Managing Medicaid may be the states' most challenging task, yet state Medicaid directors have never had a profile in Washington policy debates commensurate with the tasks they undertake. That may be changing. Earlier this year, the National Association of Medicaid Directors (NAMD), which had long operated under the umbrella of the American Public Human Services Association, announced that it was reconstituting as a standalone organization. It also has a new head, Matt Salo, the longtime director of the Health and Human Services Committee at the National Governors Association (NGA). I recently spoke with Salo about the challenges he sees for Medicaid, and about how a University of Virginia graduate who majored in Eastern Religious Studies became a health policy wonk. An edited transcript follows:

What is your vision for NAMD?

I see it having a couple of different roles. One is to give Medicaid directors a home where they can feel like their needs are being met. This can be one of the hardest jobs in this country. You are running a huge program, one that is often underfunded on the best of days, with thousands of pages of federal rules and federal guidance and restrictions telling you what you can or can't do. From information systems to eligibility processes to the criminal justice side of fraud and abuse, the things they're responsible for are so far reaching that it's almost impossible to be an expert on all those things. I want to make this organization one that helps them with those challenges and with becoming more effective leaders. That's one major goal.

The second major goal is that I think in Washington, D.C., and throughout the country, there needs to be a single voice talking about the experience of Medicaid directors and the unique experience of running this program at the state level. The common pressures that they're under, and the specific needs that they have to meet to succeed -- I think those have not been communicated in a strong way on the Hill. I think that's what I can also bring.

Several weeks ago, the nation's Republican governors sent a letter to the administration and to congressional leaders asking for flexibility on Maintenance of Effort requirements. Is greater flexibility necessary? And do you think they're likely to get it?

Speaking in broad generalizations, yes, greater flexibility is generally always something that states need, but I would stop short of saying that it's sufficient. Fundamentally, the challenge that Medicaid has is that, simply put, when you compare state revenues and their expected growth to the Medicaid budget, the upcoming Medicaid expansion and the growth of annual health-care costs, the two trendlines simply don't match up. Without fundamentally restructuring Medicaid and other programs -- and [having] some serious conversations around what level of government is expected to pay for what types of services -- there will be a reckoning.

What might a fundamental rethinking look like?

We need to rethink the role of the Medicare program, for one, and the relationship between Medicare and Medicaid for the dual eligibles, the low-income, frail seniors who are eligible for both programs, or something to do with long-term care. Those are the two, if you will, "cost centers." Care for the dual eligibles and long-term care overwhelmingly drives the Medicaid budget, even though it represents a very small portion of the people who are on it.

Are there things states can do to address these issues on their own?

States have done a lot of really exciting things in terms of long-term care and making home and community-based options more available to people. However, the problem is that all it has done over time is make Medicaid a more attractive place for people to get long-term care. And as long as it continues to do that, it really takes any pressure off of Medicare or of any other system to actually deal with that. If Medicaid's going to be more and more attractive, why should anyone else step in? So states have kind of innovated their way into a permanent role, an increasingly large and increasingly permanent role as the only provider of long-term care, and that's got to stop.

Most Medicaid recipients are already in managed care plans. Nonetheless, states such as Florida are making a big push to move even more of their fee-for-service population into managed care plans. How significant are the potential upsides to that?

The upside is huge. Now, it's true that most of the people in Medicaid are already in managed care. That's because most of the people on Medicaid are pregnant women, kids and families. The managed care industry has a long history of working and working successfully for those populations. Have the savings been monumental? No, and I think that's in part because again, managed care, at the end of the day, reflects the underlying health-care delivery system. And if the underlying delivery and cost of health care is very expensive, then managed care is going to be expensive too.

But the upside is that for the most part, the really expensive chronic care populations in Medicaid have not been in managed care, with some exceptions. These are the people who cost the most, have the most disorganized care and have the most potential for both decreased cost and increased quality. That's where the huge upside is. The challenge is that it's a little bit of a chicken or egg situtation. It's hard to put your most fragile populations into this managed care arrangement unless you know that the managed care networks and delivery systems are operating perfectly for that specialized population. And, how do those networks become effective and efficient unless they've had the opportunity to do it? So, it's been difficult.

Then there's the fact that for the dual eligibles, Medicare has been largely resistant to managed care. So, you've had dual eligibles in Medicaid managed care for [some] services, but in Medicare fee for services for others. That doesn't make any sense. So there's a huge upside if it's done right.

It seems like you can't go through a workday without hearing some discussion of the states' estimated $170 billion budget gap through 2012. There's universal agreement that cuts are going to have to come from the Medicaid program. But Medicaid reimbursement, in most states, is already considerably lower than Medicare reimbursements, and in some states, dramatically lower. How much deeper can states cut there?

This is going to be the real challenge. States will have to cut something to get that $175 billion. It won't all come from Medicaid: part of it will come from K-12 and higher ed, transportation and corrections, but some will definitely come from Medicaid. Medicaid cannot be left off the hook on this one, even though there are perverse economic incentives to keep it off the table.

Meaning the federal match?

For every dollar you save in general revenue, you're forgoing another dollar -- or two or three or four -- from the federal government. And that makes it very difficult from an economic development standard to make huge cuts in Medicaid.

When governors look to Medicaid to find savings, they generally run down this decision tree. The first big thing that you can do is cut eligibility, cut people off the program. Well, the Maintenance of Effort requirement that's part of the Affordable Care Act says you can't do that at all. In fact, it goes so far as to say, if you're charging a premium for some higher-income beneficiaries, you can't increase the premium by any amount, even though other families making $1,000 a year or more are seeing 10 to 50 percent increases in their premiums in the private market. So states' hands are pretty well tied on that one.

Next on the decision tree, you look at benefits. Can you cut benefits to save money? Generally, optional benefits in Medicaid come in two flavors. First, you have those that you can get away with cutting politically but don't save you any money. Those are things like adult dental, chiropractics and podiatry. People don't die in the street if there's no chiropractics, but you don't save any money by cutting it either.

Then there are those benefits that could save you so much money, but you choose to cover them for very good reasons, as in, there are no other options and these are literally life or death issues. For example, prescription drugs, or a lot of the long-term care that we talked about; it's optional at the state level. They could cut it, but where are these people going to go? So you go down the decision tree. Reimbursement rates, those will be cut. As you said, there's not a whole lot of room there anymore. State reimbursement rates are already dangerously low in many areas. And in many states, there are lawsuits that are pending and could be decided relatively soon that will say, "No, you can't cut anymore. And in fact, you have to pay more."

Let's assume, for the sake of this question, that the implementation of the Affordable Care Act is going to continue. How will state Medicaid programs interact with the new exchanges?

The exchanges are going to be one of the most interesting new developments in social policy history. This is going to create, essentially, a one-stop shop for somebody to just go online, type in a little bit of information about themselves, find out not only what their options are in terms of health insurance plans, but find out what type of subsidy might be available to them, or if in fact they are actually eligible for Medicaid. The exchange will then seamlessly interact with the Medicaid agency or the CHIP program. It will seamlessly interact with the health insurance plans. And, it will seamlessly interact with a large number of federal agencies, including but not limited to the Department of Labor, IRS, Treasury and the Department of Homeland Security to determine in real time what this person's income is, what their tax subsidy is, whether or not they are in this country legally and a number of other things. This type of coordination has never been seen before. This is unprecedented.

And how challenging is building these linkages going to be?

It is going to be very challenging. At the state level, Medicaid directors are trying to figure out not only how to build this architecture, but what's its function and its role. Is its role to be a convenient place for low-income people to find out what government services they're eligible for and how to get them more broadly, or is this really kind of a place for individuals, families and small businesses to learn about what kind of health insurance options are available to them? How you structure it will look very different depending on which of those functions you think is more important.

The NGA has always been positioned, sometimes very uncomfortably, between the parties. You'll be in a similar position in your new job. How do you serve members with such different political ideologies, and such different needs?

There are really two answers. You can serve them regardless of their differences if their needs are more internal. If what a governor or Medicaid director says is, "I need help in my state doing this," then whether that's implementing or resisting implementation, you can help them. But if what they want is a federal voice, a national voice, a unified voice, then that's obviously where the challenge comes in. And there's where your job as facilitator, convener and consensus builder comes into play. [There are] lots of instances where people have said, "Well, you know, if I went off on my own and did this, I could probably get a better deal, but I have a better chance of getting [something] done if I do it as a group, so I'll put A and B aside, let's fight for C, D and E."

You majored in Eastern Religious Studies. Does your academic background ever affect how you approach health care?

This is very much an after-the-fact rationale, but learning to think how people across the world think and feel about something so fundamental and so fundamentally different as religion, has helped me understand how people can think and feel so differently about something as fundamental as health care. It really has enabled me in some way to sort of find that path between the left and the right to the center, which is, I think, by and large what my career has been, finding the center.

Must Reads

Discussions of the Affordable Care Act have moved from constitutionality to flexibility. Republican governors such as Indiana's Mitch Daniels are demanding flexibility; U.S. Health and Human Services (HHS) Secretary Kathleen Sebelius says they've already got it. But do they?

It seems clear that HHS is willing to go to considerable lengths to give states leeway. The department recently informed Arizona that it did not need a waiver to eliminate 250,000 childless adults from its Medicaid program. (Rather, it could simply allow the original waiver that had provided coverage to expire.) Florida, New Jersey, Ohio and Tennessee also received waivers that will permit employers to keep offering so-called limited benefited plans.

States want more flexibility, however. Utah, whose health insurance exchange is seen as a model for many conservative governors, is conducting an aggressive and very public campaign to use its exchange in its current form come 2014. It's hard to imagine, though, how subsidy decisions could be made with the exchange determining eligibility. How that discussion or dispute plays out will be one to watch. (What kind of flexibility do states really need? Heritage Foundation health economist Stuart Butler lays out his thoughts here.)

The other item on the table as state legislatures reconvene is Medicaid. New York state's Medicaid Redesign Team recently released a list of 49 proposals to reduce cost and improve the quality of the state Medicaid program. Their assessments are well worth a look.

Finally, spare yourself the horrible experience I recently had of attending a conference without having read Atul Gawande's piece in The New Yorker on medical cost "hot spots."