Is President Obama's National Health Care Reform Law Slowly Unraveling?

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This is a rush transcript from "On the Record," October 17, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Flip-flop? Well, over the weekend, maybe. On Friday, the Obama administration said a major provision of the national health care law was dead on arrival. But now the White House may be changing its mind. So what is it and what happened?

Senator Lindsey Graham joins us. Good evening, sir.

SEN. LINDSEY GRAHAM, R-S.C.: Good evening.

VAN SUSTEREN: All right, on Friday, they said the CLASS Act looked like it was dead in the water that they weren't going to be able to do that as part of the national health care, and now they're changing it. But what is this CLASS Act?

GRAHAM: Well, the CLASS Act was an attempt to raise money to pay for Obama health care.

VAN SUSTEREN: In the national health care bill or separate from?

GRAHAM: It was part of Obama health care. The CLASS Act would allow the federal government for the first time ever to get into long-term health care insurance business. You can buy long-term health care now. The federal government was going to sell it as a new entitlement, and the money collected in premiums for the first 10 years of the program were going to be used to pay for Obama health care to cover the uninsured. The Washington Post...

VAN SUSTEREN: You mean people outside the CLASS Act or to finance the CLASS Act during the...

GRAHAM: The money collected in premiums from CLASS Act insurance sales...

VAN SUSTEREN: Right.

GRAHAM: ... was not going to be used in the first 10 years to pay people when they wanted their health care. It was going to be used to make Obama health care deficit-neutral. It's called a Ponzi scheme. Kent Conrad said this CLASS Act was a Ponzi scheme that would make Bernie Madoff blush. A Ponzi scheme is when I take money from you and I take your money to pay somebody that gave me money the week before, and there's really nothing there other than people passing money around.

The CLASS Act was the government selling insurance in a way it's sold before, a new entitlement, and only the sickest people in the country would sign up for it. In the first 10 years, you collect $78 billion in premiums. That $78 billion was being used by the Obama administration to pay for Obama health care as a system. 2029, the CBO says the CLASS Act comes unraveled and you'd have to bail it out.

And that's why last Friday, somebody in the Obama administration said, We got a nightmare on our hands. We can't let this thing ever get started. It'll blow a hole in the budget. And the problem with all this is when they sold Obama health care to the Senate, they said the CLASS Act would help Americans and it would make the Obama health care deficit-neutral. Well, no longer is that the case.

VAN SUSTEREN: All right. So (INAUDIBLE) CLASS Act people (INAUDIBLE) talking about legal class action...

(CROSSTALK)

VAN SUSTEREN: CLASS Act is...

GRAHAM: It's called the Community Living...

VAN SUSTEREN: It's an acronym.

GRAHAM: ... Assistance Services and Supports. What it is, is that you could buy health care through the federal government to help you live at home when you got sick.

VAN SUSTEREN: Let's say 20 years from now. So I pay now, and then 20 years from now, when I need it, I can draw down on it.

GRAHAM: Exactly. And the federal government won't have the money in 2029 to pay your claim.

VAN SUSTEREN: And in the meantime, the money that I'm paying every month, what were they going to do with that money?

GRAHAM: Use it to owe pay for Obama health care.

VAN SUSTEREN: Pay for something else?

GRAHAM: That's why it's called a Ponzi scheme.

VAN SUSTEREN: Right. So then -- so then in 20 years, when suddenly, I want...

GRAHAM: You'd go to jail, you did this in the private sector.

VAN SUSTEREN: I know. I get it. OK, so 20 years, when I finally want it, it doesn't exist because the money I've been paying into it and everything else has been used to fund something else.

GRAHAM: Until the federal government comes to Congress and says, You got all these people promised health care, we don't have the money, we bail them out.

VAN SUSTEREN: All right. And why is -- unfortunately, Washington does all these sort of, you know, weird financial schemes. Why is this -- why is this one going to get bumped out?

GRAHAM: Well, because the people who looked at it said that it just doesn't work.

VAN SUSTEREN: That's never stopped the government before!

(LAUGHTER)

GRAHAM: Well, good news. It did this time. The critics of the bill said the CLASS Act was a Ponzi scheme. This was a Democratic senator. John Thune and myself introduced legislation the day after Obama health care was signed into law saying repeal the CLASS Act. It's going to be a new entitlement that'll add hundreds of billions of dollars to the deficit over time.

And here's the problem. If we knew then what we know now, that this thing won't work and the $78 billion they counted on to pay for Obama health care wasn't on the table, then you could never say Obama health care was deficit-neutral. So this is an example of this bill not withstanding scrutiny. There's 6 million waivers given already under this legislation.

VAN SUSTEREN: Well, as I understand it, though (INAUDIBLE) CLASS Act thing because, you know, we want people -- obviously, we don't want people to be suffering, but -- is that I can buy this now for myself, right, when it goes into effect.

(CROSSTALK)

VAN SUSTEREN: But I could also wait until I got sick to see if I even needed it.

GRAHAM: That's the problem!

VAN SUSTEREN: I mean, so...

(CROSSTALK)

VAN SUSTEREN: So why would I buy it now? Why don't I wait 20 years to see if I need it?

GRAHAM: That's why I like this show. The CBO said nobody's going to buy this until they get sick. And you're -- it's called adverse selection.

VAN SUSTEREN: So we're still -- we're still -- we're estimating what we think people would pay in it as using money to make it deficit-neutral?

GRAHAM: Exactly. Because of the money...

VAN SUSTEREN: That's a little nuts, isn't it?

GRAHAM: Well, it's -- not only is it dumb, it was dangerous. You're selling a product, you're taking the premium money, instead of putting the money aside to pay for people when they want their health care under the product you sold, you took the money and used it to finance Obama health care.

And somebody in CBO finally woke up and said, You know, what the Republicans said about this a year-and-a-half ago is actually true. So they killed the program. Now they're saying today, Well, it's not really dead. We're going to introduce legislation in the Senate this week to kill this program.

VAN SUSTEREN: And it was -- last week I think it was HHS Secretary Sebelius who said that it was dead.

GRAHAM: Yes...

VAN SUSTEREN: And now all of a sudden today...

GRAHAM: ... because it won't work.

VAN SUSTEREN: ... over the weekend, I think they got some heat from some people and...

GRAHAM: Here's the big news. This bill is coming unraveled. Obama health care is coming unraveled. The Supreme Court will be hearing a case about the individual mandate. The administration, the Obama administration, has given 6 million waivers to the mandates in this bill.

VAN SUSTEREN: I know. So nobody's paying into the fund.

GRAHAM: Six million people, mostly union members, have gotten a waiver from the mandates created by Obama health care because they cost so dang much money. Medicaid expansion -- governors are saying, You're going to bankrupt my state if Medicaid expansion goes in effect under Obama health care.

VAN SUSTEREN: Got to go.

GRAHAM: The bill's coming unraveled. The CLASS Act was a bad idea. Thank God it's not going to ever happen.

VAN SUSTEREN: Senator Graham, thank you. Nice to see you, sir.

GRAHAM: Thank you.