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.

“The chances are very good that we are not going to have a state-based exchange,” he said. “Quite frankly, the clock is running.” Otter says that the Jan. 1, 2013, deadline for federal exchange certification is coming quickly when looking at the amount of work required for the project.

However, there are questions about how long Idaho has if state lawmakers give the go-ahead on the project. While there is, indeed, a deadline for the state to meet next January, the exchange doesn’t have to be fully operational at that time.

Federal certification is the process the U.S. Department of Health and Human Services (HHS) is using to decide if it needs to step in and create an exchange for a state. Applications for certification can be submitted as early as October and HHS will make its final determination on each state’s situation by Jan. 1, 2013.

Certification does not, however, mean Idaho will have a functioning insurance exchange. That will come much later in the year.

Healthcare.gov, an HHS website dedicated to providing information about health reforms, says that the Jan. 1, 2013, date is simply for submitting exchange plans for federal approval. “Exchange plans must be approved by HHS no later than January 1, 2013,” says the site. “The proposed rule allows for conditional approval if the State is advanced in its preparation but cannot demonstrate complete readiness by the January 1, 2013 date.”

On July 15, 2011, HHS outlined the functions and details of the exchanges, including the date by which they must be operational. In Subpart B of that document, the feds say states have until Oct. 1, 2013, to get their programs up and running. “We believe that ‘fully operational’ means that an exchange is capable of beginning operations by October 1, 2013, to support the initial open enrollment period,” the document states.

Part of the certification is determining if state will be able to produce a working exchange by Oct. 1, 2013.

The deadlines set forth by HHS, however, might be flexible. HHS says via the Healthcare.gov site that states willing, but not yet able to produce working exchanges by the beginning of 2014, may get more time. “The proposed rule also allows States that are not ready for 2014 to apply to operate the exchange for 2015 or any subsequent year,” the site says. “HHS will continue working with states to support their progress.”

Looking at the Jan. 1, 2013, certification deadline, Idaho Department of Health and Welfare director Dick Armstrong petitioned HHS for a waiver last year on exchange creation and asked the agency to push the process back one year. “We have assessed the complexities of the federal requirement and find the current timeline to be unreasonable and unrealistic,” Armstrong wrote.

HHS has not responded to the request.

Lawmakers have yet to take up the exchange issue this year. An interim health care task force approved a structural plan for the program, but that has no legal authority.

The federal government granted Idaho $20.9 million to build the first phase of the exchange. Otter, in applying for the funds, said he asked for the money to keep Idaho’s options open and that lawmakers can return the dollars if that’s their wish.

If Luna gets his way, the public schools state fund appropriation will be $1.273 billion, a jump of $57 million compared to this year’s budget.

There could also be stark revisions to Gov. Butch Otter’s budget if Luna’s budget is accepted by lawmakers. The superintendent is calling for Otter, instead of filling the public school reserve fund, to backfill $19 million in teacher pay cuts created by his 2011 education reform package.

Luna told lawmakers that reserves are important, but properly paying teachers is a higher priority.

Otter requested $30 million to fill the rainy day accounts, but Luna is asking that the backfilling be put first and saving put on the backburner. If lawmakers follow through on the request, teachers will see an overall 5 percent jump in pay when merit pay is enacted. Luna projects 85 percent of teachers will receive a bonus under his plan.

The teacher grid, the schedule lining out how teachers add more to their base salary, would also be fully-funded next year. The grid assesses teachers on classroom experience and college credits taken; that is, the more educators have of each, the more they earn.

The money for technological upgrades would go to several areas. Teachers and administrators would receive $2.5 million to buy laptops. Another $9 million would go to buy tech toys, including digital cameras, iPads, iPods and other electronic learning aids.

The 2013 budget includes $4.8 million in teacher development as teachers learn how to best integrate tech items into classroom learning.  Another $4 million would cover enrollment growth, down from the $12 million Luna projected in September.

The request also asks for $842,000 to pay for dual-enrollment classes for high school students who finish secondary education early and want to take college courses their senior year.

See Luna explain his initiatives to reporters below:

That means that lawmakers may be forced to choose which Otter-backed initiatives to pursue next year. In his budget for 2013, Otter laid out plans for $41 million in bonuses for state workers, $60 million for reserve accounts, $45 million in unspecified tax cuts and more money for public schools and higher education.

Otter told reporters at a breakfast meeting Wednesday that lawmakers could still achieve all the initiatives as long as revenues meet expectations.

Rep. Darrell Bolz, R-Caldwell, a co-vice chair of the Joint Finance-Appropriations Committee (JFAC), told IdahoReporter.com he is skeptical of Otter’s message to reporters. “I’m going to have to look at the numbers,” Bolz said. “I would say it’s going to be pretty difficult to do.”

If the lower revenue number means choosing among items on Otter’s wish list, Bolz says lawmakers will have some tough decisions to make. “That’s going to be the key issue,” he said. “How much do we do in tax reduction, for example, if we can do any tax reductions?”

Bolz didn’t say what his priority would be among the governor’s list, but did write last week in the Idaho Press-Tribune that he might have an initiative of his own. As part of the 2011 education reform package, teacher salaries will be reduced to pay for technological classroom upgrades.

That doesn’t sit well with Bolz. “Looking at it from the perspective that teachers are very important in the educational process, it would seem wise to backfill and reduce the likelihood of losing teachers due to the fund reduction,” Bolz wrote in the newspaper.

The state would need about $20 million to backfill teacher salaries on top of the $31 million increase Otter is already requesting for public schools.

Another lawmaker on the budget panel, Rep. Shirley Ringo, D-Moscow, told IdahoReporter.com she would like employee bonuses to be a top priority for lawmakers and isn’t as concerned with pushing tax cuts through for next year. “We’ve been revenue-challenged … and I would certainly look at some kind of compensation for them (state workers) before I would look at a tax cut,” Ringo said. “You can be certain that any increase in pay for them will flow right back into the economy.”

How will lawmakers go about slicing dollars from Otter’s initiatives if forced to do so? Ringo says she would avoid a piecemeal method and instead opt to remove entire objectives from Otter’s budget. “I think when you do it piecemeal, you find yourself not doing a lot of good in any particular area,” she explained. “It’s kind of political to put a little money here and a little money there just to be able to say you did it.”

Bolz wouldn’t say exactly how he would arrange Otter’s ideas within budget constraints. “That’s a decision we have to make,” he said.

JFAC won’t start setting budget for a few weeks and isn’t bound by the revenue target set by the revenue committee Tuesday. It’s likely budget writers will set the final revenue target after January’s final tax numbers are released in February.

This week, the agency is looking to sell it for $100, but it’s also adding $800,000 in improvements, including parking, some green space, curbs, gutters and sidewalks.

The sale is part of a deal between TFURA and Uptown Developers, which plans to spend at least $10 million in construction for a headquarters and an innovation center for Glanbia, the largest American-style cheese manufacturer in the United States. The headquarters is expected to be 35,000 square feet and the innovation center is projected to be 14,000 square feet.

When the center is completed in 2013, Glanbia’s 100 workers will occupy the facility and the company plans to add 50 more in time.

One TFURA official admits this project, at a net cost of more than $1 million for his agency, won’t guarantee any new jobs to the city. “Mostly, it will be a transfer,” said TFURA chairman Gary Garnand.

The focus of the project isn’t necessarily new jobs, Garnund said, but rather downtown revitalization.

The property’s sales price is unusual, but the developer says it fits the agency’s method of operations. “It ties in with their whole concept of urban renewal,” said Uptown Developers partner Kent Taylor.

Taylorwouldn’t say if he thought the new building would bring permanent jobs to the community. “I don’t know what their (Glanbia’s) employment plans are,”Taylorsaid. “I’m going to build a building.”

The deal isn’t yet finalized, but will likely be completed Friday in a ceremony featuring Gov. Butch Otter.

Twin Falls isn’t new to giving public money to companies for new buildings. Last year, TFURA and the city teamed up to deliver more than $24 million for land and specialized utility work to bring Greek yogurt manufacturer Chobani to town.

TFURA used debt to finance the improvements for Chobani.

This week, Otter has reversed course, telling the Associated Press he misspoke at the Jan. 5 legislative preview. “I must have left the impression it was the insurance exchange,” Otter told the AP Wednesday. “That’s simply not right.”

That’s good news for the fiscal business of the state, because Otter said the feds might threaten to drop the matching rate for the Medicaid program from 70/30 to 50/50, causing Idaho to need as much as $300 million more for the program annually.

Here’s video of what the governor told reporters about the interplay between the exchange and Medicaid funding:

One key lawmaker affirmed to IdahoReporter.com no such link exists.

House Health and Welfare Committee chairwoman Janice McGeachin,R-Idaho Falls, has spent time since the last legislative session studying the health exchanges and how they are to operate within the state. She didn’t say Otter intentionally misled reporters last week, but she suggested that maybe he’d confused some of the issues.

“I’ve never heard any such threats,” McGeachin said. “I do believe Gov. Otter had some of the issues minced up in his comments there.”

It is true that if Idaho does nothing to implement some of the changes required by the 2010 federal health reforms that the Medicaid program could lose some of its funding, but not in the way the governor explained.

The state is required to upgrade the technological system that handles and processes Medicaid enrollees so it can work within either a state or a federal health exchange program. Essentially, McGeachin said, the computers in the state’s Medicaid program need to be ready to “talk to” the systems handling the exchange.

If the state does not comply, at least in that area, the lawmaker says funding may be hurt. But even then, she points out, it’s still a big “maybe.”

“We could be putting our Medicaid programs at some risk if we don’t meet this requirements, but … it remains to be seen what that might be,” McGeachin said.

The state is planning the necessary work for the Medicaid system to integrate with whatever exchange program is formed. The Idaho Department of Health and Welfare’s 2013 budget request includes $3.84 million in state money to prepare for federal reforms.

Otter’s health care task force endorsed an initial outline of how the exchange will operate, at least in its beginning stages, last week, but it’s unclear when the Legislature will take up the issue.

Otter gave the exchanges a scant mention in his State of the State address Monday, saying that he left the door open for creation by applying for $20 million in federal grant money. “Still, last September I allowed state agencies to apply for a grant to prepare for the federal law while we continue fighting it in court,” Otter said. “My decision to allow the application to be submitted simply preserved the opportunity for you and all Idahoans to discuss our options and decide what’s best for our citizens.”

Additionally, at the legislative preview last week, the governor told reporters that he fully supports creating the exchange. “I still believe a state insurance exchange is something that would be helpful in providing affordable health insurance to the citizens of Idaho,” Otter said.

Though he says he supports the idea, the governor’s budget did not include the $20 million in federal money granted to the state. Wayne Hammon, Otter’s finance director, told reporters Monday at a budget briefing that the exchange was too unsettled to include in the fiscal year 2013 budget.

Hammon told IdahoReporter.com Tuesday Otter didn’t include the money because he wants lawmakers to decide the fate of the exchange. “It’s up to the Legislature to decide,” Hammon said. “It’s a decision he wants everyone to make.”

The governor could have authorized the money through a non-legislative spending process, but Hammon says time for that has passed and lawmakers must approve or deny the federal funds. “It will require legislative approval before we spend that money,” Hammon explained.

The most vocal opponent of the exchange, Rep. Vito Barbieri, R-Dalton Gardens, told IdahoReporter.com Monday he believes Otter is being safe by not including the federal dollars. “I think it’s great he’s being cautious,” Barbieri said.

Last week in the yearly legislative preview, Barbieri panned the exchange idea, calling it “socialism” that will only grow into a huge bureaucracy with numerous rules and regulations.

The Dalton Gardens Republican wouldn’t predict the exchange’s defeat in the Legislature, but did say the issue could be divisive. “I don’t know how great this fight’s going to be,” Barbieri said. “A lot of lawmakers have concerns.”

Rep. Marv Hagedon, R-Meridian, a member of the Joint Finance-Appropriation Committee (JFAC), says he was “not at all” surprised the money was not included in Otter’s budget. Hagedorn said he expects the money to be included in the Department of Insurance’s budget request when agency officials meet with JFAC.

At his annual State of the State speech Monday, Otter told lawmakers about his plans to add money to education, fill some reserve accounts, provide bonuses for state workers and invest in a tech company startup fund. The governor also outlined a plan to reduce taxes by $45 million, though he didn’t give specifics on how that might come to pass.

Rep. Darrell Bolz, R-Caldwell, vice chair of the powerful Joint Finance-Appropriations Committee (JFAC), said Otter’s tax reduction plan – though vague – has some backing in the House, though the idea may not sail through the Capitol.

Bolz said that a number of legislators want to make Idaho’s business climate more attractive by cutting taxes, but also believes some lawmakers aren’t ready to reduce revenues when state agencies may still be reeling from past years’ budget cuts.

“I think it’s just a question of sitting down and looking at the numbers and seeing if we can afford it or not,” Bolz told IdahoReporter.com

Though Bolz believes there are some preferable elements in Otter’s 2013 budget, the JFAC vice chairman says many lawmakers may fight over the education funding aspect. Through the education reforms bills last year, budget writers are now required to take some of the money from teacher salaries and put it toward school technology and other areas.

“That will be a very debatable issue this year,” he said, adding that the amount could be as much as $18 million taken from teacher salaries and directed elsewhere.

House Minority Leader John Rusche, D-Lewiston, told IdahoReporter.com that he is elated that no more cuts will come to essential programs including education, though he would like to see more funding directed to public schools. “We’re still $150 million short of where we were in 2007 with just as many or more students,” Rusche said. Otter has scheduled $31 million more for public schools, along with another $26 million in teacher one-time bonuses if revenues keep up with projections.

Rusche also applauds Otter for directing more funding to higher education, including $16.9 million more for universities and $4.3 million in additional funding for community colleges.

Rusche is skeptical, however, about the tax relief plan as a means to job creation. He believes there are other factors more important than just taxes when companies are examiningIdahoto relocate. He is also curious about the details because Otter hasn’t given specifics about how he would like taxes cut. “We don’t know who it’s going to, we don’t know what it’s doing, but we do know we want to do it because it’s going to make jobs,” Rusche said. “I think that’s pretty nebulous. It’s pretty much wishful thinking, especially when you look at the data on what produces jobs.”

Rusche said government might do better by spending more on roads, infrastructure and education to create livable communities.

It appears that’s what lawmakers are facing this legislative session, a change of pace from the prior two.

Gov. Butch Otter’s fiscal year 2013 budget contains more money in every area of state government, including education, bonuses for state employees and filling program reserves. Otter has also outlined $45 million in tax relief plus another expansion of the grocery tax credit.

Overall, Otter is projecting $2.7 billion in revenue for 2013, an increase of 5.8 percent from 2012. The governor’s office expects fiscal year 2012 to yield $2.55 billion in revenue. If the 2012 revenues hit that target, the state would end up with an overage of about $103 million, which Otter already has plans for in the 2013 budget.

Otter’s budget director, Wayne Hammon, told reporters Monday at a briefing that the spending plan strikes an even note. “Given the resources we have, we struck a balance between saving and spending,” Hammon said.

Education, the largest recipient of cuts in the past two years, will see more direct funds in 2013 if Otter has his way. His budget calls for a $31 million increase in schools funding, though that’s about $30 million less than was requested by Superintendent of Public Instruction Tom Luna.  The additional school money will go to fully fund Luna’s education reform package, including technology upgrades for classrooms and a teacher merit pay program.

Higher education will also see extra state money. Otter plans $16.9 million more money for universities, an 8.1 percent hike, and $4.3 million more for community colleges, a 19 percent jump. The new money will fund enrollment growth as well as pay for new building operations.

There is also planned tax relief in the governor’s budget, though there are no specific details at this point. Hammon said the 2013 spending plan sets aside $45 million for tax reductions, but he noted the governor has no specific requests as to how it happens. Some legislators have discussed lowering the personal or corporate income tax rates, but no formal plans have been offered.

Hammon says the relief is part of Otter’s strategy to spur job creation. “It’s fuel for our economic engine,” Hammon said, referring to a possible tax cut.

In addition to the $45 million, Idahoans will likely see more relief on their grocery purchases. The governor plans to expand the grocery tax refund another $15 million in 2013, bringing the total reduction to $126.2 million.

State reserves, drained during the recent years, will see a total of $60 million more money this year. The state has spent $381 million out of reserve funding through the slumping years. The public schools reserve fund will get $29 million, while the newly-created higher ed reserve fund will see $4.98 million. The general reserve fund will get a $9.45 million payment as required by state code once revenues hit a certain level, but Otter directs $16.52 million more there for a total of $25 million.

State employees could also see more money and benefits if the governor’s plan comes to fruition. Otter directs $41 million in bonuses to be paid to all state government workers, including teachers, which will account for $26 million in the total cost. The money, however, is not guaranteed. The state must meet two budget targets – one in June and one next January – for the bonuses to be realized.

If they are implemented, bonuses would mean a 3 percent one-time raise in pay for state workers.

Otter is also planning on covering increased health care costs for state employees and is looking to start a preemptive wellness program aimed at bringing down insurance costs. This area will cost taxpayers $12.5 million in 2013.

Though Democrats hold just a small number of seats in the House and Senate, it seems Republicans may be willing to work with the minority on ethics reform.

House Speaker Lawerence Denney, R-Midvale, seemed skeptical of the plans, but did hint that cooperation might be in order. “I am willing to work with minority, maybe we could come up with something out of that.”

Senate Minority Leader Edgar Malapeai, D-Pocatello, told reporters gathered at the Capitol for the annual legislative preview that the last few years have seen behavior “unbecoming of public servants” in the state and that the minority party plans to address the issues. The Senate minority leader wouldn’t give many details, but did hint that potential legislation could create an independent ethics commission. He also said Democrats may pursue “revolving door” legislation that would prevent lawmakers from taking Idaho government-related private sector jobs immediately after working in the public arena.

What Malapeai wouldn’t say is exactly why he and his party are motivated to bring ethics reforms, but he hinted at the causes. “I think most of you have been reading the things in the papers … to know what I am talking about,” the Pocatello Democrat said. “I’m not prepared to get into naming names.”

The only ethics cases in either chamber of the Legislature came in 2010 when Athol Republican Rep. Phil Hart faced complaints about his non-payment of state and federal taxes and controversy over his theft of timber from state endowment lands. Hart lost his spot on the House Revenue and Taxation Committee and his vice chairmanship on the House Transportation Committee as a result.

During 2011, two state senators came under public scrutiny involving the per diem allowance for legislators.  Sens. John McGee, R-Caldwell, and Curt McKenzie, R-Nampa, accepted per diem money for maintaining a second residence during the 2011 legislative sessions, but reportedly slept rent-free at different locations. McGee slept at this parent’s home in Boise and McKenzie caught rest on the couch in his Boise law office.

McGee also came under fire due to his June arrest for drunken driving. He was originally charged with driving under the influence and grand theft, but the latter charge was dropped in a plea deal. In the ordeal, McGee stole and eventually jackknifed an SUV and trailer in Boise.

Another incident involving an unelected public figure also raised questions about moving from the public sector straight into a lobbying position in the private sector.  Gov. Butch Otter’s chief of staff, Jason Kreizenbeck, resigned his position to join one of the largest lobbying firms in Idaho.

Without pointing specific fingers, Democrats say ethical lapses of the recent path have caused Idahoans to question the government’s integrity. House Minority Leader John Rusche, D-Lewiston, says it’s time to restore public trust. “People want what government is necessary to be focused on the common good and not on personal gain,” he said. “So we’ll be trying to address programs and proposals that restore some of the faith that people have lost in government.”

Rusche told IdahoReporter.com that the bills will likely be ready in the first or second week of the legislative session.