Mail Stop 5546

      October 19, 2005


Jimmy L. Taylor
Chief Financial Officer
Healthaxis, Inc.
7301 North State Highway 161, Suite 300
Irving, TX 75039


RE:	Healthaxis Inc.
      Form 10-K for the Year Ended December 31, 2004
	File No.:  000-25797


Dear Mr. Taylor:

	We have considered your letters dated August 12th, September
23rd, and October 10th and the views expressed by the Company, its
auditors, and representatives in a call with the staff on October
12th regarding the Company`s accounting for the Preferred Stock
Modification Agreement (the agreement), consummated on June 30,
2004.
The agreement modified the terms of the existing Series A
Convertible
preferred stock and resulted in the issuance of warrants to
purchase
shares of the Company`s common stock.  The shares of common stock
that would be issued under the agreement for conversion of the
preferred stock or exercise of the warrants represented
approximately
54% of the Company`s common stock on a fully diluted basis as of
December 31, 2004.  The Company`s common stock is listed and
trades
on the Nasdaq SmallCap Market.

      The Company`s management valued the preferred stock and the
warrants and later engaged a consultant to also provide a
valuation
of the preferred stock.  Management`s valuation considered the
market
price of the Company`s common stock, because the preferred stock
is
convertible on a one-for-one basis into common stock, and applied
a
40% discount due to the size of the block of shares of common
stock
into which the preferred stock was convertible.  The consulting
firm
that prepared the independent valuation calculated the fair value
of
the preferred stock using several different valuation approaches,
which included applying a blockage discount to the calculated
value
under each approach of 45%.  Management applied the blockage
discounts in the belief that the quoted price of the common stock
was
unreliable because the common stock was thinly traded, evidencing
to
them that the market was not active.  Management also pointed to a
large stock buyback 9 months earlier as support for the discount.
In
addition, management believed that the market could not readily
absorb the increase in trading if all of the preferred stock was
converted into common stock in light of the historical trading
volume.  The Company believes their methodology for measuring the
fair value of the preferred stock issued under the agreement is in
accordance with GAAP.

	There are many instances where GAAP states that available
quoted
market prices are evidence of the fair value of a financial
instrument.  Following are some of the references in GAAP that
discuss required use of a quoted market price:

* Paragraph 5 of FASB Statement No. 107, Disclosures about Fair
Value
of Financial Instruments, indicates that the fair value of a
financial instrument is the amount at which the instrument could
be
exchanged, requiring the use of a quoted market price if
available.
* Paragraph 58 of Statement No. 107 rejects the suggestion that an
active market does not exist in cases where a stock is thinly
traded.
* Paragraph 58 of Statement No. 107 further states that quoted
market
prices, even in thin markets are relevant measures of fair value.
* Paragraph 3a of Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, states "The fair value
of
an equity security is readily determinable if sales prices or bid-
and-asked quotations are currently available on a securities
exchange
registered with the Securities and Exchange Commission (SEC) or in
the over-the-counter market, provided that those prices or
quotations
for the over-the-counter market are publicly reported by the
National
Association of Securities Dealers Automated Quotations systems or
by
the National Quotation Bureau. Restricted stock2 does not meet
that
definition" [emphasis added because your stock is reported by
NASDAQ].

References in GAAP also preclude blockage discounts, for example:

* Paragraph 6 of Statement No. 107 indicates that "the quoted
price
for a single trading unit in the most active market is the basis
for
determining market price and reporting fair value...even if ...a
market`s normal volume for one day might not be sufficient to
absorb
the quantity..."
* Question 50 of the FASB Staff Implementation Guide to Statement
115, Accounting for Certain Investments in Debt and Equity
Securities, states that adjusting the quoted market price is not
permitted when determining fair value; and
* Footnote 3 of EITF 98-5, Accounting for Convertible Securities
with
Beneficial Conversion Features or contingently Adjustable
Conversion
Ratios, states that quoted market prices should not be adjusted to
reflect large block factors; the issue also gives guidance in
instances where a quoted market price is not available.

      GAAP is clear that quoted market prices, exclusive of
adjustments for large block factors and irrespective of a thin
trading market, are the best evidence of fair value.  As such, we
believe your accounting for the agreement, specifically related to
the valuation of the preferred stock, and the warrants if a
blockage
factor was included in the valuation model, is not in accordance
with
GAAP.   Note that we reject the company`s claim that the stock
transaction that occurred 9 months before is evidence of the fair
value of the securities issued under the agreement because the
transaction was with a related party, the company`s principal
owner,
and therefore GAAP (FASB Statement No. 57, Related Party
Disclosures)
rejects such a transaction as being carried out on an arms-length
basis.  Also, while we encourage companies to use independent
valuation specialists when they lack the necessary experience with
valuation techniques or when valuation presents particular
challenges
because of the nature of the item being valued, management is
nevertheless required to ensure that the fair value arrived at is
in
accordance with GAAP.

      We also believe that you have not appropriately considered
the
GAAP literature in determining whether a beneficial conversion
feature is embedded in the preferred stock.  Paragraph 5 of EITF
98-5
requires that beneficial conversion features be valued separately
at
issuance of the convertible securities.  The guidance further
stipulates that the calculation of the beneficial conversion
feature
is the difference between the conversion price and the fair value
of
the common stock into which the security is convertible.  Fair
value
under GAAP, as outlined above, is the quoted price of the
Company`s
common stock.

	In conclusion, we do not believe you have persuasive support
for
using a blockage discount in light of the clear guidance in GAAP
that
precludes such a practice.  We also believe GAAP is clear in
requiring the use of a quoted market price to determine fair value
and that a thin market is not grounds to conclude that a market is
not active.  Therefore, please restate your financial statements
to
reflect the fair value of the preferred stock at the quoted price
of
the common stock on the date of the agreement.  Also adjust your
valuation of the warrants issued if the model used includes a
similar
discount.

      If you have any questions about this letter please contact
me
or Stephanie Hunsaker at (202) 551-3400.

						Sincerely,




						Carol A. Stacey
						Chief Accountant

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Mr. Jimmy L. Taylor
October 19, 2005
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