New Conventional Wisdom: A Government Shutdown and New Debt Crisis are Gonna Happen
Health care politics here in Washington are getting curiouser and curiouser by the minute. The new conventional wisdom is that we are careening toward a government shutdown on October 1, and a newly-manufactured debt ceiling crisis a week later, with ObamaCare and every other government-sponsored health program hanging in the balance. Our long national nightmare that is the extreme right wing of the GOP continues.
Things got interesting earlier this week when House Speaker John Boehner capitulated to 30-40 right-wingers in the House and agreed to hold a vote on a bill with continued government funding (a continuing resolution or CR), but zeroing-out ObamaCare. This time Boehner has the votes for it, as the ObamaCare defunding language is part of the bill itself and not just a rider which drew such derision from the Tea Party. The vote will likely come this Friday, and it will pass. This is the easy vote for Boehner and House Republicans. It's an express elevator to political hell after that.
Once the CR goes over to the Senate, here's how the whole thing could play out. First, know this: the House CR is dead on arrival in the Senate. Dead. Stillborn. Democrats and a handful of rational Republicans have what is close to a filibuster-proof majority to stop the "defund ObamaCare" nonsense. The wingnut faction in the upper chamber, led by Senators Ted Cruz (R-TX) and Rand Paul (R-KY), has promised to filibuster, but that will only delay and not stop the train. The Senate will pass a version without the defunding language and send it back to the House. Even Cruz confirms this is the likely outcome. And there will only be days -- maybe hours -- left before a shutdown begins on October 1.
Boehner will then be forced to throw himself on the mercy of his extremists, saying he did everything he could to stop ObamaCare. But it won't be enough for the hardcore on the right...and they will let the shutdown happen. They will shake the economy again with their continuing irrationality and call a storm of holy friendly fire on their own party.
The question is how long Boehner can withstand the public outrage before he crumbles (my money is on a 5-7 day shutdown)...and is forced to form a coalition between moderate Republicans and Nancy Pelosi and the Democrats to reopen the government. This will cause a revolt from Boehner's right unless he agrees to the same tactics when the debt ceiling is breached a week later in mid-October, and we go through the same manufactured crisis all over again, this time with the nation's credit rating and capital markets hanging in the balance. Again. And there could be far worse consequences of a debt ceiling breach than a government shutdown, especially for Medicare and Medicaid.
As we've mentioned here before, a government shutdown is bad enough. What happens to Medicare and Medicaid when DC closes its doors depends on how long the shutdown lasts, but it ain't pretty no matter what. If it goes longer than 30 days, it's going to hurt, bad. A full-blown extended government shutdown hasn't happened since the winter of 1995-1996 — my last year as a Clinton appointee at HCFA, now CMS. The shutdown was a 2-part ordeal, lasting 5 days in November 1995 and another 21 in December 1995 and January 1996. Medicare continued to pay physicians and hospitals during the shutdown, and the ability to reimburse providers and plans was never in question, because claims are paid out of Medicare trust funds that are separate from Congressional appropriations.
However, payments to CMS's Medicare vendors for claims processing comes from the CMS operating budget, which — unlike the trust funds — is vulnerable to Congress turning off the spigot. Therefore, in 1995 and 1996, CMS's claims vendors processed and paid claims on a credit basis, with the expectation of being made whole later. An HHS official warned during a Congressional hearing on the 1995-1996 shutdown that Medicare claims vendors "would have to cease Medicare payments if their cash ran out due to a longer hiatus." So if the shutdown -- or worse, a debt ceiling crisis, where the government can only spend dollars as they are collected -- were to last for many months, Medicare fee-for-service benefits and payments to providers would stop. Health plans are paid on the 1st of the month, so as long as a shutdown or debt ceiling breach doesn't exceed 30 days, there should be minimal disruption to cash flow.
Most in Washington expect Medicaid's core functions to continue unimpeded during a shutdown — as long as it's fairly short. "According to the House Committee on Energy and Commerce, because Medicaid allotments are paid to states in advance on a quarterly basis, it is likely states will not see an immediate impact from a temporary government shutdown," Rep. James Renacci (R-OH) said in last year's shutdown bulletin on his website. That means physicians and other healthcare providers should continue to be paid as usual as they serve the Medicaid and SCHIP (State Children's Health Insurance Program) populations. If Congress runs up to the midnight deadline with no plan to fund the government, federal agencies including CMS must designate which workers are performing essential work. Those people would be asked to stay on the job, while nonessential workers would be furloughed. It's unclear if furloughs might have ripple effects for some Medicaid services, such as enrolling new beneficiaries for coverage.
So, short answer: both entitlements are likely to continue to operate and administer benefits and payments during a government shutdown — but only if it's brief. If a political impasse occurs and a shutdown or debt ceiling breach stretches into weeks or even months, it's anybody's guess what happens to Medicare and Medicaid. And if there's disruption to payments, for even a few weeks, the economic and healthcare consequences will be severe.
And as we've said before, the biggest casualty of this legislative train wreck may be the doc pay fix. Congress made significant bipartisan progress on the Medicare physician payment fix of the flawed "sustainable growth rate" formula which will cut 30% in 2014 unless offset. While the cost of a long-term fix was recently reduced (~$150B vs. $300B) and raised hopes for a deal, it will now get thrown into this latest manufactured budget disaster. This is significant for Medicare Advantage because a long-term doc fix means MA rates go up about 6-7%; no fix, no boost. So, ironically, physicians and beneficiaries end up at the short end of Washington dysfunction again.
In this next 4 weeks I think we're going to see the beginning of the end of Boehner's speakership, and the rift down the middle of the GOP break wide open. All because of blind, insane opposition to ObamaCare. But at least the loyal opposition is "sticking to its principles."
The utter irrationality of the Republican party is evident when u consider that neither a government shutdown nor a debt ceiling breach will stop the Obomacare train. In a recent article, the Congressional Resource Service revealed that if the government were shut down, "funding for Obamacare would still continue."
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Wall Street Consensus: 2014 Will Be a Big Growth Year for Payers
Since returning from summer vacation I've been making the rounds with friends and spies on Wall Street to see what the nation's checkbook is thinking about the seismic changes coming to our health system starting on October 1. Usually these guys are like long-tailed cats in a roomful of rocking chairs about disruptive events like ObamaCare. But a consensus emerged: 2014 is going to be a big year for health insurers.
Generally speaking, Wall Street analysts and investor types see ObamaCare's health insurance exchanges and the 8 million uninsured expected to enroll next year as having relatively little influence on payer financial performance in 2014. Even with most red states resisting Medicaid expansion (especially those with the highest rates of uninsurance, like Texas), the money guys see Medicaid and the transition of Dual Eligibles to health plans being the real driver of coverage and margins. They see a tough reimbursement environment in Medicare Advantage, but not enough to derail growth in 2014, and covering an outsize portion of SG&A. So, overall, a big year is coming, and driven by government-sponsored programs.
Analysts agreed there are some clear signals that coordinated care is actually working to reduce utilization, especially in high-profile cohorts like readmissions. They point out medical loss ratio (MLR) trends for all product lines came in below expectations and consistent with continued volume weakness reported by hospitals, with most publicly-traded plans now guiding to a decrease in costs for 2013. No publicly-traded health insurer missed their estimates for Q2 2013, and all beat expectations by at least 20%.
Expecting further weakness in government securities due to another budget crack-up in Congress, some analysts anticipate plans will actually deploy capital in 2014 to achieve longer-term strategic goals more quickly, like acquisitions and investing in ACOs and medical homes. There was complete agreement on a continued long-term trend of payer consolidation, with WellCare's purchase of Windsor Health Plan last week the latest omen.
Our friends noted that in second quarter the average publicly-traded plan Medicare Advantage MLR was 85.5%, up slightly year over year. Medicaid health plan MLRs actually decreased slightly to 87.5%, and revenue, membership, MLR and earnings all came in better than expected.
At least in our little informal focus group, Wall Street was unanimous: 2014 is going to be a big year for health insurers, with Medicare Advantage covering an outsize amount of plan operating costs, and ObamaCare's Medicaid expansion and duals transition driving the growth.
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Another Pound of Flesh for Government Health Programs This Fall?
With summer drawing to a spectacular close here in Washington, it's abundantly clear that the "train wreck" everyone's expecting won't involve the launch of ObamaCare, but rather an epic legislative pile-up in Congress. With the collision of the debate on Syria, the immigration bill tearing the GOP apart, and now a near-concurrent exhaustion of government funding and the debt ceiling at the end of September/early October, the President and Speaker Boehner will be picking up the pieces of their agendas come Halloween. The question is whether government-sponsored health programs will have to give up another pound of flesh in the process.
Congress returns from summer recess Monday, and it'll be all about Syria, and that will crowd out other Congressional priorities like immigration, continued government funding for the new fiscal year, and the positive bipartisan progress made on the long-awaited "doc fix" for Medicare fee-for-service physician payment rates.
Funding for the government expires on September 30, 2013. You'll recall that earlier this summer, a right-wing cabal led by Senator Ted Cruz (R-TX) threatened to use continued government funding as leverage to defund ObamaCare. While they don't have nearly enough votes in either House or Senate, they made enough noise for Speaker Boehner to try to mollify them. The GOP leadership pitch was "don't shut down the government over ObamaCare, that'll kill us in public opinion. Let's use the debt ceiling as leverage at year-end instead." But now the government is expected to hit the debt limit by mid-October, two months earlier than expected, so the calendar just called Boehner's bluff with his right wing.
All of this will erupt in late September and Boehner will have to punt. We expect a 6-12 week extension of government funding to the latter part of the year, and certainly no "grand bargain" with the President. In the meantime, capital markets will be a panic for months given uncertainty over continuing government operations and US credit ratings. So this whole noisy mess will drag on toward the holidays, right while ObamaCare's exchanges are launching.
While this is happening, the basic outlines of the last budget meltdown, the loathed across-the-board spending cuts called "sequestration," will remain in place. Syria raises the potential that sequestration is eased for the Pentagon so we have plenty of bombs and missiles on hand. Sequestration's cuts to domestic programs, and therefore the impact to Medicare and Medicaid, are likely to remain in place. But the Pentagon will need its pound of flesh, and Medicare and Medicaid are always at risk as the biggest contributors to the deficit. If this happens, we suspect Congress will get it in the form of higher beneficiary out-of-pocket costs like deductibles and physician copays.
The biggest casualty of this legislative train wreck may be the doc pay fix. Congress made significant bipartisan progress on the Medicare physician payment fix of the flawed "sustainable growth rate" formula which will cut 30% in 2014 unless offset. While the cost of a long-term fix was recently reduced (~$150B vs. $300B) and raised hopes for a deal, it will now get thrown into this latest manufactured budget disaster. This is significant for Medicare Advantage because a long-term doc fix means MA rates go up about 6-7%; no fix, no boost. So, ironically, physicians and beneficiaries could end up helping pay for bombs and missiles aimed at Syria, and plans may not get the very positive ripple effect of a doc pay fix. Sigh.
So, our prediction: punts on continued government funding and the debt ceiling until the holidays; a noisy, messy launch of ObamaCare exchanges; panicked global markets as this budgetary kabuki theatre act drags out; and physicians and beneficiaries extorted.
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Gorman Health Group Senior Vice President of Public Policy Jean LeMasurier, summarizes the final rule from CMS regarding exchange functions, eligibility for exemptions, and miscellaneous minimum essential coverage provisions.
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The Human Cost of Red States' Middle Finger to Medicaid Expansion
The Kaiser Commission on Medicaid and the Uninsured is out with a new study illustrating the sickening human cost of the Red States throwing a middle finger to President Obama on the Affordable Care Act's (ACA) Medicaid expansion. Twenty-one states are not expanding Medicaid coverage under Obamacare and would gain considerably more than the 23 states that are expanding eligiblity. Partisans like Texas Governor Rick Perry and Kansas Governor Sam Brownback govern states with the highest rates of uninsured -- and millions of their own citizens won't get health insurance so they can score cheap political points.
In states that are expanding Medicaid under the ACA, the average percentage reduction in the number of people without health insurance is 40.9 percent. But in the states not expanding Medicaid, the average reduction of uninsured would have been 52.5 percent. The debate over Medicaid expansion continues in six states. The average rate of reduction in those states would be 54.1 percent.
Kansas is a great example of the dereliction of duty to the public good Red State governors and legislatures are engaged in, solely for "principled" resistance to the President's signature accomplishment. The number of uninsured people in Kansas would be reduced by almost half, or 47.6 percent, by accepting the Medicaid expansion funds in ObamaCare. But state legislators and Governor Brownback earlier this year chose to go against expansion, citing concerns about future costs.
Currently, the federal government covers about 60% of Kansas Medicaid costs. You'll recall that under the ACA, the Feds initially would cover 100% of the costs for newly eligible enrollees, and no less than 90% of those costs over the long term. So the cost argument tossed up by so many Red States is a farce, a sop to fiscal conservatives with no basis in fact. What they're really thinking is that those eligible for the expansion will skew Democratic in the voting booth, so why do anything for them? Kansas legislators actually passed a law barring the Governor from expanding Medicaid without "express approval" from the Legislature, which won't meet again until January.
Kaiser's report shows that expanding Medicaid in Kansas would cover an estimated 144,000 additional Kansans, and cost the state about $525 million over the first 10 years of the expansion. If Kansas does not expand Medicaid, the state won't receive about $5.3 billion in additional federal Medicaid funds 2013-2022, and Kansas hospitals would receive about $2.3 billion less in state and federal Medicaid funds for uncompensated care over the same period. So we're talking a huge net gain for the state in Medicaid funding if they expand, and a huge cost, both in state coffers and the human toll of not expanding. This makes the Red State cost argument baseless, and shows the raw, awful politics of ObamaCare at the hands of right-wing partisans.
The shameful thing about the unprecedented resistance to ObamaCare in Red States is that all those elected officials, from Brownback to Perry to the Florida State Senators who thwarted expansion, all took oaths of office to protect and serve their constituents, regardless of their party affiliation or insurance status. They're showing their true motivation, which is only to support laws of the land that benefit people who look and vote like them.
I, for one, hope they reap the whirlwind when those constituents figure out they didn't get something as vital as health insurance so their elected officials can have a punchline for a campaign ad.
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Gorman Health Group policy expert Jean LeMasurier summarizes three new proposed regulations implementing provisions in the Affordable Care Act.
Listen as GHG's Executive Vice President, Steve Balcerzak, discusses the unbanked and the implications this population will have on the ACA.
CBO: Slower Growth in Exchange and Medicaid Enrollment
The Congressional Budget Office released its new economic outlook yesterday and predicts a slower start to enrollment in the new exchanges: 7 million people in 2014 -- down from 9 million last July -- and rising by 2016. The CBO report also estimates that 8 million people will enroll in Medicaid in 2014, so about 15 million people will obtain health insurance next year.
CBO says those numbers will jump, and quickly. By 2016, 24 million people will get coverage through the exchanges and 11 million through Medicaid. By 2024, they'll be at 26 million and 12 million, respectively. CBO attributed the slower start to a number of factors, including "the readiness of exchanges to provide a broad array of new insurance options, the ability of state Medicaid programs to absorb new beneficiaries, and people's responses to the availability of the new coverage."
CBO warned that the impact of the health law is a "source of great uncertainty" and said it's difficult to assess the full impact of the law, much of which hasn't been established in regulation or implemented yet.
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Gorman Health Group policy expert Jean LeMasurier provides a summary of proposed rule CMS-2334-P, which reflects new statutory Medicaid and CHIP eligibility provisions.
Listen to a discussion focused on the lessons learned from MA and Part D when it comes to product strategy in the Exchanges.
Hear Gorman Health Group experts discuss the Federal Facilitated Exchange (FFE) and implications for health plans.
Let the Games Begin on Medicare Reform
Just days after President Obama's full-throated support of defending Medicare from structural reforms in his Inaugural Address, Senator Orrin Hatch (R-UT) yesterday threw down the gauntlet and maintained that reforms are needed in both Medicare and Medicaid in order to reduce the national debt. Hatch, the ranking Republican on the Senate Finance Committee, laid out five proposals that have enjoyed bipartisan support in the past and should be included in deficit reduction talks. They include raising the Medicare eligibility age, changing Medigap coverage, streamlining Medicare cost-sharing under Parts A and B and adding a catastrophic cap, competitive bidding in Medicare, and Medicaid per capita caps.
Let the Games begin.
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Obama's Inaugural Hard Line on Medicare/Medicaid
Inauguration Day in Washington is a blessedly nonpartisan event celebrating our messy yet peaceful democracy with great pomp. But President Obama, with renewed certainty, drew a hard line in his inaugural address against entitlement cuts that could fundamentally change Medicare and Medicaid. And in doing so he doubled down with Republicans in the next rounds of the deficit reduction cagematch.
"We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future," the President said. With a slap at Mitt Romney's "47%" comments, Obama asserted that our entitlement programs "strengthen us" and "do not make us a nation of takers; they free us to take the risks that make this country great."
Obama has said he's willing to make "modest" changes to Medicare to keep it solvent in the long term, but he wants to do so by "bending the curve" on costs, not by major structural reforms. In repeating these lines he's acknowledging what he owes to core constituencies in his own party, and flushing the ideas of an eligibility age increase or a serious look at premium support. Republicans want big structural changes to Medicare, and point out that their ideas did better with voters in the election than a lot of Democrats thought they would. But that doesn't mean they'll get what they want from a President who has clearly concluded that these folks on the Hill won't be any help. Like, ever.
Obama reminded the inaugural audience that the Affordable Care Act was intended to be a crown jewel of the America's safety net. "Together, we resolved that a great nation must care for the vulnerable, and protect its people from life's worst hazards and misfortune," Obama said. Red meat for the left -- and a warning to the GOP. The President's got his swaggah back.
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What Happens to Medicare/Medicaid If There's a Government Shutdown?
I hate to have to say it, but the "fiscal cliff" debate/debacle last month is going to feel like a speed bump compared to what's coming here in DC on the debt ceiling next month. At the height of its dysfunction right now, the relationship between the President and the Congress points to a near-inevitable government shutdown in the next 60-90 days. Which raises the question of what happens to Medicare and Medicaid when DC closes its doors. The answer? It depends on how long the shutdown lasts, but it ain't pretty no matter what. If it goes longer than 30 days, it's going to hurt, bad.
As the battle lines develop, that's looking increasingly possible. More than half of House GOP members, including some party leaders, are prepared to shut down the government to make their point on cutting spending as part of any debt ceiling deal. House Speaker John Boehner "may need a shutdown...so they have an endgame and can show their constituents they're fighting," said a House leadership advisor. The government will shut down if the House GOP were to refuse to extend the law funding government operations on March 27.
A full-blown extended government shutdown hasn't happened since the winter of 1995-1996 -- my last year as a Clinton appointee at HCFA, now CMS. The shutdown was a 2-part ordeal, lasting 5 days in November 1995 and another 21 in December 1995 and January 1996. Medicare continued to pay physicians and hospitals during the shutdown, and the ability to reimburse providers and plans was never in question, because claims are paid out of Medicare trust funds that are separate from Congressional appropriations.
However, payments to CMS's Medicare vendors for claims processing comes from the CMS operating budget, which — unlike the trust funds — is vulnerable to Congress turning off the spigot. Therefore, in 1995 and 1996, CMS's claims vendors processed and paid claims on a credit basis, with the expectation of being made whole later. An HHS official warned during a Congressional hearing on the 1995-1996 shutdown that Medicare claims vendors "would have to cease Medicare payments if their cash ran out due to a longer hiatus." So if the shutdown were to last for many months, Medicare fee-for-service benefits and payments to providers would stop. Health plans are paid on the 1st of the month, so as long as a shutdown doesn't exceed 30 days, there should be minimal disruption to cash flow.
Most in Washington expect Medicaid's core functions to continue unimpeded during a shutdown -- as long as it's fairly short. "According to the House Committee on Energy and Commerce, because Medicaid allotments are paid to states in advance on a quarterly basis, it is likely states will not see an immediate impact from a temporary government shutdown," Rep. James Renacci (R-OH) says in a shutdown bulletin on his website. That means physicians and other health-care providers should continue to be paid as usual as they serve the Medicaid and SCHIP (State Children's Health Insurance Program) populations. If Congress runs up to the midnight deadline with no plan to fund the government, federal agencies including CMS must designate which workers are performing essential work. Those people would be asked to stay on the job, while nonessential workers would be furloughed. It's unclear if furloughs might have ripple effects for some Medicaid services, such as enrolling new beneficiaries for coverage.
So, short answer: both entitlements are likely to continue to operate and administer benefits and payments during a government shutdown -- but only if it's brief. If a political impasse occurs and a shutdown stretches into weeks or even months, it's anybody's guess what happens to Medicare and Medicaid. And if there's disruption to payments, for even a few weeks, the economic and health care consequences will be severe.
Welcome to the "new normal" in the age of austerity here in DC.
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Raising the Medicare Eligibility Age and Its Implications in the Fiscal Cliff Negotiations
You'd never guess from what you see in the news, but the fiscal cliff negotiations are proceeding on two tracks and there is a deal to be done in the coming weeks. One track is public: the screeds in the media and parliamentary chicanery on the Hill, all with the goal of proving their ideological purity to their respective bases and beating the crap out of the guys across the aisle. Speaker Boehner last Friday: "There isn't a progress report, because there's no progress to report." That piece has been depressing as hell to watch. Didn't we do this with disastrous results last August? The two parties are like little boys with toys.
The other track is private: the horse-trading going on behind closed doors by Boehner and President Obama. There, a deal is coming together. What we see is a game of chicken between Democrats and Republicans -- Dems won't budge on entitlement cuts and Republicans continue to reject any tax increases on the wealthy -- and at some point in the next two weeks, one party will blink. And the path to a deal is this: raise tax rates a little, giving Democrats a win, but not all the way back to 39.6 percent, giving Republicans a win. They'll cap some tax deductions as well to generate more revenue.
The bigger question is what Republicans will get on the spending side of the deal. There will be cuts to Medicare -- we're thinking in the neighborhood of $400-500 billion -- and the big concession from the Dems is likely to be an increase in the Medicare eligibility age from 65 to 67. It's not great policy as it would disproportionately impact minorities and hospitals and wouldn't actually save much if anything, but it has huge symbolic importance for deficit hawks and Tea Partiers, so it represents an outsize bone for the President to toss in. That's why you see Nancy Pelosi screaming it's a non-starter -- they're making it tastier for the right.
Sarah Kliff from WaPo did a terrific post today on the five biggest implications of an increase in the eligibility age. She points out that the change would move about 5 million seniors out of Medicare, and back to their employers' insurance, into the exchanges, or into Medicaid if eligible. A whopper of a finding: "as the federal government saves $5.7 billion in 2014 by spending less on Medicare, (employers and Medicaid) would spend $11.7 billion more providing the same health care benefits." Not much of a saver there -- but red meat for budget cutters.
A Half-Trillion from Medicare/Medicaid in Fiscal Cliff Deal?
In a recent webinar we predicted that we would see $300-500 Billion in savings from Medicare and Medicaid in a deal to avoid the fiscal cliff. The shapes in the fog are becoming clearer and we'll stand by it: Senate Majority Whip Dick Durbin said this morning on MSNBC's "Morning Joe" that he'd like to see around $400 Billion in cuts from Medicare as lawmakers negotiate a deal to avoid the fiscal cliff.
"I think that's something we should start working with, I think that's a good indication of where we could go. But when we sit down with revenue on one side and entitlements on the other, that's when we get specific."
Durbin suggested a few ways to help achieve those cuts: more means testing, possibly a separate prescription drug program with a low-cost option (?) and encouraging the development of ACOs. Later, during a speech to the Center for American Progress, Durbin, a member of the 2010 Simpson-Bowles Commission, discussed raising the Medicare eligibility age. He's got plenty of "savers and raisers" up his sleeve: "There were some 20 options that were given to us, and I supported a number of them."
Durbin took a welcome poke at some of his Democratic colleagues who oppose reforming Medicare and Medicaid: "Some say don't touch entitlements, I don't think that's a responsible approach," Durbin said. "Untouched, unchanged, Medicare runs out of money in 12 years — 12 years."