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Indiana Gov. Mitch Daniels takes part in the Health and Human Services Committee session at the National Governors Association's winter meeting. Daniels made a couple of trips to the White House on Monday to meet with old colleagues, and he and the other governors discussed Medicaid with President Bush. -- Bill Clark / Gannett News Service   Cost at issue in Medicaid debate Lawmakers say Medicaid, the federal-state financed health care for people of low income, cannot be sustained. Medicaid accounts for the largest portion of the federal money that states spend. The largest portion of Medicaid payouts is for the elderly and people with disabilities. STATES' EXPENSES AND MEDICAID'S PORTION * Other:  34% Elementary and secondary education:  22% Medicaid:  21% Higher education:  11% Transportation:  8% Corrections:  4% * In fiscal year 2003, includes federal funds 2003 figures exclude funds paid into the Medicare trust funds by states under buy-in agreements to cover premiums for Medicaid recipients. * In fiscal year 2003, includes federal funds Source: Centers for Medicare and Medicaid Services; National Association of State Budget Officers; National Conference of State Legislatures

WASHINGTON -- Mitch Daniels says he's just another governor among the 45 or so at this semiannual meeting of the nation's chief executives.

But some governors are more equal than others. And in a political world where "face time" and access are all-important, Daniels may be more equal than most.

Most governors took shuttle buses to the White House on Monday morning, running a gauntlet of people in wheelchairs blockading the streets to protest Medicaid cuts. Daniels, though, was long gone.

He'd walked to the White House a couple of hours earlier to have breakfast with President Bush's right-hand man, Karl Rove. Then he visited with his former staff at the White House Office of Management and Budget, many of whom Daniels hired in his 21/2-year stint as Bush's budget director; Daniels also met with his successor as budget director, Josh Bolten.

And when some governors headed late Monday to a reception touting the next National Governors Association meeting, in Des Moines this summer, Daniels headed back to the White House to meet with longtime friend Andrew Card, now White House chief of staff.

This is Daniels' first trip to Washington since becoming Indiana's governor Jan. 10. But, he said, his perspective has not changed.

"I think I've always had the state perspective," Daniels said. "Honestly, I have yet to encounter the first subject on which I have any different view" now that he's governor.

He noted that before Bush, he had worked for President Ronald Reagan. Both had been governors -- Reagan in California, Bush in Texas. And just as Reagan was, Bush is more comfortable with governors, he said.

Reagan, he noted, was "a committed federalist," who believed in shifting power to the states.

Governors, Daniels noted, "are the folks that have to make things work in the real world."

For the first time, Daniels must do what is required of most governors: assemble a budget that has no deficit. At the federal level, deficits grew under Daniels -- acceptably, he says, to allow tax cuts while also dealing with new security and defense concerns.

As governor, Daniels has proposed a one-year increase of 1 percentage point in the income tax rate on people, families and some businesses with adjusted gross incomes of more than $100,000. That rate would go from 3.4 percent to 4.4 percent -- an increase of about 29 percent.

He said the temporary hike is needed to balance Indiana's budget in one year. President Bush has proposed budget cuts to try to contain the growing federal deficit, including giving states less money for Medicaid, the federal and state health care program for the poor.

All governors face growing Medicaid costs that threaten to swamp state budgets, and Bush's proposal to provide $40 billion less to the states only makes the states' problems worse.

Medicaid was one of the chief topics governors discussed with Bush in their hourlong private meeting.

"We want Medicaid to work," Bush told the governors in his public, opening remarks.

"But we also recognize that the system needs to be reformed, and we want to work with you to do so," he said, adding that "we're worried about intergovernmental transfers."

That was a reference to what the federal government calls accounting tricks that end up giving states more federal dollars than they should. Governors said Monday they need that flexibility, and more, to cut Medicaid costs while preserving services for those who need them.

Republican and Democratic governors are expressing concern at this meeting at the proposed Medicaid cuts. When Daniels was asked about the cuts, he noted that Bush had joked about the Washington definition of cuts.

"He joked about the fact that 'Mitch remembers what they call a cut in Washington,' " Daniels said. "Medicaid is going to grow by jillions of dollars. The only question is, is it going to grow a little more slowly?"

So are his fellow governors overstating the problem?

"No," Daniels said. "It's a huge problem."

Gov. Bill Richardson, the New Mexico Democrat who also has Washington experience as both a congressman and a Cabinet secretary, said Daniels shares the other governors' perspective on such issues as Medicaid.

And, he said, his federal budget experience will be useful.

"Knowing the budget process as well as he does and having the clout with the Bush White House should be helpful to all governors, Republicans and Democrats."

Gov. Mark Sanford, R-South Carolina, also came to his state job from Washington, where he served in Congress. Understanding the federal position and viewpoint is a plus, Sanford said.

"Absolutely it helps," he said. "The real skill sets are incredibly important as you try to manage a whole host of things."

But neither he nor Richardson was completely satisfied with what he heard from Bush. They want more flexibility than they've seen so far. The devil is in the details, Richardson said. And both feared that Congress is too wrapped up in the Social Security debate to pay attention to another big entitlement, Medicaid.

Daniels said that governors can take heart in the fact that Mike Leavitt, who was governor of Utah, is now secretary of health and human services.

"The governors unanimously feel he's a good, honest broker," Daniels said.

And, Daniels said, while governors do not want to lose the power to use intergovernmental transfers in Medicaid, there is agreement on other areas, such as on reforms to prevent people from "gaming the system" by hiding assets to get Medicaid coverage, or on simplifying the eligibility rules.

Other big issues are more tactical -- how, and how quickly, should Medicaid be reformed? With smaller changes that address immediate problems, or with reforms meant to improve Medicaid, both for those getting services and the taxpayers funding them, for the long term?

"There's a lot of good will," Daniels said. "It's more a question of how to move forward."

Daniels said he had not factored in Bush's proposal for Medicaid reductions when he proposed a state budget with only a 5 percent increase in Medicaid. The House GOP has called for an even tighter Medicaid budget, with only 3 percent growth.

Asked how to hold the line on state Medicaid spending with fewer federal dollars, Daniels said: "There will be changes that we have to make. I talked last year about hard decisions that await the next governor. These are among the hardest."

He said he didn't want to call 3 percent growth impossible -- but he added, 5 percent will be tough enough.

Just ask any governor, he said.

"Any governor in that room would leap at the chance to somehow contain next year's Medicaid growth to 5 percent."

Call Star reporter Mary Beth Schneider at (317) 444-2772.

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