Proponents of the state-based health insurance exchange may have just had the air let out of one of their main arguments against the federal government creating one for Idaho.

Gov. Butch Otter told the Idaho Chamber Alliance Monday that he received confirmation from the federal government that the U.S. Department of Health and Human Services would use Gem State insurance carriers in its exchange setup.

Opponents of letting the federal government establish the exchange have argued for months that anything other than a state-based exchange would hurt Idaho’s insurance companies and cost Gem State jobs.

But Otter says he believes Idaho’s carriers will be included if the state takes a pass in creating its own exchange.

“Up until three weeks ago we were under the impression … that if we don't design our own, then our state-based insurance, those that are indigenous to Idaho, companies, primarily the big three, the Blues and Pacific Source, would not be able to participate in the insurance exchange,” Otter said, as reported by the  Spokesman-Review. “About three weeks ago we got a letter that said that is not exactly right. Even with a federal exchange, you could have your companies in Idaho participating in that federal insurance exchange.”

Many, including the powerful Idaho Association of Commerce and Industry (IACI), believed that only a state-based exchange would allow Idaho’s insurance companies to be part of the process.

“We believe that, regardless of the mandate, the creation of an exchange is good for the state,” IACA president Alex LaBeau wrote in a Sept. 20 letter to Otter. “Obviously the details of how to create the exchange are highly important to the overall success of such an exchange. We therefore recommend that Idaho proceed with a cautious approach that incorporates the greatest amount of flexibility, to adapt as necessary, and to ensure it is both cost effective as well as efficient.”

There are no guarantees that a federally-run exchange would feature only Idaho carriers, the governor noted. “We were concerned about whether or not they (Idaho carriers) would be able to participate,” Otter said. “We've been told, or at least indicated in a letter, that it's not automatically exclusive of our state-based insurance companies.”

Another exchange proponent, Rep. John Rusche, D-Lewiston, said using Idaho carriers was one of his three major concerns about exchange creation and believes, even with Otter’s news, there may still be reason to build a state-based program.

Rusche says the base benefits package for the exchange has yet to be set and that the decision that’s made over pricing could drive up costs through a federal system. If a federal exchange decides the basic benefits, Rusche explained, it could drive Idaho’s insurance prices up. “My guess is there’s a significant difference in the premium costs,” Rusche said of the likely differences between an Idaho and a federal plan. “And if we go up to the average for the country, it will cost us money.”

Rusche is also concerned with customer service in the exchange, saying that it’s much easier to deal with state agencies than their federal counterparts.