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UPDATE 3-Cigna says costs drop but keeps eye on Obamacare spending

(Adds details from call, recasts)

Aug 4 (Reuters) - Cigna Corp reported a higher-than-expected second-quarter profit on Friday due to a decline in medical costs, underscoring an industrywide trend reported by rival health insurers including Aetna Inc and Anthem Inc.

Uncertainty about spending in the second half of the year by individual insurance members, including those in the Obamacare program, held the company back from lowering its 2017 cost expectations further, executives said during a conference call.

Cigna has 336,000 members in individual insurance, a sector that was overhauled after the Affordable Care Act was passed in 2010 with new minimum healthcare benefits and income-based subsidies. The company focuses on large and medium-sized corporate healthcare and sells international insurance as well as government-backed Medicare plans.

Future funding for former President Barack Obamas signature healthcare law, often called Obamacare, is up in the air after Republican leaders attempt to repeal and replace it failed in the U.S. Senate last week and barely passed the House of Representatives in May. Now there are some bipartisan efforts in both houses of Congress to stabilize healthcare markets, but it is unclear how far these will advance.

Cigna echoed comments about late-year individual insurance spending from Aetna executives, who said customers uncertain about the availability of coverage in 2018 might use medical services more often later this year than they otherwise would.

Cigna said in June that it would still offer individual coverage under Obamacare, keeping the option to stay in the seven states where it now sells plans while waiting to see how possible changes in the market shake out before making a final decision on its participation.

Cigna shares were down 1 percent at $174.36 in morning trading.

MEDICAL COSTS FALL

The company said its commercial medical care ratio, which compares what it spends on claims with its income from premiums, came in at 78.7 percent. Under Obamacare, insurers must target a ratio of 80 percent and pay back customers when the figure falls below that.

"The beat follows similar results from peers as we continue to see a low-cost trend quarter that we believe will persist through the remainder of the year," Piper Jaffray analyst Sarah James said.

Cigna's net income rose to $813 million, or $3.15 per share, in the second quarter from $510 million, or $1.97 per share, a year earlier.

Excluding special items, earnings of $2.91 per share beat the analysts' estimate of $2.48, according to Thomson Reuters I/B/E/S.

Operating revenue rose to $10.27 billion from $9.89 billion, in line with estimates. (Additional reporting by Ankur Banerjee in Bengaluru; Editing by Shounak Dasgupta and Lisa Von Ahn)