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, 1997


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 Number)
incorporation or organization)


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


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


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 6, 1998, was
approximately $21,272,307* (based on last reported sale price of
$10.50 per share on March 6, 1998, on the New York Stock Exchange).

As of March 6, 1998, 3,709,000 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 12, 1998.  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, 1997, RightCHOICE served
approximately 1.96 million commercial 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
which 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, 1997, approximately 62 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 8 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 name 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 below 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 232,200 members
(including approximately 89,300 members on a self-funded basis).  The
company believes that the Alliance PPO also has the most extensive
geographic coverage in Missouri, servicing 100 of the 115 counties in
the state.  In the St. Louis metropolitan area, the Alliance PPO
network includes approximately 90 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 offer
members optional well-child care, vision, and mental health and
chemical dependency programs.  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 7,000 physicians and 96
hospitals.  Alliance benefit plans are offered in the central region
of Missouri through Preferred Health Plans of Missouri, a PPO network
owned by the company as of December 31, 1997.  A HealthNet Blue PPO
product is also offered to both groups and individuals in southeast
Missouri.  There were approximately 4,200 members enrolled in the
company's HealthNet Blue PPO products as of December 31, 1997.  See
"HMO Product Group - HealthNet Blue POS" for recent information
related to changes in the company's HealthNet Blue products.

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 the 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 will be 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, while
reducing administrative costs.

Illinois PPO

The company began offering group and individual PPO coverage through
its RightCHOICE Insurance Company subsidiary in southern Illinois in
the first quarter of 1997.  The company utilizes the HealthLink
provider network to offer these products to the approximately one
million residents in this region.  HealthLink is the company's network
rental subsidiary.  These PPO products accounted for approximately
2,200 members as of December 31, 1997.

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 who benefit from a comprehensive
physician incentive model.  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 131,900 members, including both group and individual
members, and includes contractual arrangements in the St. Louis
metropolitan area with 5,000 physicians and 17 hospitals.

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 60
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 3,700 physicians and 60 hospitals.

The company offers its BlueCHOICE POS Plus products in metropolitan
St. Louis, southwest Missouri, and the central region of Missouri
through the BlueCHOICE HMO network.  BlueCHOICE POS Plus 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 benefits, members receive maximum financial benefits for preventive
care, referred specialist services, and inpatient services.

The BlueCHOICE and BlueCHOICE POS programs are now 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.

Through an arrangement with Freeman Hospitals and Health System,
beginning in July 1995, BlueCHOICE HMO and POS products are offered in
the six-county area surrounding Joplin, Missouri.

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, 1997, there were approximately 21,800 group members
enrolled in the underwritten HealthNet Blue HMO product.

Prior to December 31, 1997, the company offered the 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.  These providers include approximately 262
physicians (representing 90 percent of the region's physician
providers) and five area hospitals and medical centers.  The company
is currently negotiating with these providers for their participation
in the Alliance network.

BlueCHOICE Senior

BlueCHOICE 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.

BlueCHOICE Medicaid (MC+)

The company has made a decision to discontinue its Medicaid product in
the 18-county central Missouri region as of March 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.

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

The company also offers managed indemnity coverage where consumer and
market demands require the provision of indemnity coverage,
particularly to individuals in geographic areas where the penetration
of managed care has been low.  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 dental care, eye care, mental health
care and health care education.  In addition, the company also manages
mental health and substance abuse services through its Harmony
program.  The company also provides prescription benefits through its
AllianceRx managed care product.  In March 1997, the company entered
into a three-year agreement with a pharmacy benefits manager, Express
Scripts, Inc.  The contract covers approximately 480,100 members,
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 copay 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, 1997, the company serviced self-funded health plans
covering approximately 1,461,100 members (including 1,112,400
HealthLink 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 746,800 PPO
administrative services members and 344,700 workers' compensation
members as of December 31, 1997.  In addition, HealthLink owns
HealthLink HMO, Inc. (HealthLink HMO), a Missouri HMO with
approximately 20,900 members as of December 31, 1997, all located in
the greater St. Louis area.  HealthLink HMO is a state-qualified
health maintenance organization that provides health care services
principally for a predetermined, prepaid periodic fee to enrolled
subscriber groups and individuals of selected insurance companies.
HealthLink HMO's primary service area currently includes the St.
Louis, Missouri, metropolitan area.

The acquisition of HealthLink in August 1995 provided RightCHOICE with
an effective and flexible network rental vehicle, particularly for the
large group segment; established brand name and respected reputation;
an HMO network that includes a leading St. Louis provider network not
previously included in RightCHOICE's HMO product offerings and an
established network in Missouri and central and southern Illinois,
with a presence in Indiana, Iowa, Kentucky, Arkansas, and West
Virginia.  In the first quarter of 1997, the company began utilizing
the HealthLink network in central and southern Illinois by selling
underwritten PPO products to both groups and individuals.

The EPOCH Group, L.C.

The EPOCH Group, L.C. (Epoch), a limited liability company, is a joint
venture between the company and BCBSKC combining 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).  The
company invested cash and other net assets of $5.3 million in this
joint venture.  Epoch serves approximately 260 businesses primarily in
the Midwest, representing 628,200 members as of December 31, 1997.

"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 operation, 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 Office of Personnel
Management audit of BlueCHOICE, pending litigation including the
subscriber class action litigation, litigation with Missouri
Department of Insurance and Missouri Attorney General, administrative
action initiated by the Department of Insurance, the outcome of
litigation with Missouri Consolidated Health Care Plan, other
litigation, potential loss of "Blue Cross" and "Blue Shield" licenses
by BCBSMo, the company and its controlled affiliates, government
regulation and health care reform, 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 facility restrictions, the year 2000 issue, and other factors
discussed below in the section entitled "Factors that May Affect
Future Results of Operations, Financial Condition or Business" as well
as those discussed elsewhere in the company's SEC reports.

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

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

OPM audit

The company, through its subsidiary, HMO Missouri, Inc. (BlueCHOICE),
received a draft audit report from the Office of Personnel Management
(OPM) in November 1995 in connection with services provided by
BlueCHOICE under the Federal Employee Health Benefit Program.  This
report indicated that BlueCHOICE had a potential liability of $7.5
million.  In 1998, BlueCHOICE received correspondence from the U.S.
Department of Justice requesting a meeting with BlueCHOICE regarding
in excess of $6.5 million in payments (alleged overcharges) received
during the reconciliation process for the years 1990 through 1994.
If it is found that BlueCHOICE knowingly received overpayments, 
BlueCHOICE could be subject to civil penalties of up to $10,000 per 
certified reconciliation statement, treble damages for the amount of 
such overcharges and interest.  These items are
further described under the same caption in Note 13 entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data.  At this time, management is unable to determine
the final dollar amount which 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 class action suit was filed against the company,
BCBSMo, HealthLink, Inc., and certain officers of the company as
described under the same caption in Note 13 entitled "Contingencies"
of Part II, Item 8, Financial Statements and Supplementary Data.  The
plaintiffs' claims relate to an alleged conversion of BCBSMo from a
not-for-profit entity to a for-profit entity and payment of excessive
compensation to management.  The complaint further alleges that
certain amendments to BCBSMo's Articles of Incorporation were
improper, that the purchase of HealthLink was at an excessive price,
and that HealthLink operates under contracts providing for illegal
discounts by health care providers.  The plaintiffs seek restitution,
compensatory damages, and punitive damages in unspecified amounts, as
well as injunctive and other equitable relief.  BCBSMo and the company
believe the claims are without merit and intend to vigorously defend
the action; however, there can be no assurance that BCBSMo and the
company will be successful and that the ultimate outcome will not have
a material adverse affect on the company and the market for the
company's stock.

Litigation with DOI and Attorney General

BCBSMo has filed an action against the Missouri Department of
Insurance (DOI), the Director of the DOI, and the Missouri Attorney
General seeking a declaratory judgment and other relief with respect
to the Reorganization and Public Offering, as described under the same
caption in Note 13 entitled "Contingencies" of Part II, Item 8,
Financial Statements and Supplementary Data.  While BCBSMo has
prevailed on most issues, the Circuit Court of Cole County, Missouri
(the Court) has ruled that BCBSMo has continued to exceed or abuse its
statutorily permissible purposes and is subject to judicial
dissolution proceedings or alternative remedies if found to be in the
public interest or the interest of its members.  This issue and the
prior rulings favorable to BCBSMo are on appeal and additional claims
are pending at the trial court.  With oral arguments presented before
the Missouri Appeals Court - Western District on February 24, 1998, an
opinion is not expected before summer.

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

The Missouri Attorney General and the Missouri DOI have also filed
actions against BCBSMo and the company relating to discontinued
copayment practices and the DOI's market conduct study, respectively,
as described under the same caption in Note 13, entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data.

While the company believes, after reviewing these matters with legal
counsel, that BCBSMo's and the company's legal positions are strong,
the risks and uncertainties of litigation are such that there can be
no assurance that BCBSMo and the company will prevail on all issues,
that the appellate court hearing the appeal of the judgments relating
to the Reorganization and Public Offering will affirm all the rulings
of the trial court favorable to BCBSMo and will reverse the rulings of
the trial court adverse to BCBSMo, that the DOI and Attorney General
will not pursue administrative action during or after these
proceedings, or that any of such actions would not have a material
adverse impact on the company or the market for the company's stock.
If BCBSMo or the company does not prevail in all of these matters, it
is possible that actions could be taken by BCBSMo, the Attorney
General, the DOI, the BCBSA or others which could have a material
adverse impact on the company or the market for the company's stock,
as described under the same caption in Note 13 entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data.

Status of Blue Cross and Blue Shield Trademark Licenses

The company and certain of its subsidiaries have licenses granted by
the Blue Cross and Blue Shield Association (BCBSA) (reinstated from
temporary licenses previously granted) to use the "Blue Cross" and
"Blue Shield" names, trademarks and service marks as described under
the same caption in Note 13 entitled "Contingencies" of Part II, Item
8, Financial Statements and Supplementary Data.  The company believes
that the right to use the Blue Cross and Blue Shield names and marks
provides it with a significant marketing advantage in its licensed
service area.  As explained in Note 13, if BCBSMo's and the company's
litigation against the DOI and the Attorney General is not resolved in
a manner that is in the best interests of the BCBSA, the marks and the
other Blue plans, then the company's licenses to use such names and
marks may be terminated.  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 would have a material adverse
effect on the company and the market for the company's stock.  See
"Litigation with DOI and Attorney General."

Litigation with MCHCP

The company and the Missouri Consolidated Health Care Plan (MCHCP)
have filed lawsuits against one another as described under the same
caption in Note 13 entitled "Contingencies" of Part II, Item 8,
Financial Statements and Supplementary Data.  On March 16, 1998, MCHCP
voluntarily dismissed its suit against the company which had accused
the company of anticipatory breach of contract and tortious
interference with MCHCP's members.  On March 19, 1998, the trial court
made certain rulings adverse to the company on summary judgment which
are described in Note 13 referred to in the preceding sentence.  The
company is considering its options in light of those rulings,
including a possible appeal.  If the trial court's order becomes
final, the company would be contractually bound to serve the MCHCP
members through the year 2000 at the rates contracted for in 1995,
with annual rate increases, if any, which are no more than the annual
increase in the medical cost component of the Consumer Price Index and
far less than necessary to permit the company to recover its costs in
serving those members.  In the third quarter of 1997, the company
recorded 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 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.  The MCHCP is
currently the largest customer group served by 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, would require
approval of the lenders under the Credit Agreement.  See "Credit
Agreement Restrictions."

Government Regulations and Health Care Reform

The company operates its managed health care business principally
through wholly-owned subsidiaries whose business is subject to
extensive federal, state and local laws and regulations.  To date,
these laws and regulations have not had a significant negative impact
on the growth of the company's business.  However, there can be no
assurance that the company will be able to obtain or maintain required
governmental approvals or licenses or that any current or proposed
federal and state legislation or other regulatory reform such as the
Health Insurance Portability and Accountability Act of 1996 (HIPAA),
Missouri's House Bill 335 (HB335), and mandatory benefits (e.g.
mandatory maternity benefits), which have all increased the regulatory
requirements imposed on the company and its subsidiaries, will not
have a material adverse effect on the company's business or results of
operations in the future.

Competition and Consolidation

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

Escalating Health Care Costs

The company's profitability depends in large part on predicting and
effectively managing medical costs under its managed care plans.  A
variety of external factors affecting the delivery and cost of health
care, including increased costs and utilization of high-technology
diagnostic testing and treatments, the 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
which generally are renewable annually.  The company's profitability
is also dependent, in large part, on its ability to contract on
favorable terms with hospitals, physicians and other health care
providers.  There can be no assurance that the subscribers or
providers will renew their contracts or enter into new contracts with
the company or, in the case of provider contracts, will not seek terms
that are less profitable to the company in connection with any such
renewal.

Control by BCBSMo

BCBSMo has voting control on all stockholder actions, including the
sale or merger of the company, a sale of substantially all of its
assets and the election of all of the company's directors.  BCBSMo may
have interests with respect to its ownership of the company 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.
Although the company has experienced turnover in certain key
management positions in the past, those positions have been
successfully filled.  However, there can be no assurance that the loss
of current key management would not result in a material adverse
effect on the company's results of operations, financial condition or
business.

Variability of 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 which cause
variations in its results of operations and in the volatility of the
stock markets generally.

Credit Agreement Restrictions

The company's revolving credit agreement with its existing lenders
contains certain restrictions on the company 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, and
limitations on indebtedness of the company's subsidiaries 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 discussed elsewhere herein, the company amended its credit facility
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 reduce the company's ability
to respond to adverse industry conditions and could have a material
adverse effect on the company's results of operations, financial
condition or business.

Year 2000 Issue

In January 1996, the company began converting its computer systems to
be year 2000 compliant (e.g. to recognize the difference between 1999
and 2000 as one year instead of negative 99 years).  The company
believes that at December 31, 1997, approximately 25 percent of the
company's systems were compliant, with all systems expected to be
compliant by March 31, 1999.  In addition, the company's plan for
completion of this project is partially dependent upon the work of
third parties.  The company's operations would be significantly
impacted by incomplete or untimely resolution of the problem as the
company utilizes automated systems to process claims, prepare
invoices, retain membership data, perform utilization management, and
many other processes.

Additional Factors

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

Strategies

In general, the company's strategy for 1998 involves (i) improving
service levels and the effectiveness and efficiency of automated and
manual processes,  (ii) entering into shared risk and financial
incentive arrangements with providers, (iii) resolving issues with the
Missouri Department of Insurance and Missouri Attorney General (see
"Litigation with DOI and Attorney General" caption in Note 13 entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data) and (iv) implementing additional functionality of
the company's information and operations strategy (IOS) and data
warehouse capabilities.  The company also has an operating strategy in
place intended to improve the company's financial performance by (i)
reducing medical costs, (ii) increasing premium rates significantly
more than in recent past years, and (iii) reducing core overhead
expenses.  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 at 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 recent implementation of a small
group marketing unit to improve the company's ability to support sales
in an efficient 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 economic 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.  As evidenced with the introduction of
AllianceChoice, the company is currently pursuing 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 BlueCHOICE HMO Physician Group Partners
Program (PGPP) provides incentives to primary care physicians to
improve quality, patient satisfaction, and cost savings while
providing physician-participants with an appealing incentive package.
Currently, approximately 36 percent of the BlueCHOICE Commercial panel
of 647 primary care physicians in metropolitan St. Louis are enrolled
in the program.  Approximately 15,500 BlueCHOICE Commercial members,
or 24 percent of the assigned metropolitan St. Louis membership, are
served by primary care physicians who are participants in PGPP.  The
company is also in the preliminary stages of expanding the PGPP model
to specialists.

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 which 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 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 is expected
to result in annual salary and benefit cost savings of $3.0 million
beginning in 1998.  The company incurred total charges to earnings of
$7.8 million during 1996 and 1997 for costs associated with the
relocation.

Competition

The managed care industry is highly competitive, both nationally and
in the company's current 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, as previously reported, to increase premium rates
on a per member per month basis by approximately 9 percent to 10
percent during 1998.  The company believes that these price increases
will be accepted by the market as indicated by the company's January
1998 underwritten enrollment consisting of 504,800 members.  Since
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.  In addition, the company has become aware that
many of its competitors are also significantly increasing rates which
also points to an alleviation of the intense price competition in the
company's service areas over the past several years.

In issuing its approval of the company's HealthLink acquisition, the
Missouri Department of Insurance required that the company not
restrict access by qualified commercial insurers to the HealthLink
network for a minimum of two years; that employer fees not increase
faster than the percentage change in the non-medical consumer price
index through December 31, 1996; that rate changes for existing
RightCHOICE HMO and PPO subscribers in the St. Louis Metropolitan area
be limited to 90 percent of the annual percentage increase in the St.
Louis medical consumer price index over a two year period; that rates
be guaranteed for new subscribers in that market for 18 months; and
that the company not enter into new agreements with hospitals that
include clauses requiring the hospitals to give the company rates
lower (by a specified amount or percentage) than those rates such
hospitals provide to others.  These rate increase limitations expired
as of September 1, 1997.

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 72 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.  As a result, the company maintained
an inventory of unprocessed provider claims as of December 31, 1997,
of approximately 4.5 days.

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 for
more information on the IOS project.

The primary business functions of the company are currently supported
by an integrated transaction processing system.  This interactive
system supports the company's core processing functions (claims
processing, customer services, enrollment, member billing and claim
disbursements) under 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 strategic data initiative (SDI) allows the company to
turn information about providers, members, and claims into a solid
foundation upon which to make strategic business decisions.  This data
warehouse 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 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 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.

Insurance Holding Company Regulation

The company is subject to regulation as an insurance holding company.
Missouri insurance holding company laws and regulations generally
require insurance holding companies and their subsidiaries to register
with the Missouri Department of Insurance and to file with the
Missouri Department 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, Healthy Alliance Life
Insurance Company (HALIC), HMO Missouri, Inc. (BlueCHOICE), HealthLink
HMO, Inc. (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 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.  The formula for
calculating such RBC requirements, set forth in instructions adopted
by the National Association of Insurance Commissioners (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, a life and health
insurance company must submit a report of its RBC level as of the end
of the previous calendar year.  The NAIC has not currently extended
the RBC requirements to HMOs.

Because the total adjusted capital of HALIC and RIC, 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 or RIC or their operations.  If in the future the RBC
results of HALIC or RIC 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

Missouri 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 which 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
approval by the Missouri Directors of Insurance.

At December 31, 1997, HALIC, BlueCHOICE, RIC, and HealthLink HMO had
surplus of approximately $69.1 million, $11.0 million, $2.0 million,
and $3.5 million, respectively.  At December 31, 1997, the company's
insurance subsidiaries did not have a significant amount of dividends
available for payment without the prior approval of the Missouri or
Illinois Directors 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 laws and regulations, the company and Epoch are
required to obtain a certificate of authority from the Department of
Insurance 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.  Certificates of authority are also
required by certain other states in which Epoch conducts business.
Certain TPA activities are also subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).

Employees

The company employed approximately 1,700 full time employees
(including 300 HealthLink employees) as of December 31, 1997, compared
to 1,700 full time employees (including 250 HealthLink employees) as
of December 31, 1996, none of whom is subject to a collective
bargaining agreement.  The company believes that its employee
relations are good.

Executive Officers

            Name                 Age               Position

      John A. O'Rourke            54         Chairman of the Board,
                                             President, Chief
                                             Executive Officer and
                                             Director

      Sandra A. Van Trease        37         Executive Vice President
                                             and Chief Operating
                                             Officer, Chief Financial
                                             Officer

      Stuart K. Campbell          36         Senior Vice President,
                                             Client Services

      Michael Fulk                50         Senior Vice President and
                                             Chief Marketing
                                             Officer

      Herbert B. Schneiderman     52         Senior Vice President, Medical
                                             Delivery Systems

      Connie L. Van Fleet         45         Senior Vice President and
                                             Chief Information
                                             Officer

      David T. Ott                43         President, Chief Executive
                                             Officer and
                                             Director of HealthLink

      Courtney B. Walter          42         Executive Vice President and
                                             Chief Financial Officer of
                                             HealthLink

      Edward J. Tenholder         46         Executive Vice President and
                                             Chief Operating
                                             Officer of BCBSMo

      Richard S. Smith            55         President of Diversified Life
                                             Insurance Agency 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, Inc.   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 A. Van Trease was named Executive Vice President and
Chief Operating Officer in September 1997.  Ms. Van Trease
joined BCBSMo in June 1994 as Vice President, Financial
Reporting and Analysis and was named Senior Vice President and
Chief Financial Officer of the company in November 1995.  Prior
to joining BCBSMo, Ms. Van Trease was a Senior Manager with
Price Waterhouse LLP.

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 Officer 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
BCBSMo in 1990 and most recently served as Vice President,
Business Analysis and Development.  Prior to joining BCBSMo, Ms.
Van Fleet was with Metropolitan Life Insurance Co.

David T. Ott was named President and Chief Executive Officer of
HealthLink, Inc. 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, Inc. 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.

Richard S. Smith was named President of Diversified Life
Insurance Agency of Missouri, Inc. (a wholly owned subsidiary of
the company) in 1995.  Mr. Smith joined BCBSMo as Senior Vice
President of Marketing and Chief Marketing Officer in 1987.
Earlier, Mr. Smith spent 20 years at the Blue Cross and Blue
Shield Plan in Wisconsin.

ITEM 2.  PROPERTIES

As of December 31, 1997, 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      69,152    Leased
   HealthLink, Inc. Headquarters          St. Louis, MO      20,550    Owned
   HealthLink, Inc. Administrative Office St. Louis, MO      19,500    Leased
   Southwest Regional Office              Springfield, MO    30,000    Owned
   Southwest Claims Office Expansion      Springfield, MO     4,750    Leased
   Southeast Claims Office                Cape Giardeau, 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

None.

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 6, 1998.
As of March 6, 1998, the reported closing bid price per share
was $10.50.

Shareholders' Data
                                                  1997
                                 4th          3rd         2nd         1st
                               Quarter      Quarter     Quarter     Quarter
 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 -     $10 1/4 -   $10 3/8 -   $10 1/2 -
                              $11 1/8       $13 7/8     $13 9/16    $17

                                                  1996
                                 4th          3rd         2nd         1st
                               Quarter      Quarter     Quarter     Quarter
 Outstanding common shares   18,676,900   18,676,900  18,676,900  18,680,600
 Market price:
 Quarter ending               $10 5/8       $12 1/4     $12 3/8     $16 1/4
 Range                         $8 7/8 -      $11 -      $12 1/4 -   $12 7/8 -
                              $12 5/8       $13 3/8     $17 5/8     $17 1/8

Dividends

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

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

                                      Year ended December 31,
Consolidated Statements of 
 Income data                1997       1996       1995       1994       1993
                                 (in thousands, except per share data)

Revenues                 $719,411   $653,375   $591,880   $583,580   $575,615
Operating expenses        780,411    666,954    572,847    556,943    550,501
Operating (loss) income  (61,000)   (13,579)     19,033     26,637     25,114
Investment income, net     33,184     17,532     18,344     15,764     23,288
Other, net                (5,739)    (5,320)    (3,327)      (640)      (859)
Net (loss) income        (24,034)    (2,027)     23,570     26,584     19,998(c)
Basic and diluted (loss)
 earnings per share       $(1.29)    $(0.11)      $1.26
Pro forma data: (a)
Pro forma operating income                                 $23,712    $20,747
Pro forma net income                                        24,683     17,159(c)
Pro forma earnings per                              
 share (b)                                                   $1.49       $.94(c)


Consolidated Balance 
 Sheet data                                       December 31,
                            1997       1996       1995       1994       1993
                                 (in thousands, except per share data)

Total assets             $506,363   $532,144   $516,388   $433,605   $354,491
Long-term obligations      88,845     86,776     89,060     31,013     25,136
Shareholders' equity      140,865    172,954    173,221    135,425     82,247
Available cash 
 and investments (d)        8,279     48,472     56,753     72,854
Book value per share        $7.54      $9.26      $9.27      $7.25
Tangible book value 
 per share                   3.36       4.76       4.93       7.10

  (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 years
  ended December 31, 1994 and 1993, are computed based on the
  following:  (i) for 1993, 3,250,000 shares of Class A Common
  Stock and 14,962,500 shares of Class B Common Stock assumed
  outstanding at the beginning of the year consistent with the
  company's registration statement, as amended on July 28,
  1994, on Form S-1, filed with the SEC under the Securities
  Act of 1933, and (ii) for 1994, 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
hereof.

Results of operations

Premium revenue

The following table sets forth premium revenue (in thousands) by
product group for the years ended December 31, 1997, 1996, and
1995:

                                            For the year ended
                                                December 31,
      Product Group                       1997       1996       1995
       PPO:
         Alliance PPO                  $197,329   $234,720   $272,769
         AllianceChoice POS             124,890     75,700     22,560
       HMO (includes other POS)         183,485    139,457     95,927
       Medicare supplement               97,157     98,038    104,396
       Managed indemnity                 12,531     16,425     23,045
       Other specialty services          38,875     30,709     19,725
          Total premium revenue         654,267    595,049    538,422
       ASO/Self-funded and other income  65,144     58,326     53,458
          Total revenues               $719,411   $653,375   $591,880


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,
                                                1997   1996   1995
    Operating revenues:
     Premium revenue                            90.9%  91.1%  91.0%
     Fees and other income                       9.1%   8.9%   9.0%
                                               100.0% 100.0% 100.0%

    Operating ratios:
     Medical loss ratio                         84.8%  82.6%  76.1%
     Commission expense ratio                    4.1%   4.1%   3.3%
     General and administrative expense ratio
     (includes depreciation and amortization)   22.7%  22.0%  23.7%

Membership

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

                                              December 31,
                                                               % Increase/
      Product Group                          1997      1996     (Decrease)
      Underwritten:
       PPO:
         Alliance PPO                       149,339   193,349   (22.8)
         AllianceChoice POS                 131,924   102,707     28.4
       HMO:
         Commercial (includes other POS)    134,743   103,786     29.8
         BlueCHOICE Senior                    5,682     5,452      4.2
         BlueCHOICE Medicaid (MC+)            5,146     5,063      1.6
       Medicare supplement                   62,311    68,528    (9.1)
       Managed indemnity                      7,022    10,979   (36.0)

                                            496,167   489,864      1.3
      Self-funded:
       PPO                                   89,300   110,001   (18.8)
       HMO                                   13,825    16,551   (16.5)
       ASO (includes HealthLink):
         Workers' Compensation              344,712   310,891     10.9
         Other ASO*                       1,013,303   925,941      9.4

      Total membership                    1,957,307 1,853,248      5.6

* does not include 497,538 and 643,311 additional third-
party administrator members as of December 31, 1997 and 1996,
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 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.  The company
will continue to strive to establish its 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 $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 continued 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 enrollment
periods during 1997.  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 are 2,200 PPO
Illinois members at December 31, 1997.  The company anticipates
future enrollment gains in the central and southern regions of
Illinois as the company plans to intensify marketing efforts
during 1998.

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 enrollment periods during
1997, 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 is currently involved in litigation
(see Note 13 entitled "Contingencies - Litigation with MCHCP" of
Part II, Item 8), 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.  The company's future enrollment growth
or decline in these products and geographic regions is dependent
on network attractiveness, continued cooperation with physician
hospital organizations, market acceptance of rate increases, and
other factors.  There can be no assurance that these objectives
will be realized.  Future enrollment growth in the company's
products offered to MCHCP and revenues generated therefrom are
also dependent on the litigation with MCHCP and other factors
(see Note 13 entitled "Contingencies - Litigation with MCHCP" of
Part II, Item 8).  In addition, the company has made a decision
to discontinue its Medicaid product in the 18-county central
Missouri region as of March 31, 1998.  This determination was
made due to what the company believes were 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, AllianceRx, continued to gain momentum
with revenues increasing $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 to 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.

The company expects further declines in its self-funded
membership as three large self-funded group cancellations are
effective as of January 1, 1998.  As of December 31, 1997, these
three groups encompassed approximately 72,000 members,
approximately 30,000 of which have 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 has resulted in large underwriting losses (see
Note 13 entitled "Contingencies - Litigation with MCHCP" in Part
II, Item 8).

The company's efforts in 1997 to modify its pharmacy benefits
management program and recontract with physicians and ancillary
service providers have not yielded targeted savings in the
anticipated time frame.  The drug cost trend (as a percentage)
has remained in the low teens, driven by a combination of
factors, including introduction of new drug therapies;
physicians' use of newer, more expensive drugs; and physicians'
decreased use of generic drugs in favor of specific drugs
promoted by pharmaceutical companies.  Among the medical cost
control strategies targeted for 1998 are a combination of
changes in the pharmacy program to save costs and increase
member satisfaction through:  allowing members to make choices,
albeit with a higher member copayment; introducing a new three-
tiered benefit design; and making other adjustments to
copayments, quantity limits and exclusions.  Physician
education, utilization and prescribing pattern analysis will be
increased.  The company will also continue its hospital,
physician and service recontracting strategy, using the more
detailed data and analysis available through the company's
information and operations strategy (IOS), which is comprised of
projects being implemented to improve business processes and
systems.  The company also intends to further expand its PGPP
program.  This program provides incentives to physicians to
improve quality, patient satisfaction, and cost savings while
providing physician participants with an appealing incentive
package.  Currently, approximately 36 percent of the BlueCHOICE
Commercial panel of 647 primary care physicians in metropolitan
St. Louis are enrolled in the program.  There can be no
assurance that the company's initiatives to control future
increases in medical cost trends will be effective.

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 have 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.

Management previously announced its plans to improve the
company's overhead cost structure by streamlining operations,
focusing on the core business, reviewing investment priorities,
and reducing legal, consulting, and non-essential vendor
expenses.  The company's achievement of overhead reduction goals
was delayed, in part, by higher-than-expected staffing levels
and additional resources needed to reduce claims backlog that
occurred as the company's claims processing functions relocated
to the new customer service centers during the first half of
1997.  The staffing resources required to resolve the claims
backlog delayed the realization of $1.3 million of anticipated
overhead savings during 1997.

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 Strategies" 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.  See Note 13 entitled
"Contingencies - Litigation with MCHCP" of Part II, Item 8.

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 cost trends.

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 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 $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 rate was 28.4 percent and
(48.2) percent for 1997 and 1996, respectively. The company's
effective income tax rate for 1997 was affected by gains from
the liquidation of company-owned life insurance policies as well
as non-deductible goodwill amortization.  The 1996 effective
rate was also affected by non-deductible goodwill amortization.
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, 1997 and 1996.  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, 1997 and 1996.

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.

Comparison of results for 1996 to the results for 1995

Revenues

Underwritten

Premium revenue increased $56.6 million to $595.0 million in
1996 from $538.4 million in 1995.  As described below,
components of premium revenue were affected by product mix
shifts, new product introductions, and other factors as the
company continued the positioning of its managed care product
portfolio; and, as a result, such changes may not be indicative
of future periods.

PPO premium revenue increased $15.1 million -- $21.8 million due
to a 9.8 percent increase in member months and a $6.7 million
decrease in revenue resulting from a 4.2 percent net decrease in
premium rates.  Rates decreased slightly due to two main
factors.  First, in November 1994, the company introduced a new
managed care drug product, AllianceRx, which is sold to members
on a separate product basis; prior to this, the drug benefit was
typically included as part of the basic PPO medical program.
The resulting shift in revenue from the PPO products to other
specialty services is more pronounced in 1996 than in the prior
year due to the gradual penetration of AllianceRx throughout
1995 and 1996.  Second, the company experienced a shift in
membership to AllianceChoice, a lower cost, non-gatekeeper point-
of-service (POS) product.  As evidence of this shift, Alliance
PPO membership decreased by 32,700 members in 1996 while
AllianceChoice POS membership increased by 54,000 over the same
time period.

HMO premium revenue increased $43.5 million, or 45.4 percent --
$50.5 million due to a 50.3 percent increase in member months
partially offset by a $7.0 million decrease due to a 3.3 percent
net reduction in premium rates.  Net premium rates declined due
to HMO competition in the company's HMO service areas.
Membership increases are due to the introduction and positive
momentum of new products - BlueCHOICE Individual (introduced in
November 1994), BlueCHOICE Senior (introduced in April 1995),
HealthNet Blue POS (introduced in March 1995), and BlueCHOICE
Medicaid (introduced in March 1996).  These four products
collectively account for approximately 34,900 underwritten
members at December 31, 1996, which is an increase of 19,900
over December 31, 1995.  In addition, the company's arrangement
with Freeman Hospitals and Health System, beginning in July
1995, has enabled the BlueCHOICE HMO and POS products to be
offered in the six-county area surrounding Joplin, Missouri.  As
of December 31, 1996, there were approximately 7,700 members
enrolled in products sold through this arrangement with Freeman,
representing an increase of 5,200 members over December 31,
1995.

Premium revenue from Medicare supplement decreased by $6.4
million in 1996, due to a 10.3 percent decrease in member
months, partially offset by a 4.7 percent increase in premium
rates.

Managed indemnity premium revenue decreased by $6.6 million due
primarily to a 33.3 percent decline in member months, consistent
with the company's strategy to focus membership growth in more
intensely managed products.

Revenue from other specialty services, which include certain of
the company's drug and dental health care benefit plans,
increased $11.0 million due primarily to a 52.1 percent increase
in member months.  These increases are primarily attributable to
the aforementioned selling of the company's drug product
separate from PPO major medical products.  Member months in the
company's drug product increased by 73.6 percent in 1996 as
compared to 1995.

Self-funded

Fees and other income from administrative services only/self-
funded and network services increased by $4.9 million in 1996 as
compared to 1995.  This increase is due to three main factors:
(1) a net 1996 increase in HealthLink revenues of $20.3 million,
offset by (2) a decrease of $6.7 million in net self-funded PPO
revenues, due in part to an 8.4 percent decrease in member
months in 1996, and (3) the loss of revenues from the company's
third-party administrator (TPA) subsidiaries, which were $9.4
million in 1995.  These TPA subsidiaries were combined with
another TPA company to form The EPOCH Group, L.C. (Epoch) in
December 1995.  The company owns 50 percent of Epoch and
utilizes the equity method of accounting for this entity.

Operating expenses

The overall medical loss ratio increased by 6.5 percent to 82.6
percent in 1996 from 76.1 percent in 1995 primarily as a result
of (1) the company's lower margin BlueCHOICE Senior, Medicaid
and AllianceChoice products, (2) competitive pricing to enhance
selected enrollment growth, (3) higher drug and outpatient
utilization, and (4) growth in regions outside of the
metropolitan St. Louis area that have less cost efficient
networks.

Commission expense increased by $7.4 million, or 38.1 percent in
1996, which represents an overall increase in the commission
ratio to 4.1 percent of total revenue as compared to 3.3 percent
of total revenue for 1995.  These increases are due to increased
membership growth and more aggressive commission schedules to
enhance member growth and persistency.

General and administrative expenses increased $3.5 million, or
2.5 percent in 1996.  Excluding the effects of HealthLink,
Epoch, and a third-party accrual, discussed below, comparable
1996 general and administrative expenses decreased by $1.1
million.  HealthLink accounted for $20.9 million of general and
administrative expenses in 1996.  HealthLink expenses incurred
in 1995 subsequent to its August acquisition were $6.6 million.
Thus, HealthLink accounts for a net 1996 increase of $14.3
million to general and administrative expenses.  Offsetting this
net increase to expense is the reduction of expenses related to
the company's aforementioned TPA subsidiaries that were combined
to form Epoch in December 1995.  The results of operations of
Epoch (50 percent owned by the company) are not consolidated
with the company's operations.  General and administrative
expenses in 1995 include $11.1 million of TPA subsidiary general
and administrative expenses.  General and administrative
expenses in 1996 also increased due to an accrual of $1.4
million related to a third-party contract.

Non-recurring charges in 1996 include $4.5 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.  Non-recurring charges in
1995 include $2.0 million of one-time integration charges
related to the company's acquisition of HealthLink in August
1995 and $1.5 million relating to the settlement of a class
action lawsuit.  The lawsuit stemmed from the company's claims
paying practices and negotiated discounts with providers; the
company agreed to settle the lawsuit by establishing a rebate
program for all affected subscribers.  See Note 13 entitled
"Contingencies - Litigation with DOI and Attorney General,
Litigation relating to the Market Conduct Study and Copayment
Calculations" of Part II, Item 8 for recent information relating
to this issue.

Operating income (loss)

Operating income decreased from $19.0 million in 1995 to a loss
of $13.6 million in 1996.  Excluding non-recurring charges,
operating income was $22.5 million in 1995 compared to a loss of
$9.0 million in 1996.

Operating income, excluding non-recurring operating charges, for
the company's underwritten segment was $25.0 million in 1995
compared to a loss of $11.0 million in 1996.  The losses in 1996
are primarily attributable to softer pricing in a competitive
environment and higher outpatient utilization trends and drug
costs.

Excluding non-recurring operating charges, the company's self-
funded segment experienced an operating loss of $2.5 million in
1995 as compared to operating income of $1.9 million for 1996.
The improvement in 1996 operating income is a direct result of
the positive impact of HealthLink, which added $9.1 million to
this segment's operating income in 1996 as compared to $3.2
million in 1995 subsequent to HealthLink's acquisition in August
1995.  In addition, these HealthLink operating figures are
inclusive of $3.3 million and $1.4 million in 1996 and 1995,
respectively, for amortization expenses related to goodwill and
other intangible assets that were acquired through the
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 $17.5
million in 1996 represents a 4.4 percent decrease from $18.3
million in 1995 inclusive of a $0.2 million decrease in realized
gains, net.

Provision for income taxes

The company's effective income tax rate was (48.2) percent and
30.8 percent for 1996 and 1995, respectively.  The 1996 rate was
negatively affected primarily by the impact of non-deductible
goodwill amortization.  The 1995 rate was positively affected by
a $2.1 million final tax audit settlement with the Internal
Revenue Service relating to pension, software amortization
expenses, and other items.  Excluding such settlement, the
company's 1995 effective income tax rate was 37.1 percent.

Net income (loss)

The company's net income for 1995 was $23.6 million as compared
to a net loss of $2.0 million for 1996.  Excluding non-recurring
charges on an after-tax basis, net income for 1995 was $25.8
million as compared to net income of $0.9 million for 1996.


Liquidity and capital resources

The company's working capital as of December 31, 1997, was $69.7
million, a decrease of $39.1 million from December 31, 1996.
The decrease is partially attributable to a $15.0 million
repayment of a portion of the $62.0 million of funds that were
borrowed in August 1995 from the company's reducing revolving
credit facility in conjunction with the company's acquisition of
HealthLink.  Also, the company's charge to accrue a loss reserve
related to MCHCP resulted in a current liability as of December
31, 1997 of $9.1 million.  In addition, the company capitalized
$18.5 million of property and equipment purchases, $17.2 million
of which related to capitalized IOS development costs (see
"Outlook - Information and operations strategy" section below).
The company's unrealized net appreciation of investments
available for sale decreased by $8.0 million in 1997 as most of
the unrealized gains existing at December 31, 1996, were
realized in 1997 as the company liquidated equity securities and
company-owned life insurance policies.

Net cash used in operations totaled $10.9 million for the year
ended December 31, 1997.  The company's net loss was $24.0
million which included (on a before tax basis) $17.3 million of
realized gains from the sale of investments, $25.4 million for
the MCHCP loss reserve charge (net of associated amortization),
and $23.1 million of depreciation and amortization expenses.  In
addition, accounts payable and accrued expenses were reduced by
$13.1 million which, along with other assets, medical claims
payable, receivables from members, and net intercompany
receivables were affected by the timing of operating cash
payments and receipts, as well as changes in membership and
utilization and claims payment trends.

In the fourth quarter of 1997, the company amended its revolving
credit facility (the Credit Facility), the material terms of
which are as follows:  (1) the borrowings under the Credit
Facility will bear interest at 2.75 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 Facility was reduced to $50 million as of October
1, 1997 with $1.25 million quarterly reductions through 1998 and
subsequent $2.5 million quarterly reductions through June 30,
2000, with the remaining $30 million commitment under the Credit
Facility terminating on August 10, 2000, (4) mandatory
reductions to the commitment, together with prepayments, are
required upon the happening of certain extraordinary events, (5)
stricter limits were placed on the company's ability to incur
additional debt, and (6) stricter limits were placed on capital
expenditures as well as the company's ability to make
investments and acquisitions.

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 investment
portfolio consists primarily of U.S. government and agency
securities, corporate bonds, and notes.

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.  As
discussed under Note 13 entitled "Contingencies -- Litigation
with MCHCP" of Part II, Item 8, Financial Statements and
Supplementary Data, the trial court made certain rulings adverse
to the company on summary judgment.  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 $8.3
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 more fully explained in
Note 13 entitled "Contingencies - Litigation with MCHCP" of Part
II, Item 8.

Other than continued investment in information technology 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 operation, 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 Office of
Personnel Management audit of BlueCHOICE, pending litigation
including the subscriber class action litigation, litigation
with Missouri Department of Insurance and Missouri Attorney
General, administrative action initiated by the Department of
Insurance, the outcome of litigation with Missouri Consolidated
Health Care Plan, other litigation, potential loss of "Blue
Cross" and "Blue Shield" licenses by BCBSMo, the company and its
controlled affiliates, government regulation and health care
reform, 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
Facility restrictions, the year 2000 issue, and other factors
discussed in the section entitled "Factors that May Affect
Future Results of Operations, Financial Condition or Business"
included in Part I, Item 1 of this Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, as well as those
discussed elsewhere in the company's SEC reports.

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 the lowest cost medical
care consistent with quality outcomes.  The company believes
that controlling medical costs in the future will be highly
dependent on readily accessing both member and provider medical
information at a detail level 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 1997, the company incurred capitalized
expenditures of $17.2 million on this project.  Cumulatively,
since 1995, the company has incurred capitalized expenditures of
$39.0 million.  The company anticipates that it will expend
approximately $10 million for capitalized costs associated with
the IOS project in 1998 and $9 million for capitalized costs in
subsequent years to complete the project.  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 will
provide a payback and contribute to earnings per share over the
long term.  The company anticipates funding these expenditures
through positive future operating cash flows.

Year 2000 issue

In January 1996, the company began converting its computer
systems to be year 2000 compliant (e.g. to recognize the
difference between 1999 and 2000 as one year instead of negative
99 years).  The company's operations would be significantly
impacted by incomplete or untimely resolution of the problem as
the company utilizes automated systems to process claims,
prepare invoices, retain membership data, perform utilization
management, and many other processes.  The company believes that
at December 31, 1997, approximately 25 percent of the company's
systems are compliant, with all systems expected to be compliant
by March 31, 1999.  The total cost of the project is estimated
to be between $8 million and $10 million.  The company is
expensing all costs associated with these system changes.  The
company expensed $2.1 million and $0.6 million in 1997 and 1996,
respectively, for costs associated with this project.  The
company anticipates expensing approximately $4 million in 1998
and approximately $3 million in 1999 for the remaining testing
and implementation costs.  The company anticipates funding these
expenses through positive future operating cash flows.

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.  Additionally, the State of
Missouri 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.  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
enhancing 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.

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 hereof.  The company expects that
1998 will be a transitional year with targeted improvements and
the expectation of entering 1999 with a strong operating base.

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

Recently issued accounting standards

The Financial Accounting Standards Board (FASB) recently
released Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits."  SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose
financial statements.  The standard will require all companies
to present all non-owner changes in equity, e.g. market value
adjustments to investments and adjustments to the minimum
pension liability, in a full set of financial statements.  The
new rules will be effective beginning first quarter of 1998 and
companies will only be required to report total comprehensive
income for interim periods.  SFAS No. 131 establishes standards
for the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders.  It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers.  The new rules will be effective for the 1998
fiscal year.  Abbreviated quarterly disclosure will be required
beginning first quarter of 1999, with both 1999 and 1998
information.  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 will be effective for the 1998
fiscal year.

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

Not applicable as of December 31, 1997.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements:
                                                                          Page
Consolidated Balance Sheets, December 31, 1997 and 1996                    48
Consolidated Statements of Income for the years ended
     December 31, 1997, 1996 and 1995                                      49
Consolidated Statement of Shareholders' Equity for the years ended
     December 31, 1997, 1996 and 1995                                      50
Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995                                      51
Notes to Consolidated Financial Statements                                 52
Reports of Independent Accountants                                         73
Financial Statement Schedule- Condensed 
     Financial Information of Registrant                                   76

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 past two fiscal years 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 two most recent fiscal years
and through June 23, 1997, there have been 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 years.  During the two most
recent fiscal years 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 agrees
with the above statements.  A copy of such letter, dated June
27, 1997, was filed as Exhibit 16 to the company's current
report on Form 8-K filed with the Securities and Exchange
Commission on June 30, 1997.

The company engaged Coopers & Lybrand LLP (C&L) as its new
independent accountants as of June 23, 1997.  During the two
most recent fiscal years and through June 23, 1997, the company
has 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.

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 the 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
12, 1998, 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 12, 1998, 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 12, 1998, 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 12,
1998, 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 are
  as follows:

      I.  Condensed Financial Information of Registrant           76

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

2.1  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.*

10.1 Registration Rights Agreement - Incorporated by reference -
     previously filed as Exhibit 10.1 to the company's Form 10-K
     for the period ending December 31, 1994.*

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 Administrative Services Agreement between the Registrant
     and BCBSMo - Incorporated by reference - previously filed
     as Exhibit 10.4 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.

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

10.5.1    Amended and Restated Tax Allocation Agreement.

10.6 Blue Cross License Agreement between Blue Cross and Blue
     Shield Association  (BCBSA) and BCBSMo - Incorporated by
     reference - previously filed as Exhibit 10.6 to
     Registration Statement on Form S-1 under the Securities Act
     of 1933 filed by the Registrant.  Registration Statement
     No. 33-77798.*

10.6.1    Temporary Blue Cross License Agreement between BCBSA
     and BCBSMo - previously filed as Exhibit 10.6.1 to the
     company's Form 10-K for the period ending December 31,
     1996.*

10.6.2    Amendment to Temporary Blue Cross License Agreement
     between BCBSA and BCBSMo dated February 7, 1997 -
     Incorporated by reference - previously filed as Exhibit
     10.6.2 to the company's Form 10-Q for the period ending
     September 30, 1997.*

10.6.3    Letter Agreement with BCBSA regarding the issuance of
     Blue Cross and Blue Shield licenses.

10.6.4    Blue Cross License Agreement between Blue Cross and
     Blue Shield Association (BCBSA) and BCBSMo.

10.7 Blue Shield License Agreement between BCBSA and BCBSMo -
     Incorporated by reference - previously filed as Exhibit
     10.7 to Registration Statement on Form S-1 under the
     Securities Act of 1933 filed by the Registrant.
     Registration Statement No. 33-77798.*

10.7.1    Temporary Blue Shield License Agreement between BCBSA
     and BCBSMo - previously filed as Exhibit 10.7.1 to the
     company's Form 10-K for the period ending December 31,
     1996.*

10.7.2    Amendment to Temporary Blue Shield License Agreement
     between BCBSA and BCBSMo dated February 7, 1997 -
     Incorporated by reference - previously filed as Exhibit
     10.7.2 to the company's Form 10-Q for the period ending
     September 30, 1997.*

10.7.3    Blue Shield License Agreement between BCBSA and
     BCBSMo.

10.8 Blue Cross Controlled Affiliate License Agreement among
     BCBSA, HMO Missouri, Inc., and BCBSMo - Incorporated by
     reference - previously filed as Exhibit 10.8 to
     Registration Statement on Form S-1 under the Securities Act
     of 1933 filed by the Registrant.  Registration Statement
     No. 33-77798.*

10.8.1    Temporary Blue Cross License Agreement among BCBSA,
     HMO Missouri, Inc., and BCBSMo - previously filed as
     Exhibit 10.8.1 to the company's Form 10-K for the period
     ending December 31, 1996.*

10.8.2    Blue Cross Controlled Affiliate License Agreement
     among BCBSA, HMO Missouri, Inc., and BCBSMo.

10.9 Blue Shield Controlled Affiliate License Agreement among
     BCBSA, HMO Missouri, Inc., and BCBSMo - Incorporated by
     reference - previously filed as Exhibit 10.9 to
     Registration Statement on Form S-1 under the Securities Act
     of 1933 filed by the Registrant.  Registration Statement
     No. 33-77798.*


10.9.1    Temporary Blue Shield License Agreement among BCBSA,
     HMO Missouri, Inc., and BCBSMo - previously filed as
     Exhibit 10.9.1 to the company's Form 10-K for the period
     ending December 31, 1996.*

10.9.2    Blue Shield Controlled Affiliate License Agreement
     among BCBSA, HMO Missouri, Inc., and BCBSMo.

10.10     Blue Cross Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and the Registrant - Incorporated by
     reference - previously filed as Exhibit 10.10 to
     Registration Statement on Form S-1 under the Securities Act
     of 1933 filed by the Registrant.  Registration Statement
     No. 33-77798.*

10.10.1   Temporary Blue Cross License Agreement among BCBSA,
     the registrant, and BCBSMo - previously filed as Exhibit
     10.10.1 to the company's Form 10-K for the period ending
     December 31, 1996.*

10.10.2   Blue Cross Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and the Registrant.

10.11     Blue Shield Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and the Registrant - Incorporated by
     reference - previously filed as Exhibit 10.11 to
     Registration Statement on Form S-1 under the Securities Act
     of 1933 filed by the Registrant.  Registration Statement
     No. 33-77798.*

10.11.1   Temporary Blue Shield License Agreement among BCBSA,
     the registrant, and BCBSMo - previously filed as Exhibit
     10.11.1 to the company's Form 10-K for the period ending
     December 31, 1996.*

10.11.2   Blue Shield Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and the Registrant.

10.12     Blue Cross Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and HALIC - Incorporated by reference -
     previously filed as Exhibit 10.12 to Registration Statement
     on Form S-1 under the Securities Act of 1933 filed by the
     Registrant.  Registration Statement No. 33-77798.*

10.12.1   Temporary Blue Cross License Agreement among BCBSA,
     HALIC, and BCBSMo - previously filed as Exhibit 10.12.1 to
     the company's Form 10-K for the period ending December 31,
     1996.*

10.12.2   Blue Cross Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and HALIC.

10.13     Blue Shield Controlled Affiliate License Agreement
     among BCBSA, BCBSMo HALIC - Incorporated by reference -
     previously filed as Exhibit 10.13 to Registration Statement
     on Form S-1 under the Securities Act of 1933 filed by the
     Registrant.  Registration Statement No. 33-77798.*

10.13.1   Temporary Blue Shield License Agreement among BCBSA,
     HALIC, and BCBSMo - previously filed as Exhibit 10.13.1 to
     the company's Form 10-K for the period ending December 31,
     1996.*

10.13.2   Blue Shield Controlled Affiliate License Agreement
     among BCBSA, BCBSMo and HALIC.

10.14     Assignment of Lease from BCBSMo to the Registrant of
     Lease for BlueCHOICE Processing, dated May 4, 1990, between
     Heitman Properties of Missouri, Ltd. ("Heitman"), not
     personally but solely as trustee of One City Center Trust,
     a Missouri common law trust, as lessor, and BCBSMo, as
     lessee, and attached form of Consent and Acknowledgment of
     assignment by Heitman - Incorporated by reference -
     previously filed as Exhibit 10.16 to the company's Form 10-
     K for the period ending December 31, 1994.*

10.15     Deed to Springfield Regional Office Facility -
     Incorporated by reference - previously filed as Exhibit
     10.17 to the company's Form 10-K for the period ending
     December 31, 1994.*

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.*

10.18     Form of Executive Severance Agreement (and list of
     parties who have executed officer severance agreements) -
     Incorporated by reference - previously filed as Exhibit
     10.20 to the company's Form 10-K for the period ending
     December 31, 1994.*

10.19     Form of Officer Severance Agreement (and list of
     parties who have executed officer severance agreements) -
     Incorporated by reference - previously filed as Exhibit
     10.21 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.*

10.25     Indemnification Agreement between RightCHOICE Managed
     Care, Inc. and The EPOCH Group, L.C. - Incorporated by
     reference - previously filed as Exhibit 10.31 to the
     company's Form 10-K for the period ending December 31,
     1995.*

10.26     Indemnification Agreement among Blue Cross and Blue
     Shield of Kansas City, TriLink Healthcare, Inc., and the
     EPOCH Group, L.C. - Incorporated by reference - previously
     filed as Exhibit 10.32 to the company's Form 10-K for the
     period ending December 31, 1995.*

10.27     Noncompete Agreement among Blue Cross and Blue Shield
     of Missouri, Blue Cross and Blue Shield of Kansas City,
     TriLink Healthcare, Inc., RightCHOICE Managed Care, Inc.,
     and The EPOCH Group, L.C. - Incorporated by reference -
     previously filed as Exhibit 10.33 to the company's Form 10-
     K for the period ending December 31, 1995.*

10.28     Network Access Agreement among Blue Cross and Blue
     Shield of Kansas City, TriLink Healthcare, Inc., and The
     EPOCH Group, L.C. - Incorporated by reference - previously
     filed as Exhibit 10.34 to the company's Form 10-K for the
     period ending December 31, 1995.*

10.29     Network Access Agreement among RightCHOICE Managed
     Care, Inc., Blue Cross and Blue Shield of Missouri,
     HealthLink, Inc., and The EPOCH Group, L.C. - Incorporated
     by reference - previously filed as Exhibit 10.35 to the
     company's Form 10-K for the period ending December 31,
     1995.*

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.*

10.34     Master Reinsurance Agreement among RightCHOICE Managed
     Care, Inc., Healthy Alliance Life Insurance Company (HALIC
     Insurance Company), Blue Cross and Blue Shield of Kansas
     City, and Missouri Valley Life and Health Insurance Company
     - Incorporated by reference - previously filed as Exhibit
     10.40 to the company's Form 10-K for the period ending
     December 31, 1995.*

10.35     BCBSKC Reinsurance Agreement by and between Healthy
     Alliance Life Insurance Company (HALIC Insurance Company)
     and Blue Cross and Blue Shield of Kansas City -
     Incorporated by reference - previously filed as Exhibit
     10.41 to the company's Form 10-K for the period ending
     December 31, 1995.*

10.36     BCBSKC Small Group Reinsurance Agreement by and
     between Healthy Alliance Life Insurance Company (HALIC
     Insurance Company) and Blue Cross and Blue Shield of Kansas
     City - Incorporated by reference - previously filed as
     Exhibit 10.42 to the company's Form 10-K for the period
     ending December 31, 1995.*

10.37     HALIC Reinsurance Agreement by and between Missouri
     Valley Life and Health Insurance Company and Healthy
     Alliance Life Insurance Company (HALIC Insurance Company) -
     Incorporated by reference - previously filed as Exhibit
     10.43 to the company's Form 10-K for the period ending
     December 31, 1995.*

10.38     HALIC Small Group Reinsurance Agreement by and between
     Missouri Valley Life and Health Insurance Company and
     Healthy Alliance Life Insurance Company (HALIC Insurance
     Company) - Incorporated by reference - previously filed as
     Exhibit 10.44 to the company's Form 10-K for the period
     ending December 31, 1995.*

10.39     HALIC Farm Bureau Reinsurance Agreement by and between
     Missouri Valley Life and Health Insurance Company and
     Healthy Alliance Life Insurance Company (HALIC Insurance
     Company) - Incorporated by reference - previously filed as
     Exhibit 10.45 to the company's Form 10-K for the period
     ending December 31, 1995.*

10.40     Stock Purchase Agreement By and Between HealthLink,
     Inc. and TriLink Healthcare, Inc. dated as of March 27,
     1996 - Incorporated by reference - previously filed as
     Exhibit 10.1 to the company's Form 10-Q for the period
     ending March 31, 1996.*

10.41     Stock Purchase Agreement By and Between Blue Cross and
     Blue Shield of Missouri and RightCHOICE Managed Care, Inc.
     dated as of February 8, 1996 - Incorporated by reference -
     previously filed as Exhibit 10.2 to the company's Form 10-Q
     for the period ending March 31, 1996.*

10.42     Stock Purchase Agreement By and Between RightCHOICE
     Managed Care, Inc. and LaSalle Bank, F.S.B. dated as of
     June 7, 1996 - Incorporated by reference - previously filed
     as Exhibit 10.1 to the company's Form 10-Q for the period
     ending June 30, 1996.*

10.43     Stock Purchase Agreement By and Between Blue Cross and
     Blue Shield of Missouri and RightCHOICE Managed Care, Inc.
     dated as of July 19, 1996 - Incorporated by reference -
     previously filed as Exhibit 10.3 to the company's Form 10-Q
     for the period ending June 30, 1996.*

10.44     Amended Intercompany Services Agreement By and Between
     RightCHOICE Managed Care, Inc. and the following
     subsidiaries:  Healthy Alliance Life Insurance Company,
     Diversified Life Insurance Agency of Missouri, Inc.,
     Pension Associates, Incorporated, and HMO Missouri, Inc. -
     Incorporated by reference - previously filed as Exhibit
     10.1 to the company's Form 10-Q for the period ending
     September 30, 1996.*

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.**

10.47     Executive Severance Agreement between the Registrant
     and Sandra Van Trease.**

10.48     Executive Severance Agreement between the Registrant
     and Herbert B. Schneiderman.**

10.49     Officer Severance Agreement between the Registrant and
     Edward J. Tenholder.**

10.50     Officer Severance Agreement between the Registrant and
     Sandra Van Trease.**

10.51     Officer Severance Agreement between the Registrant and
     Herbert B. Schneiderman.**

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).**

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).**

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).**

10.55     Employment Agreement between the Registrant and
     Richard Smith.**

10.56     1997 Alliance Blue Cross Blue Shield Incentive Plan
     between the Registrant and certain senior vice
     presidents.**

10.57     1997 Alliance Blue Cross Blue Shield / Blue Cross Blue
     Shield of Missouri Incentive Plan between the Registrant
     and its President/CEO.**

10.58     1997 Alliance Blue Cross Blue Shield Incentive Plan
     between the Registrant and its Chief Internal Auditor.**

10.59     1998 Alliance Blue Cross Blue Shield Incentive Plan
     between the Registrant and certain senior vice
     presidents.**

10.60     1998 Alliance Blue Cross Blue Shield Incentive Plan
     between the Registrant and a senior vice president.**

10.61     1998 Alliance Blue Cross Blue Shield / Blue Cross Blue
     Shield of Missouri Incentive Plan between the Registrant
     and its President/CEO.**

10.62     1998 Alliance Blue Cross Blue Shield Incentive Plan
     between the Registrant and certain executive vice
     presidents.**

10.63     1998 Blue Cross Blue Shield of Missouri Management
     Incentive Plan between BCBSMo and an executive vice
     president of BCBSMo.**

10.64     Guarantor Agreement between HMO Missouri, Inc. and
     Blue Cross and Blue Shield of Missouri.

10.65     Line of Credit Agreement between HMO Missouri, Inc.
     and Blue Cross and Blue Shield of Missouri.

10.66     Subordination Agreement between HMO Missouri, Inc. and
     Blue Cross and Blue Shield of Missouri.

10.67     Agreement of Indemnification between Registrant and
     Blue Cross and Blue Shield of Missouri.

21.1 List of Subsidiaries of the Registrant.

23.1 Consent of Price Waterhouse 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.

23.2 Consent of Coopers and Lybrand 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).

*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:

None filed during the three months ended December 31, 1997.

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 20, 1998                    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 20, 1998
       John A. O'Rourke      President and Chief Executive
                              Officer

   /s/ Sandra A. Van Trease  Executive Vice President,
       Sandra A. Van Trease  Chief Operating Officer,          March 20, 1998
                             Chief Financial Officer
                             (Principal Financial Officer
                             and Principal Accounting Officer)

   /s/ William H. T. Bush    Director                          March 20, 1998
       William H. T. Bush

   /s/ Ronald G. Evens, M.D. Director                          March 20, 1998
       Ronald G. Evens, M.D.

   /s/ Edward C. Gomes, Jr.  Director                          March 20, 1998
       Edward C. Gomes, Jr.

                             Director                          March 20, 1998
       Earle H. Harbison, Jr.

                             Director                          March 20, 1998
       Roger B. Porter, Ph.D.

   /s/ Norman J. Tice        Director                          March 20, 1998
       Norman J. Tice

   /s/ Gloria W. White       Director                          March 20, 1998
       Gloria W. White

RightCHOICE Managed Care, Inc.
Consolidated Balance Sheets
(in thousands, except shares and per share data)
                                                               December 31,
 ASSETS                                                       1997      1996

 Current assets:
   Cash and cash equivalents                                $ 29,872 $  33,418
   Investments available for sale, at market value           220,972   262,216
   Receivables from members                                   60,019    54,767
   Receivables from related parties                           16,130    17,073
   Deferred income taxes                                       4,994       591
   Other assets                                               14,410    13,193
     Total current assets                                    346,397   381,258
 Property and equipment, net                                  60,602    51,248
 Deferred income taxes                                        12,737     6,247
 Investments in affiliates                                     8,427     9,370
 Goodwill and intangible assets, net                          78,200    84,021
    Total assets                                            $506,363  $532,144


 LIABILITIES AND SHAREHOLDERS' EQUITY

 Current liabilities:
   Medical claims payable                                   $112,339  $111,833
   Unearned premiums                                          57,656    52,699
   Accounts payable and accrued expenses                      55,892    68,844
   Current portion of long-term debt                           2,000
   Payables to related parties                                20,213    17,149
   Reserve for loss contract                                   9,052
   Obligations for employee benefits                           2,935     3,864
   Income taxes payable                                       12,051    12,801
   Obligations under capital leases                            4,515     5,224
     Total current liabilities                               276,653   272,414
 Reserve for loss contract                                    16,311
 Long-term debt                                               45,000    62,000
 Obligations for employee benefits                            22,140    21,244
 Obligations under capital leases                              5,394     3,532
     Total liabilities
                                                             365,498   359,190

 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, 3,709,000 and 3,714,400
        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                                132,640   132,640
   Retained earnings                                           6,653    30,687
   Treasury stock, 28,500 and 23,100 Class A shares,
        respectively, at cost                                  (404)     (326)
   Unrealized net appreciation of investments
        available for sale                                     1,789     9,766
     Total shareholders' equity                              140,865   172,954
     Total liabilities and shareholders' equity             $506,363  $532,144


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,
                                                  1997     1996      1995
Revenues:
 Premium                                        $654,267   $595,049   $538,422
 Fees and other income                            65,144     58,326     53,458
      Total revenues                             719,411    653,375    591,880

Operating expenses:
 Health care services                            555,126    491,662    409,495
 Commissions                                      29,302     26,808     19,405
 General and administrative (excludes depreciation
 and amortization and excludes net intercompany
 charges of $8,356, $11,731 and $15,230            
 respectively, allocated to
 Blue Cross and Blue Shield of Missouri)         140,064    128,990    129,189
 Depreciation and amortization                    23,108     14,960     11,284
 Charge for loss reserves                         29,510
 Other non-recurring charges                       3,301      4,534      3,474
      Total operating expenses                   780,411    666,954    572,847
Operating (loss) income                         (61,000)   (13,579)     19,033

Investment income:
     Interest and dividends                       15,916     14,241     14,832
     Realized gains, net                          17,268      3,291      3,512
      Total investment income, net                33,184     17,532     18,344

Other:
     Interest expense                            (4,681)    (5,434)    (2,930)
     Other (expense) income, net                 (1,058)        114      (397)
                   Total other, net              (5,739)    (5,320)    (3,327)

(Loss) income before (benefit) provision
     for income taxes                           (33,555)    (1,367)     34,050
(Benefit) provision for income taxes             (9,521)        660     10,480
Net (loss) income                              $(24,034)   $(2,027)    $23,570

Weighted average common shares outstanding    18,672,600 18,678,700 18,687,800

Basic and diluted (loss) earnings per share      $(1.29)    $(0.11)      $1.26


See accompanying Notes to Consolidated Financial Statements.

<TABLE>
RightCHOICE Managed Care, Inc.
Consolidated Statements of
Changes in Shareholders' Equity
(in thousands, except shares)
<CAPTION>
                                                                                 Unrealized
                                                                                     Net
                                            Additional                          Appreciation
                            Common Stock      Paid In     Retained   Treasury  (Depreciation)
                            Class   Class     Capital     Earnings     Stock   In Investments     Total
                              A       B
<S>                         <C>     <C>       <C>         <C>          <C>        <C>            <C>             
Balance at
December 31, 1994           $37     $150      $132,757     $9,144      $(138)     $(6,525)       $135,425
Net income for the year
ended December 31, 1995                                    23,570                                  23,570
Additional expenses related to
initial public stock offering                    (117)                                              (117)
Purchase of 8,800 shares of
Class A Common Stock, at cost                                           (128)                       (128)
Unrealized net appreciation
of investments available
for sale                                                                             14,471        14,471
Balance at
December 31, 1995            37      150       132,640     32,714       (266)         7,946       173,221
Net loss for the year
ended December 31, 1996                                   (2,027)                                 (2,027)
Purchase of 4,300 shares of
Class A Common Stock, at cost                                            (60)                        (60)
Unrealized net
appreciation of investments
available for sale                                                                    1,820         1,820
Balance at
December 31, 1996            37      150       132,640     30,687       (326)         9,766       172,954
Net loss for the year
ended December 31, 1997                                  (24,034)                                (24,034)
Purchase of 5,400 shares of
Class A Common Stock
at cost                                                                  (78)                        (78)
Unrealized net depreciation
of investments
available for sale                                                                  (7,977)       (7,977)
Balance at
December 31, 1997           $37     $150      $132,640     $6,653      $(404)        $1,789      $140,865

</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                  RightCHOICE Managed Care, Inc.
               Consolidated Statements of Cash Flows
                          (in thousands)

                                          For the year ended December 31,
                                              1997       1996       1995
Cash flows from operating activities:
 Net (loss) income                        $(24,034)    $(2,027)    $23,570

 Adjustments to reconcile net (loss) income
 to net cash (used in) provided by operating
 activities:
 (Credit) provision for deferred income
  tax benefits                              (6,507)       4,218    (1,355)
 Depreciation and amortization               23,108      14,960     11,284
 (Gain) loss on sale of property and
  equipment                                    (44)          51       (66)
 Undistributed losses (earnings) of
  affiliates                                    916        (42)        317
 Gain on sale of investments               (17,268)     (3,291)    (3,512)
 Accretion of discounts and amortization
 of premiums, net                                 6         426       (32)
(Increase) decrease in certain assets, net of
effects from investment in affiliates:
 Receivables from members                   (5,182)       2,722    (4,500)
 Receivables from related parties               943       7,007     26,763
 Other assets                               (2,859)     (9,148)    (1,770)
Increase (decrease) in certain liabilities,
net of effects from investment in affiliates:
 Medical claims payable                         506      25,986    (6,427)
 Unearned premiums                            4,957       1,267      1,956
 Accounts payable and accrued expenses     (13,065)       2,547     24,098
 Payables to related parties                  3,064     (5,025)   (28,987)
 Reserve for loss contract                   25,363
 Obligations for employee benefits             (33)       (229)    (2,560)
 Income taxes payable                         (755)    (10,301)    (5,251)
Net cash (used in) provided by operating
 activities                                (10,884)      29,121     33,528

Cash flows from investing activities:
 Proceeds from matured investments:
   Fixed maturities                           3,975       9,187      8,900
 Proceeds from investments sold:
   Fixed maturities                         311,599     246,728    303,412
   Equity securities                         40,734      20,535     33,415
   Other                                     32,469
 Investments purchased:
   Fixed maturities                       (340,366)   (240,648)  (318,755)
   Equity securities                          (230)    (22,542)   (20,454)
   Other                                    (2,039)     (2,275)    (3,635)
 Payment for purchase of HealthLink, net of
  cash acquired                                                   (88,918)
 Investment in other affiliates, net of cash
  acquired                                       24     (5,312)    (3,294)
 Sale and redemption of affiliates                          500      3,427
 Proceeds from property and equipment sold      561          31        470
 Property and equipment purchased          (18,544)    (18,113)   (10,208)
Net cash provided by (used in) investing
 activities                                  28,183    (11,909)   (95,640)

Cash flows from financing activities:
 Additional expenses related to public
  stock offering                                                     (117)
 Purchase of Class A Treasury stock            (78)        (60)      (128)
 Borrowings under revolving credit facility                         62,000
 Decrease in borrowings under reverse
  repurchase agreements                                            (4,302)
 Payments of long-term debt                (15,000)                (1,111)
 Payments of capital lease obligations      (5,767)     (4,866)    (4,183)
Net cash (used in) provided by financing
 activities                                (20,845)     (4,926)     52,159
Net (decrease) increase in cash and
 cash equivalents                           (3,546)      12,286    (9,953)
Cash and cash equivalents at beginning
 of year                                     33,418      21,132     31,085
Cash and cash equivalents at end of year    $29,872     $33,418    $21,132

Supplemental disclosure of cash information:
 Interest paid                               $5,036      $5,420     $2,439
 Income taxes paid (refund received), net   (2,262)       6,742     17,043

Supplemental schedule of noncash investing
 and financing activities:
 Equipment acquired through capital leases   $9,730      $2,738     $3,579
 Disposal of equipment under capital leases   2,810                  1,789
Details of business acquired in purchase
 transactions:
 Fair value of assets acquired,
  including goodwill                                               $98,462
 Less liabilities assumed or created                                 8,911
 Cash paid for acquisition (including
  transaction costs)                                                89,551
 Cash acquired in acquisition                                          633
 Net cash paid for acquisition                                     $88,918

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) 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 company).  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, 1997, 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), giving effect to its
acquisition by the company on August 10, 1995, 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 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, 1997 and
1996 was $33,029 and $21,149, respectively.  Software
amortization expense for the years ended December 31,
1997, 1996, and 1995, was $5,521, $671, and $495,
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
$86,744 and $91,022 as of December 31, 1997 and 1996,
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, 1997 and 1996 was $8,544 and $7,001,
respectively.  Amortization expense of the goodwill and
other intangibles aggregated $7,487, $5,045, and $2,508
in 1997, 1996, and 1995, 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.  The asset and liability
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 a
consolidated federal income tax return with BCBSMo.  The
company's provision for income taxes has been calculated
on a separate return basis assuming regular statutory
tax rates.  In accordance with the tax-sharing agreement
of the consolidated group, 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, 1997, 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

During March 1997, the Financial Accounting Standards
Board (FASB) released Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128),
which changed the computation and disclosure of earnings
per share.  SFAS No. 128 is effective for both interim
and annual periods ending after December 15, 1997 and
earlier application is not permitted.

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.  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.  For 1995, 38,471
dilutive potential common shares were added to the
weighted average number of shares outstanding in order
to compute diluted earnings per share.  The antidilutive
potential common shares that could dilute earnings per
share in the future were 469,766, 573,428, and 56,932 as
of December 31, 1997, 1996, and 1995, 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 which 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, 1997 and 1996, 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, 1997, 1996, and 1995, the company
received reimbursements for claims paid of $106,227,
$132,449, and $157,597, respectively, from TPA and ASO
self-funded groups.

Non-recurring charges

The company incurred charges to earnings of $3.3 million
and $4.5 million in 1997 and 1996 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.
Non-recurring charges in 1995 include $2.0 million of
one-time integration charges related to the company's
acquisition of HealthLink in August 1995 and $1.5
million relating to the settlement of a class action
lawsuit.  The lawsuit stemmed from the company's claims
paying practices and negotiated discounts with
providers; the company agreed to settle the lawsuit by
establishing a rebate program for all affected
subscribers.  See Note 13 entitled "Contingencies -
Litigation with DOI and Attorney General, Litigation
relating to the Market Conduct Study and Copayment
Calculations" for recent information relating to this
issue.

Reclassifications

Certain reclassifications have been made to the
Consolidated Financial Statements for 1995 and 1996 to
conform with the 1997 presentation.

Recently issued accounting standards

The Financial Accounting Standards Board (FASB) recently
released Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," SFAS
No. 131, "Disclosures about Segments of an Enterprise
and Related Information," and SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement
Benefits."  SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its
components in a full set of general-purpose financial
statements.  The standard will require all companies to
present all non-owner changes in equity, e.g. market
value adjustments to investments and adjustments to the
minimum pension liability, in a full set of financial
statements.  The new rules will be effective beginning
first quarter of 1998 and companies will only be
required to report total comprehensive income for
interim periods.  SFAS No. 131 establishes standards for
the way public business enterprises report information
about operating segments in annual financial statements
and requires that those enterprises report selected
information about operating segments in interim
financial reports issued to shareholders.  It also
establishes standards for related disclosures about
products and services, geographic areas, and major
customers.  The new rules will be effective for the 1998
fiscal year.  Abbreviated quarterly disclosure will be
required beginning first quarter of 1999, with both 1999
and 1998 information.  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 will be effective for the 1998
fiscal year.

3.   HealthLink acquisition

The company completed its acquisition of HealthLink, a
privately held regional managed health care
organization, on August 10, 1995.  The acquisition
included cash payments of approximately $92 million and
was financed, in part, by the $62.0 million of funds
from RightCHOICE's five-year reducing revolving credit
facility.  Transaction costs related to the transaction
were $2.5 million.  The acquisition was accounted for
under the purchase method of accounting, and,
accordingly, the net assets and results of operations of
HealthLink have been included in the Consolidated
Financial Statements as of the date of acquisition.  An
excess purchase price of approximately $74 million has
been determined based on the fair values of assets and
liabilities assumed.  In addition, the company recorded
intangible assets of $5.9 million relating to post-
acquisition agreements with the former HealthLink
shareholders.  These agreements are being amortized over
periods of between two and six years.  Amortization
expense of the goodwill and other intangible assets
related to HealthLink aggregated $3.1 million, $3.3
million, and $1.4 million in 1997, 1996, and 1995,
respectively.
 
4.   Investments available for sale

Investments available for sale are summarized below:

                                                 Gross      Gross    Estimated
                                    Amortized  unrealized unrealized   market
                                      Cost       gains      losses     value
  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

  December 31, 1996
   Fixed maturities:
     U.S. government and agency
     securities                     $118,960    $1,145   $(1,156)    $118,949
     Corporate bonds and notes        59,515       323      (337)      59,501
     Short-term investments            2,944                            2,944
     Investment in variable life
       insurance contracts            26,650     5,998                 32,648

                                     208,069     7,466    (1,493)     214,042

   Equity securities:
     Common stocks                    30,282     9,901      (744)      39,439

   Other invested assets               8,735                            8,735

                                    $247,086   $17,367   $(2,237)    $262,216

Interest and dividend income comprises the following:

                                             Year ended December 31,
                                             1997     1996     1995

  Interest on bonds                        $12,822   $11,847  $11,540
  Dividends on stocks                          102     1,295      785
  Accretion of discounts and
  amortization of premiums, net                (6)     (426)       32
  Interest on cash equivalents and other
     investment income                       3,697     2,353    3,389
  Gross investment income                   16,615    15,069   15,746
  Investment expenses                        (699)     (828)    (914)

                                           $15,916   $14,241  $14,832

Realized gains on investments are as follows:

                                             Year ended December 31,
                                             1997     1996     1995
 Net realized gains:
   Fixed maturities                        $ 6,930    $  516  $   786
   Equity securities                        10,338     2,380    2,726
                                           $17,268    $2,896  $ 3,512

Proceeds from sales of available for sale securities were
$384,802, $267,263, and $336,827 during 1997, 1996, and 1995,
respectively.  Gross realized gains were $19,203, $3,819, and
$6,776 during 1997, 1996, and 1995, respectively.  Gross realized
losses were $1,935, $923, and $3,264 during 1997, 1996, and 1995,
respectively.  Contractual maturities of fixed maturity
investments, excluding variable life insurance contracts, held on
December 31, 1997, are as presented below.  Actual maturities may
differ from contractual maturities because borrowers may have the
right to call or prepay obligations.

                                                        Estimated
                                             Amortized    market
                                                cost      value

       Due in one year or less                $41,936   $ 41,952
       Due after one year through five years   72,908     73,469
       Due after five years through 10 years   45,592     46,362
       Due after 10 years                      47,130     48,550
                                             $207,566   $210,333

5.  Receivables from members

Receivables from members consist of the following:

                                       December 31,
                                    1997        1996

       Individual subscribers       $9,394     $11,335
       Underwritten groups          35,369      33,720
       Self-funded/ASO groups       15,256       9,712
                                   $60,019     $54,767

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,
                                                  1997      1996

       Land and building                         $5,595    $5,575
       Furniture and equipment, including
         capitalized leases                      58,186    50,652
       Capitalized software development costs    38,995    21,817
       Leasehold improvements                     3,607     3,628
                                                106,383    81,672
       Less accumulated depreciation
         and amortization                      (45,781)  (30,424)

                                                $60,602   $51,248

Depreciation and amortization expense was $15,621, $9,915, and
$9,482, for the years ended December 31, 1997, 1996, and 1995,
respectively.

7.  Investments in affiliates

The company has non-controlling investments in certain companies
that are not consolidated with the company's operations and are
carried at cost or accounted for using the equity method.  The
largest of such investments is the company's 50 percent ownership
interest in The EPOCH Group, L.C. (Epoch).  Epoch, a limited
liability company, was formed in December 1995 by the company and
BCBSKC to combine their third-party administrator (TPA)
businesses.  The company invested cash and other net assets of
$5.3 million in this joint venture.  The combined annual revenues
of Epoch were $21.1 million in 1997 and $23.9 million in 1996.
Operating (loss) income was $(1.3) million and $1.2 million in
1997 and 1996, respectively.  Epoch is accounted for using the
equity method and resulted in undistributed (losses) earnings to
the company of $(664) in 1997 and $563 in 1996.  Epoch serves
approximately 260 businesses in the midwest, representing 628,200
members as of December 1997.

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 a) medical claims that have been reported to the
company, b) claims related to insured events that have occurred
but that have not been reported to the company as of December 31,
and c) 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:

                                      1997       1996

       Balance at January 1        $111,833    $ 83,793
       Incurred related to:
         Current year               558,208     493,438
         Prior year                   1,065     (1,776)
              Total incurred        559,273     491,662

       Paid related to:
         Current year               473,515     394,217
         Prior year                  85,252      69,405
       Total paid                   558,767     463,622
       Net balance at December 31  $112,339    $111,833

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.

9.  Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following:

                                              December 31,
                                              1997    1996

       Accounts payable                     $16,987  $29,893
       Accrued salaries and other expenses   10,355    8,975
       Other accrued expenses                28,550   29,976
                                            $55,892  $68,844

10.  Long-term debt and commitments

In August 1995, the company established a $125.0 million, five-
year, reducing revolving credit facility (the Credit Facility)
with Bank of America National Trust and Savings Association (B of
A) and a syndicate of banks.  At December 31, 1997, the company
had $47.0 million outstanding under the Credit Facility.  The
maximum commitment of the Credit Facility was reduced to $50.0
million as of October 1, 1997, with $1.25 million quarterly
reductions through 1998 and subsequent $2.5 million quarterly
reductions through June 30, 2000, with the remaining $30.0 million
commitment under the Credit Facility 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 sale of a subsidiary.

Borrowings under the Credit Facility 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 the
higher of the latest federal funds rate plus 1.75 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, 1997, all of the
company's outstanding borrowings were in offshore rate loans.  The
weighted average interest rate incurred by the company was 7.32
percent, 6.69 percent, and 7.39 percent in 1997, 1996, and 1995,
respectively.  In addition, the company pays a quarterly fee on
the unused portion of the Credit Facility at a current rate of
0.50 percent per annum.  The unused portion of the Credit Facility
at December 31, 1997, was $3.0 million.

As a condition to providing the Credit Facility, the company
pledged the stock of its direct subsidiaries and a guaranty of
repayment was provided by HealthLink.  In addition, the Credit
Facility 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, 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, 1997:

                                                         Capital  Operating
       Year ending December 31,
         1998                                            $ 4,897   $ 7,917
         1999                                              4,308     7,003
         2000                                              1,351     6,518
         2001                                                        6,180
         2002                                                        6,172
         Thereafter                                                 16,216
           Total minimum lease payments                  $10,556   $50,006
           Less amount representing interest               (647)
           Present value of net minimum lease payments,
             including current portion of $4,515         $ 9,909

Total rental expense for all operating leases, except those with
terms of one month or less that were not renewed, was $9,900,
$8,999, and $9,365, for the years ended December 31, 1997, 1996,
and 1995, respectively.

11.  Income taxes

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

                                  Year ended December 31,
                                 1997      1996      1995
      Current
       Federal                $(3,771)  $(3,965)   $11,664
       State                       757       407       171
                               (3,014)   (3,558)    11,835

      Deferred:
       Federal                 (6,507)     4,218   (1,355)
                              $(9,521)      $660   $10,480


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

                                Year ended December 31,

                                 1997     1996    1995
   Tax provision based on
    federal statutory rate        35.0%    35.0%   35.0%
   State income taxes, net of
    federal (benefit) expense    (2.3)   (29.7)     0.5
   Goodwill amortization         (2.2)   (51.0)     0.9
   Tax audit settlement                           (6.3)
   Other                         (2.1)    (2.5)     0.7

                                  28.4%  (48.2)%   30.8%

The effective rate for 1995 was positively affected by a $2.1
million final tax audit settlement with the Internal Revenue
Service relating to pension, software amortization expenses and
other items.

The primary temporary differences that gave rise to deferred income taxes
were as follows:


                                                  December 31,
                                                 1997     1996
     Deferred tax assets:
     Capitalized software                      $ 3,936  $ 4,555
     Medical claims payable discounting          1,527    1,425
     Employee benefits                           8,633    7,830
     Unearned premiums                           3,980    3,601
     Other capitalized expenses                  2,534    2,989
     Loss reserve accrual                        8,877
     Other                                       8,972    5,800
         Total deferred tax assets              38,459   26,200
     Deferred tax liabilities:
     Depreciation                                5,703    3,197
     Pension                                     1,126    1,258
     IOS expense                                 8,755    6,568
     Unrealized appreciation of securities         979    5,365
     Other tax-deductible expenses               4,053    2,862
         Total deferred tax liabilities         20,616   19,250
     Valuation allowance                         (112)    (112)
     Net deferred tax asset                    $17,731  $ 6,838

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, 1997 and 1996.  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, 1997 and 1996.

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. Plan
assets are invested primarily in publicly traded equity securities
and bonds.  The company's funding policy is to contribute amounts
needed to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974 (ERISA).

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

                                         Year ended December 31,
                                          1997     1996    1995

        Service cost                     $1,802   $1,812  $1,597
        Interest cost                     2,814    2,472   2,282
        Actual return on plan assets    (6,840)  (4,746) (5,321)
        Net amortization and deferral     3,536    1,694   2,582
        Net periodic pension cost        $1,312   $1,232  $1,140

Assumptions used in the development of pension data follow:

                                          1997     1996    1995

        Discount rate                    7.25%    7.75%    7.50%
        Expected long-term rate of
         return on assets                 9.0      9.0      9.0
        Rates of increase in
         compensation levels          3.5-7.0  3.5-7.0  3.5-7.0

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

                                                          December 31,
                                                         1997      1996
      Accumulated benefit obligation:
       Vested benefits                                  $29,047  $25,347
       Non-vested benefits                                2,352    5,719
                                                         31,399   31,066
      Effect of projected compensation increases         11,723    6,681
      Actuarial present value of projected
       benefit obligation                                43,122   37,747
      Fair value of plan assets                        (40,264) (34,175)
      Unfunded status                                     2,858    3,572
      Unrecognized transition asset                       4,177    1,874
      Unrecognized net gain                                 892    1,196
      Unrecognized prior service cost                       446    1,756
      Accrued pension cost                              $ 8,373  $ 8,398

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.
Pension expense during 1997, 1996, and 1995, subsequent to the
company's purchase of HealthLink on August 10, 1995, was $368,
$245, and $94, 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,
                                             1997    1996    1995

      Service cost                           $522    $457    $363
      Interest cost                         1,171   1,088   1,015
      Amortization of:
       Prior service cost                     (6)     (6)    (28)
       Actuarial loss                          82      85      20
      Net periodic postretirement cost     $1,769  $1,624  $1,370

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


                                                   December 31,
                                                  1997      1996
      Accumulated benefit obligation:
      Retirees                                   $10,366   $ 8,939
      Fully eligible plan participants             1,618     1,628
      Other active plan participants               4,876     4,502
                                                  16,860    15,069

      Unrecognized prior service cost               (23)      (19)
      Unrecognized experience loss               (4,081)   (2,772)
      Accrued postretirement benefit cost        $12,756   $12,278

The assumed discount rate is 7.25 percent for 1997 and 7.75
percent for 1996.  The increase in the per capita costs of covered
health care benefits is assumed to be 7 percent as of December 31,
1997 and 6.5 percent in 1998 and thereafter.  Increasing the
assumed health cost trend rate by one percentage point would
increase the accumulated benefit obligation as of December 31,
1997, by approximately $1,230 and increase net periodic
postretirement cost by $176.

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 $688, $940, and $938 for 1997,
1996, and 1995, 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 FASB Statement No. 123, the company's
net (loss) income and (loss) earnings per share would have been
reduced to the pro forma amounts indicated below:

  Year                                       1997      1996      1995
  Net (loss) income       As reported    $(24,034)  $(2,027)   $23,570
                          Pro forma      $(24,677)  $(2,346)   $23,504
  Basic and diluted (loss)
  earnings per share      As reported      $(1.29)   $(0.11)     $1.26
                          Pro forma        $(1.32)   $(0.13)     $1.26

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.  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
1997, 1996, and 1995, respectively: expected volatility of 34, 34,
and 29 percent; risk-free interest rates of 6, 6, and 7 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, 1997,
1996, and 1995 and changes during the years ended on those dates
is presented below:

                         Number of  Weighted-average   Weighted-average
                          shares     exercise price       fair value
                                          
  Outstanding at
  December 31, 1994       214,225         $11.00
  Granted                  77,316         $17.57             $8.07
  Forfeited              (61,702)         $12.52

  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

There were 105,413 options exercisable at December 31, 1997 and no
options exercisable at December 31, 1996, and 1995.  There were no
options exercised during 1997, 1996, and 1995.  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, 1997:

<TABLE>
<CAPTION>

                        Options Outstanding                     Options Exercisable

                              Weighted
 Range of      Number          Average        Weighted          Number          Weighted
 Exercise   Outstanding       Remaining        Average        Exercisable        Average
  Prices    at 12/31/97   Contractual Life  Exercise Price    at 12/31/97    Exercise Price
<S>         <C>             <C>               <C>              <C>             <C>   

$10 to $12    292,268         8.4 years        $10.85            91,413          $11.02

$13 to $18    177,498         8.0 years        $13.97            14,000          $14.81

$10 to $18    469,766         8.3 years        $12.03           105,413          $11.53

</TABLE>

Other benefit plans

The company provides a pretax 401(k) plan covering substantially
all company employees, an incentive program to key management
personnel for the achievement of corporate and individual goals,
and a sales incentive program to encourage exceptional performance
in marketing to and servicing of clients.  The cost of providing
these programs is not significant to the company's overall results
of operations.

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 health services to federal employees 
under the Federal Employees Health Benefits Program (FEHBP).
FEHBP is the second largest customer group (after MCHCP, discussed
further herein) of BlueCHOICE.  OPM conducts periodic audits to,
among other things, verify that the premiums established under the
OPM contract were established in compliance with the community
rating and other requirements under the FEHBP.

On August 8, 1995, the company received a draft audit report from
the OPM regarding the audit, conducted in 1994, of the FEHBP
operations of BlueCHOICE for the years 1989 through 1994.  The
audit dealt primarily with a comparison of premium rates charged
to the FEHBP to rates charged by BlueCHOICE to other similarly
sized groups.  The OPM draft audit report indicates that
BlueCHOICE has a potential liability of $7.5 million to the FEHBP.
The company responded to the draft report in November of 1995
following an in-depth analysis of the issues.  In 1998,
BlueCHOICE received correspondence from the U.S. Department of Justice
requesting a meeting with BlueCHOICE regarding in excess of $6.5
million in payments (alleged overcharges) received during the
reconciliation process for the years 1990 through 1994, plus interest 
thereon.  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.  At this time, management is unable to determine the
final dollar amount which 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 was filed in the Circuit Court of the
City of St. Louis, Missouri, by Anthony J. Sarkis, Sr. and James
Hacking individually and on behalf of a purported class of (i)
subscribers in individual or group health plans insured or
administered by Blue Cross and Blue Shield of Missouri (BCBSMo,
the class B shareholder of the company) or the company, and (ii)
all persons and/or entities who benefited from BCBSMo's tax-exempt
status.  The complaint names the company, BCBSMo, HealthLink, Inc.
(HealthLink, a subsidiary of the company), and certain officers of
the company as defendants.

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

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

Litigation with DOI and Attorney General

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 Missouri Department of Insurance (DOI)
formally approved the Reorganization and Public Offering on April
14, 1994, the Director and DOI subsequently claimed that the
Reorganization and Public Offering violated state laws and that
BCBSMo was obligated to transfer all of its assets, including all
of its RightCHOICE stock, to the State of Missouri or a charity
designated by the State of Missouri.  The Director and DOI
threatened to bring legal action, seek a receivership or terminate
BCBSMo's insurance license unless BCBSMo gave up its assets.

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

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

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

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

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

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

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

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

The Court also (i) certified the December 30 Orders and the
September 9 Order, as modified, for immediate appeal; (ii) held in
abeyance further proceedings on the Attorney General's
counterclaim pending appeal; and (iii) stayed the legal effect of
the order granting the Director and DOI summary judgment pending
the filing of an appeal bond (which BCBSMo promptly filed).  On
January 9, 1997, BCBSMo filed a notice of appeal of the December
30 Orders. On January 21, 1997, the Director and DOI filed a
notice of appeal of the September 9 Order, as modified.  Oral
arguments were heard on February 24, 1998.

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

On November 3, 1997, BCBSMo filed an action in the Cole County
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 Attorney General, the DOI and others that BCBSMo is a
public benefit type of nonprofit corporation which holds its
assets for the benefit of the public generally.  See above in this
section, "Litigation with DOI and Attorney General."  The Attorney
General has  filed an answer  and counterclaim seeking a
declaration that BCBSMo is a public benefit type of nonprofit
corporation.

BCBSMo believes its legal position is strong, that it ultimately
will be declared to be a mutual benefit type of nonprofit
corporation, and that it holds no assets for the benefit of the
public generally.  If BCBSMo is declared to be a mutual benefit
type of nonprofit corporation that does not hold its assets for
the benefit of the public generally, BCBSMo will be free to
continue to exercise its ownership interest in the company
consistent with the best interests of BCBSMo's subscribers,
subject to any rulings made in the litigation described above in
this section, "Litigation with the DOI and Attorney General."

If BCBSMo is declared to be a public benefit type of nonprofit
corporation or if it is declared that BCBSMo holds assets for the
benefit of the public generally, however, BCBSMo might be required
to exercise its ownership interest in the company consistent with
the best interests of the public at large, which could result in a
determination to dispose of some or all of the company's shares at
times and in quantities that could be detrimental to the market
for the company's stock.  Also, if this were to occur, either the
DOI or the Attorney General could take actions against BCBSMo
based upon such declarations (such as seeking the appointment of a
receiver to safeguard assets deemed dedicated to the public which
could result in the termination of the company's licenses to use
the "Blue Cross" and "Blue Shield" tradenames and service marks
and trigger a termination fee and a notice to members thereunder)
which, if successful, could have a material adverse effect upon
the company and the market for the company's stock.  See
"Contingencies - Status of Blue Cross and Blue Shield Trademark
Licenses."

Litigation relating to the Market Conduct Study and Copayment
Calculations

The Missouri Department of Insurance (DOI) issued a market conduct
report to the company and BCBSMo in April 1996.  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 of
the Department of Insurance to issue a cease and desist order, an
order requiring the payment of 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 with DOI and
Attorney General - 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 payment in the nature
and amount described above.  The DOI believes 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
five million dollars.  The company believes it has resolved this
issue through the court-approved class action settlement and
intends to vigorously defend this new action.

On February 9, 1998, the Attorney General filed suit against the
company, BCBSMo, BlueCHOICE, HALIC, and Preferred Health Plans of
Missouri, Inc. (a subsidiary of the company) in the Circuit Court
of Cole County, Missouri 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 Attorney General's suit are the same as the
copayment issues in the DOI Market Conduct Study Action and the
same issue which was the subject of a 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.

Status of Blue Cross and Blue Shield trademark licenses

In March 1998, the Blue Cross and Blue Shield Association agreed
to reinstate BCBSMo's exclusive trademark licenses (the Primary
Licenses) and the exclusive controlled licenses (the  Affiliate
Licenses) of the company, Healthy Alliance Life Insurance Company
(HALIC) and BlueCHOICE (collectively, the Reinstated Licenses).
These licenses give the 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 Reinstated Licenses replaced
the Interim and Temporary Licenses granted in January 1997 as
described below.  The trademark licenses require BCBSMo, the
company and its controlled affiliates to pay license fees to BCBSA
for the use of the trademarks.  The company believes that the
exclusive right to use the "Blue Cross" and "Blue Shield"
trademarks provides it and its controlled affiliates with a
significant marketing advantage in BCBSMo's licensed operating
area, the loss of which would have a material adverse effect on
the company and the market for the company's stock.

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

In March 1998, the interim and temporary licenses were replaced by
the Reinstated Primary and Affiliate Licenses.  Each of the
reinstated trademark licenses provide that it automatically
terminates if, among other things:  (i) DOI or another regulatory
agency assumes control of the licensee or delinquency proceedings
are instituted; or (ii) 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.

The Affiliate Licenses are derivative of the Primary Licenses and
automatically terminate if the Primary Licenses terminate.
According to their terms, if a trademark license is terminated,
BCBSMo, the company and its controlled affiliates are jointly
liable to BCBSA for payment of a termination fee in an amount equal
to $25 times the number of licensed enrollees of the terminated
entity and its licensed controlled affiliates, and must give
written notice of such termination to their enrollees.  The
termination fee is reduced in accordance with a formula set forth
in the Primary Licenses if another plan is licensed by BCBSA in
BCBSMo's exclusive service area.  BCBSMo and BCBSA have agreed that
the Primary Licenses are 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 will
continue for as long as the stay entered in the Litigation remains
in full force and effect.  In the event that the stay is modified
or lifted, the 130-day period will begin to run on such date and no
longer be tolled.  If the 130-day period elapses without BCBSA
having taken affirmative action to extend the 130-day tolling
period, the Reinstated Primary Licenses will automatically and
immediately terminate.

In addition, in connection with the reinstatement of the licenses,
BCBSMo and BCBSA agreed that (i)  BCBSMo would release all claims
relating to termination of the Primary Licenses and Affiliate
Licenses; (ii)  BCBSMo would continue to provide BCBSA with updates
on the Litigation; (iii)  BCBSA would waive any claim that BCBSMo
and its controlled affiliates must provide notice to customers of
termination fees as set forth in their licenses; and (iv)  BCBSMo
would represent in writing that it is in compliance with all BCBSA
requirements and that there is no imminent risk of dissolution.

Litigation with MCHCP

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

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

The company contends in its lawsuit that it has been damaged in
the 1997 plan year in an amount in excess of $5 million, and that
it will have estimated losses during the 1998 plan year under its
contract with MCHCP in an amount in excess of  $10 million.  The
company further contends that if the contract is renewed for the
1999 and 2000 plan years without requested rate increases, it will
have further losses.  On August 29, 1997, the company reported the
commencement of the litigation and estimated losses (giving effect
to all possible renewal terms of the MCHCP contract without
requested rate increases) in the range of $30 million to $40
million.  In the third quarter of 1997, the company took a pre-tax
charge of $29.5 million, which was based on actuarial estimates,
including projected limited rate increases, and projected
enrollment and medical cost trends accounted for through the year
2000 in accordance with generally accepted accounting principles.
There can be no assurance that the amount of the reserve taken in
the third quarter would be sufficient to cover all losses which
may be associated with the MCHCP contract, which losses could have
a material adverse effect on the company and the market for the
company's stock.

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

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

Subsequently, HealthLink HMO and Continental Assurance Co. (CNA)
filed suit in the Circuit Court of Cole County, Missouri against
MCHCP.  HealthLink HMO is a party to an HMO contract with MCHCP
similar to the contract of the company; substantially all the
underwriting risk under that contract is borne by CNA under an
agreement between HealthLink HMO and CNA.  HealthLink HMO and CNA
seek relief similar to that sought on behalf of the company,
including a declaration that their contract with MCHCP is void and
of no effect.  On March 18, 1998, MCHCP dismissed its claims
against HealthLink HMO and CNA without prejudice and HealthLink
HMO and CNA similarly dismissed their claims against MCHCP without
prejudice.

On March 16, 1998, MCHCP voluntarily dismissed its suit against
the company which had accused the company of anticipatory breach
of contract and tortious interference with MCHCP's members.  On
March 19, 1998, the trial court entered rulings on various motions
and cross-motions for summary judgment of the parties.  On a
motion for summary judgment filed by another contractor, the Court
ruled that under the uniform contract between MCHCP and its
contractors, rate increases from year to year are limited to the
medical cost component of the Consumer Price Index.  On motions
for summary judgment filed by RightCHOICE, the Court held that
MCHCP's rules relating to the admission of public entities and its
adoption of a community rating policy were lawful under the
Missouri Administrative Procedure Act, and that RightCHOICE is
estopped from questioning the validity of those rules and
policies.  The Court also held that MCHCP did not violate the
Missouri Open Meetings and Open Records Act in the manner in which
it responded to a request for access to public records made by
RightCHOICE, and that RightCHOICE's claims for breach of the Act
in the conduct of closed meetings are time barred as to all
meetings conducted on or before February 27, 1997.  RightCHOICE's
claims based on alleged violation by MCHCP of the covenant of good
faith and fair dealing remain pending in the trial court.

The company continues to consider its options.  The ultimate
outcome of the litigation cannot be predicted with certainty, but
it is likely that no more favorable result will be achieved unless
a decision is made to appeal the decisions of March 19, and the
appellate court takes a different view of the legal issues than
did the trial court.  Should MCHCP prevail, the company would be
held contractually bound to serve the MCHCP members through the
year 2000 at the rates contracted for in 1995, with annual rate
increases, if any, which are far less than necessary to permit the
company to recover its costs in serving those members. 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.

Other contingencies

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

14.  Segment information

The company offers a comprehensive array of underwritten products
including PPO, POS, HMO, Medicare supplement and managed indemnity
coverages.  The company also provides 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.  Likewise, identifiable assets
include assets used jointly by the two segments and are allocated
among the segments based on a consistent and reasonable basis.
Corporate identifiable assets include cash and investments that
are maintained for general corporate purposes.  Capital
expenditures and equipment acquired through capital leases include
additions to property, plant and equipment.  Financial information
by segment is as follows:

<TABLE>
<CAPTION>

Year ended December 31, 1997     Underwritten   Self-funded   Corporate   Consolidated

<S>                              <C>            <C>           <C>         <C>      
Revenues                           $654,315        $65,096                   $719,411
Operating (loss) income            (69,437)          8,437                   (61,000)
Capital expenditures and
 equipment acquired through
 capital leases                      22,270          6,004                     28,274
Depreciation and
 amortization expense                16,821          6,287                     23,108
General and administrative expenses 108,254         54,918                    163,172
Charge for loss reserves             29,510                                    29,510
Other non-recurring
 operating charges                    2,190          1,111                      3,301
Identifiable assets                 346,824        125,078      $34,461       506,363

Year ended December 31, 1996     Underwritten   Self-funded   Corporate   Consolidated

Revenues                           $595,661        $57,714                   $653,375
Operating (loss) income            (13,741)            162                   (13,579)
Capital expenditures and
 equipment acquired through
 capital leases                      12,610          8,241                     20,851
Depreciation and
 amortization expense                 8,099          6,861                     14,960
General and administrative expenses  88,687         55,263                    143,950
Non-recurring operating charges       2,791          1,743                      4,534
Identifiable assets                 358,081        130,660      $43,403       532,144

Year ended December 31, 1995     Underwritten   Self-funded   Corporate   Consolidated

Revenues                           $538,422        $53,458                   $591,880
Operating income (loss)              23,461        (4,428)                     19,033
Capital expenditures and
 equipment acquired through
 capital leases                       8,126          5,661                     13,787
Depreciation and
 amortization expense                 5,473          5,811                     11,284
General and administrative expenses  85,026         55,447                    140,473
Non-recurring operating charges       1,500          1,974                      3,474
Identifiable assets                 349,156        137,207      $30,025       516,388

</TABLE>

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 of 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.
The agreement had an initial three-year term which has been
extended.  The company and BCBSMo have had negotiations to enter
into a new administrative services agreement which is subject to
regulatory approval.

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

                                      Year ended December 31,
                                      1997      1996      1995
      Services provided to BCBSMo   $12,792   $15,968   $18,204
      Services provided by BCBSMo   (4,436)   (4,237)   (2,974)
         Net expense allocated
          to BCBSMo                  $8,356   $11,731   $15,230


The company has intercompany receivables and payables between the
company and BCBSMo, which include $15.5 million of receivables and
$19.2 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.

16.  Statutory information

The operations of the company's subsidiaries, HALIC, BlueCHOICE,
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, as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed.

17.  Quarterly financial information (unaudited)
      (In thousands, except per share data)

                                        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

                                        Three months ended
  1996                         31-Mar     30-Jun     30-Sep     31-Dec

  Total revenues             $157,968  $161,380    $163,788   $170,239
  Operating expenses          147,593   163,655     177,565    178,141
  Operating income (loss)      10,375   (2,275)    (13,777)    (7,902)
  Investment income, net        4,519     5,567       3,551      3,895
  Other, net                  (1,393)   (1,123)     (1,544)    (1,260)
  Income (loss) before taxes   13,501     2,169    (11,770)    (5,267)
  Provision (benefit) for
   income taxes                 5,276       885     (3,914)    (1,587)
  Net income (loss)             8,225     1,284     (7,856)    (3,680)
  Basic and diluted earnings
   (loss) per share             $0.44     $0.07     $(0.42)    $(0.20)
  Weighted average shares
   outstanding                 18,681    18,680      18,677     18,677
  Membership (in thousands)     1,669     1,732       1,774      1,853

Report of Independent Accountants

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

We have audited the accompanying consolidated balance sheet
of RightCHOICE Managed Care, Inc. as of December 31, 1997,
and the related consolidated statement of income and changes
in shareholders' equity and cash flows for the year then
ended.  These financial statements are the responsibility of
RightCHOICE Managed Care, Inc.'s management.  Our
responsibility is to express an opinion on these financial
statements based on our audit.  The consolidated financial
statements of RightCHOICE Managed Care, Inc. for each of the
two years in the period ended December 31, 1996 were audited
by other auditors whose report, dated February 14, 1997,
expressed an unqualified opinion as to generally accepted
accounting principles on those financial statements.

We conducted our audit in accordance with generally accepted
auditing standards.  Those standards 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.  An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides
a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of RightCHOICE Managed Care, Inc. as
of December 31, 1997, and the results of its operations and
its cash flows for the year then ended, in conformity with
generally accepted accounting principles.



Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 19, 1998, except for Note 13
       for which the date is March 19, 1998


              Report of Independent Accountants
                              
To the Board of Directors of
RightCHOICE Managed Care, Inc.

In our opinion, the consolidated financial statements listed
in the index, appearing under Item 8 on page 37, present
fairly, in all material respects, the financial position of
RightCHOICE Managed Care, Inc. and its subsidiaries at
December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the two years in
the period ended December 31, 1996, 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.



PRICE WATERHOUSE LLP
St. Louis, Missouri
February 14, 1997


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 73 of
this Form 10-K.  In connection with our audit of such
financial statements, we have also audited the 1997 data on
the related financial statement schedule listed in Item 8 on
page 37 of this Form 10-K.  The 1996 data on the financial
statement schedule noted above was audited by other auditors
whose report dated February 14, 1997 expressed an
unqualified opinion on such data.

In our opinion, the 1997 data on the financial statement
schedule 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.



Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 19, 1998, except for Note 13
       for which the date is March 19, 1998


                                                     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, 1997 and 1996, and the
condensed statements of income and cash flows for the years
ended December 31, 1997, 1996 and 1995 are as follows:

                       Balance Sheets
      (in thousands, except shares and per share data)

                                                    December 31,
                                                   1997      1996
                 ASSETS

Cash                                             $11,148      $199
Investments available for sale, at market value   23,273    43,707
Investments in affiliates (2)                    130,282   175,515
Property and equipment, net                        8,062    11,320
Receivables from affiliates (1)                   67,368    19,548
Other assets                                       2,011     1,870
   Total assets                                 $242,144  $252,159

  LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable and accrued expenses            $19,481   $21,236
Payables to affiliates (1)                        37,088    14,782
Income taxes payable, net                         14,425    13,956
Obligations for employee benefits                 25,074    24,512
Obligations under capital leases                   5,211     4,719
   Total liabilities                             101,279    79,205

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,
       3,709,000 and 3,714,400
       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                    132,640   132,640
   Retained earnings                               6,653    30,687
   Treasury stock, 28,500 and 23,100
     Class A shares, respectively, at cost         (404)     (326)
   Unrealized net appreciation of
     investments available for sale                1,789     9,766
   Total shareholders' equity                    140,865   172,954
        Total liabilities and
          shareholders' equity                  $242,144  $252,159


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, 1997 and 1996, $121,855 and $166,145,
respectively, is eliminated in the Consolidated Financial
Statements.

                                                       Schedule I
                                                    (Page 2 of 3)

                RIGHTCHOICE MANAGED CARE INC.
        CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    Statements of Income
                       (in thousands)

                                           Year ended December 31,
                                         1997       1996       1995
Revenue
  Reimbursement from affiliates (1)   $116,380   $114,233   $120,809
  Dividends from affiliates (1)         13,813     26,631      5,352
Total revenue                          130,193    140,864    126,161

Expense
  General and administrative           118,920    119,292    125,448

Operating income                        11,273     21,572        713

Investment income and other              4,040      1,022      2,059

Income before equity in
undistributed (loss)
income of subsidiaries and
income tax benefit                      15,313     22,594      2,772

Equity in undistributed (loss)
income of subsidiaries (1)            (38,853)   (25,618)     19,979

(Loss) income before taxes            (23,540)    (3,024)     22,751

Income tax provision (benefit)             494      (997)      (819)


Net (loss) income                    ($24,034)   ($2,027)    $23,570


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

                  Statements of Cash Flows
                       (in thousands)

                                            Year ended December 31,
                                          1997       1996      1995
Cash flows from operating
activities:
Net (loss) income                      ($24,034)   ($2,027)   $23,570

Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
   Equity in undistributed loss
    (income) of subsidiaries              38,853     25,618  (19,979)
   Depreciation                            4,264      4,631     5,174
   Loss on sale of property and
    and equipment                           -            36      -
   (Gain) loss on sale of
    investments                          (1,671)        (6)       123
   Accretion of discounts and
    amortization of premiums               (170)       (41)      (65)

(Increase) decrease in:
   Receivables from affiliates          (47,820)    (6,469)     4,367
   Other assets                            (141)        421     1,918

(Decrease) increase in:
   Accounts payable and accrued
     expenses                            (1,755)    (1,300)     7,841
   Payables to affiliates                 22,306      1,520   (4,296)
   Obligations for employee benefits         562      (229)   (2,560)
   Income taxes payable                      991      (482)   (3,577)

Net cash (used in) provided by
operating activities                     (8,615)     21,672    12,516

Cash flows from investing activities:
   Investments purchased                (14,970)   (42,297)  (86,615)
   Investments sold or matured            35,940     29,846   111,134
   Decrease (increase) in
     investment in affiliates              (814)    (6,813)  (32,854)
   Property and equipment purchased,
     transferred to affiliates, net        2,995      1,716   (3,129)

Net cash provided by (used in)
  investing activities                    23,151   (17,548)  (11,464)

Cash flows from financing activities:
   Additional expenses related to
     public stock offering                -          -          (117)
   Payments on capital lease obligations (3,509)    (3,931)   (4,074)
   Purchase of Class A treasury stock       (78)       (60)     (128)
Net cash used in financing activities    (3,587)    (3,991)   (4,319)

Net increase (decrease) in cash
  and cash equivalents                    10,949        133   (3,267)
Cash and cash equivalents,
  beginning of year                          199         66     3,333
Cash and cash equivalents, end of year   $11,148       $199       $66

Supplemental Schedule of Noncash
  Investing and Financing Activities:
Equipment acquired through
  capital leases                          $4,001               $1,236
Disposal of equipment under
  capital leases                                                1,789

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