Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Anthem had some good headlines on Wednesday. The insurer reported second-quarter earnings and revenue that topped estimates, with the latter jumping 7.2 percent from a year earlier. It expects to insure more people than it initially forecast this year, after surprisingly robust growth in its Medicaid business. 

But beneath the good, there was also bad and ugly. 

Anthem's shares fell even after it released second quarter earnings that beat analyst estimates
Source: Bloomberg
Intraday times are displayed in ET.

The bad is the eternal overhang of Anthem's attempted $48 billion purchase of Cigna, now set to drag on for longer after the Department of Justice sued to block the deal last week. On Wednesday's earnings call, CEO Joe Swedish said he expects to fight the DOJ for as long as it takes. He expects a trial in the case beginning in October to last four months. 

And the DOJ might not be the only obstacle to the deal. Cigna displayed record levels of corporate lukewarmth in a statement about the DOJ action, saying it didn't believe the deal will close until 2017, "if at all." Cigna, which could receive a breakup fee of more than $1 billion if the deal falls apart, does not really seem into fighting to the death for the deal.

Aetna and Humana, in contrast, made a significantly toothier joint statement of their intentions to fight for their $37 billion deal, and they likely have a better shot at a settlement or court victory than does Anthem. Dragging its fight out forever will only make it tougher to map out an alternative path.

Anthem expects higher medical costs this year, and in part blames Obamacare.
Source: Bloomberg

The ugly parts of Anthem's report, meanwhile, involved worrying trends in its core business. The company's margins have been under pressure -- particularly in its government plans, where margins fell to about 4 percent in the quarter from about 6 percent a year earlier. 

Anthem's medical cost ratio, which measures how much of an average insurance premium dollar is spent on medical care, was higher than expected at 84.2 percent, up from 82.1 percent a year earlier. The higher this gets, the less an insurer profits. 

Anthem expects its medical cost ratio for 2016 will be around 84.9 percent, up from 83.3 last year. People on Medicaid, the fastest-growing part of the business, tend to use more care. Obamacare's individual exchanges are also an outsize driver of medical costs; its policyholders have been sicker than expected. 

The exchanges are a knotty problem. Anthem previously hoped to profit on such plans this year. It now expects to lose money. It hopes to profit next year by raising prices, but higher premiums might scare off the sort of healthier customers that would reduce medical costs.

Anthem may want to spend more energy getting its business in order, and less on a probably doomed fight with the DOJ. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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