The answer, after spending considerable time in Nexus and Skype chat support is that Skype does not provide dialer support for Nexus 5 KitKat. Unsure if other manufacturers using KitKat have the same issue or have delivered a solution.
I was told by Nexus support I could contact LG for a possible solution, but that the change could void my warranty.
The worst part is that this is not obvious from a Google search. Nothing at all on either sites. Support acts like they don't know. Nexus support would not answer the simple straight forward question, can Skype be a dialer.
I find it hard to believe that both companies are not fully aware that this is the situation. The customer suffers. What exactly does poor android support gain Skype? They just had to refund my prepaid year and lost an opportunity for a lifetime revenue stream....