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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For Quarterly Period Ended March 31, 2005
OR
(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to____
Commission File Number 1-8538

USHEALTH GROUP, INC.
(Formerly, Ascent Assurance, Inc.)
(Exact Name of Registrant as Specified in its Charter)

(817) 878-3300
Registrant's Telephone Number, including Area Code

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 check mark, whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

 Yes                                  No            X     

Common Stock — Par value $0.01; 50,763,826 shares outstanding at May 3, 2005.

USHEALTH GROUP, INC
INDEX TO FORM 10-Q

USHEALTH GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

See the Notes to the Condensed Consolidated Financial Statements.

USHEALTH GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

See the Notes to the Condensed Consolidated Financial Statements.

USHEALTH GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)

See the Notes to the Condensed Consolidated Financial Statements.

USHEALTH GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share data)

See the Notes to the Condensed Consolidated Financial Statements.

USHEALTH GROUP, INC.
ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See the Notes to the Condensed Consolidated Financial Statements.

USHEALTH GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)

NOTE 1 — DESCRIPTION OF BUSINESS

USHEALTH Group, Inc. (“USHEALTH”), formerly Ascent Assurance, Inc., is the successor to a Delaware company originally incorporated in 1982 as an insurance holding company. USHEALTH, through its applicable subsidiaries, is engaged in the development, marketing, underwriting and administration of medical expense and supplemental health insurance products, primarily to self-employed individuals and small business owners.

The Company’s revenues result primarily from premiums and fees from the insurance products sold by its wholly-owned subsidiaries National Foundation Life Insurance Company (“NFL”), Freedom Life Insurance Company of America (“FLICA”), National Financial Insurance Company (“NFIC”) and American Insurance Company of Texas (“AICT”), and together with NFL, NFIC and FLICA, collectively, the “Insurance Subsidiaries”, and marketed by NationalCare^® Marketing, Inc. (“NCM”) and AmeriCare Benefits, Inc. (“ACB”), also wholly-owned subsidiaries. The Company, through applicable subsidiaries, also derives fee and service revenue from (i) telemarketing services, (ii) renewal commissions for prior year sales of both affiliated and unaffiliated insurance products, and (iii) commissions on the sale of the benefits of unaffiliated membership benefit programs.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.    The accompanying unaudited condensed consolidated financial statements of the Company are prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. The Company’s significant accounting estimates relate to investments, agent receivables, deferred policy acquisition costs, deferred tax assets, claim reserves, future policy benefit reserves, reinsurance and statutory accounting practices. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications of prior years’ amounts have been made to conform to the 2005 financial statement presentation. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in USHEALTH’s Annual Report on Form 10-K for the year ended December 31, 2004.

Cash Equivalents.    Cash equivalents consist of highly liquid instruments with maturities at the time of acquisition of three months or less. Cash equivalents are stated at cost, which approximates market.

Short-Term Investments.    Short-term investments are stated at cost, which approximates market.

Investments.    The Company’s fixed maturity portfolio is classified as available-for-sale and is carried at estimated market value. Equity securities consisting of common stocks, which are included in other investments, are also carried at estimated market value. Changes in aggregate unrealized appreciation or depreciation on fixed maturity and equity securities are reported directly in stockholders’ equity and, accordingly, will have no effect on current operations.

Deferred Policy Acquisition Costs (“DPAC”).    Policy acquisition costs consisting of commissions and other policy issue costs, which vary with and are primarily related to the production of new business, are deferred and amortized over periods not to exceed the estimated premium-paying periods of the related policies. Also included in Other Assets is the value of business acquired. The amortization of these costs is based on actuarially estimated future premium revenues, and the amortization rate is adjusted periodically to reflect actual experience. Projected future levels of premium revenue are estimated using assumptions as to interest, mortality, morbidity and withdrawals consistent with those used in calculating liabilities for future policy benefits.

Agent Receivables.    In the ordinary course of business, a subsidiary of USHEALTH advances commissions on policies written by its general agencies and their agents. Net agent receivables were approximately $3.0 million and $3.5 million at March 31, 2005 and December 31, 2004, respectively. Such subsidiary is reimbursed for these advances from the commissions earned over the respective policy’s life. In the event that policies lapse prior to the time the subsidiary has been fully reimbursed, the general agencies or the individual agents, as the case may be, are responsible for reimbursing the subsidiary for the outstanding balance of the commission advances. A reserve for uncollectible agents’ balances is routinely established based upon historical experience and projected commission earnings. As of March 31, 2005 and December 31, 2004, the Company’s allowances for uncollectible commission advances were approximately $3.6 million.

Property and Equipment.     Property and equipment is stated on the basis of cost and consists primarily of furniture, fixtures, leasehold improvements and software. Depreciation is computed principally by the straight-line method for financial reporting purposes using estimated useful lives of 3 to 10 years.

Future Policy Benefits.     Liabilities for future policy benefits not yet incurred are computed primarily using the net level premium method including actuarial assumptions as to investment yield, mortality, morbidity, withdrawals, persistency and other assumptions, which were appropriate at the time the policies were issued. Assumptions used are based on the experience of each of the Insurance Subsidiaries, as adjusted to provide for possible adverse deviation. Generally, these actuarial assumptions are fixed and, absent material adverse benefit experience, are not adjusted.

Claim Reserves.    Claim reserves represent the estimated liabilities on claims reported plus claims incurred but not yet reported. The process of estimating claim reserves involves the active participation of experienced actuaries with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Changes impacting the Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) writings of significant blocks of new business and (4) significant changes in claims payment patterns. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations.

Notes Payable.    Notes payable are stated at cost, which approximates market.

Federal Income Taxes.     The Company records income taxes based on the asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequence of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The tax effect of future taxable temporary differences (liabilities) and future deductible temporary differences (assets) are separately calculated and recorded when such differences arise. A valuation allowance, reducing any recognized deferred tax asset, must be recorded if it is determined that it is more likely than not that such deferred tax asset will not be realized. Net deferred tax assets of $17.9 million and $17.8 million at March 31, 2005 and December 31, 2004, respectively, were fully reserved.

Recognition of Revenue.     Premium revenues from insurance contracts are recognized when due from policyholders. Fee and service income is recognized when earned, the services have been provided and collection is reasonably assured.

Earnings Per Share.     Under GAAP, there are two measures of earnings per share: “basic earnings per share” and “diluted earnings per share”. Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were converted or exercised. For the three months ended March 31, 2005, stock options of 5,386,219 were anti-dilutive and were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. For the three months ended March 31, 2004, stock options of 877,550 and the conversion of the preferred stock were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. For the three months ended March 31, 2004, 43,995,026 of common shares attributable to the conversion of USHEALTH’s Series B convertible participating preferred stock (see the Notes to the Condensed Consolidated Financial Statements – Note 4 – Conversion of Redeemable Convertible Preferred Stock) were included in the computation of basic and diluted earnings per share as of March 15, 2004. To include the common shares attributable to the conversion of USHEALTH’s preferred stock in the computation of diluted earnings per share from the beginning of 2004 would have been anti-dilutive.

The following table reflects the calculation of basic and diluted EPS (in thousands, except for per share data):

			Three Months Ended March 31,
				2005			2004
(Loss) income from continuing operations			$	(750	)	$	271
Loss from discontinued operations				-			(200	)
Net (loss) income				(750	)		71
Preferred stock dividends				-			(430	)
Loss applicable to common shareholders			$	(750	)	$	(359	)
Weighted average shares outstanding:
Basic and diluted				50,661			14,754
Basic and diluted loss per share from
continuing operations			$	(0.01	)	$	(0.01	)
Basic and diluted loss per share from
discontinued operations			$	-		$	(0.01	)
Basic and diluted loss per common share			$	(0.01	)	$	(0.02	)

Recently Issued Accounting Pronouncements.     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004) (“FAS 123R”), “Share-Based Payment.” FAS123R eliminates the alternative to use APB No. 25’s , “Accounting for Stock Issued to Employees”, intrinsic value method of accounting that was provided in Statement 123 as originally issued. This statement establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods or services. It requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, usually the vesting period, in exchange for the award. FAS123R is effective as of the beginning of the first interim period or annual reporting period that begins after June 15, 2005. Disclosed at Note 6 – Employee Benefit Plans is the effect on net loss and loss per share for the years presented if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation which the Company does not believe will significantly differ from the effects of adopting FAS123R.

NOTE 3 – DISCONTINUED OPERATIONS

On October 29, 2004, USHEALTH sold its printing subsidiary, Westbridge Printing Services, Inc. (“WPS”), to an unrelated party and exited the printing business. In accordance with Statement of Financial Accounting Standard No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company’s printing subsidiary is reported as discontinued operations in the accompanying consolidated financial statements. The operating loss of WPS for the three months ended March 31, 2004 is reflected in discontinued operations. Revenues from the discontinued operations of WPS for the three months ended March 31, 2004 were approximately $1.0 million.

NOTE 4 – CONVERSION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

On March 15, 2004, USHEALTH’s common shareholders approved an amendment to the Company’s Certificate of Incorporation to increase the authorized number of shares of common stock to 75 million shares from 30 million shares. The approval of this amendment resulted in the automatic conversion of all 37,504 outstanding shares of the Company’s Series B convertible participating preferred stock (“Series B Preferred Stock”) into 43,995,026 shares of common stock. Preferred stock dividends of $430,000 accrued through March 15, 2004, were forgiven by preferred stockholders and, as a result, were credited to capital in excess of par value, and had no impact on total stockholders’ equity. All outstanding shares of the Series B Preferred Stock were held by Special Situations Holdings, Inc. – Westbridge (“SSHW”), the Company’s largest shareholder. The conversion of the Series B Preferred Stock increased the ownership percentage of SSHW in the Company’s common stock to approximately 93% from 49%.

NOTE 5 — FINANCING ACTIVITIES

CSFB Financing.     USHEALTH received debt financing to fund an $11 million capital contribution to FLICA in April 2001 from Credit Suisse First Boston Management LLC (“CSFBM”), which is an affiliate of SSHW (USHEALTH’s largest stockholder.) The credit agreement relating to that loan (“CSFBM Credit Agreement”) provided USHEALTH with total loan commitments of $11 million, all of which were drawn in April 2001. Under reconstructed terms effective December 31, 2003, the loan bears interest at a rate of 6% per annum and matures in March 2010.

Absent any acceleration following an event of default, the Company may elect to pay interest in kind by issuance of additional notes. During the three months ended March 31, 2005, USHEALTH issued $245,000 in additional notes for payment of interest in kind, which increased the note payable balance at March 31, 2005 to approximately $16.5 million.

USHEALTH’s obligations to CSFBM are secured, pursuant to a guarantee and security agreement and pledge agreements, by substantially all of the assets of USHEALTH and its subsidiaries (excluding the capital stock and the assets of AICT, FLICA, NFL, NFIC, NCM, USHEALTH Funding, Inc. (formerly Ascent Funding, Inc.) and Ascent Management, Inc., some or all of which is pledged as collateral for bank financing described below). USHEALTH’s subsidiaries (other than those listed above) have also guaranteed USHEALTH’s obligations under the CSFBM Credit Agreement. Under this agreement, the Company is required to meet certain restrictive requirements including minimum statutory capital and surplus, and RBC ratios for its Insurance Subsidiaries, minimum net worth and other customary covenants. At March 31, 2005, there were no events of default.

Bank Financing.    The majority of commission advances to NCM’s and ACB’s agents are financed through USHEALTH Funding, Inc. (“UFI”) (formerly Ascent Funding, Inc.), an indirect wholly owned subsidiary of USHEALTH. On December 31, 2003, UFI entered into a Credit Agreement (the “Credit Agreement”) with Frost National Bank (“Frost”) that provides UFI with a $3.0 million revolving loan facility, the proceeds of which are used to purchase agent advance receivables from NCM and ACB. The amount outstanding under the Credit Agreement as of March 31, 2005 and December 31, 2004 was $250,000. The Credit Agreement as amended matures on January 15, 2007, at which time the outstanding principal and interest will be due and payable.

UFI’s obligations under the Credit Agreement are secured by liens upon substantially all of UFI’s assets. UFI’s principal assets at March 31, 2005 are net agent receivables of $3.3 million. In addition, NCM, ACB and USHEALTH have guaranteed UFI’s obligation under the Credit Agreement, and have pledged all of the issued and outstanding shares of the capital stock of UFI, NFL, and FLICA as collateral for those guaranties (the “Guaranty Agreements”). USHEALTH, certain of its subsidiaries, CSFBM and Frost have entered into an Intercreditor and Subordination Agreement dated as of December 31, 2003 to give effect to a subordination of the notes payable to CSFBM to up to $10 million in borrowings under the Credit Agreement. As of March 31, 2005, there were no events of default under the Credit or Guaranty Agreements.

NOTE 6 — EMPLOYEE BENEFIT PLANS

USHEALTH applies the intrinsic value method, in accordance with APB 25, in accounting for its stock options issued to employees of one of its subsidiaries and non-employee directors. Accordingly, no compensation expense has been recognized for options granted with an exercise price equal to market value at the date of grant. USHEALTH applies the fair value method in accounting for stock options issued to consultants (including marketing agents).

Compensation cost recognized in the income statement for stock-based employee and consultants (including marketing agents) compensation awards was approximately $104 and $619 for the three months ended March 31, 2005 and 2004, respectively.

The following table illustrates the effect on loss applicable to common stockholders and loss per share if USHEALTH had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

			Three Months Ended March 31
				2005			2004
(Loss) income from continuing operations			$	(750	)	$	271
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects				(187	)		(24	)
Proforma (loss) income from continuing operations				(937	)		247
Loss from discontinued operations				-			(200	)
Net (loss) income				(937	)		47
Preferred stock dividends				-			430
Pro forma loss applicable to common stockholders			$	(937	)		(383	)
Loss per share from continuing operations:
Basic and diluted - as reported			$	(0.01	)	$	(0.01	)
Basic and diluted - pro forma			$	(0.02	)	$	(0.01	)
Loss per share from discontinued operations:
Diluted - as reported			$	-		$	(0.01	)
Diluted - pro forma			$	-		$	(0.01	)
Loss per share:
Diluted - as reported			$	(0.01	)	$	(0.02	)
Diluted - pro forma			$	(0.02	)	$	(0.03	)

For purposes of pro forma disclosure, the estimated fair value of the stock compensation is amortized to expense over the stock’s vesting period. The effect on net loss of the stock compensation amortization for the year presented above is not likely to be representative of the effects on reported income for future years.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

In the normal course of its business operations, the Company is involved in various claims, other business related suits (alleging actual as well as substantial exemplary damages) and regulatory matters. In the opinion of management, the Company is not a party to any pending litigation which is reasonable likely to have an adverse result or disposition that would have a material adverse effect on the Company’s business, consolidated financial position or consolidated results of operations.

The Company’s Insurance Subsidiaries are subject to extensive governmental regulation and supervision at both federal and state levels. Such regulation includes premium rate levels, premium rate increases, policy forms, minimum loss ratios, dividend payments, claims settlement, licensing of insurers and their agents, capital adequacy, transfer of control, and amount and type of investments. Additionally, there are numerous health care reform proposals and regulatory initiatives under consideration, which, if enacted, could have significant impact on the Company’s results of operations.

NOTE 8 – SUBSEQUENT EVENTS

On April 18, 2005, SSHW (USHEALTH’s largest stockholder) announced that it intends to take USHEALTH private through a “short-form” merger on or about May 16, 2005. SSHW currently owns approximately 93% of USHEALTH outstanding common stock which, under Delaware law, is sufficient to effectuate the merger without necessity of seeking approval by either the USHEALTH board of directors or its common stockholders. Common stockholders as of the effective date of the merger will receive $.31 in cash for each share of USHEALTH common stock held.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

USHEALTH Group, Inc. (“USHEALTH”), formerly Ascent Assurance, Inc., is the successor to a Delaware company incorporated in 1982 as an insurance holding company. USHEALTH, through its applicable subsidiaries, is engaged in the development, marketing, underwriting and administration of medical expense and supplemental health insurance products, primarily to self-employed individuals and small business owners.

The following discussion provides management’s assessment of financial condition at March 31, 2005 as compared to December 31, 2004 and results of operations for the three months ended March 31, 2005 as compared to the comparable 2004 period for the Company. This discussion updates the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2004 Report on Form 10-K and should be read in conjunction therewith.

Business Overview.    The Company’s revenues result primarily from premiums and fees from the insurance products sold by its wholly owned subsidiaries National Foundation Life Insurance Company (“NFL”), Freedom Life Insurance Company of America (“FLICA”), National Financial Insurance Company (“NFIC”) and American Insurance Company of Texas (“AICT”), and together with NFL, NFIC and FLICA, collectively, the “Insurance Subsidiaries” and marketed by NationalCare^® Marketing, Inc. (“NCM”) and AmeriCare Benefits, Inc. (“ACB”), also wholly owned subsidiaries. The Company, through applicable subsidiaries, also derives fee and service revenue from (i) telemarketing services, (ii) renewal commissions for prior year sales of both affiliated and unaffiliated insurance products, and (iii) commissions on the sale of benefits of unaffiliated membership benefit programs.

The Company’s operations are comprised of one segment, Accident and Health insurance. The principal products currently marketed by NCM and ACB and underwritten by NFL and FLICA are medical expense reimbursement policies. These products are designed with flexibility as to benefits, deductibles, coinsurance and premium payments, which can be adapted to meet regional sales or competitive needs, as well as those of the individual policyholders. The principal product groups currently underwritten by NFL and FLICA are comprehensive major medical products, hospital/surgical medical expense products and supplemental specified disease products:

Prior to 1998, some of the Insurance Subsidiaries also actively underwrote Medicare Supplement products designed to provide reimbursement for certain expenses not covered by the Medicare program. Such Insurance Subsidiaries continue to receive renewal premiums on Medicare Supplement policies sold prior to that date.

Forward-Looking Statements.    Statements contained in this analysis and elsewhere in this document that are not based on historical information are forward-looking statements and are based on management’s projections, estimates and assumptions. In particular, forward-looking statements can be identified by the use of words such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “continue”, or similar words. Management cautions readers regarding its forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Various statements contained in the Management’s Discussion and Analysis of Results of Operation and Financial Condition, are forward-looking statements. These forward-looking statements are based on the intent, belief or current expectations of USHEALTH and members of its senior management team. While USHEALTH’s management believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Important factors known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Report include, but are not limited to:

Subsequent written or oral statements attributable to USHEALTH or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this Report and those in USHEALTH’s reports previously filed with the SEC. Copies of these filings may be obtained by contacting USHEALTH or the SEC.

OPERATING RESULTS

Consolidated results of operations for USHEALTH are reported for the three months ended March 31, 2005 and 2004. (In thousands except insurance operating ratios.)

*Ratios are calculated as a percent of premium with the exception of the general and administrative expense ratio, which is calculated
  as a percent of premiums plus other insurance revenue.

Overview.    For the first quarter of 2005, net loss was $(750,000) compared to net income of $71,000 for the corresponding period in 2004. The ($821,000) decrease in net income was principally due to a ($940,000) decrease in insurance operating results and an ($81,000) decrease in fee and service results partially offset by a $200,000 decrease in loss from discontinued operations.

Insurance operating results declined for the first quarter of 2005 as compared to the first quarter of 2004 principally due to an increase in general expenses attributable to investment in marketing and infrastructure initiatives. Fee and service results decreased for first quarter 2005 compared to first quarter 2004 principally due to the run-off status of fee and service programs.

On October 29, 2004, the Company sold its printing subsidiary and exited the printing business. The loss from discontinued operations for the three months ended March 31, 2004 was comprised of ($200,000) of operating loss.

On March 15, 2004, USHEALTH’s shareholders approved an amendment to the Company’s Certificate of Incorporation to increase the authorized number of shares of common stock to 75 million shares from 30 million shares. The approval of this amendment resulted in the automatic conversion of all 37,504 outstanding shares of the Company’s convertible participating Series B preferred stock into 43,995,026 shares of common stock. As a result, preferred stock dividends of $430,000 accrued through March 15, 2004 were credited to capital in excess of par value and had no impact on total stockholders’ equity.

On April 18, 2005, Special Situations Holdings, Inc. – Westbridge (“SSHW”) (USHEALTH’s largest stockholder) announced that it intends to take USHEALTH private through a “short-form” merger on or about May 16, 2005. SSHW currently owns approximately 93% of USHEALTH outstanding common stock which, under Delaware law, is sufficient to effectuate the merger without necessity of seeking approval by either the USHEALTH board of directors or its common stockholders. Common stockholders as of the effective date of the merger will receive $.31 in cash for each share of USHEALTH common stock held.

The following narratives discuss the principal components of insurance operating results.

Premiums.    The Insurance Subsidiaries’ premium revenue is derived principally from the following medical expense reimbursement products: comprehensive major medical, hospital/surgical medical expense, supplemental products including specified disease coverage and Medicare supplement. Comprehensive major medical products are generally designed to reimburse insureds for eligible expenses incurred for hospital confinement, surgical expenses, physician services, outpatient services, and the cost of laboratory and diagnostic services, as well as inpatient medicines. Hospital surgical medical expense products are similar to comprehensive major medical products with respect to benefits for inpatient services, except that deductibles and coinsurance provisions are generally higher. However, benefits for outpatient services are generally more limited under hospital/surgical medical expense coverage than comprehensive major medical coverage. Supplemental products include blanket group accident coverages, blanket group hospital daily indemnity coverages, as well as individual indemnity policies for hospital confinement and convalescent care for treatment of specified diseases and “event specific” individual policies, which provide fixed benefits or lump sum payments directly to the insured upon diagnosis of certain types of internal cancer or heart disease. Prior to 1998, the Insurance Subsidiaries also underwrote Medicare supplement products and continue to receive renewal premiums from such policies.

Premium revenue, in thousands, for each major product line is set forth below:

Total premiums decreased approximately $2.5 million, or 10.4%, for the first quarter of 2005 as compared to the first quarter of 2004. Major medical premiums declined due to lower new business sales and a disciplined pricing philosophy focused upon profitability. In addition, supplemental specified disease and Medicare supplement premiums declined due to normal lapsing of policies.

Benefits and Claims.    Benefits and claims are comprised of (1) claims paid, (2) changes in claim reserves for claims incurred (whether or not reported), and (3) changes in future policy benefit reserves (see Financial Condition – “Claims Reserves” and “Future Policy Benefit Reserves”). The Company’s benefits and claims ratios of 68.5% and 68.2% for the first quarters of 2005 and 2004, respectively, were comparable. For the past several years, the costs of medical services covered by the Company’s major medical insurance policies has increased significantly, with medical inflation averaging 15% to 20% annually in comparison to an average increase in the consumer price index of 3%. To maintain the ratio of claims and benefits to premium into future periods, the Company must accurately estimate future medical inflation and implement timely premium rate increases for both new major medical product sales and the majority of its in force insurance policies, including supplemental specified disease and Medicare supplement policies.

Commissions.    The commissions to premiums ratio decreased by 0.4 percentage points in first quarter 2005 as compared to the first quarter 2004 as a result of the decrease in first year major medical premiums. Commission rates on first year premiums are significantly higher than those for renewal premiums.

FINANCIAL CONDITION

Investments.    The following table summarizes the Company’s fixed maturity securities, excluding short-term investments. All of the Company’s fixed maturity securities are classified as available-for-sale and are carried at market value. Investments in the debt securities of corporations are principally in publicly traded bonds.

The following table indicates by rating the composition of the Company’s fixed maturity securities portfolio, excluding short-term investments.

The Company monitors the financial condition and operations of securities rated below investment grade and of certain investment grade securities on which there are concerns regarding credit quality. In evaluating fixed maturities to determine whether any of the unrealized losses are other than temporary, management’s assessments as to the nature of declines in fair values are based upon historical operating trends, business prospects, status of the industry in which the company operates, analyst ratings on the issuer and sector, the quality of the investments, the severity and duration of the unrealized losses and the Company’s ability or intent to hold the investments. If fair value is less than the carrying value and the decline is determined to be other than temporary, an appropriate write-down is recorded.

The scheduled contractual maturities of the Company’s fixed maturity securities, excluding short-term investments, at March 31, 2005 and December 31, 2004 are shown in the table below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

			March 31, 2005						December 31, 2004
Composition of Fixed Maturity Securities by Maturity				Market Value			%			Market Value			%
			(in 000’s)						(in 000’s)
Scheduled Maturity
Due in one year or less			$	3,486			3.5		$	2,003			2.0
Due after one year through five years				27,534			28.0			29,122			29.2
Due after five years through ten years				30,889			31.4			33,540			33.6
Due after ten years				14,537			14.8			14,644			14.7
Mortgage-backed and asset-backed securities				21,965			22.3			20,420			20.5
Total fixed maturity securities			$	98,411			100.0		$	99,729			100.0

Claim Reserves.    Claim reserves are established by the Insurance Subsidiaries for benefit payments which have already been incurred by the policyholder but which have not been paid by the applicable Insurance Subsidiary. Claim reserves totaled $25.4 million at March 31, 2005 as compared to $24.6 million at December 31, 2004. The process of estimating claim reserves involves the active participation of experienced actuaries with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Changes impacting the Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) writings of significant blocks of new business and (4) significant changes in claims payment patterns. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations.

Management considers many factors when setting reserves including: (1) historical trends; (2) current legal interpretations of coverage and liability; (3) loss payments and pending levels of unpaid claims; and (4) product mix. Based on these considerations, management believes that adequate provision has been made for the claim reserves of the Insurance Subsidiaries. Actual claims paid may deviate, perhaps substantially, from such reserves.

Future Policy Benefit Reserves.    Policy benefit reserves are established by each applicable Insurance Subsidiary for benefit payments that have not been incurred, but are estimated to be incurred, in the future. Policy benefit reserves totaled $53.6 million at March 31, 2005 as compared to $53.5 million at December 31, 2004. Policy benefit reserves are calculated according to the net level premium reserve method and are equal to the discounted present value of the applicable Insurance Subsidiary’s expected future policyholder benefits minus the discounted present value of its expected future net premiums.

These present value determinations are based upon assumed fixed investment yields, the age of the insured(s) at the time of policy issuance, expected morbidity and persistency rates, and expected future policyholder benefits. In determining the morbidity, persistency rate, claim cost and other assumptions used in determining the Insurance Subsidiaries’ future policy benefit reserves, each Insurance Subsidiary relies primarily upon its own benefit payment history and upon information developed in conjunction with actuaries and industry data. Persistency rates have a direct impact upon their policy benefit reserves because the determinations for these reserves are, in part, a function of the number of policies in force and expected to remain in force to maturity. If persistency is higher or lower than expected, future policyholder benefits will also be higher or lower because of the different than expected number of policies in force, and the policy benefit reserves will be increased or decreased accordingly.

In accordance with GAAP, actuarial assumptions of each of the Insurance Subsidiaries are generally fixed, and absent materially adverse benefit experience, are not generally adjusted. The Insurance Subsidiaries each monitor the adequacy of their policy benefit reserves on an ongoing basis by periodically analyzing the accuracy of their actuarial assumptions. The adequacy of policy benefit reserves may also be impacted by the development of new medicines and treatment procedures which may alter the incidence rates of illness and the treatment methods for illness and accident (such as out-patient versus in-patient care) or prolong life expectancy. Changes in coverage provided by major medical insurers or government plans may also affect the adequacy of reserves if, for example, such developments had the effect of increasing or decreasing the incidence rate and per claim costs of occurrences against which the applicable Insurance Subsidiary insures. An increase in either the incidence rate or the per claim costs of such occurrences could result in the need for the Insurance Subsidiaries to post additional reserves, which could have a material adverse effect upon USHEALTH’s liquidity, capital resources and results of operations.

LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS

General.    The primary sources of cash for the Company’s consolidated operations are premiums and fees from insurance policies, sales and maturity of invested assets and investment income while the primary uses of cash are payments of insurance policy benefits, claims and commissions, and general operating expenses. Net cash provided by operations totaled $2.4 million and $1.2 million for the first quarter of 2005 and 2004, respectively.

USHEALTH is a holding company, the principal assets of which consist of the capital stock of its subsidiaries and invested assets. USHEALTH’s principal sources of funds are comprised of dividends from its non-insurance subsidiaries. The Insurance Subsidiaries are precluded from paying dividends without prior approval of the Texas Insurance Commissioner, as the Insurance Subsidiaires’ earned surplus is negative due to statutory losses incurred prior to 2003. USHEALTH’s principal uses of cash are for general and administrative expenses and to make discretionary additional investments in its Insurance Subsidiaries in the form of capital contributions to maintain desired statutory capital and surplus levels. USHEALTH made no capital contributions to the Insurance Subsidiaries during the first quarter of 2005. As of March 31, 2005, USHEALTH had approximately $3.3 million in unrestricted cash and invested assets.

Related Party Financing.    USHEALTH received debt financing to fund an $11 million capital contribution to FLICA in April 2001 from Credit Suisse First Boston Management LLC, (“CSFBM”), which is an affiliate of SSHW (USHEALTH’s largest common stockholder), and a subsidiary of Credit Suisse First Boston LLC (“CSFB”). The Credit Agreement relating to that loan (“CSFBM Credit Agreement”) provided USHEALTH with total loan commitments of $11 million, all of which were drawn in April 2001. Under restructured terms effective December 31, 2003, the loan bears interest at a rate of 6% per annum and matures in March 2010. Absent any acceleration following an event of default, USHEALTH may elect to pay interest in kind by issuance of additional notes. During the three months ended March 31, 2005, USHEALTH issued $245,000 in additional notes for payment of interest in kind which increased the notes payable balance to CSFBM at March 31, 2005 to approximately $16.5 million. USHEALTH’s obligations to CSFBM are secured, pursuant to a guaranty and security agreement and pledge agreements, by substantially all of the assets of USHEALTH and its subsidiaries (excluding the capital stock and the assets of AICT, FLICA, NFL, NFIC, NCM, USHEALTH Funding, Inc. (formerly Ascent Funding, Inc.) and Ascent Management, Inc., some or all of which is pledged as collateral for bank financing described below). USHEALTH’s subsidiaries (other than those listed above) have also guaranteed USHEALTH’s obligations under the CSFBM Credit Agreement. At March 31, 2005, there were no events of default.

Bank Financing.    The majority of commission advances to NCM’s agents are financed through USHEALTH Funding, Inc. (“UFI”) (formerly Ascent Funding, Inc.), an indirect wholly owned subsidiary of USHEALTH. On December 31, 2003, UFI entered into a Credit Agreement (the “Credit Agreement”) with Frost National Bank (“Frost”) that provides UFI with a $3.0 million revolving loan facility, the proceeds of which are used to purchase agent advance receivables from NCM and ACB. $250,000 was outstanding under the Credit Agreement as of March 31, 2005 and December 31, 2004. The Credit Agreement as amended matures on January 15, 2007, at which time the outstanding principal and interest will be due and payable. The Company maintains an agent receivable financing arrangement to facilitate growth in new business sales.

UFI’s obligations under the Credit Agreement are secured by liens upon substantially all of UFI’s assets. UFI’s principal assets at March 31, 2005 are net agent receivables of $3.3 million. In addition, NCM, ACB and USHEALTH have guaranteed UFI’s obligation under the Credit Agreement, and have pledged all of the issued and outstanding shares of the capital stock of UFI, NFL, and FLICA as collateral for those guaranties (the “Guaranty Agreements”). As of March 31, 2005, there were no events of default under the Credit or Guaranty Agreements.

Inflation.    Inflation impacts claim costs and overall operating costs and, although inflation has been lower the last few years, hospital and medical costs have still increased at a higher rate than general inflation, especially prescription drug costs. New, more expensive and wider use of pharmaceuticals is inflating health care costs. The Insurance Subsidiaries will continue to establish premium rates in accordance with trends in hospital and medical costs along with concentrated efforts in various cost containment programs. However, there can be no assurance that these efforts will fully offset the impact of inflation or that increases in premium rates will equal or exceed increasing health care costs.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

USHEALTH has no material changes to the disclosure concerning market risk made in its Annual Report on Form 10-K for the year ended December 31, 2004.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.    Under the supervision and with the participation of USHEALTH’s management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2005, the end of the period covered by this report. Based on such evaluation, USHEALTH’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2005, the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by USHEALTH in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Changes in internal controls.    There were no changes in the Company’s internal controls over financial reporting that have materially affected, or, are reasonably likely to material affect, these controls during the period covered by this quarterly report.

ITEM 6 — EXHIBITS

(a) Exhibits:

The following exhibits are filed herewith. Exhibits incorporated by reference are indicated in the parentheses following the description.

(b) Reports on Form 8-K

The registrant filed a Report on Form 8-K dated March 4, 2005 under “Item 9. Regulation FD Disclosure” and also under “Item 12. Results of Operations and Financial Condition” attaching a copy of the registrants press release reporting the registrants financial results for the fourth quarter of 2004.

Form 10-Q        

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

Dated at Fort Worth, Texa
May 4, 2005