By Austen Hufford

Cigna Corp. said profit fell in its latest quarter as its government business dragged on results.

The government segment's issues included medical costs in Cigna's small Medicaid business, particularly in Texas and Illinois. Cigna also faced expenses related to a Centers for Medicare and Medicaid Services audit of its Medicare plans. In January, the government regulator halted enrollment into Cigna's Medicare Advantage and prescription-drug plans and Cigna isn't able to sign up new members during this fall's open enrollment.

But Cigna said it had strong performance in its core employer business, with better-than-expected medical cost trend. The insurer also saw improvement in its group disability and life segments compared with the previous quarter, when those businesses hurt its results.

Cigna said it had tweaked its previous plan to expand its limited Affordable Care Act exchange business into new states next year. Instead of growing to 10 states in 2017, from seven this year, it will instead hold steady at seven. It is leaving three markets and going into three new ones, said Chief Executive David Cordani in a conference call with analysts. Cigna expects to see revenue growth in its individual business next year, but still plans for a loss, he said, as it weighs whether the exchanges are a sustainable business.

Other national insurers are pulling back sharply on their ACA exchange businesses next year amid steep losses and concerns about the future of the marketplaces.

Last year, Anthem Inc. agreed to buy Cigna for $48 billion, a deal that would combine the second- and fifth-largest health insurers by revenue. The combination faces an antitrust challenge by the Justice Department, with the first trial set to begin later this month.

In all for the third quarter, Cigna posted earnings of $456 million, or $1.76 a share, down from $547 million, or $2.10 a share, a year ago. The third quarter included a $71 million charge related to the proposed Cigna-Anthem merger and a litigation matter, and the prior year's quarter included a $29 million charge related to the deal.

Excluding certain items, earnings from operations fell to an adjusted $1.94 a share from $2.28 a share. Revenue grew 5.2% to $9.88 billion. Operational revenue was $9.81 billion.

Analysts polled by Thomson Reuters had projected earnings of $1.91 a share on $9.83 billion in operational revenue.

Cigna said its medical-loss ratio, or the share of premiums paid out for members' healthexpenses, increased to 85.3% from 83.6% for its government-based business on increased medical costs in its Medicaid business. The medical-loss ratio for commercial members also increased, to 79.4% from 79.3%.

The Bloomfield, Conn., insurer said it had 15.18 million total medical customers at the end of the September quarter, up 2.2% from a year prior. Commercial medical customers increased 2.1% as government customers rose 4.5%.

For 2016, the company now expects earnings of $7.80 to $8.05 per share, narrowing the forecast by 5 cents on the top and bottom.

Cigna said it was optimistic about 2017, which Mr. Cordani said should show a "very strong performance." He said the company expects it will largely be done with costs related to the federal Medicare audit, which he said has cost around $100 million this year. Cigna projects continued improvements in the group disability and life businesses.

Mr. Cordani also said that while Cigna can't enroll new Medicare beneficiaries this fall for 2017 plans, it believes it will have better retention of current members than other insurers have seen in similar situations.

He also reiterated that Cigna disagrees with federal regulators' downgrade of its Medicare star quality scores, which could affect its 2018 results. "We do not agree with those conclusions, nor do we accept them," he said, and added that Cigna will use "a variety of approaches" to deal with the issue. Companies can appeal regulators' star results and can also try to offset the quality ratings' impact on earnings with tweaks to plan design and other moves.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

November 03, 2016 11:06 ET (15:06 GMT)

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