By Caroline Humer and Ankur Banerjee
(Reuters) - U.S. health insurer Anthem Inc <ANTM.N> on Wednesday raised the prospect of smaller participation in the individual Obamacare exchanges in 2018, saying it would have a market-by-market strategy that hinges on 2017 profitability.
The company said that losses due to sicker-than-expected customers in its individual Obamacare plans were a bit less than foreseen in the third quarter and that it was planning for a slight profit in that business next year.
For 2018, it is targeting 2018 profit margins in the low- to mid-single-digits from the individual business.
Anthem shares rose 4.4 percent. Leerink analyst Ana Gupte said the outlook for a return to profits in the individual business in 2017 was a small positive for the company.
The market for individual health insurance created under President Barack Obama's national healthcare law drew fewer than half the enrollees expected, and the members have higher medical costs than foreseen. This has led to losses at Anthem and its rivals, some of which plan to stop selling these plans in 2017.
Anthem, which has not changed its plans for 2017, said it needed to see profits next year and new regulations to stabilize the market before it commits to a 2018 strategy.
"We are going to be very surgical" in looking at both regions and states for 2018 participation, Chief Executive Officer Joseph Swedish said during a conference call to discuss third-quarter earnings.
Regulatory adjustments Anthem wants include changes in the risk payments it gets for its sickest customers, more-flexible plans and a change in the health insurance tax due to come online in 2018.
Competitors Aetna Inc <AET.N> and UnitedHealth Group Inc <UNH.N> have largely pulled out of the on-exchange individual market for 2017, while Anthem has decided to remain in the 14 states where it sells Blue Cross Blue Shield plans.
The company also said that it was committed to fighting the U.S. government's lawsuit to block its acquisition of Cigna Corp <CI.N> due to concerns of reduced competition and higher prices for consumers.
Aetna and Humana Inc <HUM.N> are facing similar litigation.
Anthem said net income fell 5.7 percent to $617.8 million from a year earlier after costs outstripped premiums it collected in its Medicaid Iowa business.
Excluding special items, earnings were $2.45 per share, below the analysts' average estimate of $2.47, according to Thomson Reuters I/B/E/S.
The company said its ratio of spending on claims against the premiums rose to 85.5 percent from 83.6 percent, a year earlier.
Operating revenue increased 6.8 percent to $21.13 billion, ahead of analysts' estimates of $20.77 billion.
(Editing by Chizu Nomiyama and Lisa Von Ahn)