BOISE - Gov. Butch Otter said Tuesday a state-built health insurance exchange is the best option for Idaho under the federal government's health care overhaul, but left the final decision up to lawmakers who return to Boise in January.

Otter has criticized President Obama's health care overhaul - Idaho was among states that sued unsuccessfully to overturn it - and he has taken months to make a decision on the insurance exchange, to be an online marketplace for insurance products for individuals and small businesses.

But he said his options were limited to letting the federal government call the shots or having the state take an active role.

With Tuesday's decision, Otter follows the recommendation of a governor-appointed panel from October that Idaho adopt a state-based, nonprofit exchange, rather than letting the federal government intervene with its own.

"There will be a health insurance exchange in Idaho," Otter said in a statement. "Our options have come down to this: Do nothing and be at the federal government's mercy in how that exchange is designed and run, or take a seat at the table and play the cards we've been dealt. I cannot willingly surrender a role for Idaho."

Jon Hanian, Otter's spokesman, said Idaho still must inform U.S. Department of Health and Human Services Secretary Kathleen Sebelius of the governor's decision, as well as send a so-called "blueprint" containing at least some of the details of Idaho's exchange, including the composition of the board that will oversee it.

The blueprint, being crafted by Department of Insurance Director Bill Deal, will likely be sent on Friday, Hanian said. "It's not done yet," he said.

Otter's decision will please businesses and insurance companies in Idaho that championed a state-built exchange. They argued its policies would be tailored to fit Idaho residents, unlike a federally-run exchange designed for some 20 states that have chosen that option.

"A state-based exchange will help Idaho have more control over Idaho's health insurance costs and keep Idaho in the driver's seat on health insurance issues," said Heidi Low, executive director of the Idaho Health Exchange Alliance, a group of some 400 individuals and businesses advocating for a state exchange.

The move angered conservative groups, however.

The Idaho Freedom Foundation's Wayne Hoffman, one of two members of Otter's panel who in October opposed the state-exchange recommendation, vowed to do everything to halt "this destructive law."

"Gov. Otter's decision makes the national effort of resistance much more difficult and more likely the law will remain in place, at great cost to Idaho families, businesses and our nation's economic vitality," Hoffman said.

Legislative leaders including House Speaker Scott Bedke, R-Oakley, met with Otter last Friday to discuss options.

On Tuesday, Bedke said Otter has taken the right approach: Leaving Idaho's options as broad as possible and letting lawmakers participate.

"If along the way there are conditions or requirements he's not comfortable with, he assured us, he would recommend we would opt out," Bedke said, adding that new legislators set to start the session in Boise Jan. 7 face some heavy lifting. "They have to inform themselves completely on this subject, so they can make an informed decision sometime in January."

House Minority Leader John Rusche, D-Lewiston and a former insurance company executive who favors a state exchange, said the governor made the only reasonable choice.

"The fact is, Congress passed the law, the president signed it and the Supreme Court upheld it," Rusche said.

"After going through, trying to find the truth in the matter, he (Otter) sees it the way I do: It's Idaho's best bet."