By Bill Berkrot and Amrutha Penumudi

(Reuters) - Health insurer Anthem Inc <ANTM.N> on Wednesday vowed to fight U.S. government efforts to block its planned acquisition of Cigna Corp <CI.N> and said it expects to lose money this year on its business selling individual health coverage under President Barack Obama's healthcare law.

Anthem has argued that its planned $45-billion purchase of Cigna will give it greater leverage to negotiate better prices from healthcare providers and pass on those savings to consumers, including those signing up for "Obamacare" plans on public insurance exchanges.

"To be clear, our board and executive leadership team at Anthem is fully committed to challenging the (U.S. Department of Justice's) decision in court," Chief Executive Joseph Swedish told analysts on a conference call.

Anthem had previously said it expected to break even on its Obamacare business this year. But on Wednesday, the insurer said that business could decline by mid-single-digit percentages due to higher-than-expected costs of caring for those members.

Shares in Anthem fell more than 2 percent. The company said it was "focused on returning to profitability in 2017" in its exchange business.

Anthem said it now serves 923,000 public exchange members across 14 states in what it called a high-risk market. Rivals such as UnitedHealth Group <UNH.N> and Humana Inc <HUM.N> plan to exit most of their exchange business.

"On the exchanges, if the risk pool doesn't deteriorate further next year, it's possible they get to break even. If they at least reach break even, that's a big improvement," said Leerink Partners analyst Ana Gupte.

The Justice Department last week sued to block Anthem's Cigna deal and Aetna Inc's <AET.N> planned acquisition of Humana, saying the multibillion-dollar deals would reduce competition, raise prices for consumers and stifle innovation if the number of large, national insurers fell from five to three..

Anthem said it expects the trial will likely begin in October and last about four months. But industry experts doubt the Cigna deal could still survive the legal challenge, and allow for only a slight possibility that Aetna could prevail in efforts to salvage the Humana purchase.

"I think it's dead," Gupte said. "It's going to be a hard one to challenge, especially because Cigna doesn't look to be on board."

Morningstar analyst Vishnu Lekraj said, "There's a very small chance that it will actually get done in its current form."

CURBING EXPENSES

The Cigna acquisition would create the largest U.S. health insurer by membership, with about 53 million members, and make it the leader in employer-sponsored health insurance.

Anthem said it incurred higher-than-expected Medicaid claims, particularly from its new Iowa business, and higher costs from members with chronic conditions, such as diabetes and kidney disease, in the quarter.

Excluding items, the company earned $3.33 per share in the second quarter, topping analysts' average expectations by 10 cents, according to Thomson Reuters I/B/E/S.

Revenue increased about 7.2 percent to $21.46 billion, exceeding Wall Street estimates of $20.57 billion.

The earnings beat was largely driven by lower general and administrative costs, the company said.

Anthem reaffirmed its forecast for full-year adjusted earnings of greater than $10.80 per share, and raised its operating revenue outlook by $1.5 billion to $82.5 billion to $83.5 billion, reflecting strong enrollment trends.

It expects 2016 total membership to be 1 million to 1.2 million higher than at the end of 2015.

Anthem sees its medical loss ratio, the percent of premiums it spends on claims, to be about 84.9 percent.

Memberships in its government business, which includes Medicare and Medicaid plans, increased 6.5 percent. Enrollment grew 572,000 in the Medicaid business, the company said.

However, Anthem's benefit expense ratio, which measures expenditure on claims against premiums earned, rose to 84.2 percent from 82.1 percent a year earlier, due to the losses in the Obamacare individual insurance business.

(Reporting by Bill Berkrot in New York and Amrutha Penumudi in Bengaluru; Editing by Kirti Pandey and Nick Zieminski)