCHCP
has violated Missouri law by admitting numerous public
entities into the MCHCP without conducting any actuarial or
other appropriate analysis, thus compelling the company to
provide managed care services to public entities without
regard to the actuarial risk that they pose.  The company also
contends that MCHCP violated the Missouri Administrative
Procedure Act in the manner in which it adopted the
regulations by which it administers its managed care program,
and that MCHCP has violated the Missouri Open Meetings and
Open Records Law in the manner in which it has conducted its
business.

The company contends in its lawsuit that it has been damaged
in the 1997 plan year in an amount in excess of $5 million,
and that it will have estimated losses during the 1998 plan
year under its contract with MCHCP in the amount of $13
million.  The company further contends that if the contract is
renewed for the 1999 and 2000 plan years without requested
rate increases, it will have further losses.  On August 29,
1997, the company reported the commencement of the litigation
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.
There can be no assurance that the amount of the reserve taken
in the third quarter would be sufficient to cover all losses
which may be associated with the MCHCP contract, which losses
could have a material adverse effect on the company and the
market for the company's stock.

For its relief, the company seeks a permanent injunction
against the promulgation and implementation by MCHCP of any
rates for the 1998 plan year other than rates which are the
product of the negotiation process called for by the party's
contract, and for a decree of specific performance requiring
MCHCP to negotiate rates in good faith for the 1998 plan year
and later plan years.  Absent such relief, the company prays
for a declaration that the contract is void and is of no
effect.  The company also prays for damages in the amount of
its losses incurred, for its attorney fees, for relief for
violation of the Open Meetings Law, and for such other relief
as is appropriate.

Also on August 28, 1997, and in anticipation of the company's
suit, MCHCP filed suit against BCBSMo, the company and
HealthLink HMO, Inc., a wholly owned subsidiary of the company
(HealthLink HMO).  MCHCP in its lawsuit contended that the
company and HealthLink HMO had committed anticipatory breaches
of their contracts with MCHCP, and had tortiously interfered
with MCHCP's contractual relations with its members.  It
prayed only for equitable relief, in the form of a decree
compelling the company and HealthLink HMO to perform in
accordance with MCHCP's interpretation of the contracts'
terms.

Subsequently, HealthLink HMO and Continental Assurance Co.
(CNA) filed suit in the Circuit Court of Cole County, Missouri
against MCHCP.  HealthLink HMO is a party to an HMO contract
with MCHCP similar to the contract of the company;
substantially all the underwriting risk under that contract is
borne by CNA under an agreement between HealthLink HMO and
CNA.  HealthLink HMO and CNA seek relief similar to that
sought on behalf of the company, including a declaration that
their contract with MCHCP is void and of no effect.

The lawsuits are in the early discovery stages.  The company
and HealthLink HMO are prosecuting their lawsuits for the
purpose of securing relief under their contracts with MCHCP.
The company and HealthLink HMO have represented to the Court
that they will continue to perform under their contracts until
there is a ruling by the Court on their claims or some other
material change in circumstances.  The company and HealthLink
HMO anticipate that trial preparation will be complete so that
the lawsuits can be submitted to the trial court for decision
in 1998.

The company believes that its legal position in the litigation
with MCHCP is meritorious, but the outcome of that litigation
cannot be predicted with certainty.  Should MCHCP prevail, the
company could be held contractually bound to serve the MCHCP
members through the year 2000 at the rates contracted for in
1995, with annual rate increases, if any, which are far less
than necessary to permit the company to recover its costs in
serving those members.  Should MCHCP continue its policy of
indiscriminate admission of all applying public entities,
regardless of their loss histories, the losses to the company
could increase from year to year as the MCHCP public entity
membership grows, which losses could have a material adverse
effect on the company and the market for the company's stock.


Other contingencies

The company and BCBSMo received a market conduct report from
the DOI in April 1996. The company has formally responded to
the report. Certain of the criticisms made by the examiners
involve compliance issues, which the company is currently
addressing. The company has alleged in the action described
under "Litigation with DOI and Attorney General," 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 into making the payment in the nature and
amount described above under "Litigation with DOI and Attorney
General." The company is in the process of discussing
outstanding issues on the market conduct report which include
rates charged to groups of less than 25 members in 1994, the
first year of the Missouri Small Group Reform Law,
coordination of benefits, and co-payment issues.  The DOI
believes the company should refund excess premium payments to
the small groups and should take certain actions relating to
coordination of benefits.  In addition, the DOI is
investigating the way in which BCBSMo and the company
calculated co-payment amounts prior to January 1996.  This
issue 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 five million
dollars.  The company believes it has resolved this issue
through the Kelly settlement; however, it cannot anticipate
the actions the DOI may take on this issue.  Management
believes that it has made adequate provisions to cover the
contingency and that the final amount should not have a
material impact on the financial position of the company;
however, the company cannot anticipate the potential actions
of the DOI.

In addition to the matters described above, the company is a
party to litigation in the normal course of business,
including professional liability and litigation with former
executives of the company.

3.  Transfer of Service Functions

In 1997, the company moved its St. Louis-based claims,
customer service, billing and provider services functions to
its Springfield, Missouri facility and a new facility in Cape
Girardeau, Missouri.  Approximately 200 jobs were relocated to
Cape Girardeau with an additional 100 relocated to
Springfield.  The move is expected to result in annual salary
and benefit cost savings of approximately $3.0 million, with
approximately $1.4 million expected in 1997.  However, the
expected 1997 savings will be offset by higher than expected
staffing levels and additional resources needed to reduce
claims backlog resulting in an anticipated delay of $1.3
million of the savings from the relocation.  In 1996,
beginning in the second quarter, the company incurred charges
to earnings of $4.5 million.  The company expects to incur a
total of up to $3.5 million in 1997 for costs associated with
finalizing this relocation.  A charge of $3.0 million was
incurred in the first three quarters of 1997 for this
relocation and is reflected in the non-recurring relocation
charges caption on the 1997 Consolidated Statement of Income.

4.  Recently Issued Accounting Standards

During March 1997, the Financial Accounting Standards Board
(FASB) released Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS No. 128), which changed
the computation and disclosure of earnings per share.  SFAS
No. 128 is effective for both interim and annual periods
ending after December 15, 1997 and earlier application is not
permitted.  Under the company's current capital structure, the
adoption of SFAS No. 128 will not have a material impact on
the company's determination of earnings per share.

In addition, the FASB recently released SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information."  SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure and
is effective for periods ending after December 15, 1997.  SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements.  The standard will
require all companies to present all non-owner changes in
equity, e.g. market value adjustments to investments and
adjustments to the minimum pension liability, in a full set of
financial statements.  The new rules will be effective
beginning first quarter of 1998 and companies will only be
required to report total comprehensive income for interim
periods.  SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that
those enterprises report selected information about operating
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
The new rules will be effective for the 1998 fiscal year.
Abbreviated quarterly disclosure will be required beginning
first quarter of 1999, with both 1999 and 1998 information.

5.  Changes in Long-Term Debt

Subsequent to the third quarter of 1997, the company amended
its revolving credit facility (the Credit Facility), the
material terms of which are as follows:  (1) the borrowings
under the Credit Facility will bear interest at 2.75% above
the one month floating London Interbank Offered Rate (LIBOR),
(2) certain financial covenant calculations were modified and
the financial covenant requirements were adjusted, (3) the
maximum commitment of the Credit Facility was reduced to $50
million as of October 1, 1997 with $1.25 million quarterly
reductions through 1998 and subsequent $2.5 million quarterly
reductions through June 30, 2000, with the remaining
$30,000,000 commitment under the Credit Facility terminating
on August 10, 2000, (4) mandatory reductions to the
commitment, together with prepayments, are required upon the
happening of certain extraordinary events, (5) stricter limits
were placed on the company's ability to incur additional debt,
and (6) stricter limits were placed on capital expenditures as
well as the company's ability to make investments and
acquisitions.

6.  Provision for Income Taxes

The company's effective income tax rates for the 1997 interim
periods presented in the Consolidated Statements of Income
were affected by gains from the liquidation of company-owned
life insurance policies as well as non-deductible goodwill
amortization.  The effective rates for the 1996 interim
periods presented were also affected by non-deductible
goodwill amortization.

7.  Reclassifications

Certain reclassifications have been made to the Consolidated
Financial Statements for 1996 to conform with the 1997
presentation.

                                   1
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 nine month periods ended September 30,
1997 and 1996 (unaudited):


                                 Three Months Ended    Nine Months Ended
                                    September 30,       September 30,
Product Group                      1997       1996     1997       1996
                                   (in thousands)      (in thousands)
PPO:
  Alliance PPO                $ 48,038    $ 55,995   $150,102    $177,472
  AllianceChoice POS            32,687      20,282     90,517      51,813
HMO (includes other POS)        46,515      35,848    133,277     101,859
Medicare supplement             24,064      24,377     73,522      74,129
Managed indemnity                2,682       3,976      9,949      12,481
Other specialty services         9,740       7,885     28,347      21,966
Total premium revenue          163,726     148,363    485,714     439,720
ASO/Self-funded and
     other income               16,766      15,425     47,241      43,416
Total revenues                $180,492    $163,788   $532,955    $483,136

The following table sets forth selected operating ratios. The
medical loss ratio is shown as a percentage of healthcare
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       Nine Months Ended
                                  September 30,             September 30,
                                 1997       1996         1997        1996
Operating revenues:
  Premium revenue               90.7%      90.6%        91.1%       91.0%
  Fees and other income          9.3%       9.4%         8.9%        9.0%
                               100.0%     100.0%       100.0%      100.0%
Operating expenses:
  Medical loss ratio            87.4%      89.9%        84.7%       81.9%
  Commission expense             4.2%       4.0%         4.1%        4.0%
  General and administrative
  expense (includes
  depreciation and
  amortization)                 22.0%      22.6%        22.5%       22.0%

Membership

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


                                                  September 30,
Product Group                                    1997       1996       %
Underwritten:
 PPO:
  Alliance PPO                                152,502    201,477   (24.3)%
  AllianceChoice POS                          130,773     88,232    48.2
 HMO:
  Commercial (includes other POS)             131,374     98,311    33.6
  BlueCHOICE Senior                             5,788      5,292     9.4
  BlueCHOICE Medicaid (MC+)                     4,964      5,069    (2.1)
 Medicare supplement                           63,469     69,784    (9.0)
 Managed indemnity                              7,515     11,533   (34.8)
                                              496,385    479,698     3.5
Self-funded:
 PPO                                           90,137    112,025   (19.5)
 HMO                                           13,471     16,484   (18.3)
 ASO (includes HealthLink):
  Workers' Compensation                       340,222    272,562    24.8
  Other ASO*                                  982,915    892,945    10.1

Total Membership                            1,923,130  1,773,714     8.4%

* does not include 497,701 and 653,203 as of September 30,
1997 and September 30, 1996, respectively, relating to
additional third-party administrator members that are part of
The EPOCH Group, L.C., a joint venture with Blue Cross and
Blue Shield of Kansas City formed in December 1995.

Comparison of Results for Third Quarter 1997 to Third Quarter 1996

Revenues

Premium revenue increased 10.4% in the third quarter of 1997
in comparison to the third quarter of 1996.  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 $4.4 million - -  $7.6 million due to a
7.6% increase in net premium rates partially offset by a $3.2
million decrease resulting from a 1.7% decrease in member
months.  Net rates increased due in part to the company's
targeted general rate increases averaging 7% to 13% during
enrollment periods in the first three quarters of 1997.  Net
rate increases are at the lower end of the targeted range due
in part to changes in deductibles, the timing of group
renewals throughout the year, and product mix changes such as
the continued shift in membership to AllianceChoice, a lower
cost, non-gatekeeper point-of-service (POS) product.  Alliance
PPO membership decreased by 48,975 members from September 30,
1996 to September 30, 1997 while AllianceChoice POS membership
increased by 42,541 over the same time period.  The company
also began offering its PPO product in Illinois at the end of
the first quarter of 1997.  Included in the Alliance PPO
member count are 1,200 PPO Illinois members at September 30,
1997.  The company anticipates future enrollment gains in the
central and southern regions of Illinois in the remainder of
1997 and throughout 1998.

HMO premium revenue increased $10.7 million or 29.8% - - $9.9
million due to a 30.1% increase in member months and $0.8
million resulting from a marginal increase in net premium
rates.  Net premium rates have increased only slightly,
despite the company's targeted renewal rate increases of 7% to
13% during enrollment periods in the first three quarters of
1997, due to HMO competition in the company's HMO service
areas, the status of a large group (MCHCP) with which the
company is currently involved in litigation (see
"Contingencies - Litigation with MCHCP"), shifts in chosen
benefit levels, changes in the geographic mix of the HMO
business, and product mix shifts due to various new products.
Membership increases were driven primarily by the company's
BlueCHOICE Senior and HealthNet Blue POS products as well as
the company's efforts to expand geographically within the
State of Missouri.  BlueCHOICE Senior gained 500 members
(9.4%) from September 30, 1996 to September 30, 1997.
HealthNet Blue POS gained 7,200 members (54.5%) over the same
time period.  Through an arrangement with Freeman Hospitals
and Health System, beginning in July 1995, the BlueCHOICE HMO
and POS products are offered in the six-county area
surrounding Joplin, Missouri.  As of September 30, 1997, there
were approximately 14,600 members enrolled in products sold
through this arrangement with Freeman, representing an
increase of 7,700 members over September 30, 1996.  In
addition, the BlueCHOICE and BlueCHOICE POS programs became
available beginning in October 1996 in the southwest Missouri
area surrounding Springfield through an arrangement with
Primrose Health Care Services, a physician hospital
organization jointly owned by physicians and Cox Hospitals,
one of the leading tertiary care centers in the area.  There
were 10,100 members enrolled in these programs at September
30, 1997, an increase of 8,400 over December 31, 1996.
Partially included in the aforementioned HMO membership
increases is an increase in the company's MCHCP membership of
13,600 between September 30, 1996 and September 30, 1997.  The
company's future enrollment growth in these products and
geographic regions is dependent on network attractiveness,
continued cooperation with physician hospital organizations,
and other factors.  There can be no assurance that these
objectives will be realized.  Future enrollment growth in the
company's products offered to MCHCP and revenues generated
therefrom are also dependent on the litigation with MCHCP and
other factors (see "Contingencies - Litigation with MCHCP").

Premium revenue from Medicare supplement decreased by $0.3
million in the third quarter of 1997.  Premium rates increased
8.2% partially offset by an 8.8% decrease in member months.
Membership declines are partially attributable to members
shifting to BlueCHOICE Senior, a Medicare-risk program, which
provides medical benefits at least as comprehensive as
Medicare benefits for persons eligible to receive Medicare
(parts A and B) at no or minimal additional cost to the
member.  The company markets its BlueCHOICE Senior product as
part of its strategy to direct existing customers to more
intensely managed health care products.

Managed indemnity premium revenue decreased by $1.3 million
due to a 32.7% decline in member months in keeping with the
company's strategy to move towards more highly managed care
products.

Revenue from other specialty services increased $1.9 million
due to an 8.4% increase in member months and a 13.9% increase
in net premium rates.  The company's drug product, AllianceRx,
continued to gain momentum with revenues increasing $1.6
million due to a 10.2% increase in member months in the third
quarter of 1997 as compared to the third quarter of 1996.
This product was introduced in November 1994 and is sold to
members on a separate product basis; prior to this, the drug
benefit was typically included as part of the basic PPO
medical program.

Fees and other income from administrative services only/self-
funded and network services increased by $1.3 million.  This
increase is primarily due to increased 1997 revenues from
HealthLink, Inc. (HealthLink), the company's network rental
and managed care service subsidiary, of $2.2 million.
HealthLink's increases to fees and other income were partially
offset by decreases to revenue caused by a 19.6% decline in
PPO self-funded member months.  The company expects further
declines in its self-funded membership as three large self-
funded group cancellations are effective as of January 1,
1998. As of September 30, 1997, these three groups encompassed
approximately 72,000 members, approximately 30,000 of which
are expected to enroll in HealthLink's self-funded ASO plans
in 1998.

Operating Expenses

The overall medical loss ratio decreased from 89.9% in the
third quarter of 1996 to 87.4% in the third quarter of 1997.
The overall medical loss ratio decreased in part due to an
increase in reserves in the third quarter of 1996 to reflect
greater than previously anticipated medical cost trends and
utilization.  Year-to-date in 1997, the company's medical loss
ratio has increased relative to the comparable period in 1996
primarily as a result of 1) growth of lower margin products,
2) aggressive pricing in 1996 in order to retain and increase
membership, 3) higher drug and outpatient utilization, 4)
growth in regions outside of the metropolitan St. Louis area
that have less cost efficient networks, 5) an increase to
claims reserves of $3.0 million in 1997 for the estimate of
claims which had been incurred but not reported in 1996, and
6)  the poor performance of MCHCP that has resulted in large
underwriting losses (see "Contingencies - Litigation with
MCHCP").  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.

The company's efforts in 1997 to modify its pharmacy benefits
management program and recontract with physicians and
ancillary service providers have not yet yielded targeted
savings in the anticipated time frame.  The drug cost trend
(as a percentage) has remained in the low teens, 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.  Among
the medical cost control strategies targeted for 1998 are a
combination of changes in the pharmacy program to save costs
and increase member satisfaction through:  allowing members to
make choices, albeit with a higher member copayment;
introducing a new three-tiered benefit design; and making
other adjustments to copayments, quantity limits and
exclusions.  Physician education, utilization and prescribing
pattern analysis will be increased.  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 operating strategy
(IOS), which is comprised of projects being implemented to
improve business processes and systems.  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 increased by $0.9 million or 14.2% in the
third quarter of 1997 primarily related to increased
membership growth.  The commission expense ratio edged up to
4.2% for the third quarter of 1997 as compared to 4.0% for the
third quarter of 1996.

General and administrative expenses (excluding depreciation
and amortization) increased by $1.2 million, or 3.7% in the
third quarter of 1997 as compared to the third quarter of
1996.  This increase is primarily due to a $1.2 million
increase in HealthLink expenses.

Management previously announced its plans to improve the
company's overhead cost structure by streamlining operations,
focusing on the core business, reviewing investment
priorities, and reducing legal, consulting, and non-essential
vendor expenses.  The achievement of overhead reduction goals
was delayed, in part, by higher-than-expected staffing levels
and additional resources needed to reduce claims backlog that
occurred as claims processing relocated to the new customer
service centers.  The staffing resources required to resolve
the claims backlog delayed the realization of $1.3 million of
anticipated overhead savings.  The company's general and
administrative ratio (excluding depreciation and amortization)
improved to 19.1% for the third quarter of 1997 compared to
20.3% for the third quarter of 1996.

Depreciation and amortization expenses increased by $1.5
million in the third quarter of 1997 as compared to the third
quarter of 1996 primarily due to an increase of $1.4 million
of amortization expenses for completed components of the
company's information and operations strategy (IOS) project in
the third quarter of 1997 as compared to the third quarter of
1996.  See "Outlook - Information Strategies" for more
information related to this project.

Non-recurring relocation charges in the third quarter of 1997
and 1996 include $0.1 million and $0.5 million, respectively,
related to costs associated with the relocation of the
company's St. Louis-based claims, customer service, billing,
and provider services functions to its Springfield, Missouri
facility and a new facility in Cape Girardeau, Missouri.  The
company expects to incur up to an additional $0.5 million in
the fourth quarter of 1997 for costs to finalize this
relocation.

On August 29, 1997, the company announced that it would create
a loss reserve for its contract with the Missouri Consolidated
Health Care Plan (MCHCP) in the range of $30 million to $40
million as discussed elsewhere herein.  The company's third
quarter 1997 operating loss reflects a $29.5 million loss
reserve provision relating to the MCHCP contract (see
"Contingencies - Litigation with MCHCP").

Operating Income

Operating income decreased $24.3 million in the third quarter
of 1997 in comparison to the third quarter of 1996.  Operating
income, excluding the non-recurring relocation charges and the
charge for loss reserves, increased $4.8 million in the third
quarter of 1997 in comparison to the third quarter of 1996.

Net Investment Income

The third quarter 1997 net investment income of $4.8 million
represents a $1.2 million increase over the third quarter of
1996, inclusive of a $0.8 million increase in interest and
dividends.  Interest increased in 1997 due to the company's
intention of maintaining a greater proportion of its
investments in fixed income securities.

Provision for Income Taxes

The company's effective income tax rate was 34.1% and 33.3%
for the third quarters of 1997 and 1996, respectively.  The
company's effective income tax rate for 1997 and 1996 were
affected by non-deductible goodwill amortization.

Net Income

The company's net loss of $22.8 million, or $1.22 per share,
for the third quarter of 1997 represents a decrease of $14.9
million compared to the third quarter 1996 loss of $7.9
million, or $0.42 per share.  Excluding the non-recurring
relocation charges and the charge for loss reserves, the
company's net loss for the third quarter of 1997 was $3.5
million, or $0.19 per share, compared to a net loss of $7.5
million, or $0.40 per share for the third quarter of 1996.

Comparison of Results for the Nine Months Ended September 30,
1997 to the Nine Months Ended September 30, 1996

Revenues

Premium revenue increased $46.0 million or 10.5% in the first
three quarters of 1997 in comparison to the first three
quarters of 1996.  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 $11.3 million primarily due to a 3.2%
increase in net premium rates coupled with a slight increase
in member months.  Net rates increased due in part to the
company's targeted general rate increases averaging 7% to 13%
during enrollment periods in the first three quarters of 1997.
Net rate increases are significantly below the targeted levels
due in part to changes in deductibles, the timing of group
renewals throughout the year, and product mix changes such as
the continued shift in membership to AllianceChoice.  Alliance
PPO membership decreased by 48,975 members from September 30,
1996 to September 30, 1997 while AllianceChoice POS membership
increased by 42,541 over the same time period.  The company
also began offering its PPO product in Illinois at the end of
the first quarter of 1997.  Included in the Alliance PPO
member count are 1,200 PPO Illinois members at September 30,
1997. The company anticipates future enrollment gains in the
central and southern regions of Illinois in the remainder of
1997 and throughout 1998.

HMO premium revenue increased $31.4 million or 30.8% - - $30.7
million due to a 31.9% increase in member months and $0.7
million due to a slight increase in net premium rates.  Net
premium rates have increased only slightly, despite the
company's targeted renewal rate increases of 7% to 13% during
enrollment periods in the first three quarters of 1997, due to
HMO competition in the company's HMO service areas, the status
of a large group (MCHCP) with which the company is currently
involved in litigation (see "Contingencies - Litigation with
MCHCP"), shifts in chosen benefit levels, changes in the
geographic mix of the HMO business, and product mix shifts due
to various new products.  Membership increases were driven
primarily by the company's BlueCHOICE Senior and HealthNet
Blue POS products as well as the company's efforts to expand
geographically within the State of Missouri.  BlueCHOICE
Senior gained 500 members (9.4%) from September 30, 1996 to
September 30, 1997.  HealthNet Blue POS gained 7,200 members
(54.5%) over the same time period.  As of September 30, 1997,
there were approximately 14,600 members enrolled in BlueCHOICE
HMO and POS products in the six-county area surrounding
Joplin, Missouri, representing an increase of 7,700 members
over September 30, 1996.  In addition, as of September 30,
1997, there were 10,100 members enrolled in BlueCHOICE HMO and
POS products in the southwest Missouri area surrounding
Springfield, an increase of 8,400 over December 31, 1996.
Partially included in the aforementioned HMO membership
increases is an increase in the company's MCHCP membership of
13,600 between September 30, 1996 and September 30, 1997.  The
company's future enrollment growth in these products and
geographic regions is dependent on network attractiveness,
continued cooperation with physician hospital organizations,
and other factors.  There can be no assurance that these
objectives will be realized.  Future enrollment growth in the
company's products offered to MCHCP and revenues generated
therefrom are also dependent on the litigation with MCHCP and
other factors (see "Contingencies - Litigation with MCHCP").

Premium revenue from Medicare supplement decreased by $0.6
million in the first three quarters of 1997.  Member months
decreased by 8.4% partially offset by an 8.3% increase in
premium rates.  Membership declines are partially attributable
to members shifting to BlueCHOICE Senior.

Managed indemnity premium revenue decreased by $2.5 million
due to a 25.2% decline in member months in keeping with the
company's strategy to move towards more highly managed care
products.

Revenue from other specialty services increased $6.4 million
due primarily to a 16.0% increase in member months.  The
company's drug product, AllianceRx, continued to gain momentum
with revenues increasing $5.6 million due to a 16.9% increase
in member months in the first three quarters of 1997 as
compared to the first three quarters  of 1996.

Fees and other income from administrative services only/self-
insured and network services increased by $3.8 million.  ASO
revenues from HealthLink increased by $7.3 million in the
first three quarters of 1997 as compared to the first three
quarters  of 1996.  HealthLink's 1997 and 1996 revenues
include $5.3 million and $1.5 million of revenues,
respectively from HealthLink HMO, Inc. (HealthLink HMO), which
was only 50% owned by HealthLink (and not consolidated with
the company's operations) prior to its May 31, 1996
acquisition from a subsidiary of Blue Cross and Blue Shield of
Kansas City.  HealthLink's revenues also increased due to
membership gains in its PPO products of approximately 11.7% or
75,600 members from September 30, 1996 to September 30, 1997.
HealthLink's increases to fees and other income were partially
offset by decreases to revenue caused by higher stop loss
claims expenses for the company's self-insured groups in 1997
and the company's declining PPO self-funded membership.  The
company expects further declines in its self-funded membership
as three large self-funded group cancellations are effective
as of January 1, 1998.  As of September 30, 1997, these three
groups encompassed approximately 72,000 members, approximately
30,000 of which are expected to enroll in HealthLink's self-
funded ASO plans in 1998.

Operating Expenses

The overall medical loss ratio increased by 2.8% to 84.7% in
the first three quarters of 1997 in comparison to 81.9% in the
first three quarters of 1996 primarily as a result of 1)
growth of lower margin products, 2) aggressive pricing in 1996
in order to retain and increase membership, 3) higher drug and
outpatient utilization, 4) growth in regions outside of the
metropolitan St. Louis area that have less cost efficient
networks, 5) an increase to claims reserves of $3.0 million in
1997 for the estimate of claims which had been incurred but
not reported in 1996, and 6)  the poor performance of MCHCP
that has resulted in large underwriting losses (see
"Contingencies - Litigation with MCHCP").  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.

The company's efforts in 1997 to modify its pharmacy benefits
management program and recontract with physicians and
ancillary service providers have not yet yielded targeted
savings in the anticipated time frame.  The drug cost trend
(as a percentage) has remained in the low teens, 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.  Among
the medical cost control strategies targeted for 1998 are a
combination of changes in the pharmacy program to save costs
and increase member satisfaction through:  allowing members to
make choices, albeit with a higher member copayment;
introducing a new three-tiered benefit design; and making
other adjustments to copayments, quantity limits and
exclusions.  Physician education, utilization and prescribing
pattern analysis will be increased.  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 operating strategy
(IOS), which is comprised of projects being implemented to
improve business processes and systems.  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 increased by $2.5 million or 12.7% in the
first three quarters of 1997 primarily related to increased
membership growth.  The commission expense ratio remained
relatively flat at 4.1% for the first three quarters of 1997
compared to 4.0% for the first three quarters of 1996.

General and administrative expenses (excluding depreciation
and amortization) increased by $8.7 million, or 9.2%.  This
increase is primarily due to a $4.7 million increase in
HealthLink general and administrative expenses in the first
three quarters of 1997 as compared to the first three quarters
of 1996, inclusive of a $3.3 million increase in HealthLink
HMO expenses.

Management previously announced its plans to improve the
company's overhead cost structure by streamlining operations,
focusing on the core business, reviewing investment
priorities, and reducing legal, consulting, and non-essential
vendor expenses.  The achievement of overhead reduction goals
was delayed, in part, by higher-than-expected staffing levels
and additional resources needed to reduce claims backlog that
occurred as claims processing relocated to the new customer
service centers.  The staffing resources required to resolve
the claims backlog delayed the realization of $1.3 million of
anticipated overhead savings.  Excluding the $1.3 million of
expenses for staffing resources in 1997 related to this claims
backlog, the company's general and administrative ratio
(excluding depreciation and amortization) improved to 19.3%
for the first three quarters of 1997 compared to 19.7% for the
first three quarters of 1996.

Depreciation and amortization expenses increased to $15.6
million for the first three quarters of 1997 compared to $10.8
million for the first three quarters of 1996.  The primary
cause for this $4.8 million increase is an additional $3.6
million of IOS amortization expense incurred in the first
three quarters of 1997 as compared to the first three quarters
of 1996.  See "Outlook - Information Strategies" for more
information related to the IOS project.

Non-recurring relocation charges in the first three quarters
of 1997 and 1996 include $3.0 million and $3.3 million,
respectively, related to costs associated with the relocation
of the company's St. Louis-based claims, customer service,
billing, and provider services functions to its Springfield,
Missouri facility and a new facility in Cape Girardeau,
Missouri.  The company expects to incur up to an additional
$0.5 million in the fourth quarter of 1997 for costs to
finalize this relocation.

On August 29, 1997, the company announced that it would create
a loss reserve for its contract with the Missouri Consolidated
Health Care Plan (MCHCP) in the range of $30 million to $40
million as discussed elsewhere herein.  The company's 1997
year-to-date loss reflects a $29.5 million loss reserve
provision relating to the MCHCP contract.  See "Contingencies
- Litigation with MCHCP".

Operating Income

Operating income decreased $45.6 million in the first three
quarters of 1997 in comparison to the first three quarters of
1996.  Excluding the non-recurring relocation charges and the
charge for loss reserves, operating income decreased by $16.4
million.

Net Investment Income

Net investment income in the first three quarters of 1997 was
$28.6 million, representing a $15.0 million increase over the
first three quarters of 1996, inclusive of a $13.5 million
increase in net realized gains.  Realized gains in the first
three quarters of 1997 include a $5.7 million gain on the sale
of company-owned life insurance policies as well as additional
1997 net realized gains from the liquidation of equity
securities due to the company's intent to increase its
holdings of fixed income securities and the company's decision
to repay $15.0 million of its debt.

Provision for Income Taxes

The company's effective income tax rate was 28.9% and 57.6%
for the first three quarters of 1997 and the first three
quarters of 1996, respectively.  The company's effective
income tax rate for 1997 was affected by gains from the
liquidation of company-owned life insurance policies as well
as non-deductible goodwill amortization.  The 1996 effective
rate was also affected by non-deductible goodwill
amortization.

Net Income

The company's net loss for the first three quarters of 1997
was $18.9 million, or $1.01 per share, compared to net income
of $1.7 million, or $0.09 per share, for the first three
quarters of 1996.  Excluding the non-recurring relocation
charges and the charge for loss reserves, the company had net
income of $2.2 million, or $0.12 per share, representing a
decrease of $1.6 million compared to the net income of $3.8
million, or $0.20 per share, for the first three quarters of
1996.


Liquidity and Capital Resources

The company's working capital as of September 30, 1997 was
$77.4 million, a decrease of $31.5 million from December 31,
1996.  The decrease is partially attributable to a $15.0
million repayment of a portion of the $62.0 million of funds
that were borrowed in August 1995 from the company's reducing
revolving credit facility in conjunction with the company's
acquisition of HealthLink.  Also, the company's charge to
accrue a loss reserve related to MCHCP resulted in a current
liability as of September 30, 1997 of $8.2 million.  In
addition, the company capitalized $14.3 million of costs for
property and equipment purchases, $13.0 million of which
relates to capitalized IOS development costs.  The company's
unrealized net appreciation of investments available for sale
decreased by $8.5 million in 1997 as most of the unrealized
gains existing at December 31, 1996 were realized in 1997 as
the company liquidated equity securities and company-owned
life insurance policies.

Net cash used in operations totaled $13.1 million for the nine
months ended September 30, 1997.  The company's net loss was
$18.9 million which included (on a before tax basis) $16.6
million of realized gains from the sale of investments, $29.5
million for the MCHCP loss reserve charge, and $15.6 million
of depreciation and amortization expenses.  In addition, other
assets, medical claims payable, receivables from members, and
net intercompany receivables were affected by the timing of
operating cash payments and receipts, as well as changes in
membership and utilization and claims payment trends.

Subsequent to the third quarter of 1997, the company amended
its revolving credit facility (the Credit Facility), the
material terms of which are as follows:  (1) the borrowings
under the Credit Facility will bear interest at 2.75% above
the one month floating London Interbank Offered Rate (LIBOR),
(2) certain financial covenant calculations were modified and
the financial covenant requirements were adjusted, (3) the
maximum commitment of the Credit Facility was reduced to $50
million as of October 1, 1997 with $1.25 million quarterly
reductions through 1998 and subsequent $2.5 million quarterly
reductions through June 30, 2000, with the remaining
$30,000,000 commitment under the Credit Facility terminating
on August 10, 2000, (4) mandatory reductions to the
commitment, together with prepayments, are required upon the
happening of certain extraordinary events, (5) stricter limits
were placed on the company's ability to incur additional debt,
and (6) stricter limits were placed on capital expenditures as
well as the company's ability to make investments and
acquisitions.

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.  There can be no assurance that the
amount of the reserve taken in the third quarter would be
sufficient to cover all losses which may be associated with
the MCHCP contract, which losses could have a material adverse
effect on the company and the market for the company's stock.

In addition, the company is seeking approval from the Missouri
Department of Insurance with regard to the statutory
capitalization of its HMO subsidiary.


Recent Developments

Information Strategies

In 1995, the company implemented a comprehensive information
and operations strategy (IOS) to assist in implementing the
company's managed care strategy of delivering the lowest cost
medical care consistent with quality outcomes.  The company
believes that controlling medical costs in the future will be
highly dependent on readily accessing both member and provider
medical information at a detail level which provides real-time
analytical support.  The company receives capital expenditure
authorizations from the Board of Directors to expend funds for
the project subject to periodic review by an ad-hoc committee
of the Board.  In the first nine months of 1997, the company
incurred capitalized expenditures of $13.0 million on this
project.  Cumulatively, since 1995, the company has incurred
capitalized expenditures of $34.8 million.  While the IOS
project is initially dilutive to earnings per share, it is
believed that opportunities exist for significant medical and
administrative savings resulting from the program.  There can
be no assurance that the ultimate impact of this IOS project
will contribute to earnings per share or reduce medical costs.

Year 2000 Issue

In January 1996, the company began converting its computer
systems to be year 2000 compliant (e.g. to recognize the
difference between 1999 and 2000 as one year instead of
negative 99 years).  The company expects that at December 31,
1997, approximately 25% of the company's systems will be
compliant, with all systems expected to be compliant by March
31, 1999.  The total cost of the project is estimated to be
between $8 million and $10 million.  The company is expensing
all costs associated with these system changes.  During 1996
and through September 30, 1997, $1.8 million had been
cumulatively expensed on this project.


Recently Issued Accounting Standards

During March 1997, the Financial Accounting Standards Board
(FASB) released Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS No. 128), which changed
the computation and disclosure of earnings per share.  SFAS
No. 128 is effective for both interim and annual periods
ending after December 15, 1997 and earlier application is not
permitted.  Under the company's current capital structure, the
adoption of SFAS No. 128 will not have a material impact on
the company's determination of earnings per share.

In addition, the FASB recently released SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information."  SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure and
is effective for periods ending after December 15, 1997.  SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements.  The standard will
require all companies to present all non-owner changes in
equity, e.g. market value adjustments to investments and
adjustments to the minimum pension liability, in a full set of
financial statements.  The new rules will be effective
beginning first quarter of 1998 and companies will only be
required to report total comprehensive income for interim
periods.    SFAS No. 131 establishes standards for the way
that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders.  It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers.  The new rules will be effective for the 1998
fiscal year.  Abbreviated quarterly disclosure will be
required beginning first quarter of 1999, with both 1999 and
1998 information.

Medicaid business

The company has made a decision to discontinue its Medicaid
product in the 18-county central Missouri region as of March
31, 1998.  This determination was made due to what the company
believes were unreasonable demands and rate restrictions
mandated by the State of Missouri.  As of September 30, 1997,
the company had approximately 5,000 members enrolled in its
Medicaid product.

Operating Outlook

The following statements are based on year-to-date 1997
activity and short-term expectations.  The statements are
forward-looking and actual results may differ materially.

The company is no longer expecting to return to operating
profitability in 1997 due to a combination of pricing and
medical cost trend issues.  In addition, 1998 will be a
transitional year with targeted improvements and the
expectation of entering 1999 with a strong operating base.

As of September 30, 1997, the small group rate restrictions in
the St. Louis market imposed by the Missouri Department of
Insurance as a condition of RightCHOICE's 1995 acquisition of
HealthLink have expired.  RightCHOICE's small group business
comprises approximately 60% of the company's revenues.  In
addition, the underwriting cycle has returned to double-digit
rate increases throughout much of the market.  The company's
intention is to price its products to allow for a reasonable
profit while recognizing that the company's retention rates
may decrease if members choose competing plans offering
substantially lower rates.  The company plans to focus on
providing members with the best possible service at the best
possible prices.

The company's performance targets for 1998 include:  overall
premium revenue growth per member per month in the 9 percent
to 10 percent range, reflecting price increases in the high
teens to low twenties (in percentages) for some categories of
members, consistent with market trends; maintaining the
medical loss ratio in the low eighties, with an anticipated
net medical cost increase per member per month of
approximately 5 percent to 7 percent, inclusive of pharmacy
benefits, medical services, and the cost of government-
mandated benefits; continued reduction in core overhead
expenses, with amortization expense for IOS, investments in
programming to accommodate the year 2000, and other
initiatives contributing to a general and administrative
expense ratio in the low twenties.

The company's ability to deliver these performance targets is
dependent on 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, which description
is incorporated herein by reference.


Factors that May Affect Future Results of Operations,
Financial Condition or Business

In order to take advantage of the safe harbor provisions for
forward-looking statements contained in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, added to those
Acts by the Private Securities Litigation Reform Act of 1995,
the company is identifying important risks and uncertainties
that could cause the company's actual results of operations,
financial condition or business to differ materially from its
historical results of operations, financial condition or
business, or the results of operations, financial condition or
business contemplated by forward-looking statements made
herein or elsewhere orally or in writing.  Factors that could
cause or contribute to such differences include, but are not
limited to, those factors described below.

Litigation with DOI and Attorney General

BCBSMo has filed an action against the Missouri Department of
Insurance (DOI), the Director of the DOI, and the Attorney
General seeking a declaratory judgment and other relief with
respect to the Reorganization and Public Offering, as
described under the same caption in Note 2 "Contingencies"
which is incorporated herein by reference.  While BCBSMo has
prevailed on most issues, the Court has ruled that BCBSMo has
continued to exceed or abuse its statutorily permissible
purposes and is subject to judicial dissolution proceedings or
alternative remedies that are in the public interest and
consistent with the protection of its members.  This issue and
the prior rulings favorable to BCBSMo are on appeal and
additional claims are pending at the trial court.

While the company believes, after reviewing these matters with
legal counsel, that BCBSMo's legal position is strong, the
risks and uncertainties of litigation are such that there can
be no assurance that BCBSMo will prevail on all remaining
claims, that the appellate court will affirm all the rulings
of the trial court favorable to BCBSMo and will reverse the
rulings of the trial court adverse to BCBSMo, that the DOI and
Attorney General will not pursue administrative action during
or after these proceedings, or that any such action would not
have a material adverse impact on the company or the market
for the company's stock.

BCBSMo has filed an action 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 a constructive, charitable or other trust for the
benefit of the public generally, but rather holds its assets
for the benefit of its subscribers.  This action was filed in
response to continued public and private statements by the
Attorney General, the DOI and others that BCBSMo is a public
benefit type of nonprofit corporation that holds its assets
for the benefit of the public generally.

While the company believes, after reviewing these matters with
legal counsel, that BCBSMo's legal position is strong, the
risks and uncertainties of litigation are such that there can
be no assurance that BCBSMo  will prevail on all issues.  If
it does not, it is possible that actions could be taken by
BCBSMo, the Attorney General, the DOI, the BCBSA or others
which could have a material adverse impact on the company or
the market for the company's stock, as described under the
same caption in Note 2 "Contingencies" which is incorporated
herein by reference.

Status of Blue Cross and Blue Shield Trademark Licenses

The company and certain of its subsidiaries have temporary
licenses to use the "Blue Cross" and "Blue Shield" names,
trademarks and service marks as described under the same
caption in Note 2 "Contingencies" which is incorporated herein
by reference.  The company believes that the right to use the
Blue Cross and Blue Shield names and marks provide it with a
significant marketing advantage in its licensed service area.
As explained in Note 2, if BCBSMo's litigation against the DOI
and the Attorney General is not resolved in a manner that is
in the best interests of the BCBSA, the marks and the other
Blue plans, then the company's temporary licenses to use such
names and marks may be terminated (and a permanent license may
not be issued).  The loss of such licenses and the obligation
of the company to pay the $25 per enrollee termination fee and
provide notice of termination to enrollees would have a
material adverse effect on the company and the market for the
company's stock.  See "Factors that May Affect Future Results
of Operations, Financial Condition or Business - Litigation
with DOI and Attorney General."

Litigation with MCHCP

The company and MCHCP have filed lawsuits against one another
as described under the same caption in Note 2, "Contingencies"
which is incorporated herein by reference.  While the company
believes that its legal position in the litigation with MCHCP
is meritorious, the outcome of that litigation cannot be
predicted with certainty.  Should MCHCP prevail, the company
could be held contractually bound to serve the MCHCP members
through the year 2000 at the rates contracted for in 1995,
with annual rate increases, if any, which are far less than
necessary to permit the company to recover its costs in
serving those members.  Should MCHCP continue its policy of
indiscriminate admission of all applying public entities,
regardless of their loss histories, the losses to the company
could increase from year to year as the MCHCP public entity
membership grows which losses could have a material adverse
effect on the company and the market for the company's stock,
as described under the same caption in Note 2, "Contingencies"
which is incorporated herein by reference.

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.  To date, these laws and regulations have not had
a significant negative impact on the growth of the company's
business.  However, there can be no assurance that the company
will be able to obtain or maintain required governmental
approvals or licenses or that any regulatory reform such as
the Health Insurance Portability and Accountability Act of
1996 (HIPAA), Missouri's House Bill 335 (HB335), and mandatory
benefits (e.g. mandatory maternity benefits), which have all
increased 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 types of competitors in its PPO, POS and HMO
operations, many of which have substantially greater financial
and other resources than the company.  The company believes
that price competition among PPO, POS and HMO benefits plans
in the company's markets, particularly the St. Louis
metropolitan area, has recently intensified.  Because the
company's existing business operations are 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.

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 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 and growth of business in regions with less cost
efficient networks.

Dependence on Sales to Individuals

Sales of the company's health care benefit products to
individuals comprise a substantial portion of the company's
business.  The medical loss ratio attributable to some
components of the company's individual business is
significantly lower than that of the company's insured group
business.  As a result, individual business accounts for a
proportionately greater percent of the company's operating
income.  The company's overall margins would be adversely
impacted by a reduction in the relative percent of its
business represented by certain individual products or by an
increase in the medical loss ratio for individuals enrolled in
those products.  The company believes that the success of the
individual business is more dependent than that of its group
business on the management of health care costs through
product design, pricing decisions and the application of
appropriate underwriting standards.  There can be no assurance
that the profitability of this business will be sustained or
that the company will not experience unanticipated increases
in claims.

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 which 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 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 which 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
which BCBSMo has with respect to matters affecting the
company.

Dependence on Key Management

The company depends to a significant extent on key management
members.  Although the company has experienced turnover in
certain key management positions in the past, those positions
have been successfully filled.  However, 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 Quarterly Operating Results and Stock Price

The company's quarterly 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 expenses 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
which cause variations in its quarterly results of operations
and in the volatility of the stock markets generally.

Credit Agreement Restrictions

The company's revolving credit agreement with its existing
lenders contains certain restrictions on the company,
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 and restrictions on additional
indebtedness and liens 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 to remain in compliance with such requirements would
reduce the company's flexibility to respond to adverse
industry conditions and could have a material adverse effect
on the company's results of operations, financial condition or
business.

Additional Factors

Additional risk 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, news coverage by the media, or
negative reports by brokerage firms, industry and financial
analysts regarding the company, its parent or BCBSA or their
products or services which 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;
and changes in accounting policies and practices.

PART II.    OTHER INFORMATION

ITEM 1.     Legal Proceedings

Note 2 to the Consolidated Financial Statements in Part I, 
Item 1 contains a description of various pending and threatened claims,
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, litigation with the Missouri
Consolidated Health Care Plan (MCHCP), 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

             None.

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:

3.2       Amended and Restated Bylaws of the Registrant dated October
          27, 1997.

10.6.2    Amendment to Temporary Blue Cross License Agreement
          between Blue Cross and Blue Shield Association
          (BCBSA) and BCBSMo dated February 7, 1997.

10.7.2    Amendment to Temporary Blue Shield License Agreement
          between BCBSA and BCBSMo dated February 7, 1997.

10.36.6   Sixth Amendment to the Credit Agreement dated as of
          September 30, 1997.

10.51     Executive Employment Agreement of John A. O'Rourke dated
          February 27, 1997.

11        Statement regarding computation of earnings per share.

27        Financial Data Schedule (Electronic Filing Only).

      b)     Reports on Form 8-K:

The company filed a report on Form 8-K dated August 29, 1997.
This filing was made in connection with the company's press
release relating to litigation with the Missouri Consolidated
Health Care Plan (MCHCP).



                              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:  November 12, 1997            By: [s] JOHN A. O'ROURKE
                                        John A. O'Rourke
                                        President and Chief Executive Officer


Date:  November 12, 1997            By: [s] SANDRA VAN TREASE
                                        Sandra Van Trease
                                        Chief Financial Officer,
                                        Executive  Vice  President
                                        and Chief Operating Officer