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

                              FORM 10-K


     [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998


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          (I.R.S. Employer Identification
 incorporation or organization)                       Number)



       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


Securities registered pursuant to Section 12(b) of the Act:

     Class A Common Stock, $.01 par value        New York Stock Exchange, Inc.
           (Title of each class)                  (Name of each exchange on
                                                       which registered)

Securities registered pursuant to Section 12(g) of the Act:  None


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 by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.  [  ]


The aggregate market value of Class A Common Stock (voting) held by
non-affiliates of the Registrant as of March 8, 1999, was
approximately $21,949,981* (based on last reported sale price of
$11.44 per share on March 8, 1999, on the New York Stock Exchange).

As of March 8, 1999, 3,710,426 shares of the Registrant's Class A
Common Stock, par value $.01 per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting
of Shareholders of the Registrant to be held on May 11, 1999.
Certain information therein is incorporated by reference into Part
III hereof.

























*Only shares of Class A Common Stock held beneficially by directors
and executive officers of the Registrant and persons or entities
filing Schedules 13G and received by the Registrant have been
excluded in determining this number.  All shares of Class B Common
Stock have been excluded.

                               PART I


                          ITEM 1.  BUSINESS


GENERAL DESCRIPTION OF BUSINESS

RightCHOICE Managed Care, Inc., (RightCHOICE, RIT or the company) is
the largest provider of managed health care benefits in Missouri, in
terms of members.  As of December 31, 1998, RightCHOICE served
approximately 2.1 million members, a large proportion of whom reside
in metropolitan St. Louis, Missouri.  The company offers a
comprehensive array of managed health care products and services
that the company segregates into two distinct segments.  Note 14
entitled "Segment information" of Part II, Item 8, Financial
Statements and Supplementary Data, contains financial information
relating to the company's segments.  The company's underwritten
segment includes preferred provider organization (PPO), point-of-
service (POS), health maintenance organization (HMO), Medicare
supplement, and specialty managed care, as well as managed indemnity
benefit plans.  The company's self-funded segment includes third-
party administrator (TPA), administrative services only (ASO), and
network rental services for self-insured organizations.  The types
of benefits provided by the products and services are comprised of
hospital care, ambulatory and outpatient care, physician services,
pharmacy, dental care, eye care, mental health care and health
education.  The company receives premium revenue in exchange for the
assumption of both medical and administrative risks for its PPO,
POS, HMO, Medicare supplement, specialty managed care and managed
indemnity benefit plans.  With respect to the TPA, ASO, and network
rental services, the company generally assumes no responsibility for
medical costs and receives compensation for the provision of
administrative services.  For the year ended December 31, 1998,
approximately 63 percent of the company's revenues were from sales
to insured employer groups (typically those with fewer than 100
employees); approximately 30 percent of the company's revenues were
from underwritten sales to individuals; and approximately 7 percent
of the company's revenues were from fees paid by self-funded
employer groups (typically those with more than 100 employees).

The company was organized to own and operate all of the managed health
care business of Blue Cross and Blue Shield of Missouri (BCBSMo).
BCBSMo is the sole holder of the company's Class B Common Stock.
The holders of Class A Common Stock have one vote per share, and the
holders of Class B Common Stock have 10 votes per share.  BCBSMo and
the holders of the Class A Common Stock have control over
approximately 97.6 percent and 2.4 percent, respectively, of the
combined voting power of both classes of common stock.  The company
is a licensee of the Blue Cross and Blue Shield Association (BCBSA),
the national trade association of Blue Cross and Blue Shield
licensees, each of which holds exclusive right to use the Blue Cross
and/or Blue Shield names, trademarks and service marks in specific
geographic areas.  Each licensee, including the company and BCBSMo,
is an independent legal organization and is not responsible for the
obligations of other BCBSA licensees.  Pursuant to licenses from
BCBSA, the company has the exclusive right to do business under the
name Alliance Blue Cross Blue Shield and to use the Blue Cross
and/or Blue Shield names, trademarks and service marks for all of
the managed health care products and services it offers in 85 of the
115 counties in Missouri making up its service area.  This service
area has a population of approximately 3.9 million and includes four
of the five largest cities in Missouri and excludes Kansas City. The
company cannot, however, use those trademarks or service marks
outside its licensed service area and therefore currently does
business in unlicensed areas under the names Healthy Alliance Life
Insurance Company (HALIC) and RightCHOICE Insurance Company (RIC).
The company believes that the widespread and positive recognition of
the Blue Cross and Blue Shield names, trademarks and service marks
will continue to provide a significant marketing advantage in its
service area, particularly as health care reform and competitive
pressures narrow price differences among health care benefit plans.
Additionally, the company believes that the importance of the
trademarks and service marks may lead to cooperative affiliations of
Blue Cross and Blue Shield licensees and may alleviate the need for
unbranded products.  If BCBSMo were to lose its right to use the
names and trademarks, the company might also be at risk to lose the
use of these names and trademarks.  Note 13 entitled "Contingencies
- Status of Blue Cross and Blue Shield trademark licenses" of Part
II, Item 8, Financial Statements and Supplementary Data, contains
information describing litigation uncertainties with respect to the
company's continued use of these names, trademarks, and service
marks.

RightCHOICE Managed Care, Inc. is a Missouri corporation, incorporated
in April 1994, doing business under the name Alliance Blue Cross
Blue Shield.  Unless the context otherwise requires, the terms
"RightCHOICE," "RIT" and "the company" refer to RightCHOICE Managed
Care, Inc. and its subsidiaries.  The company's corporate offices
are located at 1831 Chestnut Street, St. Louis, Missouri, 63103-
2275; telephone number (314) 923-4444.

MANAGED CARE PRODUCTS AND SERVICES

The company's established provider networks, substantial membership
base and extensive administrative and processing capabilities enable
the company to offer health care products and services tailored to
meet the full spectrum of customer needs and preferences.  The chart
below illustrates the cost/choice characteristics of various managed
care benefits offered by the company.

The chart included in the company's hardcopy 10-K displays the range
of the company's managed care products relative to the product's
flexibility and health care costs.  Generally, products that are more
flexible in terms of access to providers are also more expensive in
terms of health care costs.  This chart can be depicted by the following
table in which products are listed in order of flexibility (more
to less) and health care costs (higher to lower).

Product                               Type of Network

Traditional Managed Indemnity         Open Network
Alliance Programs                     Broad Network PPO
AllianceChoice                        Non-Gatekeeper POS
BlueCHOICE POS Plus                   Gatekeeper POS
BlueCHOICE                            Gatekeeper HMO

UNDERWRITTEN PRODUCTS

PPO PRODUCT GROUP

ALLIANCE PPO

The company's Alliance PPO is one of the largest PPOs in Missouri in
terms of members and offers services to approximately 171,600
members (including approximately 41,500 members on a self-funded
basis).  The company believes that the Alliance PPO network also has
the most extensive geographic coverage in Missouri, servicing 85 of
the 115 counties in the state.  In the St. Louis metropolitan area,
the Alliance PPO network includes approximately 97 percent of all
hospital beds.

The company's Alliance products incorporate many of the managed care
characteristics of the company's POS and HMO products, including
physician incentives, per diem hospital rates, large case
management, pre-admission certification, concurrent review of
hospital admissions and retrospective claims review.  Alliance
benefit plans also include mental health and chemical dependency
programs, optional well-child care, and vision services.  This broad
range of Alliance benefit plans enables the subscriber to choose the
mix of benefits that is suited to the subscriber's needs.  Higher
deductibles, coinsurance and out-of-pocket maximums and other
financial incentives encourage subscribers to use network provider
services.

The company's Alliance network is one of the largest in Missouri in
terms of geographic scope and number of providers.  The company has
Alliance contracts with approximately 7,800 physicians and 96
hospitals.  A HealthNet Blue PPO product is offered to both groups
and individuals in southeast Missouri.  There were approximately
5,000 members enrolled in the company's HealthNet Blue PPO products
as of December 31, 1998.

Through a network access and financial reinsurance agreement with Blue
Cross and Blue Shield of Kansas City (BCBSKC), RightCHOICE has
members residing in the Kansas City plan's license area that are
able to access BCBSKC's preferred networks and likewise, members of
a BCBSKC subsidiary residing in RightCHOICE's Alliance trade area
can access the Alliance preferred provider networks in that area.
As a result of the agreements, members of either plan who are
enrolled through state-wide employers or associations are able to
use the provider network of the Blue Cross and Blue Shield company
where they live.  Through the financial reinsurance transaction,
RightCHOICE now shares underwriting risks and profits on the
affected members.

ILLINOIS PPO

The company offers group and individual PPO coverage through its
RightCHOICE Insurance Company subsidiary in southern Illinois.  The
company utilizes the HealthLink provider network to offer these
products to the approximately one million residents in this region.
HealthLink, Inc. is the company's network rental subsidiary.  These
PPO products accounted for approximately 7,000 members as of
December 31, 1998.

ALLIANCECHOICE POS

AllianceChoice POS is RightCHOICE's non-gatekeeper model POS with a
selective hospital network comprised of cost-effective providers in
the St. Louis metropolitan area.  AllianceChoice provides
flexibility in selecting a provider at a premium level that is
generally higher than HMO but less than PPO premiums.  The
AllianceChoice network serves approximately 130,100 members,
including both group and individual members, and includes
contractual arrangements in the St. Louis metropolitan area with
approximately 5,400 physicians and 17 hospitals.


BLUECARD PPO PROGRAM

In the first half of 1998, the company and BCBSMo achieved high member
service performance ratings that made the company eligible for the
home plan portion of the Blue Cross and Blue Shield AssociationOs
BlueCard PPO program.  The BlueCard PPO program allows Blue Cross
and Blue Shield PPO and POS members access to Blue Cross and Blue
Shield PPO providers throughout the nation.  As of December 31,
1998, there were approximately 136,000 Alliance and AllianceChoice
members enrolled in the program.   Members who need to see a doctor
or check into a hospital while living in or traveling to another
part of the country do not pay more out of pocket for being out of
the service area's network and accessing Blue Cross or Blue Shield
PPO providers.  Blue Cross and Blue Shield PPO networks are
available to 95 percent of the U.S. population.

HMO PRODUCT GROUP

BLUECHOICE HMO AND POS PRODUCTS

The company's subsidiary, HMO Missouri, Inc. (BlueCHOICE), offers a
federally qualified HMO with a service area that currently includes
61 counties in Missouri and two counties in Illinois.  BlueCHOICE's
operations are concentrated in the St. Louis metropolitan area,
where it currently is the third largest HMO based upon number of
members.  BlueCHOICE is an independent practice association (IPA)
model network, through which the company contracts directly with
local providers for plan members' health services.  The BlueCHOICE
network, which supports both HMO and POS products, has contractual
arrangements with approximately 4,000 physicians and 60 hospitals.

The company offers its BlueCHOICE POS products in metropolitan St.
Louis, southwest Missouri, and the central region of Missouri
through the BlueCHOICE HMO network.  BlueCHOICE POS is a gatekeeper
model POS plan that provides members with comprehensive coverage for
network health care services with modest copayment requirements.
When using their primary care physician as coordinator of care,
members incur the lowest out-of-pocket costs for preventive care,
referred specialist services, and inpatient services.

In some areas, the BlueCHOICE HMO and POS products are supported by
risk arrangements with certain provider groups.  These products are
available in Springfield, Missouri, for both individuals and groups
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.
These products are also offered in the six-county area surrounding
Joplin, Missouri, through an arrangement with Freeman Health System
and in the Jefferson City, Missouri, area through an arrangement
with Jefferson City Medical Group.

HEALTHNET BLUE POS

HealthNet Blue POS is a non-gatekeeper HMO product offered to employee
groups within a seven-county region in southeast Missouri that
provides members with comprehensive coverage for network health care
services, including preventive care, in-office physician care, and
maternity coverage for a minimal office visit copay charge.  At
December 31, 1998, there were approximately 16,400 group members
enrolled in the underwritten HealthNet Blue POS product.

BLUECHOICE SENIOR

BlueCHOICE Senior provides medical benefits at least as comprehensive
as Medicare benefits for persons eligible to receive Medicare (parts
A and B) at no or minimal cost to the member.  Under this program,
the Health Care Financing Administration of the United States
Department of Health and Human Services (HCFA) pays a fixed premium
for coverage of each member at a rate approximating 95 percent of
the Medicare area average per capita cost, subject to annual review
and adjustment by HCFA.  Effective January 1, 1999, the company
changed the BlueCHOICE Senior product name to Blue Horizons Medicare
HMO.

On January 1, 1999, the Balanced Budget Act of 1997 established a new
program called Medicare+Choice that replaced the current Medicare
risk program.  Effective January 1, 1999, HCFA awarded BlueCHOICE,
which had been operating under the previous risk contract, a
Medicare+Choice contract.

BLUECHOICE MEDICAID (MC+)

The company discontinued its Medicaid product in the central Missouri
region in March 1998.  This determination was made due to what the
company believes were unacceptable terms proposed by the State of
Missouri.

MEDICARE SUPPLEMENT PRODUCT GROUP

The company currently offers Medicare supplement coverage to
individuals eligible to enroll in Medicare for medical expenses in
excess of the coverage limitations of Medicare.

MANAGED INDEMNITY PRODUCT GROUP

With the exception of a short-term medical product, the company no
longer sells managed indemnity coverage, but continues to renew
coverage for those members who are enrolled in these managed
indemnity programs.  The company's managed indemnity products
include fee-for-service indemnity benefits that include utilization
management and other cost control measures, but do not require use
of network providers.  These products include certain cost-
containment features, such as the use of deductibles, coinsurance,
pre-admission certification, concurrent review, large case
management and retrospective review.

SPECIALTY PRODUCTS

The company offers various products to supplement its medical coverage
products.  These products include prescription benefits, dental
care, eye care, mental health care and health care education.
Beginning January 1, 1999, Magellan Behavioral Health was selected
to handle utilization management for all of the company's
underwritten mental health and substance abuse programs.  In March
1997, the company entered into a three-year agreement with a
pharmacy benefits manager, Express Scripts, Inc.  The contract
covers approximately 453,200 members as of December 31, 1998, under
most of the company's plans.  The company continues its efforts to
control rising prescription drug costs while offering members
freedom of choice.  The company provides a three-tier copayment
program that encourages physicians and members to use the most cost-
effective drugs within a drug class.  The program includes a higher
member copayment for brand name drugs that are included on the
company's formulary as compared to their generic equivalents.  The
program also allows for the purchase of brand name drugs that are
not included on the company's formulary by requiring an even higher
(third-tier) member copayment.

SELF-FUNDED PRODUCTS

ADMINISTRATIVE AND NETWORK SERVICES

As of December 31, 1998, the company serviced self-funded health plans
covering approximately 1,658,200 members.  These arrangements
include TPA, ASO and network rental contracts of varying complexity.
The company assists self-funded employers in designing benefit
packages, claims processing, adjudication and administration,
utilization management, generation of management reports and other
related matters.  The company also enables employees with self-
funded health plans to access the company's aforementioned PPO and
HMO provider networks and to realize savings through the company's
favorable provider arrangements, while allowing employers the
ability to design certain health benefit plans in accordance with
their own requirements and objectives.

HEALTHLINK, INC.

HealthLink, Inc. (HealthLink), a regional managed health care
organization, serves a seven-state area in the Midwest, providing
health care network rental and utilization review services primarily
to unions, commercial insurers and corporations that fund their own
health plans.  HealthLink is not an insurance company and does not
assume any underwriting risks.  Its revenues are derived from
network rentals and administrative services fees.  HealthLink had
835,600 PPO administrative services members and 450,000 workers'
compensation members as of December 31, 1998.  In addition,
HealthLink owns HealthLink HMO, Inc. (HealthLink HMO), a Missouri
HMO with approximately 68,500 members as of December 31, 1998,
primarily located in the greater St. Louis area.  HealthLink HMO is
a state-qualified health maintenance organization, licensed in
Missouri, Illinois and Arkansas, that provides health care services
principally for a predetermined, prepaid periodic fee to enrolled
subscriber groups and individuals of selected insurance companies.

THE EPOCH GROUP, L.C.

The EPOCH Group, L.C. (Epoch), a limited liability company, is a joint
venture between the company and BCBSKC which combined their third-
party administrator (TPA) businesses to streamline operations,
develop new geographic markets, and provide new administrative
services to new types of businesses, such as health care provider
organizations.  Epoch is owned equally by the company and a
subsidiary of BCBSKC.  Three TPA companies were combined to form
Epoch -- Healthy Benefit Alliance, Inc. and Pension Associates
Incorporated (both formerly owned by the company) and LaHood &
Associates (20 percent owned by the company and 80 percent owned by
BCBSKC prior to the transaction).  Epoch serves approximately 260
businesses primarily in the Midwest as of December 31, 1998.

"SAFE HARBOR" STATEMENT

Except for the historical information contained herein, this Annual
Report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995.  These
statements typically, but not exclusively, are identified by the
inclusion of phrases such as "the company anticipates," "the company
believes," "the company expects," "the company plans," "the company
intends," and other phrases of similar meaning.  Such forward-
looking statements involve known and unknown risks, uncertainties,
contingencies and other factors that may cause the company's actual
results of operations, financial condition or business performance
to be materially different from the results of operations, financial
condition or business performance expressed or implied by such
forward-looking statements.  Factors that could cause or contribute
to such differences include, but are not limited to: the possibility
that court approval of the final settlement agreement, as amended,
entered into with the Missouri Attorney General and Department of
Insurance (DOI), referenced elsewhere herein, would not be obtained,
or if obtained could include conditions that are not acceptable to
the parties; the possibility that all remaining contingencies and
conditions to the parties' obligations to effect the proposed
settlement transaction would not be met or otherwise satisfied;  the
Office of Personnel Management audit of BlueCHOICE; pending
litigation, including the subscriber class action litigation;
potential loss of "Blue Cross" and "Blue Shield" licenses by BCBSMo,
the company and its controlled affiliates; government regulation and
health care reform; Missouri Consolidated Health Care Plan issues;
market competition and consolidation; escalating health care costs;
dependence on sales to individuals; recontracting efforts and
potential nonrenewal of subscriber and provider agreements; voting
control by BCBSMo; changes in key management; variability of
operating results and stock price; Credit Agreement restrictions;
the Year 2000 issue; and other factors discussed under the caption
entitled "Factors that May Affect Future Results of Operations,
Financial Condition or Business" of Part I, Item 1 of this Annual
Report, the caption in Note 13, entitled "Contingencies" of Part II,
Item 8 of this Annual Report, and elsewhere in the company's SEC
reports.

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

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

CONTINGENCIES

Reference is made to the information detailed in Note 13 entitled,
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data, under the captions:  OPM Audit, Subscriber
class action litigation, Agreement for settlement of certain
litigation matters and reorganization of the company, and Status of
Blue Cross and Blue Shield trademark licenses.  The following
factors should be read in conjunction with such information, which
is incorporated by reference in its entirety in the following
sections.

OPM AUDIT

At this time, management is unable to determine the final dollar
amount that may be required to resolve the Office of Personnel
Management (OPM) audit findings.  There can be no assurance that
the resolution of these findings will not have a material adverse
effect on the company and the market for its stock.  The OPM audit
relates to the company's BlueCHOICE subsidiary and any additional
funding to BlueCHOICE as a result of audit findings associated with
the OPM audit, or otherwise, may require approval under the
company's Credit Agreement, and there can be no assurance that such
approvals could be obtained.  See "Credit Agreement Restrictions"
below.

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

On September 20, 1998, the company and certain of its affiliates
entered into various settlement agreements with certain state
agencies, including the Missouri Attorney General and the DOI,
which, if consummated, would resolve the outstanding litigation and
regulatory disputes between the company and its affiliates and the
State of Missouri, and create an independent health care
foundation.  On March 12, 1999, the company, BCBSMo, the Missouri
Attorney General and the DOI entered into an Amendment to
Settlement Agreement (the amendment) in response to the report of
the special master, described below.  On March 15, 1999, Judge
Thomas J. Brown III of the Circuit Court of Cole County, Missouri
stated on the record during an informal status hearing that he has
continued concerns about the settlement agreements, as amended.
The settlement agreements, as amended, are described further in
Note 13, "Contingencies - Agreement for settlement of certain
litigation matters and reorganization of the company," of Part II,
Item 8, Financial Statements and Supplementary Data, and such
description is incorporated by reference in its entirety in this
section.  On November 4, 1998, the Circuit Court of Cole County,
Missouri appointed a special master for the purpose of, among other
things, collecting and analyzing information related to the
proposed settlement.  On February 10, 1999, the special master
recommended that the proposed settlement agreement "not be approved
in its present form" and recommended that the Circuit Court
"withhold a ruling on the settlement agreement to give the parties
and the amici curiae consumer groups an opportunity to meet and
confer, and engage in a good faith effort to address" concerns that
were noted by the special master in his report.  The parties and
the amici curiae conferred about the concerns noted by the special
master in his report and entered into the amendment as a result of
such discussions.  There can be no assurance that the transactions
contemplated by the settlement agreements, as amended, will receive
the necessary court approval as an acceptable alternative to
dissolution of BCBSMo, that all conditions and contingencies
included in the settlement agreements, as amended, will be
satisfied, or that the transactions set forth in the settlement
agreements, as amended, will be effected.  The failure to
consummate the transactions contemplated by the settlement
agreements, as amended, could have a material adverse effect on the
company and the market for its stock.

The transactions contemplated by the proposed settlement agreements,
as amended, described elsewhere herein include the resolution and
dismissal of all of the current litigation with the DOI and the
Missouri Attorney General described elsewhere herein.  If BCBSMo,
the company, the DOI, and the Missouri Attorney General do not
resolve these matters as provided in the settlement agreements, as
amended, or if, in the alternative, BCBSMo or the company does not
prevail in all of these matters, it is possible that BCBSMo could
be dissolved, the license of BCBSMo and the company to use the Blue
Cross and Blue Shield trade names and marks could be terminated, an
event of default could occur under the company's Credit Agreement,
BCBSMo could be required to dispose of some or all of the company's
shares of Class B Common Stock at times and in quantities that
could be detrimental to the market for the company's stock, and
other actions could be taken by BCBSMo, the Missouri Attorney
General, the DOI, the BCBSA or others, all of which could have a
material adverse impact on the company and the market for its
stock.

SUBSCRIBER CLASS ACTION LITIGATION

On March 15, 1996, a class action suit was filed against the company,
BCBSMo, HealthLink, and certain officers of the company.  On
November 4, 1998, the St. Louis Circuit Court issued its judgment
and order granting the motion of the defendants to dismiss the
action for lack of standing and entering judgment in favor of the
defendants.  The plaintiffs' counsel appealed the St. Louis Circuit
Court's order.  The obligations of the parties to consummate the
transactions contemplated by the settlement agreements, as amended,
described above under "Agreement for settlement of certain
litigation matters and reorganization of the company" are
conditioned upon, among other things, the satisfactory final
resolution of this litigation.

STATUS OF BLUE CROSS AND BLUE SHIELD TRADEMARK LICENSES

If BCBSMo's and the company's litigation with the DOI and the Missouri
Attorney General is not resolved in a manner that is in the best
interests of the BCBSA, the marks and the other licensees of the
BCBSA, then the company's licenses to use such names and marks may
be terminated.  In addition, the licenses may be terminated if
BCBSMo, the company, or certain subsidiaries of the company are
unable to achieve certain financial benchmarks as required by the
BCBSA.  The loss of such licenses and the obligation of the company
to pay a $25 per enrollee termination fee and provide notice of
termination to enrollees and the resultant event of default under
the company's Credit Agreement would have a material adverse effect
on the company and the market for its stock.

CREDIT AGREEMENT RESTRICTIONS

The company's revolving Credit Agreement with its existing lenders
contains certain restrictions on the company and its subsidiaries,
including requirements as to the maintenance of net worth and
certain financial ratios, restrictions on payment of cash dividends
or purchases of stock, restrictions on acquisitions, dispositions
and mergers, restrictions on additional indebtedness and liens,
limitations on indebtedness of the company's subsidiaries,
maintenance of the licenses to use Blue Cross and Blue Shield names
and marks and certain other matters.  There can be no assurance that
the company will be able to achieve and maintain compliance with the
prescribed financial ratio tests or other requirements of the
revolving Credit Agreement.  As described under the caption in Note
13 entitled "Contingencies - Status of Blue Cross and Blue Shield
Trademark Licenses" of Part II, Item 8, Financial Statements and
Supplementary Data, the loss of the licenses would result in an
event of default under the Credit Agreement.

The company amended its Credit Agreement in the fourth quarter of 1997.
The failure to obtain any waivers or similar amendments that might
be needed in the future to remain in compliance with such
requirements would, among other things, reduce the company's ability
to respond to adverse industry conditions and could have a material
adverse effect on the company's operations, financial condition or
business.

MCHCP ISSUES

The Missouri Consolidated Health Care Plan (MCHCP), which is a
Missouri public agency that purchases health care coverage for
employees of the State of Missouri and of selected public entities
that have been admitted into the MCHCP, is currently the largest
customer group served by BlueCHOICE, a subsidiary of the company.
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 of Missouri and to
public entities.  The contract was for an initial one-year term
with four one-year renewal terms.  In a lawsuit that the company
filed against MCHCP on August 28, 1997, the company contended,
among other things, that under the language of the applicable
contract, MCHCP had express and implied duties to negotiate the
amount of any rate increase that might become effective for each
succeeding one-year renewal term.  It was the company's position
that if no agreements to the negotiated rates could be reached,
MCHCP's sole remedy was to request bids from other insurers.  The
Circuit Court of Cole County, Missouri, on March 19, 1998, ruled in
favor of MCHCP with respect to such claim and certain other claims.
The company determined not to appeal the decisions of March 19, and
on June 10, 1998, the company and MCHCP agreed to mutually dismiss
the lawsuits.  The company will, therefore, be held contractually
bound to serve the MCHCP members if the contract is extended at the
option of the MCHCP through the year 2000 at the rate 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.

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

In addition, the company's revolving Credit Agreement (described
above) provides that the company's subsidiaries, including
BlueCHOICE, may not issue surplus notes to the company in an
aggregate principal amount in excess of $40 million.  As the
aggregate principal amount of surplus notes issued by such
subsidiaries to the company currently approximates $40 million, any
additional funding required by any subsidiaries of the company,
including BlueCHOICE, as a result of additional losses or reserves
associated with the MCHCP contract, or otherwise, must, absent
approval of the lenders under the Credit Agreement, be funded from
sources other than surplus notes.  No assurances can be given that
such approval would be granted or that additional sources of
funding could be obtained.   See "Credit Agreement Restrictions"
above.

GOVERNMENT REGULATIONS AND HEALTH CARE REFORM

The company operates its managed health care business principally
through wholly-owned subsidiaries whose business is subject to
extensive federal, state and local laws and regulations.  There can
be no assurance that the company will be able to obtain or maintain
required governmental approvals or licenses or that any current or
proposed federal and state legislation or other regulatory reform
such as President Clinton's Patient's Bill of Rights, the Balanced
Budget Act of 1997, the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), Missouri House Bill 335 (HB335),
and mandatory benefits (e.g. mandatory maternity benefits), that
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 competitors in its PPO, POS and HMO operations, many of
which have substantially greater financial and other resources than
the company.  Because the company's existing business operations
(excluding its HealthLink subsidiary) are primarily confined to
markets within or contiguous to the state of Missouri, the company
currently is unable to subsidize losses in these markets with
profits from other markets.  The company believes that certain
larger, national competitors are able to subsidize losses in the
Missouri market with profits from other markets in which they
operate and may pursue such a strategy in the company's markets in
an effort to increase their market share.  Health care providers are
consolidating into larger health care delivery enterprises and their
increased bargaining power may lead to a reduction in the gross
margins of the company's products and services.  The company also
faces competition in its markets from a trend among some health care
providers to combine and form their own networks in order to
contract directly with employer groups and other prospective
customers for the delivery of health care services.

ESCALATING HEALTH CARE COSTS

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

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

CONTROL BY BCBSMO

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

DEPENDENCE ON KEY MANAGEMENT

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

VARIABILITY OF OPERATING RESULTS AND STOCK PRICE

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

YEAR 2000 ISSUE

Reference is made to the information included under the caption
"Outlook - Year 2000 issue," of Part II, Item 7, Management's
Discussion and Analysis, which information is incorporated by
reference in its entirety in this section.  There can be no
assurance that the company or any third party upon which the
company depends will be able to achieve Year 2000 readiness or will
have sufficient contingency plans, which could have a material
adverse effect on the company and the market for its stock.

ADDITIONAL FACTORS

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

STRATEGIES

The company's 1999 plans involve an operating strategy intended to
improve the company's financial performance by (i) managing the
consolidated medical trend, including pharmacy, (ii) achieving and
sustaining superior levels of service, (iii) maintaining enrollment
while adjusting prices to attain profit targets, (iv) reducing core
overhead expenses, and (v) strengthening the public appreciation for
the Blue Cross and Blue Shield names and trademarks.  In addition,
on an ongoing basis, the company plans to continue to evaluate and
consider potential combinations with other health care benefit
plans.

SALES AND MARKETING STRATEGY

The company's strategy includes retaining current underwritten member
levels through target marketing efforts.  The company's marketing
operations vary depending upon the segment to which sales efforts
are directed; individuals (i.e. direct pay), small employer groups
(which the company defines as groups from 2 to 99 employees) and
large employer groups (which the company defines as groups of 100
employees or more).  These efforts include the creation of a small
group marketing unit to improve the company's ability to support
sales in an efficient and timely manner.  The company's independent
broker networks and direct sales staff market the full range of the
company's managed care products and services to new customers, and
manage existing accounts to ensure client satisfaction and
retention.  Independent brokers are compensated pursuant to
commission arrangements that vary depending on the particular
company products and services sold.

Marketing efforts are supported by market research conducted internally
as well as public relations efforts and advertising programs that
utilize telemarketing, radio, television, direct mail and other
media.

MEDICAL MANAGEMENT

In general, the company controls medical costs by increasing financial
incentives to members to use network providers and partnering with
providers to ensure the cost-efficient delivery of quality health
care.  The company believes that the development of common economic
incentives with certain hospitals, physician groups and other
selected health care providers will be a key element in gaining a
competitive advantage and future growth.  The company continues to
pursue arrangements with providers that are intended to develop a
cooperative relationship through shared risk, financial incentives
and joint input into decision-making processes in order to manage
the medical and administrative costs of health care delivery more
efficiently.

The company recognizes the physician's expertise in managing patient
care and wants to ensure that physicians maintain autonomy in the
practice of medicine by offering physician groups incentives to
lower medical costs while achieving high levels of patient
satisfaction and quality care.  The company's philosophy is to
manage provider networks rather than to manage members.  The
company's BlueCHOICE HMO Physician Group Partners Program (PGPP)
provides incentives to primary care physicians to improve quality
and patient satisfaction while reducing costs and providing
physician-participants with an appealing incentive package.
Currently, approximately 44 percent of the BlueCHOICE Commercial
panel of primary care physicians in metropolitan St. Louis are
enrolled in the program.

GENERAL AND ADMINISTRATIVE COST REDUCTIONS

Throughout the past several years, the company has made significant
investments in technologies designed to re-engineer many customer
service and claims processes that are expected to result in
significant savings in administrative costs.  See "Technology and
Information Systems" that follows for additional detail.  The
company plans to continue to pursue initiatives to streamline
operations and reduce general and administrative expenses.  In
addition, the company's management continually strives to find ways
to reduce its costs.  In 1997, the company completed the relocation
of its St. Louis-based claims, customer service, billing and
provider services functions to the company's 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 was expected to
result in annual salary and benefit cost savings of $3.0 million in
1998.  The company incurred total charges to earnings of $7.8
million during 1996 and 1997 for costs associated with the
relocation.  At the end of 1998, the company announced a strategic
realignment of business operations, including a reduction of
approximately 135 positions, or approximately 7.5 percent of the
company's work force.  Half of this reduction was completed by the
end of 1998, with the remainder of the positions scheduled to be
eliminated by June 1999, primarily through attrition.  Other
elements of the realignment plan include reductions in the use of
outside consultants, software costs, travel, entertainment and other
expenses, and changes in employee health care benefits.  The company
took a $0.9 million non-recurring restructuring charge in the fourth
quarter of 1998 related to this strategic realignment plan.

COMPETITION

The managed care industry is highly competitive, both nationally and in
the company's market area.  Participants compete for members
primarily on the basis of price (considering premium rates,
copayments, coinsurance and deductibles), scope and design of
benefits, access to providers and reputation of the plan sponsor and
participants.  The company also competes with other managed care
organizations for contracts with hospitals, independent physicians,
physician groups and other providers.

In the metropolitan areas of St. Louis and Kansas City and other
regions in Missouri, the managed care market is highly competitive,
with a number of established competitors offering a variety of
benefit plans.  The penetration of managed health care is
substantially less in other regions of Missouri where the company
competes more with traditional indemnity plans and smaller networks.
The company's major competitors include: commercial insurance
carriers, other HMOs, PPOs, POSs, TPAs, utilization review
companies, and others, many of which are operated as part of a
regional or national network.  Many competitors that have regional
or national networks have broader geographic coverage, larger total
memberships, and in many instances have greater financial resources
than the company.  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.

The company expects to increase premium rates on a per member per month
basis by approximately 9 percent to 10 percent during 1999.  The
company believes that these price increases will be accepted by the
market as indicated by the company's January 1999 underwritten
enrollment consisting of 468,800 members, compared to December 1998
underwritten enrollment of 464,700.  Because approximately one-third
of the company's underwritten business historically renews during
the first month of each year, the company believes that the January
results are an early indication that the company's strategy of
maintaining membership at increased premium levels is working.

TECHNOLOGY AND INFORMATION SYSTEMS

Document imaging technology and re-engineering efforts are improving
the efficiency with which the company handles the massive volume of
claims it receives and processes each day.  More than 71 percent of
all claims received by the company are currently electronic
transactions that are processed by the automated systems, requiring
little or no manual intervention.

The company believes that its management information systems represent
a key component of the company's medical and administrative cost
reduction operating strategy by providing the company with extensive
detailed information regarding customer and provider utilization.
These systems also facilitate quality service to members and
providers in connection with the company's claims and customer
service functions.  In 1995, the company embarked on a multi-year
information and operations strategy (IOS) project that is designed
to further improve how the company delivers managed care to members.
See "Outlook - Information and operations strategy" of Part II, Item
7, Management's Discussion and Analysis, for more information on the
IOS project.

Currently, the primary business functions of the company are supported
by an integrated transaction processing system.  This interactive
system supports the majority of the company's core processing
functions (claims processing, customer services, enrollment, member
billing and claim disbursements) through a set of integrated
databases.  The company believes that this integrated approach helps
to assure product flexibility across a broad range of managed care
products and provides an integrated, consistent source of claim and
subscriber information.  As IOS brings RightCHOICE new managed care
capabilities, it will replace the company's core processing systems,
and the company believes that IOS will generate savings in both
medical and administrative expenses.

The company's data warehouse initiative allows the company to turn
information about providers, members, and claims into a solid
foundation upon which to make strategic business decisions.  This
initiative underscores the company's commitment to putting
information directly in the hands of the people who manage the
business.  Company employees now have access to many levels of
detailed data focusing on medical expenses, revenues and membership.

In January 1996, the company began converting its computer systems to
be Year 2000 compliant - see "Outlook - Year 2000 issue" of Part II,
Item 7, Management's Discussion and Analysis, for more information
related to the company's Year 2000 compliance efforts.

REGULATION

Government regulation of the products and services offered by the
company varies from jurisdiction to jurisdiction and is subject to
change.  The company and its subsidiaries are primarily subject to
the insurance laws and regulations of the States of Missouri and
Illinois, the insurance laws and regulations of the other
jurisdictions in which the company and its subsidiaries are licensed
or authorized to do business and certain federal laws and
regulations.  These insurance laws and regulations generally give
state and federal regulatory authorities broad supervisory,
regulatory and administrative powers over insurance companies and
insurance holding companies with respect to most aspects of their
insurance businesses.  This regulation is intended primarily for the
benefit of the policyholders of the insurance companies.  The
company is in litigation relating to its compliance with various
federal and state regulations - see Note 13 entitled "Contingencies"
of Part II, Item 8, Financial Statements and Supplementary Data.

INSURANCE HOLDING COMPANY REGULATION

The company is subject to regulation as a member of an insurance
holding company.  Missouri and Illinois insurance holding company
laws and regulations generally require members of insurance holding
companies to file with the respective Departments of Insurance
certain reports describing capital structure, ownership, financial
condition, certain intercompany transactions and general business
operations.  Missouri insurance holding company laws and regulations
require prior regulatory approval or, in certain circumstances,
prior notice of, certain material intercompany transfers of assets
as well as certain transactions between insurance companies, their
parent holding companies and affiliates.

INSURANCE COMPANY REGULATION

The operations of the company's subsidiaries, HALIC, BlueCHOICE,
HealthLink HMO, Inc. (HealthLink HMO), and RIC, are subject to
regulation and supervision by regulatory authorities of the various
jurisdictions in which they are licensed to conduct business.
Regulatory authorities exercise extensive supervisory power over
insurance companies and health maintenance organizations in regard
to licensing; the amount of reserves that must be maintained; the
approval of forms and insurance policies used; the nature of, and
limitation on, an insurance company's investments; periodic
examination of the operations of insurance companies; the form and
content of annual statements and other reports required to be filed
on the financial condition of insurance companies; and the
establishment of capital requirements for insurance companies.  The
aforementioned subsidiaries of the company are required to file
periodic statutory financial statements in each jurisdiction in
which they are licensed.  Additionally, these subsidiaries are
periodically examined by the insurance departments of the
jurisdictions in which they are licensed to do business.

RISK-BASED CAPITAL REQUIREMENTS

In 1993, Missouri adopted statutory risk-based capital (RBC)
requirements for life and health insurance companies.  In 1998,
Missouri adopted the RBC requirements for health maintenance
organizations which the National Association of Insurance
Commissioners (NAIC) adopted the same year.  The formula for
calculating such RBC requirements, set forth in instructions adopted
by the NAIC, is designed to take into account asset risks, insurance
risks, interest rate risks and other relevant risks with respect to
the individual insurance company's business.  Under these laws, life
and health insurance companies and health maintenance organizations
must submit a report of their RBC level as of the end of the
previous calendar year.

Because the total adjusted capital of HALIC, RIC, BlueCHOICE, and
HealthLink HMO, determined in accordance with the RBC instructions
adopted by the NAIC on a fully phased-in basis, exceed all RBC
minimum requirements, the company believes that the RBC requirements
will not have any immediate impact upon HALIC, RIC, BlueCHOICE, or
HealthLink HMO or their operations.  If in the future the RBC
results were to decline, the RBC requirements could have a material
effect upon their operations and the amount of regulatory oversight
to which they are subject.

RESTRICTIONS ON DIVIDENDS

Insurance laws and regulations restrict the payment of dividends by
life insurance companies and health maintenance organizations in a
holding company structure.  Such laws generally limit the dividends
which a life insurance company may pay to an amount which, together
with the amount of dividends and distributions paid by the insurance
company during the immediately preceding 12 months, does not exceed
the greater of (i) 10 percent of the insurance company's surplus as
regards policyholders as of the preceding December 31 or (ii) the
insurance company's net gain from operations for the preceding
calendar year.  For all other insurers (including HMOs), such laws
generally limit the dividends that a company may pay to an amount
which, together with the amount of dividends and distributions paid
by the company during the immediately preceding 12 months, does not
exceed the lesser of (i) 10 percent of the insurer's surplus as
regards policyholders as of the preceding December 31 or (ii) the
net investment income for the 12-month period ending as of the
preceding December 31.  Any proposed dividend in excess of these
amounts is deemed to be an "extraordinary dividend" and requires
prior approval by the Director of Insurance of the company's state
of domicile.

At December 31, 1998, HALIC, BlueCHOICE, RIC, and HealthLink HMO had
surplus of approximately $78.3 million, $15.0 million, $1.2 million,
and $4.6 million, respectively.  At December 31, 1998, the company's
insurance subsidiaries did not have a significant amount of
dividends available for payment without the prior approval of the
appropriate Director of Insurance.

HMO REGULATION

Federally qualified HMOs, such as BlueCHOICE, are subject to health
care-related regulation by both state and federal regulatory
authorities.  State-qualified HMOs, such as HealthLink HMO, Inc.,
are also subject to state regulatory authorities.  As a federally
qualified HMO, BlueCHOICE must file periodic reports with, and is
subject to, regulation and review by the U.S. Department of Health
and Human Services and certain other federal authorities.  Among the
areas regulated by federal and state law are procedures for quality
assurance, enrollment requirements, covered benefits, relationships
between the HMO and its health care providers, and the company's
financial condition, including reserves and cash flow requirements.

THIRD-PARTY ADMINISTRATOR (TPA) REGULATION

Under Missouri and Illinois laws and regulations, the company,
HealthLink HMO, and Epoch, the company's 50 percent-owned
subsidiary, are required to obtain a certificate of authority from
the appropriate Departments of Insurance in connection with certain
of their benefit administration services and are subject to various
statutory requirements, including record-keeping and retention;
fiduciary obligations with respect to premiums collected;
limitations on commissions and fees; and certain notice and
reporting requirements.  Certain TPA activities are also subject to
the provisions of the Employee Retirement Income Security Act of
1974 (ERISA).

PREFERRED PROVIDER ORGANIZATION (PPO) REGULATION

Under Illinois and Indiana laws and regulations, HealthLink is required
to obtain a certificate of authority from the Departments of
Insurance in connection with its PPO services and is subject to
various statutory requirements, including certain provider and
client contracting requirements and notice and reporting
requirements.

UTILIZATION REVIEW REGULATION

Under Missouri laws and regulations, the company and HealthLink are
required to obtain a certificate of authority from the applicable
Department of Insurance in connection with their utilization review
services and are subject to various statutory requirements,
including certain notice and reporting requirements.

EMPLOYEES

The company employed approximately 1,800 full time employees (including
370 HealthLink employees) as of December 31, 1998, compared to 1,700
full time employees (including 300 HealthLink employees) as of
December 31, 1997, none of whom is subject to a collective
bargaining agreement.  At the end of 1998, the company announced a
strategic realignment of business operations, including a reduction
of approximately 135 positions, or approximately 7.5 percent of the
company's work force.  Half of this reduction was completed by the
end of 1998, with the remainder of the positions scheduled to be
eliminated by June 1999, primarily through attrition.  The company
believes that its employee relations are good.

EXECUTIVE OFFICERS


           Name                 Age             Position



      John A. O'Rourke          55        Chairman of the Board, President,
                                          Chief Executive Officer and Director

      Sandra Van Trease         38        Senior Executive Vice President and
                                          Chief Operating Officer; Chief
                                          Financial Officer

      Angela F. Braly           37        Executive Vice President, General
                                          Counsel and Corporate Secretary

      Stuart K. Campbell        37        Senior Vice President, Client
                                          Services

      Michael Fulk              51        Senior Vice President and Chief
                                          Marketing Executive

      Herbert B. Schneiderman   53        Senior Vice President, Medical
                                          Delivery Systems

      Connie L. Van Fleet       46        Senior Vice President and
                                          Chief Information Officer

      David G. Williams, M.D.   42        Senior Vice President and
                                          Chief Medical Officer

      David T. Ott              44        President, Chief Executive Officer
                                          and Director of HealthLink

      Courtney B. Walter        43        Executive Vice President and
                                          Chief Financial Officer of
                                          HealthLink

      Edward J. Tenholder       47        Executive Vice President and
                                          Chief Operating Officer of Blue
                                          Cross and Blue Shield of Missouri




John A. O'Rourke was named Chairman and Chief Executive Officer of
RightCHOICE in February 1997, and President in March 1997.  Mr.
O'Rourke came to RightCHOICE from his position as President and CEO
of HealthLink.  Mr. O'Rourke took the leadership of HealthLink in
1985, when the company was first incorporated.  Earlier, Mr.
O'Rourke was Deputy Director of the Office of Health Maintenance
Organizations in the U.S. Department of Health and Human Services.

Sandra Van Trease was named Senior Executive Vice President, Chief
Operating Officer and Chief Financial Officer in December 1998.  She
joined the company in June 1994 and was promoted to CFO in November
1995.  Prior to joining the company, she was a Senior Manager with
Price Waterhouse LLP.

Angela F. Braly was named Executive Vice President, General Counsel and
Corporate Secretary of RightCHOICE in January 1999.  Ms. Braly acted
as Interim General Counsel of RightCHOICE from September 1997
through December 1998 while a member of the St. Louis law firm of
Lewis, Rice & Fingersh, L.C.  Ms. Braly joined Lewis, Rice &
Fingersh, L.C. in January 1987 and was involved there in the
corporate representation of HealthLink when it was acquired by
RightCHOICE in August 1995.

Stuart K. Campbell was named Senior Vice President, Client Services, in
August 1997.  Mr. Campbell joined RightCHOICE as Chief Internal
Auditor in September 1994 and was named Corporate Compliance Officer
in 1996.  Prior to joining the company, Mr. Campbell was a Senior
Manager with Price Waterhouse LLP.

Michael Fulk joined RightCHOICE as Senior Vice President and Chief
Marketing Executive in January 1998.  Mr. Fulk joined RightCHOICE
from United HealthCare, Birmingham, Alabama, where he was Senior
Vice President of Sales and Marketing.  Earlier, Mr. Fulk served as
the top sales and marketing executive for United HealthCare's HMO,
POS, and PPO operations in Texas, Alabama, Louisiana, Tennessee,
Arkansas, Mississippi and the Gulf Coast.

Herbert B. Schneiderman joined RightCHOICE as Senior Vice President,
Medical Delivery Systems, in June 1995.  Mr. Schneiderman came to
RightCHOICE after 21 years at Saint Louis University Hospital/Saint
Louis University Health Sciences Center, the last seven as Chief
Executive Officer.

Connie L. Van Fleet was named Senior Vice President and Chief
Information Officer in November 1997.  Ms. Van Fleet joined the
company in 1990 and most recently served as Vice President, Business
Analysis and Development.  Prior to joining the company, Ms. Van
Fleet was with Metropolitan Life Insurance Co.

David G. Williams, M.D. was named Senior Vice President and Chief
Medical Officer of the company in August 1998.  He came to
RightCHOICE from Blue Cross and Blue Shield of Tennessee (BCBST),
where he was Regional Medical Director.  During his time with BCBST,
Dr. Williams also served as Medical Director for the plan's Medicare
and Medicaid HMO programs.  He previously served as Medical Director
for the South Texas Healthcare Alliance and of the city of Corpus
Christi, Texas.

David T. Ott was named President and Chief Executive Officer of
HealthLink in March 1997.  Mr. Ott had been Executive Vice President
of HealthLink since July 1990.  Mr. Ott joined HealthLink in 1986 as
Director of Marketing and later was promoted to Vice President of
Sales and Marketing.

Courtney B. Walter was named Executive Vice President and Chief
Financial Officer of HealthLink in March 1997.  Mr. Walter has been
with HealthLink since 1993.  Prior to joining HealthLink, Mr. Walter
worked for Ernst & Young LLP, MetLife Health Care Management
Corporation and Spectrum Emergency Care.

Edward J. Tenholder was named Executive Vice President and Chief
Operating Officer of Blue Cross and Blue Shield of Missouri in
September 1997.  Mr. Tenholder has been with the Blue Cross and Blue
Shield organization since 1979, most recently as Senior Vice
President of Client Services and Corporate Support of the company.



                         ITEM 2.  PROPERTIES

As of December 31, 1998, the company owned or leased the following
facilities which the company considers material to its operations:

                                                     Square    Owned or
         Type of Facility           Location         Footage    Leased

   Corporate Headquarters         St. Louis, MO      343,017    Leased
   Document Storage Warehouse     St. Louis, MO       73,702    Leased
   HealthLink, Inc. Headquarters  St. Louis, MO       61,829    Leased
   Southwest Regional Office      Springfield, MO     30,000    Owned
   Southeast Claims Training      Cape Girardeau, MO   3,230    Leased
   Southeast Claims Office        Cape Girardeau, MO  42,000    Leased
   Central Marketing Office       Columbia, MO         5,000    Leased


                     ITEM 3.  LEGAL PROCEEDINGS

The company is a party to various material legal proceedings which are
detailed in Note 13 entitled "Contingencies" of Part II, Item 8,
Financial Statements and Supplementary Data.

    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no items submitted to a vote of security holders in the
fourth quarter of 1998.

                               PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                               MATTERS

The company's Class A Common Stock has been traded on the New York
Stock Exchange under the symbol "RIT" since August 1, 1994.  There
were 246 common shareholders of record on March 8, 1999.  As of
March 8, 1999, the reported closing bid price per share was $11.44.
The outstanding common shares listed below represent the total of
the outstanding Class A Common Stock and outstanding Class B Common
Stock as of each quarter end.

<TABLE>
         SHAREHOLDERS' DATA
<CAPTION>
                                                              1998
                                     4th              3rd                2nd                1st
                                   Quarter          Quarter            Quarter            Quarter
<S>                           <C>               <C>                <C>                 <C>
    Outstanding common shares    18,672,900       18,672,900          18,671,500         18,671,500
    Market price:
    Quarter ending                $11 1/2             $10              $12 11/16          $9 13/16
    Range                     $8 9/16 - $12     $8 1/2 - $13 1/8   $8 3/8 - $12 11/16  $8 3/8 - $10 7/8

</TABLE>
<TABLE>
<CAPTION>
                                                              1997
                                     4th              3rd                2nd                1st
                                   Quarter          Quarter            Quarter            Quarter
<S>                           <C>               <C>                <C>                 <C>
    Outstanding common shares    18,671,500       18,671,500          18,671,500         18,671,500
    Market price:
    Quarter ending                 $9 5/8           $10 1/4            $13 9/16           $13 1/8
    Range                     $9 3/8 - $11 1/8  $10 1/4 - $13 7/8  $10 3/8 - $13 9/16  $10 1/2 - $17
</TABLE>

DIVIDENDS

The company has not paid dividends on its Class A Common Stock or Class
B Common Stock and anticipates that no dividends will be paid on its
Class A Common Stock or Class B Common Stock in the foreseeable
future.  Further, the company is currently restricted in its ability
to pay cash dividends as explained in Note 10 entitled, "Long-term
debt and commitments" in Part II, Item 8, Financial Statements and
Supplementary Data.

<TABLE>
            ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

<CAPTION>
                                                  Year ended December 31,
Consolidated Statements of Income data   1998      1997       1996      1995      1994
                             (in thousands, except per share data)
<S>                                    <C>        <C>       <C>       <C>       <C>
Revenues                               $767,512   $719,411  $653,375  $591,880  $583,580
Operating expenses                      771,759    780,411   666,954   572,847   556,943
Operating (loss) income                 (4,247)   (61,000)  (13,579)    19,033    26,637
Investment income, net                   18,669     33,184    17,532    18,344    15,764
Other, net                              (4,918)    (5,739)   (5,320)   (3,327)     (640)
Net income (loss)                         5,660   (24,034)   (2,027)    23,570    26,584  (c)
Basic and diluted earnings (loss)
    per share                           $  0.30   $ (1.29)   $ (0.11)   $ 1.26
Pro forma data: (a)
Pro forma operating income                                                       $23,712
Pro forma net income                                                              24,683  (c)
Pro forma earnings per share (b)                                                  $ 1.49  (c)
</TABLE>


<TABLE>
<CAPTION>
Consolidated Balance Sheet data                     December 31,
                                     1998       1997      1996       1995      1994
                                          (in thousands, except per share data)
<S>                                <C>       <C>        <C>        <C>       <C>
Total assets                       $508,678  $506,363   $532,144   $516,388  $433,605
Long-term obligations                68,718    88,845     86,776     89,060    31,013
Shareholders' equity                145,874   140,865    172,954    173,221   135,425
Available cash and investments (d)   12,494     8,279     48,472     56,753    72,854
Book value per share               $   7.81  $   7.54   $   9.26   $   9.27  $   7.25
Tangible book value per share          3.82      3.36       4.76       4.93      7.10

</TABLE>
     (a)  Prior to its initial public offering in August 1994, the
company was not subject to premium taxes levied by the State of
Missouri.  Pro forma data reflect the premium taxes that would have
been recorded, net of income tax, had the company been subject to
such premium taxes.

     (b)  Pro forma earnings per share (unaudited) for the year ended
December 31, 1994, is calculated based on the weighted average
number of Class A and Class B Common Stock assumed outstanding, with
14,962,500 shares of Class B Common Stock assumed outstanding at the
beginning of the year and giving effect to the issuance of 3,250,000
shares of Class A Common Stock on August 1, 1994, the issuance of
487,500 shares of Class A Common Stock on August 4, 1994, and the
repurchase of 10,000 shares of Class A Common Stock in November 1994.

     (c)  Reflects impact of cumulative effect of accounting changes
for postretirement benefits other than pensions and postemployment
benefits aggregating $10,437, net of income tax, or $.57 per share.

     (d)  Amounts represent cash and investments available for general
corporate use without regulatory approval.

       ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto and
the information set forth under the captions "Safe Harbor Statement"
and "Factors that May Affect Future Results of Operations, Financial
Condition or Business" of Part I, Item I, Business, of this Annual
Report, and under the caption in Note 13 entitled, "Contingencies"
of Part II, Item 8, Financial Statements and Supplementary Data, of
this Annual Report.

RESULTS OF OPERATIONS

The company offers a comprehensive array of managed health care
products and services that the company segregates into two distinct
segments.  The company's underwritten segment includes preferred
provider organization (PPO), point-of-service (POS), health
maintenance organization (HMO), Medicare supplement, specialty
managed care, and managed indemnity benefit plans.  The company's
self-funded segment includes third-party administrator (TPA),
administrative services only (ASO), and network rental services for
self-insured organizations.

PREMIUM REVENUE

The following table sets forth premium revenue (in thousands) by
product group for the years ended December 31, 1998, 1997, and 1996:

                                         For the year ended December 31,
      Product Group                         1998      1997      1996
       PPO:
         Alliance PPO                     $191,855  $197,329  $234,720
         AllianceChoice POS                151,034   124,890    75,700
       HMO (includes other POS)            206,292   183,485   139,457
       Medicare supplement                  94,951    97,157    98,038
       Managed indemnity                     7,627    12,531    16,425
       Other specialty services             42,728    38,875    30,709
          Total premium revenue            694,487   654,267   595,049
       ASO/Self-funded and other income     73,025    65,144    58,326
          Total revenues                  $767,512  $719,411  $653,375

OPERATING RATIOS

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

                                             For the year ended December 31,
                                                 1998      1997      1996
    Operating revenues:
     Premium revenue                             90.5%     90.9%     91.1%
     Fees and other income                        9.5%      9.1%      8.9%
                                                100.0%    100.0%    100.0%
    Operating ratios:
     Medical loss ratio                          83.5%     84.8%     82.6%
     Commission expense ratio                     4.1%      4.1%      4.1%
     General and administrative expense ratio    20.8%     22.7%     22.0%
     Adjusted general and administrative
        expense ratio (excludes depreciation
        and amortization)                        18.3%     19.5%     19.7%

MEMBERSHIP

The following table sets forth the number of members by product
category:

                                                                    %
                                                December 31,   (Decrease)/
      Product Group                           1998       1997    Increase
      Underwritten:
       PPO:
         Alliance PPO                        141,225    149,339    (5.4)
         AllianceChoice POS                  127,907    131,924    (3.0)
       HMO:
         Commercial (includes other POS)     129,417    134,743    (4.0)
         BlueCHOICE Senior                     5,432      5,682    (4.4)
         BlueCHOICE Medicaid (MC+)                        5,146      n/a
       Medicare supplement                    57,966     62,311    (7.0)
       Managed indemnity                       2,777      7,022   (60.5)
                                             464,724    496,167    (6.3)
      Self-funded:
       PPO                                    43,688     89,300   (51.1)
       HMO                                     8,843     13,825   (36.0)
       ASO (includes HealthLink):
         Workers' Compensation               449,986    344,712    30.5
         Other ASO*                        1,155,658  1,013,303    14.0
      Total membership                     2,122,899  1,957,307     8.5

   * does not include 455,006 and 497,538 additional third-party
   administrator members as of December 31, 1998, and 1997, respectively,
   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 1998 TO THE RESULTS FOR 1997

REVENUES

UNDERWRITTEN

Premium revenue increased $40.2 million to $694.5 million in 1998 from
$654.3 million in 1997.  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 premium revenue increased $20.7 million in 1998 -- $36.3 million
due to an 11.0 percent increase in net premium rates, partially
offset by a $15.6 million decrease resulting from a 4.1 percent
decrease in member months.  Net rates increased due in part to the
company's targeted general rate increases averaging 7 percent to 19
percent during 1998 enrollment periods.  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.  Alliance PPO membership decreased by 8,114
members from December 31, 1997, to December 31, 1998, and
AllianceChoice POS membership decreased by 4,017 over the same time
period.  Net membership decreases are due primarily to the company's
aforementioned pricing strategy during 1998.  Included in the
Alliance PPO member count are 7,000 PPO Illinois members as of
December 31, 1998, an increase of 4,800 from December 31, 1997.

HMO premium revenue increased $22.8 million, or 12.4 percent -- $16.7
million due to an 8.0 percent increase in net premium rates and a
$6.1 million increase resulting from a 4.1 percent increase in
member months.  Net premium rates increased in part due to the
company's targeted renewal rate increases of 7 percent to 19 percent
during 1998 enrollment periods.  Net rate increases are lower than
the targeted general rate increases due to HMO competition in the
company's HMO service areas; shifts in chosen benefit levels;
changes in the geographic mix of the HMO business; product mix
shifts; and the status of one large group, Missouri Consolidated
Health Care Plan (MCHCP), comprised of 33,200 members as of December
31, 1998, with which the company has limited ability to increase
premium rates.  Membership increases were driven primarily by an
enrollment increase of 6,000 members in MCHCP products from December
31, 1997, to December 31, 1998.  The company's HMO membership in non-
MCHCP products (and excluding the company's Medicaid product)
decreased over the same period by 11,600 members or 10.2 percent,
due primarily to the company's aforementioned pricing strategy
during 1998.  The company's future enrollment growth in its products
and geographic regions is dependent on network attractiveness,
continued cooperation with physician hospital organizations, future
pricing strategy 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 these and other factors.

Effective March 1, 1998, the company discontinued its Medicaid product
in an 18-county central Missouri region.  The decision to
discontinue was made due to what the company believes were
unacceptable terms proposed by the State of Missouri.  As of
December 31, 1997, the company had approximately 5,100 members
enrolled in its Medicaid product.

Premium revenue from Medicare supplement decreased by $2.2 million in
1998.  Member months decreased by 8.1 percent partially offset by a
6.4 percent increase in net premium rates.  Membership declines are
partially attributable to subscribers opting for Medicare-risk
programs, similar to the company's BlueCHOICE Senior product, in
which medical benefits are at least as comprehensive as Medicare
benefits for persons eligible to receive Medicare (parts A and B) at
no additional cost to the member.

Managed indemnity premium revenue decreased by $4.9 million due to a
44.3 percent decline in member months.  Member month declines are
consistent with the company's strategy to move toward more highly
managed care products.

Revenue from other specialty services, which includes certain of the
company's drug and dental health care benefit plans, increased $3.9
million -- $6.3 million due to a 16.2 percent increase in net
premium rates partially offset by a $2.4 million decrease resulting
from a 5.4 percent decrease in member months.  The large rate
increases relate to the company's drug products, including
AllianceRx, and correspond to the high levels of prescription
utilization and trends that the company, as well as the industry as
a whole, have experienced in recent years.

SELF-FUNDED

Fees and other income from administrative services only/self-funded and
network services increased in 1998 by $7.9 million.  These increases
are primarily due to increased 1998 revenues of $14.4 million from
HealthLink, Inc. (HealthLink), the company's network rental and
managed care service subsidiary.  HealthLink's revenues increased
due to a 21.1 percent increase in membership during 1998.  This
increase arose from strong sales during the period, along with the
roll-out of new, open-access products.  Sales during this period
included a 30,000 member group that enrolled in HealthLink's self-
funded ASO plan, transferring from the company's other self-funded
business.  HealthLink's increases to fees and other income were
partially offset by decreases to revenue caused by the loss of
approximately 72,000 members in the company's other self-funded
business due to the nonrenewal of three large groups.  HealthLink
also continues to expand its service area into contiguous states,
such as Arkansas, Iowa, Illinois, Indiana and Kentucky.

OPERATING EXPENSES

The overall medical loss ratio decreased by 1.3 percent to 83.5 percent
in 1998 from 84.8 percent in 1997.  The medical loss ratio
experienced in 1998 is lower compared to that in 1997 due to the
company's pricing strategy, which resulted in an overall increase in
the company's premium per member per month of approximately 9.5
percent in 1998 as compared to 1997.  The medical loss ratio in 1998
is slightly higher than the company previously anticipated in the
beginning of the year as a result of continued escalation of the
medical cost trend, driven by increased cost and utilization of both
outpatient services and drug therapies.  The company's medical
expense on a per member per month basis increased by approximately
7.8 percent in 1998 as compared to 1997.

The company continues the efforts initiated in 1997 to modify its
pharmacy benefits management program and recontract with physicians
and ancillary service providers.  The drug cost trend has increased
to the low 20 percent range, 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.  One of the company's medical cost control strategies for
1998 was the introduction of a new three-tiered benefit design that
allows members to make choices, albeit with a higher member
copayment.  Through the end of 1998, the company achieved 33 percent
penetration of its underwritten membership with respect to the three-
tier pharmacy benefit program.   The company anticipates that a
majority of its underwritten members will be utilizing a three-tier
program by October 1999.  In addition to continuing the conversion
to this new drug benefit program, the company intends to continue to
make other adjustments to copayments, quantity limits and exclusions
as well as to increase physician education, utilization and
prescribing pattern analysis.

The company also intends to 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.  The company also intends to
further expand its Physician Group Partners Program (PGPP).  This
program provides incentives to physicians to improve quality and
patient satisfaction, while reducing costs.  Currently,
approximately 44 percent of the BlueCHOICE Commercial panel of
primary care physicians in metropolitan St. Louis are enrolled in
this program.  The company is also working on a similar program for
specialists and plans to implement the program during 2000.  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 $2.1 million, or 7.1 percent, in 1998.
The commission expense ratio of 4.1 percent for 1998 remained
unchanged from 1997.

General and administrative expenses (excluding depreciation and
amortization) increased $0.2 million in 1998 compared to 1997.  The
company managed to keep general and administrative expenses
relatively consistent from 1997 to 1998 despite the fact that
HealthLink's comparable expenses increased by $6.5 million in 1998
as compared to 1997.  This increase is directly attributable to
HealthLink's geographic and member expansion efforts.  The company's
1997 general and administrative expenses include a write-off of $1.7
million for amounts due to the company from MedAmerica HealthNet,
Inc. (MHI), a physician hospital organization that filed for
bankruptcy during the fourth quarter of 1997.  The company's general
and administrative expense ratio (excluding depreciation and
amortization) decreased to 18.3 percent in 1998 compared to 19.5
percent in 1997.  Excluding depreciation, amortization and the $1.7
million charge, the general and administrative expense ratio for
1997 was 19.2 percent.

Depreciation and amortization expenses decreased to $19.3 million in
1998 from $23.1 million in 1997.  This reduction of depreciation and
amortization expenses primarily related to intangible assets that
became fully amortized during 1997.  In 1997, the company recorded
$4.3 million of expense to complete the amortization of a prepaid
reinsurance asset associated with the company's reinsurance
agreements with Blue Cross and Blue Shield of Kansas City.
Amortization expenses for completed components of the company's IOS
project increased by $2.4 million in 1998 compared to 1997.  See
"Outlook - Information and operation strategy" for more information
on this project.

A non-recurring charge of $900,000 was recognized in the fourth quarter
of 1998 for anticipated expenses relating to the company's strategic
realignment, including among other things, a planned reduction of
the company's work force and changes in health care benefits.  In
1997, the company expensed $3.3 million 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.

In the third quarter of 1997, the company recorded a $29.5 million loss
reserve for estimated losses relating to its contract with the
Missouri Consolidated Health Care Plan (MCHCP).  The reserve is
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 principals.  There can be no assurance that the
amount of this loss reserve will be sufficient to cover all future
losses that may be associated with the MCHCP contract.

OPERATING INCOME (LOSS)

The company's operating loss decreased from $61.0 million in 1997 to
$4.2 million in 1998.  Excluding the non-recurring relocation and
restructuring charges and the charge for the MCHCP loss reserve, the
operating loss decreased from $28.2 million in 1997 to $3.3 million
in 1998.

The operating loss, excluding non-recurring relocation and
restructuring charges and the charge for the MCHCP loss reserve, for
the company's underwritten segment was $22.3 million in 1998
compared to an operating loss of $37.7 million in 1997.  The
decrease in losses in 1998 is partially attributable to the increase
in the company's overall premium rates.

Excluding non-recurring relocation and restructuring charges, the
company's self-funded segment experienced operating income of $18.9
million in 1998 as compared to operating income of $9.5 million for
1997.  The improvement in 1998 operating income is partially the
result of the continued positive performance of HealthLink, which
added an additional $7.9 million to this segment's operating income
in 1998 as compared to 1997.  HealthLink's operating income is
inclusive of $2.8 million and $3.1 million in 1998 and 1997,
respectively, for amortization expenses related to goodwill and
other intangible assets that were acquired through the company's
HealthLink acquisition.

NET INVESTMENT INCOME

Net investment income includes investment income in the form of
interest and dividend income and net realized gains from the sale of
portfolio securities.  Net investment income of $18.7 million in
1998 represents a decrease of $14.5 million from 1997, inclusive of
a $13.3 million decrease in realized gains, net.  Realized gains in
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 in the first
quarter of 1997.

PROVISION (BENEFIT) FOR INCOME TAXES

The company's effective income tax provision (benefit) rate was 40.4
percent and (28.4) percent for 1998 and 1997, respectively.  The
company's effective tax provision (benefit) rates for 1998 and 1997
were affected by non-deductible goodwill amortization.  The
company's effective income tax benefit rate for 1997 was also
affected by gains from the liquidation of company-owned life
insurance policies.  Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," requires a valuation allowance
against deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.  The company believes that
uncertainty exists with respect to the future realization of the
undistributed losses of minority-owned subsidiary companies.
Therefore, the company maintained a valuation allowance relating to
such items of $0.1 million as of December 31, 1998, and 1997.  Based
upon all the available evidence, management believes it is more
likely than not that the company will realize its remaining deferred
tax assets and, accordingly, no valuation allowance has been
provided against such remaining assets as of December 31, 1998, and
1997.

NET INCOME (LOSS)

The company's net income for 1998 was $5.7 million, or $0.30 per share,
compared to a net loss of $24.0 million, or $1.29 per share for
1997.  Excluding the non-recurring restructuring and relocation
charges and the charge for the MCHCP loss reserve, the company had
net income of $6.2 million, or $0.33 per share, in 1998, compared to
a net loss of $2.7 million, or $0.14 per share, in 1997.

COMPARISON OF RESULTS FOR 1997 TO THE RESULTS FOR 1996

REVENUES

UNDERWRITTEN

Premium revenue increased $59.3 million to $654.3 million in 1997 from
$595.0 million in 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.

PPO premium revenue increased $11.8 million in 1997 -- $17.2 million
due to a 3.6 percent increase in net premium rates.  This increase
was partially offset by a $5.4 million decrease resulting primarily
from product mix shifts within the PPO product family, such as the
shift in membership to AllianceChoice, a lower-cost, non-gatekeeper
point-of-service (POS) product.  Alliance PPO member months
decreased by 539,300 in 1997 compared to 1996, while AllianceChoice
POS member months increased by 544,800 in 1997 as compared to 1996.
Net rates increased due in part to the company's targeted general
rate increases averaging 7 percent to 18 percent during 1997
enrollment periods.  Net rate increases are lower than the targeted
range due in part to changes in deductibles, the timing of group
renewals throughout the year, and product mix changes.  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 in
the company's membership table were 2,200 PPO Illinois members at
December 31, 1997.

HMO premium revenue increased $44.0 million, or 31.6 percent -- $40.7
million due to a 31.4 percent increase in member months and a $3.3
million increase resulting from a marginal increase in premium
rates.  Net premium rates have increased only slightly, despite the
company's targeted renewal rate increases of 7 percent to 18 percent
during 1997 enrollment periods, due to HMO competition in the
company's HMO service areas; the status of a large group (Missouri
Consolidated Health Care Plan) with which the company has limited
ability to increase premium rates; 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 HealthNet Blue POS products as
well as the company's efforts to expand geographically within the
State of Missouri.  HealthNet Blue POS gained 7,300 members, or 49.9
percent, in southeast Missouri from December 31, 1996, to December
31, 1997.  As of December 31, 1997, there were approximately 14,900
members enrolled in BlueCHOICE HMO and POS products in the six-
county area surrounding Joplin, Missouri, representing an increase
of 7,200 members over December 31, 1996.  In addition, as of
December 31, 1997, there were 11,000 members enrolled in BlueCHOICE
HMO and POS products in the southwest Missouri area surrounding
Springfield, an increase of 9,300 over December 31, 1996.  Partially
included in the aforementioned HMO membership increases is an
increase in the company's MCHCP membership of 15,500 between
December 31, 1996, and December 31, 1997.    In addition, the
company 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
unacceptable terms proposed by the State of Missouri.  As of
December 31, 1997, the company had approximately 5,100 members
enrolled in its Medicaid product.

Premium revenue from Medicare supplement decreased by $0.9 million in
1997.  Member months decreased by 8.6 percent partially offset by an
8.4 percent increase in net premium rates.  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 additional cost to the member.

Managed indemnity premium revenue decreased by $3.9 million due to a
27.8 percent decline in member months in keeping with the company's
strategy to move toward more highly managed products.

Revenue from other specialty services, which include certain of the
company's drug and dental health care benefit plans, increased $8.2
million due to a 12.6 percent increase in member months and a 12.4
percent increase in net premium rates.  The company's drug product
revenues increased $7.4 million due primarily to a 13.7 percent
increase in member months in 1997 as compared to 1996.

SELF-FUNDED

Fees and other income from administrative services only/self-funded and
network services increased in 1997 by $6.8 million.  ASO revenues
from HealthLink increased by $10.1 million in 1997 as compared to
1996.  HealthLink's 1997 and 1996 revenues include $7.5 million and
$2.7 million of revenues, respectively, from HealthLink HMO, Inc.
(HealthLink HMO), which was only 50 percent 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 10.7 percent or 71,900
members from December 31, 1996, to December 31, 1997.  HealthLink's
increases in fees and other income were partially offset by two main
factors - decreases to revenue caused by a decline in the HMO self-
funded membership of 2,700 members from December 31, 1996, to
December 31, 1997, and a decline in the overall PPO self-funded
membership of 20,700 members over the same time period.

Three large self-funded group cancellations were effective as of
January 1, 1998.  As of December 31, 1997, these three groups
encompassed approximately 72,000 members, approximately 30,000 of
which enrolled in HealthLink's self-funded ASO plans in 1998.

OPERATING EXPENSES

The overall medical loss ratio increased by 2.2 percent to 84.8 percent
in 1997 from 82.6 percent in 1996 primarily as a result of (1)
competitive pricing of managed care products, especially in the St.
Louis metropolitan market area, (2) higher medical expenses,
especially as driven by increased cost and utilization of both
outpatient services and drug therapies, (3) growth in regions
outside of the metropolitan St. Louis area that have less cost-
efficient networks, (4) an increase to claims reserves of $3.0
million in 1997 for the estimate of claims that had been incurred
but not reported in 1996, and (5) the poor performance of MCHCP that
resulted in large underwriting losses.

Commission expense increased by $2.5 million, or 9.3 percent in 1997.
The commission expense ratio of 4.1 percent for 1997 remained
unchanged from 1996.

General and administrative expenses (excluding depreciation and
amortization) increased $11.1 million, or 8.6 percent in 1997
compared to 1996.  This increase is primarily due to a $6.7 million
increase in HealthLink general and administrative expenses
(excluding depreciation and amortization) in 1997, inclusive of a
$3.9 million increase in HealthLink HMO expenses.  HealthLink's
expenses increased in order to appropriately manage its membership
growth as described elsewhere herein.  The company's general and
administrative expense ratio (excluding depreciation and
amortization) improved to 19.5 percent for 1997 compared to 19.7
percent for 1996.  Prior to December 31, 1997, the company offered
its HealthNet Blue products pursuant to a joint venture agreement
with MedAmerica HealthNet, Inc. (MHI), a physician hospital
organization.  MHI filed for bankruptcy and voted to dissolve the
physician hospital organization.  Consequently, the pertinent
provisions of the provider contracts between MHI and the southeast
Missouri doctors, hospitals and ancillary service providers were
selectively assigned to the company in early 1998.  The company
recorded a $1.7 million charge related to a receivable from MHI that
was written off in the fourth quarter of 1997 after MHI declared
bankruptcy.  Excluding this $1.7 million charge, the company's
general and administrative expense ratio for 1997 (excluding
depreciation and amortization) was 19.2 percent.

Depreciation and amortization expenses increased to $23.1 million in
1997 from $15.0 million in 1996.  The primary cause for this $8.1
million increase is an additional $4.9 million of IOS amortization
expense incurred in 1997 as compared to 1996.  See "Outlook -
Information and operations strategy" for more information related to
the IOS project.  In addition, the company amortized an additional
$2.6 million in 1997 compared to 1996 for prepaid reinsurance
payments associated with the company's reinsurance agreements with
Blue Cross and Blue Shield of Kansas City.

Non-recurring relocation charges in 1997 and 1996 include $3.3 million
and $4.5 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.

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 reported in the third quarter of 1997
a $29.5 million loss reserve provision relating to the MCHCP
contract.

OPERATING INCOME (LOSS)

The company's operating loss increased from $13.6 million in 1996 to
$61.0 million in 1997.  Excluding the non-recurring relocation
charges and the charge for the MCHCP loss reserve, the operating
loss increased from $9.0 million in 1996 to $28.2 million in 1997.

The operating loss, excluding non-recurring relocation charges and the
charge for the MCHCP loss reserve, for the company's underwritten
segment was $37.7 million in 1997 compared to a loss of $11.0
million in 1996.  The increase in losses in 1997 is primarily
attributable to a combination of pricing and medical cost trends,
including higher outpatient utilization and drug costs.

Excluding non-recurring relocation charges, the company's self-funded
segment experienced an operating gain of $9.5 million in 1997 as
compared to operating income of $1.9 million for 1996.  The
improvement in 1997 operating income is partially the result of the
continued positive performance of HealthLink, which added an
additional $3.5 million to this segment's operating income in 1997
as compared to 1996.  HealthLink's operating income is inclusive of
$3.1 million and $3.3 million in 1997 and 1996, respectively, for
amortization expenses related to goodwill and other intangible
assets that were acquired through the HealthLink acquisition.

NET INVESTMENT INCOME

Net investment income of $33.2 million in 1997 represents an increase
of $15.7 million from 1996, inclusive of a $14.0 million increase in
realized gains, net.  Realized gains in 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 (BENEFIT) FOR INCOME TAXES

The company's effective income tax (benefit) provision rate was (28.4)
percent and 48.2 percent for 1997 and 1996, respectively. The
company's effective income tax benefit 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
provision rate was also affected by non-deductible goodwill
amortization.

NET INCOME (LOSS)

The company's net loss for 1997 was $24.0 million, or $1.29 per share,
compared to a net loss of $2.0 million, or $0.11 per share for 1996.
Excluding the non-recurring relocation charges and the charge for
loss reserves, the company had a net loss of $2.7 million, or $0.14
per share, for 1997, compared to net income of $0.9 million, or
$0.05 per share, for 1996.

LIQUIDITY AND CAPITAL RESOURCES

The company's working capital as of December 31, 1998 was $64.5
million, a decrease of $5.2 million from December 31, 1997.  The
decrease is partially attributable to $8.0 million of additional
debt from the company's reducing revolving credit facility that
became a current payable during 1998.  The company also repaid $3.9
million of the debt during 1998 pursuant to the credit facility's
requirements.  In addition, the company capitalized $12.5 million of
costs for property and equipment purchases, $8.4 million of which
relates to capitalized IOS development costs.

Net cash provided by operations totaled $11.0 million for the year
ended December 31, 1998.  The company's net income was $5.7 million,
which included (on a before-tax basis) $3.9 million of realized
gains from the sale of investments, $9.1 million for the MCHCP loss
reserve amortization, and $19.3 million of depreciation and
amortization expenses.  In addition, other assets, medical claims
payable, obligations for employee benefits, receivables from members
and net intercompany receivables were affected by the timing of
operating cash payments and receipts, intercompany tax settlements,
as well as changes in membership, utilization and claims payment
trends and actuarial estimates.

Net cash provided by investing activities was $7.7 million for the year
ended December 31, 1998.  This amount was $20.5 million less than
the prior year primarily due to a decrease of $11.6 million in long-
term debt and capital lease obligation payments during 1998 as
compared to 1997.

In the fourth quarter of 1997, the company amended its revolving credit
facility (the Credit Agreement), the material terms of which are as
follows:  (1) the borrowings under the Credit Agreement will bear
interest at 2.75 percent 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 Agreement
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
commitment under the Credit Agreement 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.  The company's commitment
under the Credit Agreement was reduced by an additional $1.9 million
during 1998, pursuant to the Credit Agreement, due to the sale by
the company's HealthLink subsidiary of its former headquarters
building.  HealthLink relocated to a leased facility.

The company primarily invests positive cash flow in fixed income
securities.  The company's investment policies are designed to
preserve principal, maximize yield and provide liquidity to meet
anticipated obligations.  The company's available-for-sale
securities primarily include fixed-rate government securities and
corporate bonds as well as mortgage-backed securities and other
asset-backed securities.

On August 29, 1997, the company reported the commencement of the
litigation with MCHCP and estimated losses (giving effect to all
possible renewal terms of the MCHCP contract without requested rate
increases) in the range of $30 million to $40 million.  In the third
quarter of 1997, the company took a pre-tax charge of $29.5 million,
which was based on actuarial estimates, including projected limited
rate increases, and projected enrollment and medical cost trends
accounted for through the year 2000 in accordance with generally
accepted accounting principles.  The company was advised by the
Missouri Department of Insurance (DOI) in March 1998, that the
entire amount of the reserve for the MCHCP contract recorded by the
company for projected losses under the contract through the year
2000, must, for statutory accounting purposes, be recorded by the
company's subsidiary, HMO Missouri, Inc. (BlueCHOICE), on its
statutory filings with the DOI.  With the prior regulatory approval
of the DOI, BlueCHOICE issued surplus notes to the company in the
amount of $29 million to ensure the statutory solvency of
BlueCHOICE.  While management of the company believes the current
provision for losses is adequate, if the actual public entity
membership in MCHCP grows at a rate in excess of the rate used in
the actuarial estimates, or if the projected limited rate increases
and medical cost trends should differ materially from those assumed
in the actuarial estimates, then the amount of the reserve recorded
to date could be insufficient to cover all future losses which may
be associated with the MCHCP contract, and such losses could have a
material adverse effect on the company and the market for the
company's stock.

In addition, the company's Credit Agreement described elsewhere herein
provides that the company's subsidiaries, including BlueCHOICE, may
not issue surplus notes to the company in an aggregate principal
amount in excess of $40 million.  As the aggregate principal amount
of surplus notes issued by such subsidiaries to the company
currently approximates $40 million, any additional funding required
by any subsidiaries of the company, including BlueCHOICE, as a
result of additional losses or reserves associated with the MCHCP
contract, or otherwise, must, absent approval of the lenders under
the Credit Agreement, be funded from sources other than surplus
notes.

Under applicable state regulations, certain of the company's
subsidiaries are required to retain cash generated from their
operations.  After giving effect to such restrictions and the
surplus notes issued to the company by BlueCHOICE as described in
the preceding paragraph, the company had approximately $12.5 million
in cash and investments available for general corporate purposes
without regulatory approval.  The decline in this figure from $48.5
million as of December 31, 1996, is primarily due to the funding
requirements of the company's HMO subsidiary related to the MCHCP
loss reserve as described elsewhere herein.

Other than continued investment in information technology, investment
in new benefit programs and debt repayment, the company currently
has no definitive material commitments for future use of its current
or expected levels of available cash resources; however, management
continually evaluates opportunities to expand the company's
specialty managed care services and health plan operations.  The
company's expansion options may include additional acquisitions and
internal development of new products and programs.  The company's
available cash resources will remain in interest-bearing investments
until they are utilized for such purposes.

OUTLOOK

Except for the historical information contained herein, this Annual
Report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995.  These
statements typically, but not exclusively, are identified by the
inclusion of phrases such as "the company anticipates," "the company
believes," "the company expects," "the company plans," "the company
intends," and other phrases of similar meaning.  Such forward-
looking statements involve known and unknown risks, uncertainties,
contingencies and other factors that may cause the company's actual
results of operations, financial condition or business performance
to be materially different from the results of operations, financial
condition or business performance expressed or implied by such
forward-looking statements.  Factors that could cause or contribute
to such differences include, but are not limited to: the possibility
that court approval of the final settlement agreement, as amended,
entered into with the Missouri Attorney General and Department of
Insurance (DOI), referenced elsewhere herein, would not be obtained,
or if obtained could include conditions that are not acceptable to
the parties; the possibility that all remaining contingencies and
conditions to the parties' obligations to effect the proposed
settlement transaction would not be met or otherwise satisfied; the
Office of Personnel Management audit of BlueCHOICE; pending
litigation, including the subscriber class action litigation;
potential loss of "Blue Cross" and "Blue Shield" licenses by BCBSMo,
the company and its controlled affiliates; government regulation and
health care reform; Missouri Consolidated Health Care Plan issues;
market competition and consolidation; escalating health care costs;
dependence on sales to individuals; recontracting efforts and
potential nonrenewal of subscriber and provider agreements; voting
control by BCBSMo; changes in key management; variability of
operating results and stock price; Credit Agreement restrictions;
the Year 2000 issue; and other factors discussed under the caption
entitled "Factors that May Affect Future Results of Operations,
Financial Condition or Business" of Part I, Item 1 of this Annual
Report, the caption in Note 13 entitled, "Contingencies" of Part II,
Item 8 of this Annual Report, and elsewhere in the company's SEC
reports.

OPERATING OUTLOOK

The following statements are based on short-term expectations.  The
statements are forward-looking and actual results may differ
materially.  Reference is made to the information set forth under
the captions "Safe Harbor Statement" and "Factors that May Affect
Future Results of Operations, Financial Condition or Business" of
Part I, Item 1, of this Annual Report.

The company's performance targets for 1999 include:  average premium
revenue growth per member per month in the 9 percent to 10 percent
range, reflecting price increases up to 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 to
mid-eighties (in percentages), with an anticipated net medical cost
increase per member per month of approximately 7 percent to 9
percent, inclusive of pharmacy benefits, medical services and the
cost of government-mandated benefits; continued control of core
overhead expenses, with amortization expense for corporate
initiatives, Year 2000 programming expenses and other initiatives
contributing to a general and administrative expense ratio in the
low twenties (in percentages).

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

STRATEGIC REALIGNMENT

The company recently announced a strategic realignment of business
operations to control overall general and administrative expenses
for 1999.  By reducing personnel and other administrative expenses,
the company's goal is to offset anticipated 1999 investments in new
products, further expansion of the HealthLink network in regions
outside of Missouri and other items.  The realignment plan calls for
the reduction of approximately 135 positions, or approximately 7.5
percent of the company's workforce, by the middle of 1999.  These
positions are expected to be eliminated through strategic reductions
and attrition and will be offset to a small degree by positions
added in other growing business areas.  The company's goal also is
to control general and administrative costs by decreasing the use of
outside consultants, changing employee health care benefits, and
reducing software costs, travel, entertainment, and other expenses.
As a result of the company's strategic realignment, the company
recorded a charge of  $0.9 million in the fourth quarter of 1998.
There can be no assurance that the goals of the company's strategic
realignment will be achieved.

INFORMATION AND OPERATIONS STRATEGY

In 1995, the company implemented a comprehensive information and
operations strategy (IOS) to assist the company in implementing its
managed care strategy of delivering access to cost-efficient 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 that 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 1998, the company
incurred capitalized expenditures of $8.5 million on this project.
Cumulatively, since 1995, the company has incurred capitalized
expenditures of $47.5 million.  The company anticipates that it will
expend approximately $8 million to $9 million for capitalized costs
related to this project in future years.  While management believes
that the IOS project will initially be dilutive to earnings per
share, it is believed that opportunities exist for significant
medical and administrative savings, which are expected to provide a
payback and contribute to earnings per share over the long term.

YEAR 2000 ISSUE

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

The inventory and assessment phases of the Year 2000 program are
substantially complete and include information technology such as
application software on various platforms (mainframe, midrange and
personal computer), system software and data/voice communication
networks; as well as facility equipment such as elevators, security
and building control systems.  Although the company is increasing
its use of client server applications, the majority of its
application and system software uses a mainframe platform with COBOL
programming. The company believes that at December 31, 1998,
approximately 95 percent of these COBOL programs were Year 2000
ready.  The remaining COBOL programs are expected to be Year 2000
ready by March 31, 1999.  The balance of the company's other system
modifications is expected to be completed by September 30, 1999,
with the majority of these modifications currently under way.  The
company's plan for completion of this project is partially dependent
upon the work of third parties.  The company has limited internal
exposure to equipment with embedded technology and expects any
affected equipment to be ready before January 1, 2000.

Integrated testing of purchased or internally developed applications,
hardware, operating systems and other support software began in the
fourth quarter of 1998.  This integrated testing (including the leap
year test) includes advancing the hardware dates forward to several
key dates in the year 2000.  Testing will continue through the end
of 1999 for existing systems, new releases and enhancements to
provide for continued readiness and to prevent reappearance of Year
2000 problems.

The total cost associated with the modifications required to become
Year 2000 ready is estimated to be approximately $12 million to $13
million.  The increase from the $10 million to $12 million range
reported in the company's Form 10-Q for the period ended September
30, 1998, relates to recently identified incremental Year 2000
readiness costs associated with the company's data warehouse
applications and more complete cost estimates for integrated
testing.  The company is expensing all costs associated with these
changes as they are incurred.  From 1996 through December 31, 1998,
the company has cumulatively expensed $7.4 million on this project,
with $4.7 million expensed in 1998.  These costs are being funded
internally through operating cash flows or investment sales and
represent less than 10 percent of the company's information
technology budget over the life of the Year 2000 program.

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

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

The company is currently preparing its contingency plan in the event
that full Year 2000 readiness for critical business functions is not
achieved.  The company expects to have the plan substantially
defined on or before the end of the second quarter of 1999.
However, there can be no assurance that the company or any third
party upon which the company depends will be able to achieve Year
2000 readiness or will have sufficient contingency plans, which
could have a material adverse effect on the company and the market
for the company's stock.

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

RECENT LEGISLATION

The Health Insurance Portability and Accountability Act of 1996
requires private health insurance coverage to be "portable" by
employees from job to job and eliminates coverage limitations for
pre-existing health conditions.  The State of Missouri also has
recently passed legislation that mandates various lengths of stay
for maternity patients and imposes a number of new restrictions on
managed care organizations, which include, among others, health
maintenance organizations, health insurers and utilization review
organizations.  In addition, the Balanced Budget Act of 1997, and
the regulations promulgated thereunder, establish a new
Medicare+Choice program that significantly expands the health care
options to Medicare beneficiaries and imposes a number of new
restrictions and requirements on health plans, such as BlueCHOICE,
that offer a Medicare+Choice plan.  Finally, the State of Illinois
recently revised its regulations governing the activities of
preferred provider organizations, such as HealthLink, which now
impose a number of new provider and client contracting requirements.
Although the impact of the provisions of this recent legislation and
any future legislation cannot be fully predicted at this time,
management of the company believes that the ultimate outcome will
not have a material adverse effect on the company.  However, there
can be no assurance that the company will be able to obtain or
maintain required governmental approvals or licenses or that any
current or proposed federal and state legislation or other
regulatory reform 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.

INFLATION

Health care costs in the United States have increased more rapidly than
the national consumer price index in recent years, and that trend is
expected to continue.  The company believes that it has reduced the
impact of such increases by expanding its provider networks,
establishing risk-sharing agreements and strengthening its
underwriting standards.  However, there can be no assurance that the
company's efforts to reduce the impact of inflation will be
effective or that premium increases will equal or exceed increasing
health care costs.

RECENTLY ISSUED ACCOUNTING STANDARDS

See the description under the same caption in Note 2 of the Notes to
Consolidated Financial Statements of Part II, Item 8, of which is
incorporated herein by reference.

CONTINGENCIES

See description under the same caption in Note 13 of the Notes to
Consolidated Financial Statements of Part II, Item 8, of which is
incorporated herein by reference.


    ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INVESTMENTS AVAILABLE FOR SALE

The company's available-for-sale securities (See Note 4 of the Notes to
Consolidated Financial Statements for further breakdown of the
available-for-sale securities) are exposed to market risk from
changes in interest rates, as rate volatility will cause
fluctuations in the market value of held investments and the
earnings potential of future investments.  The company's objective
in managing interest rate risk is to meet the strategic operating
needs of the company by safeguarding principal, providing sufficient
liquidity to meet business needs and realizing optimal real returns
within acceptable risk levels, while at all times adhering to the
restrictions of the Missouri and Illinois Departments of Insurance.
The company's management is responsible for recommending external
portfolio managers and the company's Finance and Investment
Committee (F&I Committee), comprised of certain members of the
company's Board of Directors, is responsible for approving the
selection of these external managers, including the specific
portfolio guidelines and restrictions to be included in the
management agreements.  The company's investment guidelines are
generally conservative and are established with the expectation of
receiving reasonable rates of return at reasonable levels of risk.
The company's management is also responsible for recommending the
percentage distribution of the portfolio between short-term, fixed
income, and equity investments for the F&I Committee's approval.
The company's objective is to diversify to reduce volatility through
exposure to various investment styles.  Managers of each external
portfolio are expected to exceed a specific index which is
comparable to its style of management.

The company classifies its investments as available-for-sale.
Accordingly, the company's investments are reported on the company's
Consolidated Balance Sheets at fair value.  Changes in market
interest rates result in an unrealized gain or loss, which is
included in the reported fair value of the recorded securities, with
an offsetting amount (net of taxes) recorded in shareholders'
equity, and no related or immediate impact to the results of
operations.  At December 31, 1998, the company recorded an
unrealized gain on these investments; however, the fair value of the
securities could potentially decrease to an unrealized loss
position, depending upon changes in market rates and other factors.
As of December 31, 1998, the company had $208.3 million invested in
available-for-sale securities at fair value.  The analyses below are
based on $192.2 million of the company's available-for-sale
securities that are managed externally, with a weighted-average
yield to maturity of 5.69 percent.  The company's available-for-sale
securities primarily include fixed-rate government securities and
corporate bonds as well as mortgage-backed securities and other
asset-backed securities.  The remaining $16.1 million of the
company's available-for-sale securities were not included in the
analyses as the investments are primarily either internally managed
or represent short-term money market funds.  The market risks
related to these internally managed and short-term investments are
not deemed to be material to the analyses presented below.  A
breakdown of the effective maturity and effective duration of the
$192.2 million of externally managed fixed maturity investments is
as follows:

 Effective Maturity     % of Total    Effective Duration     % of Total
     (in years)            Held           (in years)            Held
    0.00 - 0.99            5.80          0.00 - 0.99            7.49
    1.00 - 2.99           23.74          1.00 - 2.99           36.28
    3.00 - 4.99           23.96          3.00 - 3.99           18.22
    5.00 - 9.99           36.89          4.00 - 5.99           17.99
   10.00 - 19.99           4.73          6.00 - 7.99           12.84
      20.00 +              4.88             8.00 +              7.19


The following table shows the effect of changes in interest rates on
the company's investment return, duration and market value.  The
analysis below incorporates the prepayment risk associated with the
company's investments in callable securities as well as the
optionality of its mortgage-backed and asset-backed securities.  The
analysis includes a twelve month projection of market values given
the applicable changes in yields from that which existed at year-end
1998 with the assumption that investment income is reinvested.

                           Return %
 Yield Change                                      Effective
(basis points)   Total     Income      Price       Duration      Market Value
   -300          17.47      5.16       12.31         4.16          $225,763
   -250          15.29      5.22       10.07         4.06           221,579
   -200          13.17      5.27        7.90         3.97           217,508
   -150          11.16      5.34        5.82         3.88           213,651
   -100           9.27      5.43        3.84         3.84           210,008
    -50           7.49      5.56        1.92         3.87           206,583
     0            5.69      5.69        0.00         3.95           203,132
     50           3.80      5.78       -1.98         4.08           199,494
    100           1.84      5.84       -4.00         4.20           195,731
    150          -0.14      5.89       -6.02         4.28           191,932
    200          -2.10      5.92       -8.02         4.32           188,166
    250          -4.02      5.95       -9.97         4.34           184,469
    300          -5.92      5.98      -11.90         4.34           180,813


To summarize, a decrease in effective interest rates would result in an
increase in the fair value of the company's portfolio with an
offsetting increase (net of taxes) recorded in shareholders' equity.
Alternatively, an increase in interest rates would result in a
decrease in the fair value of the company's portfolio with an
offsetting decrease (net of taxes) recorded in shareholders' equity.
There can be no assurance that actual changes in interest rates will
have the effects as presented above, as this analysis includes
various assumptions, and changes in these assumptions, as well as
various other factors causing market volatility, could result in
material differences from the figures presented above.

LONG-TERM DEBT

During 1998, the company was exposed to changes in interest rates
through the company's revolving credit facility (Credit Agreement)
with Bank of America National Trust and Savings Association (B of A)
and a syndicate of banks.  This exposure was primarily linked to the
adjusted London Interbank Offered Rate (LIBOR).  The company's debt
under the Credit Agreement was subject to interest at 2.75 percent
above LIBOR and was adjusted monthly accordingly.  A hypothetical 10
percent increase in LIBOR would have increased the company's
interest expense by $0.4 million during 1998.  At December 31, 1998,
the company had $43.1 million outstanding under the Credit Agreement
(see Note 10 of the Notes to Consolidated Financial Statements for
further information related to the company's Credit Agreement).  The
company expects to continue to denominate the borrowings under the
Credit Agreement as an offshore rate loan bearing interest at LIBOR
plus 2.75 percent.  However, as an alternative, the company may
denominate the borrowings as a base rate loan which bears interest
at 1.75 percent above the higher of the latest federal funds rate
plus 0.5 percent or B of A's reference rate, which approximates the
prime rate.  In either case, the applicable interest rate is
expected to be adjusted on a monthly basis.  The maximum commitment
of the Credit Agreement was reduced to $43.1 million as of December
31, 1998, with $2.5 million quarterly reductions scheduled through
June 30, 2000, and the remaining commitment terminating on August
10, 2000.  In addition, mandatory reductions to the commitment,
together with prepayments, are required upon the happening of
certain extraordinary events such as the issuance of debt securities
or the sale of a subsidiary.

        ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements:
<S>                                                                               <C>
                                                                                  Page
Consolidated Balance Sheets, December 31, 1998, and 1997                           53
Consolidated Statements of Income for the years ended
     December 31, 1998, 1997 and 1996                                              54
Consolidated Statements of Changes in Shareholders' Equity for the years ended
     December 31, 1998, 1997 and 1996                                              55
Consolidated Statements of Cash Flows for the years ended
     December 31, 1998, 1997 and 1996                                              56
Notes to Consolidated Financial Statements                                         57
Reports of Independent Accountants                                                 87
Financial Statement Schedule - Condensed Financial Information of Registrant       89
</TABLE>

  ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                      AND FINANCIAL DISCLOSURE

On June 23, 1997, the company dismissed Price Waterhouse LLP (PW) as
its independent accountants.  The reports of PW on the financial
statements for the fiscal year ended December 31, 1996, contained no
adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle.
The company's Audit Committee participated in and approved the
decision to change independent accountants.  In connection with its
audits for the 1996 fiscal year and through June 23, 1997, there
were no disagreements with PW on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction
of PW would have caused them to make reference thereto in their
report on the financial statements for such year.  During the 1996
fiscal year and through June 23, 1997, there have been no reportable
events (as defined in Regulation S-K Item 304(a)(1)(v)).  The
company requested that PW furnish it with a letter addressed to the
SEC stating whether or not it agreed with the above statements.  A
copy of such letter, dated June 27, 1997, was filed as Exhibit 16 to
the company's report on Form 8-K filed with the Securities and
Exchange Commission on June 30, 1997.

The company engaged Coopers & Lybrand L.L.P. (C&L) as its new
independent accountants as of June 23, 1997.  During the 1996 fiscal
year and through June 23, 1997, the company had not consulted with
C&L regarding either (i) the application of accounting principles to
a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on the company's financial
statements, and either a written report was provided to the company
or oral advice was provided that C&L concluded was an important
factor considered by the company in reaching a decision as to the
accounting, auditing or financial reporting issue; or (ii) any
matter that was either the subject of a disagreement, as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event,
as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

During 1998, PW and C&L merged to form PricewaterhouseCoopers LLP,
which the company has retained as its independent accountants.

                              PART III

    ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included under the heading "Election of Directors"
(except the information set forth under the subcaptions thereunder,
"Compensation of Directors" and "Meetings of Board and Committees")
and the information included under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance" in the company's
definitive Proxy Statement for the Annual Meeting of Shareholders to
be held May 11, 1999, is incorporated herein by reference.

Pursuant to General Instruction G(3) to Form 10-K, information as to
executive officers of the company is set forth in Part I of this
Form 10-K under separate caption.

                  ITEM 11.  EXECUTIVE COMPENSATION

The information included under the headings "Executive Compensation and
Other Information" (except the information set forth under the
subcaptions thereunder, "Report of the Compensation Committee of the
Board of Directors" and "Company Performance") and "Election of
Directors - Compensation of Directors" in the company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held
May 11, 1999, is incorporated herein by reference.


    ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                             MANAGEMENT

The information included under the heading "Ownership of RightCHOICE
Capital Stock" in the company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 11, 1999, is
incorporated herein by reference.

      ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Note 15, entitled "Transactions with Blue Cross and Blue Shield of
Missouri" of Part II, Item 8, Financial Statements and Supplementary
Data, contains financial information relating to the company's
transactions with BCBSMo.

The information included under the heading "Certain Transactions" in
the company's definitive Proxy Statement for the Annual Meeting of
the Shareholders to be held on May 11, 1999, is incorporated herein
by reference.

                               PART IV


    ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                             ON FORM 8-K

a)  The following documents are filed as part of this report:

1)  Financial Statements:

     The financial statements required to be filed as part of this
Form 10-K Annual Report are set forth in the index in Part II, Item
8 of this report.

2)  Financial Statement Schedules:
                                                                      Page
      The schedule required to be filed as part of this report
is as follows:

      I.  Condensed Financial Information of Registrant                89

Schedules not included herein have been omitted because of the absence
of conditions under which they are required or because the required
information, where material, is shown in the consolidated financial
statements or related notes thereto.

3)  Exhibits

2     Conceptual framework for agreement to resolve litigation and
regulatory issues with the Missouri Department of Insurance and the
Missouri Attorney General (portion omitted pursuant to request for
confidential treatment) - Incorporated by reference - previously
filed as Exhibit 2 to the company's Form 10-Q for the period ending
March 31, 1998.*

2.1     Reorganization Agreement between the Registrant, Healthy
Alliance Life Insurance Company (HALIC) and Blue Cross and Blue
Shield of Missouri (BCBSMo) - Incorporated by reference - previously
filed as Exhibit 2.1 to the company's Form 10-K for the period
ending December 31, 1994.*

2.1.1     Supplement to the Reorganization Agreement between the
Registrant, Healthy Alliance Life Insurance Company (HALIC) and Blue
Cross and Blue Shield of Missouri (BCBSMo) - Incorporated by
reference - previously filed as Exhibit 2.1.1 to the company's Form
10-K for the period ending December 31, 1995.*

3.1     Articles of Incorporation of the Registrant - Incorporated by
reference - previously filed as Exhibit 3.1 to Registration
Statement on Form S-1 under the Securities Act of 1933 filed by the
Registrant.  Registration Statement No. 33-77798.*

3.1.1     Amendment to Articles of Incorporation of the Registrant -
Incorporated by reference - previously filed as Exhibit 3.1.1 to
Registration Statement on Form S-1 under the Securities Act of 1933
filed by the Registrant.  Registration Statement No. 33-77798.*

3.2.1     Amended and Restated Bylaws of the Registrant dated
October 27, 1997 - Incorporated by reference - previously filed as
Exhibit 3.2 to the company's Form 10-Q for the period ending
September 30, 1997.*

4.1     Specimen of Class A Common Stock Certificate of the Registrant
- Incorporated by reference - previously filed as Exhibit 4.1 to
Registration Statement on Form S-1 under the Securities Act of 1933
filed by the Registrant.  Registration Statement No. 33-77798.*

4.2     Specimen of Class B Common Stock Certificate of Registrant -
Incorporated by reference - previously filed as Exhibit 4.2 to
Registration Statement on Form S-1 under the Securities Act of 1933
filed by the Registrant.  Registration Statement No. 33-77798.*

10.2    Reinsurance Agreement between the Registrant and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.2 to the
company's Form 10-K for the period ending December 31, 1994.*

10.3     Network Rental Agreement between the Registrant and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.3 to the
company's Form 10-K for the period ending December 31, 1994.*

10.4.1     Amended and Restated Administrative Services Agreement
between the Registrant and BCBSMo - Incorporated by reference -
previously filed as Exhibit 10.4.1 to the company's Form 10-K for
the period ending December 31, 1997.*

10.5.1     Amended and Restated Tax Allocation Agreement -
Incorporated by reference - previously filed as Exhibit 10.5.1 to
the company's Form 10-K for the period ending December 31, 1997.*

10.6.3     Letter Agreement with BCBSA regarding the issuance of Blue
Cross and Blue Shield licenses - Incorporated by reference -
previously filed as Exhibit 10.6.3 to the company's Form 10-K for
the period ending December 31, 1997.*

10.6.4     Blue Cross License Agreement between Blue Cross and Blue
Shield Association (BCBSA) and BCBSMo - Incorporated by reference -
previously filed as Exhibit 10.6.4 to the company's Form 10-K for
the period ending December 31, 1997.*

10.6.5     Blue Cross License Agreement between BCBSA and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.6.5 to
the company's Form 8-K filed on November 25, 1998.*

10.6.6     Addendum to Blue Cross License Agreement between BCBSA and
BCBSMo - Incorporated by reference - previously filed as Exhibit
10.6.6 to the company's Form 8-K filed on November 25, 1998.*

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

10.7.3     Blue Shield License Agreement between BCBSA and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.7.3 to
the company's Form 10-K for the period ending December 31, 1997.*

10.7.4     Blue Shield License Agreement between BCBSA and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.7.4 to
the company's Form 8-K filed on November 25, 1998.*

10.7.5     Addendum to Blue Shield License Agreement between BCBSA
and BCBSMo - Incorporated by reference - previously filed as Exhibit
10.7.5 to the company's Form 8-K filed on November 25, 1998.*

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

10.8.2     Blue Cross Controlled Affiliate License Agreement among
BCBSA, HMO Missouri, Inc., and BCBSMo - Incorporated by reference -
previously filed as Exhibit 10.8.2 to the company's Form 10-K for
the period ending December 31, 1997.*

10.8.3     Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HMO Missouri, Inc. - Incorporated by reference -
previously filed as Exhibit 10.8.3 to the company's Form 8-K filed
on November 25, 1998.*

10.8.4     Addendum to Blue Cross Controlled Affiliate License
Agreement among BCBSA, BCBSMo, and HMO Missouri, Inc. - Incorporated
by reference - previously filed as Exhibit 10.8.4 to the company's
Form 8-K filed on November 25, 1998.*

10.9.2     Blue Shield Controlled Affiliate License Agreement among
BCBSA, HMO Missouri, Inc., and BCBSMo - Incorporated by reference -
previously filed as Exhibit 10.9.2 to the company's Form 10-K for
the period ending December 31, 1997.*

10.9.3     Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HMO Missouri, Inc. - Incorporated by reference -
previously filed as Exhibit 10.9.3 to the company's Form 8-K filed
on November 25, 1998.*

10.9.4     Addendum to Blue Shield Controlled Affiliate License
Agreement among BCBSA, BCBSMo, and HMO Missouri, Inc. - Incorporated
by reference - previously filed as Exhibit 10.9.4 to the company's
Form 8-K filed on November 25, 1998.*

10.10.2     Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo and the Registrant - Incorporated by reference -
previously filed as Exhibit 10.10.2 to the company's Form 10-K for
the period ending December 31, 1997.*

10.10.3     Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and the Registrant - Incorporated by reference -
previously filed as Exhibit 10.10.3 to the company's Form 8-K filed
on November 25, 1998.*

10.10.4     Addendum to Blue Cross Controlled Affiliate License
Agreement among BCBSA, BCBSMo, and the Registrant - Incorporated by
reference - previously filed as Exhibit 10.10.4 to the company's
Form 8-K filed on November 25, 1998.*

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

10.11.2     Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo and the Registrant - Incorporated by reference -
previously filed as Exhibit 10.11.2 to the company's Form 10-K for
the period ending December 31, 1997.*

10.11.3     Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and the Registrant - Incorporated by reference -
previously filed as Exhibit 10.11.3 to the company's Form 8-K filed
on November 25, 1998.*

10.11.4     Addendum to Blue Shield Controlled Affiliate License
Agreement among BCBSA, BCBSMo, and the Registrant - Incorporated by
reference - previously filed as Exhibit 10.11.4 to the company's
Form 8-K filed on November 25, 1998.*

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

10.12.2     Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo and HALIC - Incorporated by reference - previously
filed as Exhibit 10.12.2 to the company's Form 10-K for the period
ending December 31, 1997.*

10.12.3     Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and Healthy Alliance Life Insurance Company (HALIC) -
Incorporated by reference - previously filed as Exhibit 10.12.3 to
the company's Form 8-K filed on November 25, 1998.*

10.12.4     Addendum to Blue Cross Controlled Affiliate License
Agreement among BCBSA, BCBSMo, and HALIC - Incorporated by reference
- previously filed as Exhibit 10.12.4 to the company's Form 8-K
filed on November 25, 1998.*

10.13.2     Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo and HALIC - Incorporated by reference - previously
filed as Exhibit 10.13.2 to the company's Form 10-K for the period
ending December 31, 1997.*

10.13.3     Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HALIC - Incorporated by reference - previously
filed as Exhibit 10.13.3 to the company's Form 8-K filed on November
25, 1998.*

10.13.4     Addendum to Blue Shield Controlled Affiliate License
Agreement among BCBSA, BCBSMo, and HALIC - Incorporated by reference
- previously filed as Exhibit 10.13.4 to the company's Form 8-K
filed on November 25, 1998.*

10.16     Directors' Stock Option Plan of the Registrant -
Incorporated by reference - previously filed as Exhibit 10.18 to
Registration Statement on Form S-1 under the Securities Act of 1933
filed by the Registrant.  Registration Statement No. 33-77798.*

10.17     Equity Incentive Plan of the Registrant - Incorporated by
reference - previously filed as Exhibit 10.19 to Registration
Statement on Form S-1 under the Securities Act of 1933 filed by the
Registrant.  Registration Statement No. 33-77798.*

10.17.1     Amendment to Equity Incentive Plan of the Registrant -
Incorporated by reference - previously filed as Exhibit 10.19.1 to
the company's Form 10-K for the period ending December 31, 1994.*

10.20     Form of Indemnification Agreement between the Registrant
and its Directors and Officers (and list of parties who have
executed indemnification agreements) - Incorporated by reference -
previously filed as Exhibit 10.22 to Registration Statement on Form
S-1 under the Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*

10.21     Agreement of Indemnification between BCBSMo and the
Registrant and its subsidiaries - Incorporated by reference -
previously filed as Exhibit 10.23 to the company's Form 10-K for the
period ending December 31, 1994.*

10.22     Registrant Supplemental Executive Retirement Plan -
Incorporated by reference - previously filed as Exhibit 10.24 to
Registration Statement on Form S-1 under the Securities Act of 1933
filed by the Registrant.  Registration Statement No. 33-77798.*

10.23     Registrant Executive Deferred Compensation Plan -
Incorporated by reference - previously filed as Exhibit 10.24 to
Registration Statement on Form S-1 under the Securities Act of 1933
filed by the Registrant.  Registration Statement No. 33-77798.*

10.24     Amended Nonemployee Director Deferred Compensation Plan of
the Registrant - Incorporated by reference - previously filed as
Exhibit 10.26 to the company's Form 10-K for the period ending
December 31, 1994.*

10.30     Credit Agreement dated as of August 10, 1995 among
RightCHOICE Managed Care, Inc., as the Borrower, Bank of America
National Trust and Savings Association, as Administrative Agent.
The Boatmen's National Bank of St. Louis, as Co-Agent and the other
Financial Institutions Party Hereto arranged by BA Securities, Inc.
- Incorporated by reference - previously filed as Exhibit 10.1 to
the company's Form 10-Q for the period ending June 30, 1995.*

10.30.1     First Amendment to the Credit Agreement. - Incorporated by
reference - previously filed as Exhibit 10.36.1 to the company's
Form 10-K for the period ending December 31, 1995.*

10.30.2     Consent and Second Amendment to the Credit Agreement -
Incorporated by reference - previously filed as Exhibit 10.36.2 to
the company's Form 10-K for the period ending December 31, 1995.*

10.30.3     Third amendment to the Credit Agreement - Incorporated by
reference - previously filed as Exhibit 10.2 to the company's Form
10-Q for the period ending June 30, 1996.*

10.30.4     Fourth amendment to the Credit Agreement - Incorporated by
reference - previously filed as Exhibit 10.36.4 to the company's
Form 10-K for the period ending December 31, 1996.*

10.30.5     Fifth amendment to the Credit Agreement - Incorporated by
reference - previously filed as Exhibit 10.36.5 to the company's
Form 10-K for the period ending December 31, 1996.*

10.30.6     Sixth amendment to the Credit Agreement - Incorporated by
reference - previously filed as Exhibit 10.36.6 to the company's
Form 10-Q for the period ending September 30, 1997.*

10.31     Lease between Forty-Four Forty-Four Forest Park
Redevelopment Corporation (Landlord) and RightCHOICE Managed Care,
Inc. (Tenant) dated January 1, 1995 - Incorporated by reference -
previously filed as Exhibit 10.2 to the company's Form 10-Q for the
period ending June 30, 1995.*

10.32     Sublease between RightCHOICE Managed Care, Inc. and Blue
Cross and Blue Shield of Missouri dated January 1, 1995 -
Incorporated by reference - previously filed as Exhibit 10.3 to the
company's Form 10-Q for the period ending June 30, 1995.*

10.33     Building Services Agreement between Forty-Four Forty-Four
Forest Park Redevelopment Corporation and RightCHOICE Managed Care,
Inc. dated January 1, 1995 - Incorporated by reference - previously
filed as Exhibit 10.4 to the company's Form 10-Q for the period
ending June 30, 1995.*

10.45     Executive Employment Agreement of John A. O'Rourke dated
February 27, 1997 - Incorporated by reference - previously filed as
Exhibit 10.51 to the company's Form 10-Q for the period ending
September 30, 1997.*,**

10.46     Executive Severance Agreement between the Registrant and
Edward J. Tenholder - Incorporated by reference - previously filed
as Exhibit 10.46 to the company's Form 10-K for the period ending
December 31, 1997.*,**

10.47     Executive Severance Agreement between the Registrant and
Sandra Van Trease - Incorporated by reference - previously filed as
Exhibit 10.47 to the company's Form 10-K for the period ending
December 31, 1997.*,**

10.48     Executive Severance Agreement between the Registrant and
Herbert B. Schneiderman - Incorporated by reference - previously
filed as Exhibit 10.48 to the company's Form 10-K for the period
ending December 31, 1997.*,**

10.49     Officer Severance Agreement between the Registrant and
Edward J. Tenholder - Incorporated by reference - previously filed
as Exhibit 10.49 to the company's Form 10-K for the period ending
December 31, 1997.*,**

10.50     Officer Severance Agreement between the Registrant and
Sandra Van Trease - Incorporated by reference - previously filed as
Exhibit 10.50 to the company's Form 10-K for the period ending
December 31, 1997.*,**

10.51     Officer Severance Agreement between the Registrant and
Herbert B. Schneiderman - Incorporated by reference - previously
filed as Exhibit 10.51 to the company's Form 10-K for the period
ending December 31, 1997.*,**

10.52     Form of Executive Severance Agreement between the
Registrant and certain senior vice presidents of the company (and
list of parties who have executed executive severance agreements) -
Incorporated by reference - previously filed as Exhibit 10.52 to the
company's Form 10-K for the period ending December 31, 1997.*,**

10.52.1     Updated list of certain senior vice presidents who have
executed executive severance agreements.**

10.53     Form of Officer Severance Agreement between the Registrant
and certain senior vice presidents of the company (and list of
parties who have executed officer severance agreements) -
Incorporated by reference - previously filed as Exhibit 10.53 to the
company's Form 10-K for the period ending December 31, 1997.*,**

10.53.1     Updated list of certain senior vice presidents who have
executed officer severance agreements.**

10.54     Form of Officer Severance Agreement between the Registrant
and certain vice presidents of the company (and list of parties who
have executed officer severance agreements) - Incorporated by
reference - previously filed as Exhibit 10.54 to the company's Form
10-K for the period ending December 31, 1997.*,**

10.54.1     Updated list of certain vice presidents who have executed
officer severance agreements.**

10.59.1     1999 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and Herb Schneiderman.**

10.60.1     1999 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and Mike Fulk.**

10.61.1     1999 Alliance Blue Cross Blue Shield / Blue Cross Blue
Shield of Missouri Incentive Plan between the Registrant and John
O'Rourke.**

10.62.1     1999 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and Sandra Van Trease.**

10.63.1     1999 Blue Cross Blue Shield of Missouri Management
Incentive Plan between BCBSMo and Ed Tenholder.**

10.64     Guarantor Agreement between HMO Missouri, Inc. and Blue
Cross and Blue Shield of Missouri - Incorporated by reference -
previously filed as Exhibit 10.64 to the company's Form 10-K for the
period ending December 31, 1997.*

10.65     Line of Credit Agreement between HMO Missouri, Inc. and
Blue Cross and Blue Shield of Missouri - Incorporated by reference -
previously filed as Exhibit 10.65 to the company's Form 10-K for the
period ending December 31, 1997.*

10.66     Subordination Agreement between HMO Missouri, Inc. and
Blue Cross and Blue Shield of Missouri - Incorporated by reference -
previously filed as Exhibit 10.66 to the company's Form 10-K for the
period ending December 31, 1997.*

10.67     Agreement of Indemnification between Registrant and Blue
Cross and Blue Shield of Missouri - Incorporated by reference -
previously filed as Exhibit 10.67 to the company's Form 10-K for the
period ending December 31, 1997.*

10.68     Order of Reference dated November 6, 1998 - Incorporated
by reference - previously filed as Exhibit 10 to the company's Form
10-Q for the period ending September 30, 1998.*

10.69     Executive Severance Agreement between the Registrant and
Michael Fulk.**

10.70     Officer Severance Agreement between the Registrant and
Michael Fulk.**

21.1    List of Subsidiaries of the Registrant.

23.1    Consent of PricewaterhouseCoopers LLP with regard to the
Registrant's Registration Statements on Form S-8 - Registration
Statement No. 33-90608, Registration Statement No. 333-33293, and
Registration Statement No. 333-33317.

27     Financial Data Schedule (Electronic Filing Only).

99.1     Settlement Agreement, dated September 20, 1998, by and among
RightCHOICE Managed Care, Inc., Blue Cross and Blue Shield of
Missouri, the Missouri Department of Insurance and Jay B. Angoff,
its Director, and Jeremiah W. "Jay" Nixon, Attorney General of the
State of Missouri - Incorporated by reference - previously filed as
Exhibit 99(a) to the company's Form 8-K filed on September 23,
1998.*

99.2     Settlement Agreement, dated September 20, 1998, by and among
Jay B. Angoff, Director of the Department of Insurance of the State
of Missouri, HMO Missouri, Inc., d/b/a BlueChoice, and Healthy
Alliance Life Insurance Company - Incorporated by reference -
previously filed as Exhibit 99(b) to the company's Form 8-K filed on
September 23, 1998.*

99.3     Settlement Agreement, dated September 20, 1998, by and among
Jeremiah W. (Jay) Nixon, Attorney General, on behalf of the State of
Missouri, Blue Cross Blue Shield of Missouri, RightCHOICE Managed
Care, Inc., d/b/a BlueChoice, Healthy Alliance Life Insurance
Company and Preferred Health Plans of Missouri, Inc. - Incorporated
by reference - previously filed as Exhibit 99(c) to the company's
Form 8-K filed on September 23, 1998.*

99.4     Settlement Agreement, dated September 20, 1998, by and among
Healthy Alliance Life Insurance Company, the Director of Revenue of
the State of Missouri and the Director of the Department of
Insurance of the State of Missouri - Incorporated by reference -
previously filed as Exhibit 99(d) to the company's Form 8-K filed on
September 23, 1998.*

99.5     Amendment to Settlement Agreement, dated as of March 12, 1999,
by and among Jeremiah W. "Jay" Nixon, Attorney General of the State
of Missouri; the Missouri Department of Insurance and A. W.
McPherson, its acting director; Blue Cross and Blue Shield of
Missouri; and RightCHOICE Managed Care, Inc. - Incorporated by
reference - previously filed as Exhibit 99(a) to the company's Form
8-K filed on March 15, 1999.*

99.6     Order issued by Judge Thomas J. Brown, III of the Circuit Court
of Cole County, Missouri, in the case styled Blue Cross and Blue
Shield of Missouri, a Nonprofit Corporation v. Jay Angoff, Director,
Missouri Department of Insurance, and Jeremiah W. (Jay) Nixon,
Attorney General of State of Missouri, Cause No. CV196-0619CC, on
October 29, 1998 - Incorporated by reference - previously filed as
Exhibit 99(b) to the company's Form 8-K filed on November 2, 1998.*

99.7     Motion to Vacate Order - Incorporated by reference - previously
filed as Exhibit 99(a) to the company's Form 8-K filed on November
6, 1998.*

99.8     Memorandum in Support of Motion to Vacate - Incorporated by
reference - previously filed as Exhibit 99(b) to the company's Form
8-K filed on November 6, 1998.*

99.9     Complaint of Blue Cross and Blue Shield Association -
Incorporated by reference - previously filed as Exhibit 99(c) to the
company's Form 8-K filed on November 6, 1998.*

99.10     Order of the Circuit Court of Cole County, Missouri, dated
November 4, 1998 - Incorporated by reference - previously filed as
Exhibit 99(d) to the company's Form 8-K filed on November 6, 1998.*

99.11     Order of the Circuit Court of Cole County, Missouri, dated
November 4, 1998 - Incorporated by reference - previously filed as
Exhibit 99(e) to the company's Form 8-K filed on November 6, 1998.*

99.12     Order of Missouri Supreme Court dated November 24, 1998 -
Incorporated by reference - previously filed as Exhibit 99(a) to the
company's Form 8-K filed on November 25, 1998.*


*Document has previously been filed with the Securities and Exchange
Commission and is incorporated by reference and made a part hereof.

**Documents identified herein constitute all management contracts
and compensatory plans and arrangements required to be filed as an
exhibit pursuant to Item 14(c) of this Form.

b)  Reports on Form 8-K:

The company filed a report with the SEC on Form 8-K on November 2,
1998, relating to an Order issued by Judge Thomas J. Brown, III of
the Circuit Court of Cole County, Missouri, in the case styled Blue
Cross and Blue Shield of Missouri, a Nonprofit Corporation v. Jay
Angoff, Director, Missouri Department of Insurance, and Jeremiah W.
(Jay) Nixon, Attorney General of State of Missouri, Cause No. CV196-
0619CC, on October 29, 1998 (the October 29 Order).

The company filed a report with the SEC on Form 8-K on November 6,
1998, relating to an Order issued by Judge Thomas J. Brown, III on
November 4, 1998, that set aside the October 29 Order and declared
it to be void ab initio.

The company filed a report with the SEC on Form 8-K on November 25,
1998, relating to the reinstatement of the company's licenses to use
the Blue Cross and Blue Shield service marks effective as of October
29, 1998.

The company filed a report with the SEC on Form 8-K on December 17,
1998, related to a suggested combination proposal announced at a
public hearing by Blue Cross and Blue Shield of Kansas City.

The company filed a report with the SEC on Form 8-K on February 12,
1999, relating to the recommendation made by the Special Master,
appointed by the Circuit Court of Cole County, Missouri, that the
Settlement Agreement "not be approved in its present form."

The company filed a report with the SEC on Form 8-K on March 15,
1999, relating to the Amendment to the Settlement Agreement and the
Joint Motion By All Parties and the Amici Curiae to Approve
Settlement Agreement.

The company filed a report with the SEC on Form 8-K on March 17,
1999, relating to Judge Thomas J. Brown III's statement that he has
continued concerns with the Settlement Agreement, as amended.

c)  See Exhibits listed in Item 14 hereof and the Exhibits attached
as a separate section of this Form 10-K Annual Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated March 18, 1999                      RightCHOICE Managed Care, Inc.

                                          By:  /s/ John A. O'Rourke
                                               John A. O'Rourke
                                               Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.

        Signature                     Title                         Date

   /s/ John A. O'Rourke        Chairman of the Board,           March 18, 1999
   John A. O'Rourke            President and Chief Executive
                               Officer

   /s/ Sandra Van Trease       Senior Executive Vice President, March 18, 1999
   Sandra Van Trease           Chief Operating Officer, Chief
                               Financial Officer (Principal
                               Financial Officer and Principal
                               Accounting Officer)

   /s/ William H. T. Bush      Director                         March 18, 1999
   William H. T. Bush

   /s/ Ronald G. Evens, M.D.   Director                         March 18, 1999
   Ronald G. Evens, M.D.

   /s/ Earle H. Harbison, Jr.  Director                         March 18, 1999
   Earle H. Harbison, Jr.

   /s/ Roger B. Porter, Ph.D.  Director                         March 18, 1999
   Roger B. Porter, Ph.D.

   /s/ Norman J. Tice          Director                         March 18, 1999
   Norman J. Tice

   /s/ Gloria W. White         Director                         March 18, 1999
   Gloria W. White



                 RIGHTCHOICE MANAGED CARE, INC.
                   CONSOLIDATED BALANCE SHEETS
        (in thousands, except shares and per share data)
                                                           December 31,
                  ASSETS                                1998        1997

  Current assets:
    Cash and cash equivalents                         $ 39,409    $ 29,872
    Investments available for sale, at market value    208,281     220,972
    Receivables from members                            68,024      60,019
    Receivables from related parties                    18,294      16,130
    Deferred income taxes                                4,798       4,994
    Other assets                                        19,818      14,410
       Total current assets                            358,624     346,397
  Property and equipment, net                           58,234      60,602
  Deferred income taxes                                 11,583      12,737
  Investments in affiliates                              5,729       8,427
  Goodwill and intangible assets, net                   74,508      78,200
       Total assets                                   $508,678    $506,363

   LIABILITIES AND SHAREHOLDERS' EQUITY

  Current liabilities:
    Medical claims payable                            $109,986    $112,339
    Unearned premiums                                   56,407      57,656
    Accounts payable and accrued expenses               64,754      55,892
    Current portion of long-term debt                   10,000       2,000
    Payables to related parties                         26,194      20,213
    Reserve for loss contract                            9,052       9,052
    Obligations for employee benefits                    2,954       2,935
    Income taxes payable                                10,485      12,051
    Obligations under capital leases                     4,254       4,515
       Total current liabilities                       294,086     276,653
  Reserve for loss contract                              7,259      16,311
  Long-term debt                                        33,063      45,000
  Obligations for employee benefits                     24,338      22,140
  Obligations under capital leases                       4,058       5,394
       Total liabilities                               362,804     365,498

  Shareholders' equity:
    Preferred Stock, $.01 par, 25,000,000 shares
       authorized, no shares issued and outstanding
    Common Stock:
       Class A, $.01 par, 125,000,000 shares
       authorized, 3,737,500 shares issued,
       3,710,426 and 3,709,000 shares outstanding,
       respectively                                         37          37
       Class B, convertible, $.01 par, 100,000,000
       shares authorized, 14,962,500 shares issued
       and outstanding                                     150         150
    Additional paid-in capital                         132,635     132,640
    Retained earnings                                   12,313       6,653
    Treasury stock, 27,074 and 28,500 Class A shares,
       respectively, at cost                             (383)       (404)
    Accumulated other comprehensive income               1,122       1,789
       Total shareholders' equity                      145,874     140,865
       Total liabilities and shareholders' equity     $508,678    $506,363

          See accompanying Notes to Consolidated Financial Statements.


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

                                               For the year ended December 31,
                                                1998         1997       1996
          Revenues:
             Premium                           $694,487    $654,267   $595,049
             Fees and other income               73,025      65,144     58,326
                Total revenues                  767,512     719,411    653,375

          Operating expenses:
             Health care services               579,827     555,126    491,662
             Commissions                         31,394      29,302     26,808
             General and administrative (excludes
             depreciation and amortization and
             excludes net intercompany charges of
             $11,231, $8,356 and $11,731
             respectively, allocated to
             Blue Cross and Blue Shield of
             Missouri)                          140,304     140,064    128,990
             Depreciation and amortization       19,334      23,108     14,960
             Charge for loss reserves                        29,510
             Other non-recurring charges            900       3,301      4,534
                Total operating expenses        771,759     780,411    666,954
          Operating loss                        (4,247)    (61,000)   (13,579)

          Investment income:
             Interest and dividends              14,737      15,916     14,241
             Realized gains, net                  3,932      17,268      3,291
                Total investment income, net     18,669      33,184     17,532

          Other:
             Interest expense                   (4,539)     (4,681)    (5,434)
             Other (expense) income, net          (379)     (1,058)        114
                Total other, net                (4,918)     (5,739)    (5,320)

          Income (loss) before provision
          (benefit) for income taxes             9,504     (33,555)    (1,367)
          Provision (benefit) for income taxes   3,844      (9,521)        660
          Net income (loss)                    $ 5,660    $(24,034)   $(2,027)

          Weighted average common shares
          outstanding                       18,672,100   18,672,600 18,678,700

          Basic and diluted earnings
          (loss) per share                    $ 0.30       $(1.29)    $(0.11)

         See accompanying Notes to Consolidated Financial Statements.

<TABLE>
                                                    RIGHTCHOICE MANAGED CARE, INC.
                                                  CONSOLIDATED STATEMENTS OF CHANGES
                                                        IN SHAREHOLDERS' EQUITY
                                                    (in thousands, except shares)
<CAPTION>
                                                                                                 Accumulated
                                                             Additional                             Other
                                            Common Stock      Paid In     Retained   Treasury   Comprehensive
                                         Class A    Class B    Capital    Earnings     Stock        Income        Total
<S>                                         <C>      <C>     <C>          <C>        <C>            <C>          <C>
   Balance at December 31, 1995             $37      $150    $132,640     $32,714    $(266)         $7,946       $173,221

   Comprehensive loss:

    Net loss                                                              (2,027)                                 (2,027)

    Change in unrealized appreciation
    on available-for-sale securities, net
    of income tax provision of $1,048                                                                1,820          1,820

   Comprehensive loss                                                                                               (207)

   Purchase of 4,300 shares of
   Class A Common Stock, at cost                                                       (60)                          (60)

   Balance at December 31, 1996              37       150     132,640      30,687     (326)          9,766        172,954

   Comprehensive loss:

    Net loss                                                             (24,034)                                (24,034)

    Change in unrealized appreciation
    on available-for-sale securities, net
    of income tax credit of $4,386                                                             (7,977)        (7,977)

   Comprehensive loss                                                                                            (32,011)

   Purchase of 5,400 shares of
   Class A Common Stock, at cost                                                       (78)                          (78)

   Balance at December 31, 1997              37       150     132,640       6,653     (404)          1,789        140,865

   Comprehensive income:

    Net income                                                              5,660                                   5,660

    Change in unrealized appreciation
    on available-for-sale securities, net
    of income tax credit of $147                                                                     (297)          (297)

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

   Comprehensive income                                                                                             4,993

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

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

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

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

                                              For the year ended December 31,
                                                1998       1997        1996
Cash flows from operating activities:
 Net income (loss)                           $  5,660   $(24,034)   $ (2,027)
 Adjustments to reconcile net income
  (loss) to net cash provided by (used in)
  operating activities:
 Provision (credit) for deferred income
  taxes                                         1,697     (6,507)       4,218
 Depreciation and amortization                 19,334      23,108      14,960
 Loss (gain) on sale of property and
  equipment                                        53        (44)          51
 Undistributed losses (earnings) of
  affiliates                                       48         916        (42)
 Gain on sale of investments                  (3,932)    (17,268)     (3,291)
 Accretion of discounts and amortization
  of premiums, net                                612           6         426
(Increase) decrease in certain assets, net
  of effects from investment in affiliates:
 Receivables from members                     (8,005)     (5,182)       2,722
 Receivables from related parties             (2,164)         943       7,007
 Other assets                                 (4,556)     (2,859)     (9,148)
(Decrease) increase in certain
liabilities, net of effects from
investment in affiliates:
 Medical claims payable                       (2,353)         506      25,986
 Unearned premiums                            (1,249)       4,957       1,267
 Accounts payable and accrued expenses          8,293    (13,065)       2,547
 Payables to related parties                    5,981       3,064     (5,025)
 Reserve for loss contract                    (9,052)      25,363
 Obligations for employee benefits              2,217        (33)       (229)
 Income taxes payable                         (1,566)       (755)    (10,301)
Net cash provided by (used in) operating
 activities                                    11,018    (10,884)      29,121
Cash flows from investing activities:
 Proceeds from matured investments:
   Fixed maturities                            20,359       3,975       9,187
 Proceeds from investments sold:
   Fixed maturities                           273,591     311,599     246,728
   Equity securities                                       40,734      20,535
   Other                                        4,482      32,469
 Investments purchased:
   Fixed maturities                         (282,400)   (340,366)   (240,648)
   Equity securities                            (548)       (230)    (22,542)
   Other                                        (796)     (2,039)     (2,275)
 Investment in other affiliates, net of
   cash acquired                                              24      (5,312)
 Sale and redemption of affiliates              3,444                     500
 Proceeds from property and equipment sold      2,051         561          31
 Property and equipment purchased            (12,496)    (18,544)    (18,113)
Net cash provided by (used in) investing
 activities                                     7,687      28,183    (11,909)
Cash flows from financing activities:
 Sale (purchase) of Class A Treasury stock         16        (78)        (60)
 Payments of long-term debt                   (3,937)    (15,000)
 Payments of capital lease obligations        (5,247)     (5,767)     (4,866)
Net cash used in financing activities         (9,168)    (20,845)     (4,926)
Net increase (decrease) in cash and cash
 equivalents                                    9,537     (3,546)      12,286
Cash and cash equivalents at beginning of
 year                                          29,872      33,418      21,132
Cash and cash equivalents at end of year     $ 39,409    $ 29,872    $ 33,418
Supplemental disclosure of cash information:
 Interest paid                               $  4,687    $  5,036    $  5,420
 Income taxes paid (refund received), net         712     (2,262)       6,742
Supplemental schedule of noncash investing
and financing activities:
 Equipment acquired through capital leases   $  4,325    $  9,730    $  2,738
 Disposal of equipment under capital leases       675       2,810

     See accompanying Notes to Consolidated Financial Statements.



                    RIGHTCHOICE MANAGED CARE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (dollars in thousands, except share data)

1.  ORGANIZATION

RightCHOICE Managed Care, Inc. (RightCHOICE or the company) is a
majority owned subsidiary of Blue Cross and Blue Shield of Missouri
(BCBSMo) incorporated in the State of Missouri.  In connection with
the RightCHOICE August 1, 1994, initial public offering of Class A
Common Stock, BCBSMo transferred its managed health care business to
RightCHOICE.  The holders of Class A Common Stock have one vote per
share and the holders of Class B Common Stock have 10 votes per share.
BCBSMo is the sole holder of Class B Common Stock.  Each share of
Class B Common Stock is convertible into one share of Class A Common
Stock at the option of the holder at any time.  At December 31, 1998,
BCBSMo and all holders of Class A Common Stock have control over
approximately 97.6 percent and 2.4 percent, respectively, of the
combined voting power of both classes of common stock.  There are no
liquidation preferences between the two classes of common stock.  The
company has not issued shares of its authorized Preferred Stock.  In
addition, the company provides certain guarantees relating to the
financial stability of certain affiliates.

The company offers a comprehensive array of managed health care
products and services, including preferred provider organizations
(PPO), point-of-service networks (POS), health maintenance
organizations (HMO), Medicare supplement, specialty managed care
networks, selected comprehensive indemnity health coverage, third-
party administrator (TPA) services, and administrative services only
(ASO) for self-funded organizations.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in
the preparation of the accompanying Consolidated Financial Statements.
Such policies are in accordance with generally accepted accounting
principles.  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of the
company and its subsidiaries, including Healthy Alliance Life
Insurance Company (HALIC), HealthLink, Inc. (HealthLink), HMO
Missouri, Inc. (BlueCHOICE), and RightCHOICE Insurance Company (RIC),
after elimination of all significant intercompany transactions.
Investments in other companies in which less than a majority interest
is held are accounted for under the equity or cost method.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are highly liquid investments with an
original maturity of three months or less when purchased.

INVESTMENTS AVAILABLE FOR SALE

Unaffiliated investments with readily determinable fair values have
been classified as available-for-sale.  Unrealized gains and losses
are computed on the basis of specific identification and are included
as other comprehensive income in the shareholders' equity section of
the balance sheet, net of applicable deferred income taxes.  Realized
gains and losses on the disposition of investments are included in
investment income.  The specific identification method is used in
computing the cost of debt and equity securities sold.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated
depreciation and amortization.  Depreciation and amortization are
provided on the straight-line basis over the estimated useful life of
the respective assets, ranging from 30 years for buildings, 3 to 10
years for furniture and equipment, 3 to 5 years for capitalized
software development costs, and 5 to 10 years for leasehold
improvements.

Improvements are capitalized while expenditures for maintenance and
repairs are charged to expense as incurred.  Realized gains and losses
are recognized upon disposal or retirement of the related assets and
are reflected in earnings.  The company also capitalizes purchased and
internally developed software costs to the extent they are expected to
benefit future operations.  Software amortization of such costs
commences when specific components are operational.  Unamortized
software development cost as of December 31, 1998, and 1997 was
$33,853 and $33,029, respectively.  Software amortization expense for
the years ended December 31, 1998, 1997, and 1996, was $7,701, $5,521,
and $671, respectively.

GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets represent the excess of cost over the
fair market value of net assets acquired in purchase transactions.
Gross goodwill and intangible assets (excluding related accumulated
amortization) was $85,975 and $86,744 as of December 31, 1998, and
1997, respectively, and is amortized on a straight-line basis over
periods not exceeding 40 years.  Accumulated amortization on goodwill
and intangible assets as of December 31, 1998, and 1997 was $11,467
and $8,544, respectively.  Amortization expense of the goodwill and
other intangibles aggregated $2,924, $7,487, and $5,045 in 1998, 1997,
and 1996, respectively, including the amortization of the intangibles
related to the purchase of HealthLink in 1995 of $2,769, $3,061, and
$3,279 in 1998, 1997, and 1996, respectively.

The company reviews the carrying value of goodwill, intangibles and
other long-lived assets for impairment when events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable.  This review is performed by comparing estimated
undiscounted future cash flows from use of the asset to the recorded
value of the asset.

MEDICAL CLAIMS PAYABLE

In addition to the liability for processed but unpaid claims at period-
end, the company provides for the estimated amount of liability
arising from medical care provided to members, net of coordination of
benefit refunds, for claims still in process, as well as undischarged
and unreported claims.  This estimate is based on current membership
statistics, claim run-off patterns and certain actuarial formulas.
The liability includes estimated processing expenses relating to such
claims.  Such estimates are subject to revision; however, management
believes these estimates reasonably approximate actual costs.

REINSURANCE

In the normal course of business, the company cedes insurance to other
unrelated insurance carriers on an excess loss or quota share basis.
The company engages in such reinsurance activity to limit losses from
large exposures and to permit recovery of a portion of direct losses.
The company also reached a network access and financial reinsurance
agreement with Blue Cross and Blue Shield of Kansas City (BCBSKC)
designed to make the two companies more competitive in the Missouri
market.  As a result of the agreements, members of either plan who are
enrolled through statewide employers or associations are able to use
the provider network of the Blue Cross and Blue Shield company where
they live.  The impact of these reinsurance activities is not
significant to the Consolidated Financial Statements.

INCOME TAXES

The company utilizes the asset and liability method of accounting for
income taxes.  This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases
of assets and liabilities.

The company, along with its subsidiaries, files consolidated federal
and Missouri state income tax returns with BCBSMo.  In accordance with
the federal tax-sharing agreement of the consolidated group, federal
income tax expense is allocated to the company and its subsidiaries
based upon the consolidated income generated by the company and its
subsidiaries.

DIVIDEND RESTRICTIONS

Missouri and Illinois insurance laws and regulations provide certain
restrictions on the payment of dividends by insurance companies in a
holding company structure.  The Missouri and Illinois Directors of
Insurance may bring an action to enjoin or rescind the payment of any
dividend or distribution that would cause the insurance company's
statutory surplus to be unreasonable or inadequate.  At December 31,
1998, the company's insurance subsidiaries (excludes HealthLink) did
not have a significant amount of dividends available for payment
without the prior approval of the Missouri or Illinois Directors of
Insurance.

EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income by the
weighted average number of common and common equivalent shares
outstanding during the year.  Diluted earnings per share are
calculated by dividing net income by the number of weighted average
shares outstanding plus additional shares representing stock
distributable under stock-based compensation plans using the treasury
stock method.  There were 17,924 dilutive potential common shares for
1998.  Because 1997 and 1996 results reflect a net loss, basic and
diluted earnings per share are calculated based on the same weighted
average number of shares outstanding.  The antidilutive potential
common shares that could dilute earnings per share in the future were
439,508, 469,766, and 573,428 as of December 31, 1998, 1997, and 1996,
respectively.

CONCENTRATION OF CREDIT RISK

The company primarily conducts business in the State of Missouri, and
a significant portion of its customer base is concentrated with
companies that are located in the metropolitan St. Louis area.  No
single customer generates in excess of 10 percent of the company's
total revenue.

The company invests its excess cash in interest-bearing deposits with
major banks, commercial paper and money market funds.  Although a
majority of the cash accounts exceed the federally insured deposit
amount, management does not anticipate non-performance by the other
parties.  Management reviews the stability of these institutions on a
periodic basis.

Investments principally include U.S. Treasury and agency bonds and
fixed maturity bonds in a variety of companies A rated or better by
nationally recognized rating services.  Investments in life insurance
contracts consist primarily of flexible premium variable life
products, invested in managed bond and equity funds, purchased from an
insurance company that has an A.M. Best rating of A+.  Such credit
ratings are routinely reviewed by management.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount for cash and cash equivalents, receivables, and
accounts payable approximates fair value because of the short maturity
of those instruments.  The fair value of investments available for
sale at December 31, 1998, and 1997, determined based upon quoted
market prices, is disclosed in Note 4.

REVENUE RECOGNITION AND UNEARNED PREMIUMS

For most members, premiums are billed in advance of coverage periods
and are recorded as revenue over the period to which health care
coverage relates.  Amounts billed but unearned are recorded as
unearned premiums.  The company's TPA and ASO self-funded programs do
not involve the assumption of insurance or significant credit risks;
therefore, revenue from these programs is reflected in fees and other
income.  During the years ended December 31, 1998, 1997 and 1996, the
company received reimbursements for claims paid of $50,558, $106,227,
and $132,449, respectively, from TPA and ASO self-funded groups.

NON-RECURRING CHARGES

During the fourth quarter of 1998, the company recorded a $0.9 million
charge related to the planned reduction of approximately 7.5 percent
of the company's workforce by June 1999.  The company incurred charges
to earnings of $3.3 million and $4.5 million in 1997 and 1996,
respectively, for costs associated with moving the company's claims,
customer service, billing, and provider services functions from St.
Louis to Springfield, Missouri, and Cape Girardeau, Missouri.  In
addition, during the third quarter of 1997, the company recorded a
$29.5 million loss reserve for estimated losses relating to its
contract with the Missouri Consolidated Health Care Plan (MCHCP).  The
reserve is 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.

RECLASSIFICATIONS

Certain reclassifications have been made to the Consolidated Financial
Statements for 1996 and 1997 to conform with the 1998 presentation.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) released Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information," SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits," and SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities."  SFAS No. 131 establishes standards for the
way 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 are effective
for the 1998 fiscal year.  Abbreviated quarterly disclosure will be
required beginning the first quarter of 1999, with both 1999 and 1998
information.  The new segment reporting requirements are reflected in
Note 14, "Segment information."  SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans.  It
does not change the measurement or recognition of those plans.  It
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates
certain disclosures that are no longer considered useful.  The new
rules are effective for the 1998 fiscal year.  The new reporting
requirements for pension and other postretirement benefit plans are
reflected in Note 12, "Employee benefit programs."  SFAS No. 133
establishes standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities.  It requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position
and measures those instruments at fair value.  SFAS No. 133 is
effective for all fiscal years beginning after June 15, 1999.  Earlier
application of SFAS No. 133 is encouraged but should not be applied
retroactively to financial statements of prior periods.  The company's
management has not yet assessed what the impact of SFAS No. 133 will
be on the company's future results of operations or financial
position.

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

In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning
after December 15, 1998.  The SOP requires that certain costs of start-
up activities, including organization costs, should be expensed as
incurred.  The company's management has not yet assessed what the
impact of SOP 98-5 will be on the company's future results of
operations or financial position.

3.  COMPREHENSIVE INCOME

As of January 1, 1998, the company adopted SFAS No. 130, "Reporting
Comprehensive Income."  SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components.
SFAS No. 130 requires unrealized gains or losses on the company's
available-for-sale securities, which prior to adoption were reported
separately in shareholders' equity, to be included in other
comprehensive income.  Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.

The components of other comprehensive income related to the unrealized
gains or losses on the company's available-for-sale securities for the
years ended December 31, 1998, 1997, and 1996 are as follows:

                                                  Year ended December 31,
                                                  1998      1997     1996
Unrealized holding gains arising during
   period, net of taxes                         $ 1,671  $  3,163  $ 3,702
Less:  reclassification adjustment for
   gains included in net income, net of taxes   (1,968)  (11,140)  (1,882)
Net unrealized (losses) gains on securities     $ (297)  $(7,977)  $ 1,820

4.  INVESTMENTS AVAILABLE FOR SALE

Investments available for sale are summarized below:
<TABLE>
<CAPTION>
                                                         Gross       Gross     Estimated
                                            Amortized  unrealized  unrealized   market
                                               Cost      gains       losses      value
<S>                                         <C>         <C>          <C>       <C>
 December 31, 1998
   Fixed maturities:
     U.S. government and agency securities  $ 92,281     $1,083      $(149)    $ 93,215
     Corporate bonds and notes               100,927      2,039       (587)     102,379
     Short-term investments                    5,249                              5,249
                                             198,457      3,122       (736)     200,843

   Other invested assets                       7,501                   (63)       7,438
                                            $205,958     $3,122      $(799)    $208,281

 December 31, 1997
   Fixed maturities:
     U.S. government and agency securities  $ 89,582     $1,227      $ (29)    $ 90,780
     Corporate bonds and notes               105,128      1,724       (155)     106,697
     Short-term investments                   12,856                             12,856
                                             207,566      2,951       (184)     210,333
   Other invested assets                      10,639                             10,639
                                            $218,205     $2,951      $(184)    $220,972

</TABLE>
Interest and dividend income comprises the following:
<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                                    1998      1997      1996
<S>                                                               <C>       <C>       <C>
  Interest on bonds                                               $13,152   $12,822   $11,847
  Dividends on stocks                                                 112       102     1,295
  Accretion of discounts and amortization of premiums, net          (612)       (6)     (426)
  Interest on cash equivalents and other investment income          2,712     3,697     2,353

  Gross investment income                                          15,364    16,615    15,069
  Investment expenses                                               (627)     (699)     (828)
                                                                  $14,737   $15,916   $14,241
</TABLE>
Realized gains on investments available for sale are as follows:
<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                                    1998      1997      1996
<S>                                                               <C>       <C>       <C>
  Net realized gains:
   Fixed maturities                                               $ 3,054   $ 6,930   $   516
   Equity securities                                                         10,338     2,380
                                                                  $ 3,054   $17,268   $ 2,896
</TABLE>

In addition, during 1998, the company realized a $794 gain from the
sale of a subsidiary that was accounted for under the equity method
and an $84 gain from the sale of other assets.  Proceeds from sales of
available-for-sale securities were $278,073, $384,802, and $267,263
during 1998, 1997, and 1996, respectively.  Gross realized gains on
investments available for sale were $3,553, $19,203, and $3,819 during
1998, 1997, and 1996, respectively.  Gross realized losses on
investments available for sale were $499, $1,935, and $923 during
1998, 1997, and 1996, respectively.  Contractual maturities of fixed
maturity investments, excluding other invested assets (primarily
consisting of variable life insurance contracts), held on December 31,
1998, are as presented below.  Actual maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations.

                                                   Amortized    Estimated
                                                      cost     market value
       Due in one year or less                     $ 21,458      $ 21,442
       Due after one year through five years         63,903        64,198
       Due after five years through 10 years         46,438        47,313
       Due after 10 years                            66,658        67,890
                                                   $198,457      $200,843


5.  RECEIVABLES FROM MEMBERS

Receivables from members consist of the following:

                                                         December 31,
                                                      1998          1997
       Individual subscribers                       $ 6,202       $ 9,394
       Underwritten groups                           40,109        35,369
       Self-funded/ASO groups                        21,713        15,256
                                                    $68,024       $60,019

Based on historical collection experience, the company considers its
receivables from members to be fully collectible; accordingly, no
allowance for doubtful accounts is recorded.  If receivables become
uncollectible, they are charged against income using the direct write-
off method when that determination is made.

6.  PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

                                                         December 31,
                                                      1998         1997
       Land and building                            $ 4,338      $ 5,595
       Furniture and equipment, including
         capitalized leases                          59,959       58,186
       Capitalized software development costs        47,520       38,995
       Leasehold improvements                         3,914        3,607
                                                    115,731      106,383
       Less accumulated depreciation
         and amortization                          (57,497)     (45,781)
                                                    $58,234      $60,602

Depreciation and amortization expense was $16,410, $15,621, and
$9,915, for the years ended December 31, 1998, 1997, and 1996,
respectively.

7.  INVESTMENTS IN AFFILIATES

The company has a non-controlling, 50 percent interest in The EPOCH
Group, L.C. (Epoch).  Epoch, a limited liability company, is not
consolidated with the company's operations and is accounted for using
the equity method.  The combined annual revenues of Epoch were $22.9
million in 1998 and $21.1 million in 1997.  Operating income (loss)
was $1.1 million and $(1.3) million in 1998 and 1997, respectively.
Undistributed earnings (losses) to the company for 1998 and 1997 were
$330 and $(664), respectively.  Epoch serves approximately 260
businesses primarily in the Midwest as of December 31, 1998.

8.  MEDICAL CLAIMS PAYABLE

Medical claims payable represents the amounts needed to provide for
the estimated ultimate cost of settling claims related to insured
events that have occurred on or before December 31.  The payable is
estimated to include the amounts required for future payment of
medical claims that have been reported to the company, claims related
to insured events that have occurred but that have not been reported
to the company as of December 31, and claims adjustment expenses.
Claims adjustment expenses include costs incurred in the claim
settlement process such as costs to record, process and adjust claims.

Activity in medical claims payable is summarized as follows:


                                      1998        1997
       Balance at January 1         $112,339    $111,833
       Incurred related to:
         Current year                585,469     558,208
         Prior years                   3,410       1,065
              Total incurred         588,879     559,273

       Paid related to:
         Current year                498,423     473,515
         Prior years                  92,809      85,252
       Total paid                    591,232     558,767
       Net balance at December 31   $109,986    $112,339

The incurred amounts related to prior years represent the variations
between the company's estimated claims payable for prior years' claims
and the actual amounts required to satisfy such claims.  In addition,
the company's health care services expense caption on the Consolidated
Statements of Income includes $9,052 and $4,147 for the amortization
of the company's loss reserve during 1998 and 1997, respectively.

9.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

                                                December 31,
                                              1998       1997
       Accounts payable                     $23,470    $16,987
       Accrued salaries and other expenses   13,010     10,355
       Other accrued expenses                28,274     28,550
                                            $64,754    $55,892

10.  LONG-TERM DEBT AND COMMITMENTS

In August 1995, the company established a $125.0 million, five-year,
reducing revolving credit facility (the Credit Agreement) with Bank of
America National Trust and Savings Association (B of A) and a
syndicate of banks.  At December 31, 1998, the company had $43.1
million outstanding under the Credit Agreement.  The maximum
commitment of the Credit Agreement was reduced to $43.1 million as of
December 31, 1998, with $2.5 million quarterly reductions through June
30, 2000, and the remaining commitment under the Credit Agreement
terminating on August 10, 2000.  In addition, mandatory reductions to
the commitment, together with prepayments, are required upon the
occurrence of certain extraordinary events such as the issuance of
debt securities or the sale of a subsidiary.

Borrowings under the Credit Agreement may be denominated, at the
option of the company, as base rate loans or offshore rate loans.
Base rate loans bear interest at B of A's base rate, which is 1.75
percent above the higher of the latest federal funds rate plus 0.5
percent or B of A's reference rate, which approximates the prime rate.
Offshore rate loans bear interest at 2.75 percent above the adjusted
London Interbank Offered Rate (LIBOR).  At December 31, 1998, all of
the company's outstanding borrowings were in offshore rate loans.  The
weighted average interest rate incurred by the company was 8.38
percent, 7.32 percent, and 6.69 percent in 1998, 1997, and 1996,
respectively.

As a condition to providing the Credit Agreement, the company pledged
the stock of its direct subsidiaries and a guaranty of repayment was
provided by HealthLink.  In addition, the Credit Agreement establishes
certain covenants that restrict the company's ability to incur
additional indebtedness or pay cash dividends; limit future capital
contributions, investments, acquisitions, and capital expenditures,
and limitations on indebtedness of the company's subsidiaries; and
require the maintenance of certain financial ratios as well as a
minimum consolidated tangible net worth.  As of the date of this
report, the company was in compliance with these covenants, as amended
by the company and the banking syndicate.

The company has an agreement with BCBSMo to lease certain office
space, including an operating lease for its headquarters facility (see
Note 15 entitled "Transactions with Blue Cross and Blue Shield of
Missouri").  The company also leases certain electronic data
processing equipment under noncancellable lease agreements, and these
leases are reflected in the Consolidated Financial Statements as
capital and operating leases.

The following is a schedule of future minimum rental payments required
under capital leases and under non-cancellable operating leases that
have initial or remaining terms in excess of one year together with
the present value of net minimum lease payments under capital leases
at December 31, 1998:

                                                           Capital   Operating
       Year ending December 31,
         1999                                              $5,057      $9,906
         2000                                               2,593       8,237
         2001                                                 900       7,369
         2002                                                 647       7,169
         2003                                                 269       6,441
         Thereafter                                                     8,123
           Total minimum lease payments                    $9,466     $47,245
           Less amount representing interest               (1,154)
           Present value of net minimum lease payments,
              including current portion of $4,254          $8,312

Total rental expense for all operating leases, except those with terms
of one month or less that were not renewed, was $10,133, $9,900, and
$8,999, for the years ended December 31, 1998, 1997, and 1996,
respectively.

11.  INCOME TAXES

The components of the provision (benefit) for income taxes are as
follows:

                                        Year ended December 31,
                                      1998       1997       1996
      Current
       Federal                      $ 2,652   $(3,771)   $(3,965)
       State                          (505)        757        407
                                      2,147    (3,014)    (3,558)
      Deferred:
       Federal                        1,697    (6,507)      4,218
                                    $ 3,844   $(9,521)    $   660

The effective tax rate, expressed as a percentage of pre-tax income
(loss), differs from the federal statutory rate as follows:

                                               Year ended December 31,
                                                1998     1997    1996
   Tax provision (benefit) based on federal
     statutory rate                            35.0%   (35.0)%  (35.0)%
   State income taxes, net of federal
     provision (benefit)                       (5.3)       2.3     29.7
   Goodwill amortization                         6.8       2.2     51.0
   Other                                         3.9       2.1      2.5
   Effective tax provision (benefit) rate      40.4%   (28.4)%    48.2%

The primary temporary differences that gave rise to deferred income taxes
were as follows:
                                                      December 31,
                                                   1998          1997
     Deferred tax assets:
      Capitalized software                        $ 4,149       $ 3,936
      Medical claims payable discounting            1,501         1,527
      Employee benefits                             9,036         8,633
      Unearned premiums                             3,767         3,980
      Other capitalized expenses                    2,429         2,534
      Loss reserve accrual                          5,709         8,877
      Depreciation and amortization                    69
      Other                                         8,067         6,124
          Total deferred tax assets                34,727        35,611

     Deferred tax liabilities:
      Depreciation and amortization                               2,855
      Pension                                       1,126         1,126
      IOS expense                                   8,983         8,755
      Unrealized appreciation of securities           832           979
      Other tax-deductible expenses                 7,293         4,053
          Total deferred tax liabilities           18,234        17,768
     Valuation allowance                            (112)         (112)
     Net deferred tax asset                       $16,381       $17,731

SFAS No. 109, "Accounting for Income Taxes," requires a valuation
allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.  The company believes that
uncertainty exists with respect to the future realization of the
undistributed losses of minority-owned subsidiary companies.
Therefore, the company maintained a valuation allowance relating to
such items of $112 as of December 31, 1998, and 1997.  Based upon all
the available evidence, management believes it is more likely than not
that the company will realize its remaining deferred tax assets and,
accordingly, no valuation allowance has been provided against such
remaining assets as of December 31, 1998, and 1997.

12.  EMPLOYEE BENEFIT PROGRAMS

PENSION PLAN

The company and its subsidiaries participate in a defined benefit
pension plan covering substantially all company employees (excluding
HealthLink employees) who meet the plan eligibility requirements as to
age and length of service.  The national Blue Cross and Blue Shield
Association (BCBSA) is responsible for administration of this defined
benefit pension plan.  The benefits are based on years of service and
average annual compensation for the employee's highest consecutive
five of the last 10 years.

Net periodic pension cost for the company includes the following components:

                                                 Year ended December 31,
                                                 1998     1997      1996

        Service cost                            $1,834   $1,802    $1,812
        Interest cost                            2,989    2,814     2,472
        Expected return on plan assets         (3,211)  (2,770)   (4,657)
        Amortization of transition asset         (304)    (304)     (304)
        Amortization of prior service cost       (230)    (230)     (300)
        Amortization of actuarial loss                              2,209

        Net periodic pension cost               $1,078   $1,312    $1,232

        Other components (included in
        non-recurring charges):
        Curtailment gain                                 $(816)
        Special termination benefits                     $  198

The following tables present the status of the company's pension
benefits:

                                                           December 31,
                                                         1998        1997
      Change in benefit obligation:
      Benefit obligation at beginning of year          $43,122     $36,805
      Service cost                                       1,834       1,802
      Interest cost                                      2,989       2,814
      Benefit payments                                 (1,324)     (1,166)
      Actuarial losses                                   3,115       2,669
      Special termination benefits                                     198
      Benefit obligation at end of year                $49,736     $43,122


                                                           December 31,
                                                         1998        1997
      Change in plan assets:
      Fair value of plan assets at beginning of year   $40,264     $33,869
      Actual return on assets                            6,040       6,841
      Employer contributions                                           720
      Benefit payments                                 (1,324)     (1,166)
      Fair value of plan assets at end of year         $44,980     $40,264

The funded status of the company's pension plan and the amount
recorded as accrued pension cost consist of the following:

                                             December 31,
                                            1998      1997

      Unfunded status                     $ 4,756   $ 2,858
      Unrecognized actuarial gain           3,825     4,177
      Unrecognized transition asset           588       892
      Unrecognized prior service cost         282       446
      Accrued pension cost                $ 9,451   $ 8,373

Weighted average assumptions used in the development of pension data as
of December 31 are as follows:

                                                           1998     1997

        Discount rate                                      6.75%    7.25%
        Expected long-term rate of return on assets         9.0      9.0
        Rates of increase in compensation levels          3.0-6.5  3.5-7.0

HealthLink provides a defined contribution pension plan covering
substantially all HealthLink employees who meet the plan eligibility
requirements as to age and length of service.  HealthLink contributes
an amount equal to 4 percent of participating employees' annual base
compensation levels.  Additional amounts can be contributed at the
company's discretion.  HealthLink's pension expense during 1998, 1997,
and 1996, was $377, $368, and $245, respectively.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The company provides certain health care and life insurance benefits
for retired and terminated employees (excluding HealthLink employees).
Substantially all of the company's employees may become eligible for
those benefits if they reach normal retirement age while working for
the company.  The health care and life insurance benefits for retired
employees are provided through insurance companies whose premiums are
based on the benefits paid during the year.  The estimated cost of
retiree benefit payments other than pensions is accrued over the
period such benefits are earned.

The net periodic cost for postretirement benefits includes the
following components:

                                                   Year ended December 31,
                                                  1998      1997      1996

      Service cost                               $  671    $  522    $  457
      Interest cost                               1,165     1,171     1,088
      Amortization of prior service cost           (25)       (6)       (6)
      Amortization of actuarial loss                130        82        85
      Net periodic postretirement cost           $1,941    $1,769    $1,624

The amortization of any prior service cost is determined using a
straight-line amortization over the average remaining service period
of employees expected to receive benefits under the plan as permitted
by SFAS No. 106.

The assumed discount rate is 6.75 and 7.25 percent for 1998 and 1997,
respectively.  The rate of compensation increase is assumed to be 4.0
percent for 1998 and 1997.  The health care cost trend rate is assumed
to be 6.5 percent for 1998, 6.0 percent for 1999, and 5.5 percent for
2000 and thereafter.  A one percentage point change in the assumed
trend rate would have the following effects as of December 31, 1998:

                                                              One       One
                                                            percent   percent
                                                            increase  decrease

    Effect on postretirement accumulated benefit obligation   $1,123   $(966)
    Effect on total service and interest cost components        $152   $(129)

The company's postretirement benefit plan is currently not funded.
The following table presents the status of the company's
postretirement benefits:

                                                                December 31,
                                                              1998      1997
      Change in accumulated benefit obligation:
      Accumulated benefit obligation at beginning of year   $16,860   $15,069
      Service cost                                              671       522
      Interest cost                                           1,165     1,171
      Plan amendments                                         (394)
      Curtailment gain                                                  (169)
      Benefit payments                                      (1,214)   (1,292)
      Actuarial losses                                        1,282     1,559
      Accumulated benefit obligation at end of year         $18,370   $16,860

      Change in plan assets:
      Fair value of plan assets at beginning of year        $     0   $     0
      Employer contributions                                  1,214     1,292
      Benefit payments                                      (1,214)   (1,292)
      Fair value of plan assets at end of year              $     0   $     0

The funded status and (accrued)/prepaid cost of the company's
postretirement plan consist of the following:

                                                        December 31,
                                                      1998       1997
      Unfunded status                               $18,370     $16,860
      Unrecognized actuarial gain                       345        (23)
      Unrecognized prior service cost               (5,233)     (4,081)
      Accrued postretirement benefit cost           $13,482     $12,756

POSTEMPLOYMENT BENEFITS

The company also provides certain severance benefits for employees who
involuntarily terminate their employment and long-term disability
benefits for employees who are disabled.  Severance benefits include
salary continuation, medical benefits and career transition benefits.
Disability benefits include life insurance, medical coverage and
salary continuation.  Disability coverage for salary continuation is
provided under the National Trust of Blue Cross and Blue Shield, which
is administered by the BCBSA.

Postemployment benefits are accrued if attributable to service already
rendered, if the benefits accumulate or vest, if payment is probable
and if the amounts can be reasonably estimated.  Postemployment
benefit expense was $1,150, $688, and $940 for 1998, 1997, and 1996,
respectively.

STOCK-BASED COMPENSATION PLANS

The company provides an Equity Incentive Plan and a Directors' Stock
Option Plan (the plans), which allow for the annual grant of stock
options in the form of incentive stock options, non-qualified stock
options and restricted stock grants, and are further described below.
The company applies APB Opinion 25 and related interpretations in
accounting for these plans.  Accordingly, no compensation cost has
been recognized for these plans.  Had compensation cost for the
company's plans been determined consistent with SFAS No. 123, the
company's net income (loss) and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
  Year                                                           1998       1997       1996
<S>                                               <C>           <C>      <C>         <C>
  Net income (loss)                               As reported   $5,660   $(24,034)   $(2,027)
                                                  Pro forma     $4,917   $(24,677)   $(2,346)
  Basic and diluted earnings (loss) per share     As reported    $0.30     $(1.29)    $(0.11)
                                                  Pro forma      $0.26     $(1.32)    $(0.13)
</TABLE>

As of December 31, 1998, the maximum number of shares subject to
options and grants under the Equity Incentive Plan and Directors'
Stock Option Plan is 1 million and 60,000, respectively.  A proposal
to increase the number of options available under the Equity Incentive
Plan to 1.5 million will be voted upon by the shareholders at the
company's annual meeting to be held on May 11, 1999.  The exercise
price of each option equals the market price of the company's stock on
the date of grant and an option's maximum term is 10 years.  Options
vest by the end of the third year.

The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for option grants in 1998, 1997, and
1996, respectively: expected volatility of 35, 34, and 34 percent;
risk-free interest rates of approximately 6 percent; and expected
lives of 6.5 years.  In addition, for all three years, no dividend
yield was assumed.

A summary of the status of the plans as of December 31, 1998, 1997,
and 1996 and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
                                           Number of   Weighted-average    Weighted-average
                                            shares      exercise price        fair value
<S>                                       <C>               <C>                  <C>
  Outstanding at December 31, 1995          229,839         $12.80
  Granted                                   408,708         $12.37               $5.70
  Forfeited                                (65,119)         $13.20
  Outstanding at December 31, 1996          573,428         $12.45
  Granted                                   310,787         $10.91               $5.18
  Forfeited                               (414,449)         $11.77
  Outstanding at December 31, 1997          469,766         $12.03
  Granted                                   292,366          $9.68               $4.59
  Exercised                                 (1,426)         $10.81
  Forfeited                                (58,003)         $11.17
  Outstanding at December 31, 1998          702,703         $11.13

</TABLE>
There were 198,920 and 105,413 options exercisable at December 31,
1998, and December 31, 1997, respectively.  There were no options
exercisable at December 31, 1996.  There were no options exercised
during 1997 and 1996.  The pro forma disclosures included above may
not be representative of the effects on reported net income or loss
for future years.

The following table summarizes information about stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
            /------------ Options Outstanding --------------/ /------Options Exercisable-----/
                              Weighted
  Range of     Number          Average          Weighted          Number          Weighted
  Exercise  Outstanding       Remaining          Average        Exercisable        Average
  Prices    at 12/31/98   Contractual Life   Exercise Price     at 12/31/98     Exercise Price
<S>           <C>             <C>                <C>              <C>              <C>
  $9 to $12   538,026         9.2 years          $10.26           153,429          $10.95

 $13 to $18   164,677         8.0 years          $13.94            45,491          $16.25

  $9 to $18   702,703         9.0 years          $11.13           198,920          $12.16
</TABLE>

OTHER BENEFIT PLANS

The company provides a pre-tax 401(k) plan covering substantially all
company employees.  The company recognized expenses of $1,144, $1,083,
and $1,123 during 1998, 1997, and 1996, respectively, for costs
related to this plan.  The company also provides an incentive program
to key management personnel for the achievement of corporate and
individual goals, a sales incentive program to encourage exceptional
performance in marketing to and servicing clients, and a supplemental
executive retirement plan (SERP) for certain executives.  The cost of
providing these programs is not significant to the company's overall
results of operations.  At December 31, 1998, the company had a
minimum pension liability adjustment of $569 related to the SERP that
is included as a component of the company's other comprehensive income
on the Consolidated Balance Sheet.

13.  CONTINGENCIES

OPM AUDIT

The company, through its subsidiary, HMO Missouri, Inc. (BlueCHOICE),
contracts with the Office of Personnel Management (OPM) to provide or
arrange for health services to federal employees under the Federal
Employees Health Benefits Program (FEHBP).  FEHBP is the second
largest customer group of BlueCHOICE after the Missouri Consolidated
Health Care Plan (MCHCP).  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 or
experience rating and other requirements under the FEHBP.

On August 8, 1995, the company received a draft audit report from the
OPM regarding the audit, conducted in 1994, of the FEHBP operations of
BlueCHOICE for the years 1989 through 1994.  The audit dealt primarily
with a comparison of premium rates charged to the FEHBP to rates
charged by BlueCHOICE to other similarly sized groups.  The OPM draft
audit report indicates that BlueCHOICE has a potential liability of
$7.5 million to the FEHBP.  The company responded to the draft report
in November of 1995 following an in-depth analysis of the issues.  In
March 1998, BlueCHOICE received correspondence from the U.S.
Department of Justice requesting a meeting with BlueCHOICE regarding
in excess of $6.5 million in payments (alleged overcharges) received
during the reconciliation process for the years 1990 through 1994,
plus interest thereon.  If it is found that BlueCHOICE knowingly
received overpayments, it could be subject to civil penalties of up to
ten thousand dollars per certified reconciliation statement, treble
damages for the amount of such overcharges and interest.  Although
management has met with the OPM and Department of Justice with respect
to this matter, at this time, management is unable to determine the
final dollar amount that may be required to resolve the audit
findings.  There can be no assurance that the resolution of these
findings will not have a material adverse effect on the company and
the market for the company's stock.

SUBSCRIBER CLASS ACTION LITIGATION

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

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

On November 4, 1998, the St. Louis Circuit Court issued its judgment
and order granting the motion of the defendants to dismiss the action
for lack of standing and entering judgment in favor of the defendants.
The Sarkis plaintiffs appealed the St. Louis Circuit Court's order.
The obligations of the parties to consummate the transactions
contemplated by the settlement agreements, as amended, described below
under "Agreement for settlement of certain litigation matters and
reorganization of the company" are conditioned upon, among other
things, satisfactory final resolution of the Sarkis Litigation.

The Sarkis plaintiffs have also filed a motion to intervene in the
actions described below under "Agreement for settlement of certain
litigation matters and reorganization of the company."

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

Status of Proposed Settlement Agreements

On September 20, 1998, the company and certain of its affiliates
entered into various settlement agreements with certain state
agencies, including the Missouri Department of Insurance (DOI), the
Director of the DOI, and the Missouri Attorney General.  On March 12,
1999, the company, BCBSMo, the Missouri Attorney General and the DOI
entered into an Amendment to Settlement Agreement (the amendment) in
an effort to address the concerns of the special master (see
"Appointment of special master" below).  On March 15, 1999, Judge
Thomas J. Brown III of the Circuit Court of Cole County, Missouri
stated on the record during an informal status hearing that he has
continued concerns about the settlement agreements, as amended.  The
settlement agreements, as amended, which are based upon a conceptual
framework announced by the company and BCBSMo on April 22, 1998,
would, if consummated, resolve all outstanding litigation and
regulatory issues between the company and its affiliates and the State
of Missouri, including the DOI and the Missouri Attorney General, and
create a charitable health care foundation that would be managed by an
independent board of directors.  The litigation between the company
and its affiliates and the State of Missouri is described below.

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

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

o BCBSMo would pay $12.78 million to the charitable foundation.

o The charitable foundation would be required to liquidate its
  shares of new RightCHOICE stock over a prescribed period of time and
  use the proceeds for health care purposes.  The charitable foundation
  would be required to reduce its ownership of new RightCHOICE stock to
  less than 50 percent of the total outstanding stock of new RightCHOICE
  within three years of the closing of the reorganization, subject to
  possible extension, and to less than 20 percent of the total
  outstanding stock of new RightCHOICE within five years of the closing
  of the reorganization, subject to possible extension.  All but up to 5
  percent of the shares of new RightCHOICE stock owned by the charitable
  foundation would be subject to a voting trust that would, with certain
  exceptions, effectively vest voting control of such shares of new
  RightCHOICE stock owned by the charitable foundation in the board of
  directors of new RightCHOICE.

o As a for-profit direct licensee for the Blue Cross and Blue
  Shield names and trademarks, new RightCHOICE would be required to
  include certain "basic protections" in its charter documents and it
  would be required to be independent from the direction, control and
  influence of the charitable foundation.  The "basic protections" would
  include limitations on the amount of new RightCHOICE stock that may be
  owned by certain categories of shareholders -- (i) no "institutional"
  shareholder may own 10 percent or more of the voting power of new
  RightCHOICE, (ii) no "non-institutional" shareholder may own 5 percent
  or more of the voting power of new RightCHOICE, and (iii) no
  shareholder may own 20 percent or more of the equity of new
  RightCHOICE (with certain exceptions in the case of the charitable
  foundation as described above).  The charter documents of new
  RightCHOICE would include certain provisions whereby any shares owned
  by a shareholder in excess of the applicable ownership limits could be
  redistributed by new RightCHOICE.

The consummation of the transactions contemplated by the settlement
agreements, as amended, is subject to a number of significant
conditions and contingencies, including approval by the Circuit Court
of Cole County, Missouri (the Circuit Court), various regulators and
the shareholders of the company, the receipt of rulings from the IRS
or tax opinions regarding the tax-free nature of the transactions, and
the satisfactory resolution of certain other litigation involving the
company and BCBSMo (including the Sarkis Litigation described above,
which was dismissed by the St. Louis Circuit Court on November 4,
1998, but is on appeal).

The settlement agreements, as amended, provide that the company and
BCBSMo, together with the DOI and the Missouri Attorney General, shall
move in an appropriate court proceeding for approval of the settlement
agreements, as amended, and the proposed reorganization described
therein.  See "-Litigation relating to the Reorganization and Public
Offering" below.

BCBSMo, the Missouri Attorney General, the DOI and the amici curiae
filed with the Circuit Court on March 12, 1999, a Joint Motion By All
Parties and the Amici Curiae to Approve Settlement Agreement
acknowledging their approval of the terms of the settlement
agreements, as amended, and requesting the Circuit Court to approve
the settlement agreements, as amended.

The summary of the settlement agreements, as amended, set forth herein
is qualified in its entirety by reference to the settlement agreements
and the exhibits thereto, which are included as exhibits to the
company's Current Report on Form 8-K filed with the SEC on September
23, 1998, and the amendment to the settlement agreements, which is
included as exhibit 99(a) to the company's Current Report on Form 8-K
filed with the SEC on March 15, 1999.

Appointment of Special Master

Following the announcement by the company and BCBSMo on April 22, 1998
of the conceptual framework for the proposed settlement with the State
of Missouri, Judge Thomas J. Brown III of the Circuit Court indicated
that he had substantial reservations about the settlement as proposed
in the conceptual framework and that any final settlement would be
scrutinized very carefully.

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

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

On November 2, 1998, BCBSMo filed its Motion to Vacate Order and its
Memorandum in Support of Motion to Vacate in response to the October
29 Order.  BCBSMo alleged that (i) the Circuit Court lacked
jurisdiction to issue the October 29 Order because the case was still
pending before the Missouri Supreme Court, which had not then ruled on
the application of BCBSMo to transfer to the Missouri Supreme Court;
(ii) the Circuit Court issued the order without notice and an
opportunity to be heard; (iii) there were no exigent circumstances
that would warrant the appointment of a receiver without due process;
and (iv) that the appointment of the receiver had the effect of
frustrating the purpose for which the receiver was to be appointed,
namely, the preservation of the nonprofit assets of BCBSMo.  Copies of
the Motion to Vacate Order and Memorandum in Support of Motion to
Vacate are attached as exhibits to the company's Current Report on
Form 8-K filed with the SEC on November 6, 1998.

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

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

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

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

The special master conducted hearings on December 4, December 16, and
December 22, 1998, and on February 4, 1999, at which evidence related
to the proposed settlement and other subjects was presented.

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

o Whether the public health foundation that would be created if the
  settlement were implemented would receive full value of the present
  assets of BCBSMo;

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

o Whether the proposed provisions for governance of the public health
  foundation are reasonable; and

o Whether the provisions for the purposes of the public health
  foundation are justified.

Following the Report of the Special Master, the parties and the amici
curiae  discussed the concerns noted therein.  On March 12, 1999, the
company,  BCBSMo, the Missouri Attorney General, and the  DOI  entered
into an Amendment to Settlement Agreement (the amendment).  BCBSMo,
the Missouri Attorney General, the DOI, and the amici curiae filed
with the Circuit Court on March 12, 1999 a Joint Motion by All Parties
and the Amici Curiae to Approve Settlement Agreement acknowledging
their approval of the terms of the settlement agreements, as amended,
and requesting the Circuit Court to approve the settlement agreements,
as amended.

On March 12, 1999, BCBSMo also filed with the Circuit Court Objections
of Plaintiff Blue Cross and Blue Shield of Missouri to Report of the
Special Master asserting that the special master made certain
erroneous factual and unjustified legal conclusions in the Report of
the Special Master and requesting the Circuit Court to approve the
settlement agreements, as amended.

On March 15, 1999, Circuit Court Judge Thomas J. Brown III expressed
continued concern about the settlement agreements, as amended, during
an informal status hearing.

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

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

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

Litigation Relating to the Reorganization and Public Offering

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

BCBSMo's  extensive efforts to resolve the dispute without  litigation
were unsuccessful.  On May 13, 1996, BCBSMo filed a declaratory
judgment action in the Circuit Court against the Director, the DOI and
the Missouri Attorney General (the Missouri Attorney General was a
necessary party due to his sole authority to enforce nonprofit
corporation laws).

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

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

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

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

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

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

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

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

On January 9, 1997, BCBSMo filed a notice of appeal of the December 30
Orders.  On January 21, 1997, the Director and the DOI filed a notice
of appeal of the September 9 Order, as modified.  Oral arguments were
heard by the Missouri Court of Appeals on February 24, 1998.  On
August 4, 1998, the Missouri Court of Appeals entered its opinion
affirming the judgments entered December 30, 1996.

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

On September 22, 1998, the application of BCBSMo in the Missouri Court
of Appeals for rehearing and alternatively for transfer of the case to
the Supreme Court of Missouri was denied.  On October 7, 1998, BCBSMo
requested that the Supreme Court of Missouri accept transfer of the
case.

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

On November 24, 1998, the Supreme Court of Missouri granted the motion
of BCBSMo to accept transfer of the litigation related to the
Reorganization and Public Offering and, as a result of this action,
the opinion of the Missouri Court of Appeals dated August 4, 1998,
(described above) has been vacated.  The Missouri Supreme Court will
now decide the appeals as if they were original appeals in that Court.
If the Missouri Supreme Court had denied the request for transfer, the
opinion of the Missouri Court of Appeals dated August 4, 1998, would
have become final without modification, and the case would have been
remanded to the Circuit Court for further proceedings to determine the
remedy for the violation of BCBSMo statutory purposes that, as
described above, the Circuit Court previously found to have occurred.

The Supreme Court of Missouri subsequently stayed the briefing
schedule in the proceedings before it in order to permit the
proceedings in the Circuit Court concerning review of the settlement
agreements to go forward.

Litigation Relating to Corporate Status of BCBSMo

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

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

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

On November 5, 1998, Sarkis and Hacking gave notice of their intent to
file an original proceeding in the Missouri Court of Appeals
prohibiting Judge Brown from proceeding further in the case.  The
Missouri Court of Appeals denied that application.  Sarkis and Hacking
then applied to the Supreme Court of Missouri, which also denied their
application.  This litigation remains pending before Judge Brown and
discovery is underway.

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


Litigation Relating to the Market Conduct Study and Copayment Calculations

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

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

STATUS OF BLUE CROSS AND BLUE SHIELD TRADEMARK LICENSES

On March 11, 1999, the Board of Directors of the Blue Cross and Blue
Shield Association (the BCBSA) unanimously voted to extend the
company's licenses to use the Blue Cross and Blue Shield service marks
until June 17, 1999.  Previously, at a meeting held on November 19,
1998, the Board of Directors of BCBSA approved the reinstatement,
effective as of October 29, 1998, of the licenses to use the Blue
Cross and Blue Shield service marks, granted to the company, BCBSMo,
and two wholly owned subsidiaries of the company, Healthy Alliance
Life Insurance Company and HMO Missouri, Inc.  (the licensed
affiliates).  The approval clarified the rights of the company and its
licensed affiliates to continue uninterrupted the use of the service
marks following actions taken by the BCBSA which resulted from the
October 29 Order (as described above under "Appointment of Special
Master").

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

Each of the reinstated license agreements approved by the BCBSA
included an addendum that provided, among other things, that the
licenses granted under such license agreements would be reviewed by
the BCBSA at the next regularly scheduled meeting of the BCBSA Board
of Directors on March 11, 1999.  If on or before March 11, 1999, the
BCBSA did not extend the termination dates for the license agreements
until the next regularly scheduled meeting of the BCBSA Board of
Directors after March 11, 1999, or otherwise modify the addenda, the
license agreements would have terminated on March 11, 1999.

On March 11, 1999, the Board of Directors of the BCBSA modified the
addenda to provide that the licenses granted under such license
agreements will be reviewed by the BCBSA at the next regularly
scheduled meeting of the BCBSA Board of Directors on June 17, 1999.
If on or before June 17, 1999, the BCBSA does not extend the
termination dates for the license agreements until the next regularly
scheduled meeting of the BCBSA Board of Directors after June 17, 1999,
or otherwise modify the addenda, the license agreements will terminate
on June 17, 1999.  This "board to board" extension of the license
agreements has been adopted in conjunction with the issuance of
reinstated licenses granted to other BCBSA licensees following a
license termination.  There can be no assurances that the BCBSA will
take the necessary and appropriate action to extend the license
agreements beyond June 17, 1999, or any time thereafter.

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

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

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

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

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

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

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

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

OTHER CONTINGENCIES

In addition to the matters described above, from time to time, the
company and certain of its subsidiaries are parties to various legal
proceedings, many of which involve claims for coverage encountered in
the ordinary course of business.  The company, like health insurers
and HMOs generally, excludes certain health care services from
coverage under its PPO, HMO and other products.  The company is, in
its ordinary course of business, subject to the claims of its members
arising out of decisions to restrict treatment or reimbursement for
certain services.  The loss of even one such claim, if it results in a
significant punitive damage award, could have a material adverse
effect on the company.

In addition, the risk of potential liability under punitive damage
theories may increase significantly the difficulty of obtaining
reasonable settlements of coverage claims.  However, the financial and
operational impact that such evolving theories of recovery will have
on the managed care industry generally, or the company in particular,
is at present unknown.

14.  SEGMENT INFORMATION

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

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

Year ended December 31, 1998           Underwritten  Self-funded   Consolidated
Revenues                                 $694,678     $  72,834      $767,512
Operating (loss) income                  (23,056)        18,809       (4,247)
Depreciation and amortization expense      13,779         5,555        19,334
Non-recurring operating charges               777           123           900
Identifiable assets                        46,311        21,713        68,024

Year ended December 31, 1997           Underwritten  Self-funded   Consolidated
Revenues                                 $654,315     $  65,096      $719,411
Operating (loss) income                  (69,437)         8,437      (61,000)
Depreciation and amortization expense      16,821         6,287        23,108
Charge for loss reserves                   29,510                      29,510
Other non-recurring operating charges       2,190         1,111         3,301
Identifiable assets                        44,763        15,256        60,019

Year ended December 31,1996            Underwritten  Self-funded   Consolidated
Revenues                                 $595,661     $  57,714      $653,375
Operating (loss) income                  (13,741)           162      (13,579)
Depreciation and amortization expense       8,099         6,861        14,960
Non-recurring operating charges             2,791         1,743         4,534
Identifiable assets                        45,055         9,712        54,767

15.  TRANSACTIONS WITH BLUE CROSS AND BLUE SHIELD OF MISSOURI

Pursuant to an administrative services agreement, the company provides
certain administrative and support services, including computerized
data processing and management information systems, telecommunication
systems and accounting, finance, legal, actuarial and other management
services to BCBSMo.  These expenses are allocated to and paid by
BCBSMo in an amount equal to the direct and indirect costs and
expenses incurred in furnishing these services.  In addition, the
company provides services to BCBSMo, which include health plan
services, processing claims related to such plans, provider
contracting, market research and advertising, to be reimbursed on a
basis that approximates cost.  Management of the company and of BCBSMo
consider such allocation methodologies and cost approximations
reasonable and appropriate.

General and administrative expense excludes net intercompany charges
allocated to BCBSMo by the company for the respective periods, as
follows:

                                               Year ended December 31,
                                               1998      1997      1996
        Services provided to BCBSMo         $ 15,642   $12,792   $15,968
        Services provided by BCBSMo          (4,411)   (4,436)   (4,237)
           Net expense allocated to BCBSMo  $ 11,231   $ 8,356   $11,731

The company has intercompany receivables and payables between the
company and BCBSMo, which include $9.9 million of receivables and $3.2
million of payables related to the BCBSMo transfer of all economic
risks and rewards on certain insurance policies originally issued by
BCBSMo, pursuant to a reinsurance agreement. In addition, the
intercompany receivables and payables include net intercompany
transactions for general and administrative expenses as well as
intercompany tax settlements.  Additional amounts of receivables and
payables relate to the company's cash management activity which is
typically settled on a monthly basis.

16.  STATUTORY INFORMATION

The operations of the company's subsidiaries, HALIC, BlueCHOICE,
HealthLink, HealthLink HMO, and RightCHOICE Insurance Company (RIC)
are subject to regulation and supervision by regulatory authorities of
the various jurisdictions in which they are licensed to conduct
business.  Regulatory authorities exercise extensive supervisory power
over the licensing of insurance companies; the amount of reserves that
must be maintained; the approval of forms and insurance policies used;
the nature of, and limitation on, an insurance company's investments;
periodic examination of the operations of insurance companies; the
form and content of annual statements and other reports required to be
filed on the financial condition of insurance companies; and the
establishment of capital requirements for insurance companies.  HALIC,
BlueCHOICE, HealthLink HMO, and RIC are required to file periodic
statutory financial statements in each jurisdiction in which they are
licensed.  Additionally, these companies are also periodically
examined by the insurance departments of the jurisdictions in which
they are licensed to do business.

The company's subsidiaries prepare their statutory financial
statements in accordance with accounting practices prescribed or
permitted by the Missouri and Illinois Departments of Insurance.
Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations, and general administrative
rules.  Permitted statutory accounting practices encompass all
accounting practices not so prescribed.

In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance (the Codification), which will replace the current
Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting.  The NAIC is now considering
amendments to the Codification guidance that would also be effective
upon implementation.  The NAIC has recommended an effective date of
January 1, 2001.  The Codification provides guidance for areas where
statutory accounting has been silent and changes current statutory
accounting in some areas.  It is not known whether the Missouri and
Illinois legislatures will pass the necessary legislation to enact the
Codification or if such passed legislation would be approved by the
governors.  The company has not estimated the potential effect of the
Codification guidance if adopted.

17.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
      (In thousands, except per share data)

                                                  Three months ended
  1998                                  31-Mar    30-Jun     30-Sep    31-Dec
  Total revenues                       $191,852  $191,818   $189,804  $194,038
  Operating expenses                    193,101   192,433    192,384   193,841
  Operating (loss) income               (1,249)     (615)    (2,580)       197
  Investment income, net                  4,372     3,984      5,062     5,251
  Other, net                            (1,065)   (1,237)    (1,204)   (1,412)
  Income before taxes                     2,058     2,132      1,278     4,036
  Provision for income taxes              1,090       930        763     1,061
  Net income                                968     1,202        515     2,975
  Basic and diluted earnings per share  $  0.05   $  0.06    $  0.03  $   0.16
  Weighted average shares outstanding    18,672    18,672     18,672    18,673
  Membership (in thousands)               1,998     2,013      2,092     2,123


                                                  Three months ended
  1997                                  31-Mar    30-Jun     30-Sep    31-Dec
  Total revenues                       $176,314  $176,149   $180,492  $186,456
  Operating expenses                    178,468   187,195    218,559   196,189
  Operating loss                        (2,154)  (11,046)   (38,067)   (9,733)
  Investment income, net                 13,510    10,296      4,786     4,592
  Other, net                            (1,253)   (1,372)    (1,241)   (1,873)
  Income (loss) before taxes             10,103   (2,122)   (34,522)   (7,014)
  Provision (benefit) for income taxes    3,909       189   (11,766)   (1,853)
  Net income (loss)                       6,194   (2,311)   (22,756)   (5,161)
  Basic and diluted earnings (loss)
    per share                          $   0.33  $ (0.12)   $ (1.22)  $ (0.28)
  Weighted average shares outstanding    18,676    18,672     18,672    18,672
  Membership (in thousands)               1,864     1,898      1,923     1,957



PricewaterhouseCoopers LLP Letterhead
                                                   PricewaterhouseCoopers LLP
                                                   One Metropolitan Square
                                                   Suite 2200
                                                   St. Louis, MO 63102-2737
                                                   Telephone (314) 436 3200
                                                   Facsimile (314) 241 3371

                   REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and Board of Directors
   of RightCHOICE Managed Care, Inc.

In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,
of changes in shareholders' equity and of cash flows
present fairly, in all material respects, the financial
position of RightCHOICE Managed Care, Inc., and its
subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting
principles.  These financial statements are the
responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits.  We conducted our audits
of these statements in accordance with generally accepted
auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating
the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for the opinion
expressed above.

                                  PricewaterhouseCoopers LLP

February 9, 1999, except for Note 13
   for which the date is March 15, 1999




PricewaterhouseCoopers LLP Letterhead
                                                   PricewaterhouseCoopers LLP
                                                   One Metropolitan Square
                                                   Suite 2200
                                                   St. Louis, MO 63102-2737
                                                   Telephone (314) 436 3200
                                                   Facsimile (314) 241 3371

                   REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and Board of Directors
   of RightCHOICE Managed Care, Inc.

Our report on the consolidated financial statements of RightCHOICE
Managed Care, Inc. is included on page 87 of this form 10-K.  In
connection with our audit of such financial statements, we have also
audited the related financial statement schedules listed in Item 8 on
page 41 of this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to
be included therein.

                                       PricewaterhouseCoopers LLP


February 9, 1999, except for Note 13
   for which the date is March 15, 1999



                                                                      Schedule I
                                                                   (Page 1 of 3)
                    RIGHTCHOICE MANAGED CARE, INC.
            CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Condensed balance sheets of RightCHOICE Managed Care, Inc. (parent company only)
as of December 31, 1998 and 1997, and the condensed statements of income and
cash flows for the years ended December 31, 1998, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                     Balance Sheets
                    (in thousands, except shares and per share data)

<S>                                                                   <C>            <C>
                                                                             December 31,
                                                                         1998           1997
                 ASSETS

Cash                                                                  $  2,998       $ 11,148
Investments available for sale, at market value                          4,703         23,273
Investments in affiliates (2)                                          118,782        130,282
Property and equipment, net                                              5,941          8,062
Receivables from affiliates (1)                                        163,712         67,368
Income taxes receivable, net                                             7,268
Other assets                                                             7,271          2,011
   Total assets                                                       $310,675       $242,144

  LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses                                 $ 23,707       $ 19,481
Payables to affiliates (1)                                             111,431         37,088
Income taxes payable, net                                                              14,425
Obligations for employee benefits                                       27,292         25,074
Obligations under capital leases                                         2,371          5,211
   Total liabilities                                                   164,801        101,279

Shareholders' equity:
   Preferred stock, $.01 par, 25,000,000 shares authorized,
      no shares issued and outstanding
   Common stock:
      Class A, $.01 par, 125,000,000 shares authorized,
        3,737,500 shares issued, 3,710,426 and 3,709,000
        shares outstanding, respectively                                    37             37
      Class B, convertible, $.01 par, 100,000,000 shares authorized,
        14,962,500 shares issued and outstanding                           150            150
   Additional paid in capital                                          132,635        132,640
   Retained earnings                                                    12,313          6,653
   Treasury stock, 27,074 and 28,500 Class A shares,
      respectively, at cost                                              (383)          (404)
   Accumulated other comprehensive income                                1,122          1,789
   Total shareholders' equity                                          145,874        140,865
   Total liabilities and shareholders' equity                         $310,675       $242,144
</TABLE>
   The condensed financial information should be read in conjunction with the
      Consolidated Financial Statements and the accompanying notes thereto.

(1) The majority of these intercompany amounts are eliminated in the
Consolidated Financial Statements with the remaining amounts explained
in Note 15 of the Notes to Consolidated Financial Statements.
(2) As of December 31, 1998 and 1997, $113,053 and $121,855, respectively,
is eliminated in the Consolidated Financial Statements.


                                                                      Schedule I
                                                                   (Page 2 of 3)

<TABLE>
                       RIGHTCHOICE MANAGED CARE INC.
               CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                           Statements of Income
                              (in thousands)

<CAPTION>
                                                            Year ended December 31,
                                                        1998          1997          1996
<S>                                                   <C>           <C>           <C>
Revenue
  Reimbursement from affiliates (1)                   $108,972      $116,380      $114,233
  Dividends from affiliates (1)                         15,203        13,813        26,631
Total revenue                                          124,175       130,193       140,864

Expense
  General and administrative                           111,828       118,920       119,292

Operating income                                        12,347        11,273        21,572

Investment income and other                              3,549         4,040         1,022

Income before equity in undistributed loss
   of subsidiaries and income tax provision (benefit)   15,896        15,313        22,594

Equity in undistributed loss of subsidiaries (1)        (8,741)      (38,853)      (25,618)

Income (loss) before taxes                               7,155       (23,540)       (3,024)

Income tax provision (benefit)                           1,495           494          (997)

Net income (loss)                                      $ 5,660      ($24,034)      ($2,027)
</TABLE>

   The condensed financial information should be read in conjunction with the
      Consolidated Financial Statements and the accompanying notes thereto.

(1) Substantially all of the balances related to these intercompany items
are eliminated in the Consolidated Financial Statements.
                                                                      Schedule I
                                                                   (Page 3 of 3)

                     RIGHTCHOICE MANAGED CARE, INC.
            CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<TABLE>
                       Statements of Cash Flows
                            (in thousands)
<CAPTION>
                                                              Year ended December 31,
                                                            1998       1997       1996
<S>                                                       <C>       <C>         <C>
Cash flows from operating activities:
Net income (loss)                                         $ 5,660   ($24,034)   ($2,027)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
   Equity in undistributed loss (income)
     of subsidiaries                                        8,741      38,853     25,618
   Depreciation                                             2,505       4,264      4,631
   Loss on sale of property and equipment                                             36
   Gain on sale of investments                              (794)     (1,671)        (6)
   Accretion of discounts and
    amortization of premiums                                 (19)       (170)       (41)

(Increase) decrease in:
   Receivables from affiliates                           (96,344)    (47,820)    (6,469)
   Income taxes receivable, net                           (7,069)
   Other assets                                           (5,260)       (141)        421

Increase (decrease) in:
   Accounts payable and accrued
     expenses                                               3,657     (1,755)    (1,300)
   Payables to affiliates                                  74,343      22,306      1,520
   Obligations for employee benefits                        2,218         562      (229)
   Income taxes payable, net                             (14,425)         991      (482)

Net cash (used in) provided by operating activities      (26,787)     (8,615)     21,672

Cash flows from investing activities:
   Investments purchased                                  (4,845)    (14,970)   (42,297)
   Investments sold or matured                              5,661      35,940     29,846
   Investments purchased, sold or transferred
     from/to affiliates, net                               17,773
   Decrease (increase) in investment in affiliates          3,256       (814)    (6,813)
   Property and equipment purchased, sold or
     transferred from/to affiliates, net                    (427)       2,995      1,716

Net cash provided by (used in) investing activities        21,418      23,151   (17,548)

Cash flows from financing activities:
   Payments on capital lease obligations                  (2,797)     (3,509)    (3,931)
   Sale (purchase) of Class A treasury stock                   16        (78)       (60)
Net cash used in financing activities                     (2,781)     (3,587)    (3,991)

Net (decrease) increase in cash and cash
   equivalents                                            (8,150)      10,949        133
Cash and cash equivalents, beginning of year               11,148         199         66
Cash and cash equivalents, end of year                    $ 2,998     $11,148     $  199

Supplemental Schedule of Noncash Investing
   and Financing Activities:
Equipment acquired through capital leases                             $ 4,001
Disposal of equipment under capital leases                $   43
</TABLE>

   The condensed financial information should be read in conjunction with the
      Consolidated Financial Statements and the accompanying notes thereto.