This is a rush transcript from "Special Report," January 17, 2013. This copy may not be in its final form and may be updated. Watch the latest video at FoxNews.com NEIL CAVUTO, HOST: $16.4 trillion and counting. The nation's debt ceiling is still, still mounting. To cut the red, my next guest advocates at least more green when it comes to health care. It is called the Public Option Deficit Reduction Act. And Democratic Congresswoman Jan Schakowsky said there would be a method to adding to it. Explain, Congresswoman. REP. JAN SCHAKOWSKY, D - IL: Well, actually, the public option would decrease the deficit by about $104 billion over 10 years. CAVUTO: How do you know that? SCHAKOWSKY: And that's the Congressional Budget Office estimate of what it would do. This is not numbers I made up, because it would in fact lower the cost -- provide an option -- and this would be completely by choice -- for people who would want to pick this public option among the private sector choices within a health exchange. And rates for premiums are estimated to be about 5 to 7 percent lower, meaning those people in the exchange that needed a subsidy would take fewer tax dollars. And it is also estimated that it would serve as an anchor, because there's competition, to bring down the cost of health care, even in the private sector as well. So that's... (CROSSTALK) CAVUTO: But when has the government -- when has the government ever, ever done that? I mean, with George Bush's plan, of which you were quite critical, and you had a right to be at the time, for prescription drug benefit, the argument was that it would drive down the cost of those drugs. If anything, they have soared since that benefit came in, because the government cannot act as a source of even buying in bulk of cutting those prices down. SCHAKOWSKY: Well, that's exactly right. And in fact I'm also supportive of legislation that would allow Medicare, just like the Veterans Administration does, to negotiate with the manufacturers, the drug companies, for lower drug prices. And I guess the point is that there are serious deficit... CAVUTO: But it doesn't work. Right? It didn't work in the case of drug prescription. If you were to expand this to care, what... SCHAKOWSKY: No, no, no. (CROSSTALK) CAVUTO: ... what is the chance that you would get more bang for the buck? SCHAKOWSKY: OK, but here's the difference. If Medicare were allowed to negotiate with the pharmaceutical companies, it would work. And, again, that estimate is about -- over 10 years, about $200 billion in lower prices that the federal government and consumers would have to pay for prescription drugs. So... (CROSSTALK) CAVUTO: So, you have faith in the government in a room with the drug prescription companies, of whom you're not a great fan, and sometimes you have very good reason not to be, that they would come out the better of a deal? SCHAKOWSKY: Well, the Veterans Administration does, and you certainly come out better in the deal. The drugs that are available... CAVUTO: Because these are the same private insurers, right, if you look at it, who have already, on average, lifted their premiums 50 to 75 percent since the president's health care law went into effect, when they were supposed to cover all of these things that they hadn't had to cover before, and their premium increases, which few Democrats saw coming, are now etched in stone. SCHAKOWSKY: Well, that's because states like mine and California don't have any authority to actually do anything but review those rate increases. But states that have reviewed those rate increases have actually forced those rates down. And because companies... CAVUTO: But they don't. They don't. You might be right. They might have the power and authority and try to, but let's say something like United Health Care tries to push through a 20 percent increase and they end up getting an 18 percent increase, still a big increase. I guess what I'm getting at, Congresswoman, is with the best of your intentions here, it seems we're doing everything but addressing underlying spending when we say things like, spending isn't the problem, health care spending is, maybe that will do the trick, when we come up with the idea -- not you -- but a trillion dollar coin to get around the debt ceiling mess, or the 14th Amendment to give the president the power to avoid that mess and just hike the ceiling himself. We go through these elaborate hoops to do everything but address the spending itself. SCHAKOWSKY: Well, actually, that's not really true. If we change the structure of the programs, which certainly many Republicans are always in favor of, you know, making government more efficient and changing the way we do business, then we know that we can actually lower the cost of those programs and be successful. And so I... (CROSSTALK) CAVUTO: So, you would hang your hat on that, and not try to rein in either the entitlements themselves or slowly over decades increase the retirement age or those who might be too wealthy to enjoy or get free Medicare maybe not to pay as much or to pay more? Things like that, you would be against? SCHAKOWSKY: Well, first of all, let me just say that the president has already signed into law about $2.4 trillion worth of deficit reduction. And about three-quarters of that is actually from... CAVUTO: Half of that is for wars that we stopped fighting, right, that were already factored in. SCHAKOWSKY: But a bunch of that is for spending cuts, not necessarily spending cuts that I really like, but spending cuts nonetheless. (CROSSTALK) CAVUTO: So, you -- I would take it then you disagree with him when he says we don't have a spending problem? SCHAKOWSKY: No, I think that we do have certain things that we can cut in spending, but in fact, right now, I think the crisis that we have right now is a jobs crisis. I think it's an income inequality crisis in our country. I think there's an investment crisis. You know, we don't talk enough, Neil, about the third leg of debt reduction, which is not only spending, not only raising revenue, but growth in the economy. And, you know, this debt ceiling issue is just crazy. I stand with the Koch brothers right now. CAVUTO: Was it crazy seven years ago when a lot of your Democratic colleague, ma'am, voted against raising it? Was it crazy then? SCHAKOWSKY: Well, except that it wasn't real, and this is real. And the last time... (CROSSTALK) CAVUTO: Well, I guess real is in the eye of the beholder, Congresswoman. SCHAKOWSKY: No, no. (CROSSTALK) CAVUTO: If it was theatrics then, I guess it's theatrics now. Right? SCHAKOWSKY: No, it was more -- you know that that was a -- that those past votes were more symbolic. But when we really had a crisis over the debt ceiling in 2011, there were real consequences, real lasting consequences. CAVUTO: Yes. SCHAKOWSKY: And we didn't even -- we did raise the debt ceiling in the end. CAVUTO: All right. SCHAKOWSKY: But we saw -- we saw the deficit grow, Neil, when there was this threat to -- and so, as I say, I stand with the Koch brothers... CAVUTO: OK. SCHAKOWSKY: ... the U.S. Chamber of Commerce against this hostage taking over the debt crisis. CAVUTO: Understood. Well, Congresswoman, I always appreciate your coming on. And you give as well as you take, and I appreciate that. SCHAKOWSKY: Thank you. CAVUTO: Congresswoman Schakowsky of the fine state of Illinois. 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