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Transcript: Secretary Sebelius, Sen. McConnell on 'FNS'

The following is a rush transcript of the June 28, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

BRET BAIER, GUEST HOST: As Democrats in Congress work on legislation to reform health care, how will the final bill take shape? For answers, we will hear later from the leading Republican on Capitol Hill, but first we turn to Health and Human Services Secretary Kathleen Sebelius.

Madam Secretary, Welcome back to "FOX News Sunday."

HEALTH AND HUMAN SERVICES SECRETARY KATHLEEN SEBELIUS: Thank you, Bret. Good to be with you.

BAIER: Is the president prepared to sign a health care reform bill that does not include a federal-government-run public option for health care coverage?

SEBELIUS: Well, the president won't sign a bill unless it lower costs for everyone. And he believes that the best way to lower costs is to have some competition in the marketplace, to make sure that we actually begin to bring down the overhead costs for providing insurance to everyone and change the payment system so that we don't continue to pay for things that don't work.

So that's really one of the fundamental issues — is how you make sure that costs come down, and I think a public option is — competition in the marketplace is one of the best ways to do that.

BAIER: Is he open to a health cooperative plan, either consumer- owned or state-run, as opposed to a federal-run public option?

SEBELIUS: Well, he said that all serious ideas should be on the table, and certainly there are a lot of discussion items going on in the House and the Senate about how you provide that competition. And so he's eager to work with members of the Senate and members of the House to get to the final goal of providing choice for consumers and actually lowering costs by having competition.

BAIER: But his preference is a federal public option.

SEBELIUS: He's made it very clear that he thinks that's the best strategy, that's the best way forward, but again is open to the notions that are being discussed right now.

BAIER: As you know, Republican critics say having this government public option tips the scales and would result in millions of Americans either shifting off employer-based health benefits, provided insurance, or being shifted off of it, because the government plan would be cheaper but not necessarily better.

Take a listen to this.

(BEGIN VIDEO CLIP)

REP. PAUL RYAN: The private sector does have to pay for and account for its employees in their benefit and wage costs. The public plan does not have to do that. So there are enormous, enormous advantages. It's kind of like my 7-year-old's daughter's lemonade stand competing against McDonald's.

(END VIDEO CLIP)

BAIER: What is your reaction to that, Madam Secretary?

SEBELIUS: Well, from the outset, I think the president has made it clear the playing field has to be leveled. The plan can't be tilted toward the government option.

And I think as the bills emerge — the House bill has some protections to make sure that if people are in employer-based coverage right now, they stay in employer-based coverage.

The president has wanted all along to build on the current system, not dismantle the current system. So for 180 million Americans who have coverage provided by their employer that works for them and their families, we want to make that more stable, more solid and encourage people to stay there.

The new marketplace, the health exchange, is really for those Americans who either don't have affordable coverage at all or have — are the so-called underinsured. The coverage doesn't cover what they really need.

BAIER: Well, that Democratic House bill would require employers to pay a penalty of 8 percent — at least right now, 8 percent of payroll if they don't provide health care coverage.

But you could imagine an employer might do the math and think it was a better deal to not provide the health care benefits, let his employees go to the government-run plan, pay the 8 percent of payroll tax, not have the health benefits, and then be encouraged really to keep his payroll down.

Could you envision that scenario? And is that the right thing in an economy trying to get its legs?

SEBELIUS: Well, I think the issues of whether there's going to be some kind of pay-or-play feature, again, is being discussed in both the House and the Senate. The House has one version, but they also have some firewalls to protect coverage that's there in place right now.

The president feels very strongly that if you — if you have a plan you like, you should be able to keep it. So we want to discourage employers from dumping coverage, and those protections are in the bill, again.

And there's a — there's a protection for small business owners, an exemption that they would not be subjected to the 8 percent payroll, and some encouragement, some tax incentives, to get them into the marketplace. Often they're the ones who are squeezed by the cost of just not being able to afford the coverage.

BAIER: The big question is how this will be paid for. Both House and Senate Democrats now are considering plans to tax at least some employer- sponsored health benefits to help pay for the overall plan.

Now, that is something that candidate Obama was vigorously opposed to on the campaign trail. So is President Obama ready to accept taxing employee benefits?

SEBELIUS: Well, as you know, Bret, the president has put forward his version of what he thinks would be the best way to pay for the ongoing health care plan.

About $660 billion over 10 years in savings from the current system in redirecting the money that's not currently going to make people healthier and make them more secure would be on the table, as well as about $330 billion over 10 years in capping the itemized deduction.

He thinks that's far preferable to the ideas currently being discussed about taxing employee benefits.

BAIER: But both Senate and House have some element of taxing employee benefits, so if that bill comes to the president, does he sign that?

SEBELIUS: Well, I think discussions are under way. What he wants to do is keep people at the table and figure out the best strategy going forward, and I think there's no — we don't currently know what the Senate Finance Committee is going to propose, and I think there are certainly active discussions under way in the House and the Senate, and that's good news.

The bottom line is the president will not sign a bill that's not paid for. The bill must be paid for and not add a dime to the deficit.

BAIER: And if it includes taxing health benefits, he could be OK with that.

SEBELIUS: Well, he vigorously opposed Senator McCain's idea to eliminate the benefits, the non-taxable benefits, because he figures that would really dismantle the employer marketplace.

I think that he's open to discussion but prefers, again, capping the itemized deduction, returning it to the days of Ronald Reagan. For the top 2 percent of Americans, they would pay the same itemized deduction that they had during the Reagan days, and he thinks that's a preferable payment mechanism.

BAIER: At least one of the Senate plans tax health benefits at specific levels but gives an exemption for union workers. Is that fair?

SEBELIUS: Well, I think that, again, the goal is not to dismantle health coverage that people have right now, not to discourage employers from offering health benefits, and taxing employer benefits, I think, is a way to begin to discourage employers from offering coverage.

A hundred and eighty million people have coverage provided by their employers, and we want to find a way to stabilize that system, not dismantle the system.

BAIER: One of the major concerns for critics about government- run plan is a fear of rationing health care. President Obama has talked about his grandmother, who was diagnosed with cancer, terminal, and she was told that she had six to nine months to live.

She then broke her hip and she had hip replacement surgery. A few weeks later she died. Here's what the president said about that hip replacement surgery. "If somebody told me that my grandmother couldn't have hip replacement and she had to lie there in misery in the waning days of her life, that would be pretty upsetting."

So would a government-run plan have authorized that hip replacement surgery?

SEBELIUS: Well, I don't think there's anything about the public option that would ration care. Unfortunately, care is being rationed each and every day right now.

Often private insurance companies stand between a patient and a doctor deciding what treatment can be provided, what prescription can be filled, can you stay in the hospital for an extra day or two. That goes on every day in America.

We also have a situation where a lot of people are told they can't have insurance because they have a preexisting condition or someone's been sick in the family and coverage won't be provided. So we have a system right now which actually rations care and rations quality in many ways. I think that what we want to do is inform doctors, inform hospital systems, of the best possible outcomes, what we know works, what will produce the best result for patients, and encourage them actually to use those strategies to make people healthier.

BAIER: But these plans have things called medical advisory councils, a federal health board. Do you foresee that those councils would approve a hip replacement surgery in the final months of life?

SEBELIUS: Well, I think that the councils or benefit packages, as they are right now, are designed primarily by health care providers, by, you know, what is considered the best medicine, what is considered the best outcomes.

Most people have a health plan right now that has a formulary for prescription drugs, what's covered and what's not, and it's updated on a regular basis as technology develops and as new innovations come on the marketplace.

So we think that health care providers should make the ultimate decisions of what the best strategies are. But more expensive care is not better care.

BAIER: The president recently talked to the American Medical Association, and in that speech he did talk about medical malpractice lawsuits and how doctors feel legally vulnerable. He added this.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: I'm not advocating caps on malpractice awards, which I believe — I personally believe can be unfair to people who've been wrongfully harmed.

(END VIDEO CLIP)

BAIER: Now, you could hear some of the boos in that crowd. Is the president committed to meaningful medical liability reform, tort reform, in whatever comes out of Capitol Hill?

SEBELIUS: Well, as he said, he is not open to putting caps on malpractice damages, feeling that that really is not fair to victims of medical negligence.

And I think what he's encouraged about is not only finding ways so that we can reduce defensive medicine, but also driving medical quality. Unfortunately, we still have a system where 100,000 people a year die from what happens to them in the hospital — not what brought them to the hospital, but what actually occurs while they're in the hospital.

We know that oftentimes medical care is great in one community and not so good in another community. So I think the goal is how we increase the quality of care day in and day out and lower medical error rates and lower the kinds of tests that are done just for redundancy.

BAIER: But he agrees that doctors may be paying a lot for malpractice insurance.

SEBELIUS: Well, actually, the overall cost of malpractice insurance is not necessarily the issue. It's how much defensive medicine is being practiced that's not getting a patient better but just done to perhaps prevent the next lawsuit.

BAIER: Finally, and very quickly, the H1N1 virus is still a major concern, once called the swine flu. How big will this immunization effort be in the fall?

SEBELIUS: Well, right now the vaccine strains are being tested and examined for the possibility of a major vaccination program in the fall. And I think if we decide to move forward, if the science says that's the right way to go, we could be looking at a substantial vaccination program.

The population of the swine — the H1N1 victims is younger than usual, so — and it transmits very quickly, so we could be looking at a fairly significant vaccination program aimed at younger Americans.

BAIER: One million infected now?

SEBELIUS: That's correct. We think there are about a million cases. Luckily...

BAIER: In the U.S.

SEBELIUS: Yes, sir. The lethality is — has been relatively mild compared to seasonal flu, which kills about 36,000 people a year. But we don't know what's going to happen when it comes back and if it mixes with the seasonal flue strain.

BAIER: Madam Secretary, thank you very much for being here.

SEBELIUS: Thanks for having me.

BAIER: Now, with Republican reaction, the minority leader of the Senate, Mitch McConnell, who is in his home state of Kentucky.

Senator, welcome back.

SEN. MITCH MCCONNELL, R-KY.: Bret, good to be with you.

BAIER: Senator, President Obama says the status quo on health care is just not acceptable, and some senior Democrats say that Republicans are just in the process of saying no and they don't have an acceptable alternative. What's your response to that?

MCCONNELL: Well, listening to them, you wouldn't recognize that America has the finest health care system in the world. We have some problems with access and with cost, which can — addressed without wrecking the best health care system in the world.

What they really have in mind, Bret, is to create a government- run plan after which there won't be any private insurance companies. Right now we have a whole lot of private insurance companies and a whole lot of competition. That would eliminate that.

Secondly, they're not open to medical malpractice reform, as you noticed. And then when you get to the question of paying for it, it appears as if they want to pay for it on the backs of seniors through Medicare cuts and raising taxes.

So all of this in an effort to have a massive takeover of one- sixteenth of our economy — it strikes us that a better way to go is to deal with the equalization in the tax code.

For example, right now, a company that provides health care for its employees can deduct that — those premiums on its corporate tax return, but if you're an individual buying health care, it's not deductible. That ought to be equalized.

Prevention — we've all heard about what the Safeway company has done to target obesity, smoking, high cholesterol, high blood pressure and lack of exercise. They have capped their insurance premiums by aggressively incentivizing wellness.

These programs that are being kicked around on Capitol Hill would actually prevent that kind of thing. So there's much to be done, Bret, but not in the direction I think the administration's trying to take this.

BAIER: Senator, the president has said he wants whatever plan comes out of Capitol Hill to be deficit neutral — in other words, not add to the deficit. We just heard it from Secretary Sebelius. Do you believe that's possible with what's being debated right now?

MCCONNELL: Well, it looks like they may try to pay for it, and frankly, they should, given the fact that we're on a path now to double the national debt in five years and triple it in 10.

But the — but the real question is do you want to do something that is so comprehensive that requires this kind of cuts to Medicare and to seniors and to — all of these tax increases when we could target the things that are askew in the system and fix them without this kind of massive overhaul.

BAIER: If a public option plan, which Republicans largely are opposed to, comes out and this is the bill that they go forward with, with a government-run option, is there anything Republicans can do to stop it?

MCCONNELL: Well, sure. I mean, I think there are a lot of Democrats who are uncomfortable with the government option, the government plan. We've had three or four Democrats who have spoken out against it. They're being hammered in their states by left-wing groups.

I think it is making them even more resistant to this bad idea that the government should take over the insurance business.

BAIER: So is there a health care plan that is workable, a compromise somehow that you think could be finished this year?

MCCONNELL: Yeah. Let's equalize tax treatment, target prevention and wellness, do something about medical malpractice junk lawsuits against doctors and hospitals that drive up the cost of health care.

All of those things could be achieved on a broad bipartisan basis and not wreck the finest health care system in the world.

BAIER: Speaking of the chances of passage in the Senate, the climate change bill just passed the House narrowly by seven votes on Friday. What are the chances it has in the Senate?

MCCONNELL: Well, I hope it won't pass the Senate. The president himself said last year you'd — it will lead to skyrocketing electricity increases. Think of it as a light switch tax.

I think the president's right. I think it's going to lead to significant increases in electricity across America in a — in an effort to try to deal with a global problem.

If we do have a global warming problem, and many people believe we do, we need to target it on a global basis. The way to get at it is to build more nuclear power plants which don't have a CO2 emission problem and to develop the kind of technology to burn coal cleanly.

BAIER: Presidential adviser David Axelrod said this morning that Republicans are using inaction as a strategy. And on the climate change bill, he said all of the criticism about it being a jobs killer is, quote, "a phony issue with negligible impact on average Americans." Your response?

MCCONNELL: Well, I just don't agree. I don't think sending the cost of electricity up is a god idea. It's going to cost jobs. Obviously it will. It's going to increase the business of living in America. We all depend on electricity. Think of it every time you turn your light switch on.

BAIER: Is there a workable issue — a workable version of this bill that possibly the Senate would work on that could pass?

MCCONNELL: I don't think putting clamps on our economy when you know the Chinese and the Indians are not going to do it is a good idea. Why not develop technology to burn coal cleanly and build new nuclear power plants?

The French, for example, produce 85 percent of their power from nuclear plants. They don't have a CO2 emission problem.

BAIER: President Obama told lawmakers this past week that he wants to sign a comprehensive immigration bill this year or early next year, even though White House officials say — and they admit — that they don't have the votes to do that.

Is there any way to find middle ground on the immigration reform issue, considering where your party has been on this issue in the past?

MCCONNELL: Well, it's possible. I mean, we need to move forward on border security. I think we've made some progress in securing the border. But the war — the drug lord war over on the Mexican border — on the Mexican side of the border going along certainly complicates everything.

We're open to looking at immigration reform. We've tried it in the past. It's very tough. If we get the borders secure and we need — we can go on from there and hopefully develop a guest worker program that actually works.

BAIER: Is the immigration issue still a divisive issue for the Republican Party?

MCCONNELL: It is. I think it is a very divisive issue.

BAIER: You know, as you come up on the confirmation hearings — two weeks away — for the first Latina Supreme Court nominee, Sonia Sotomayor, is there a concern about the Hispanic voting base when it comes to both these confirmation hearings and the newly resurrected issue of immigration?

MCCONNELL: Well, you know, the Democrats filibustered seven times a Hispanic American nominee named Miguel Estrada during the Bush administration. I think we ought to judge these nominees on their merits, not their ethnicity or gender.

And with regard to Judge Sotomayor, I think the key is just to finish the job. For example, just a day or so ago, we discovered that there are 300 boxes of additional material that has just been discovered from her time working with the Puerto Rican Legal Defense Fund.

The committee needs to have access to that material and time to work through it so we don't — so we know all the facts before we vote on a person who's up for a lifetime job.

BAIER: What is your reaction, Senator, to the developments in South Carolina with Governor Mark Sanford?

MCCONNELL: Look, we're working on health care and the people's business, and that's what — that's what we're doing in the Senate.

BAIER: Do you think he should resign?

MCCONNELL: We're going to continue to deal with the people's agenda here in Washington, and that's what we're going to concentrate on.

BAIER: But being out of the country — in his words, crying in Argentina for five days — without telling anyone where he was, there are lawmakers who are calling for his resignation.

MCCONNELL: We're going to concentrate in the United Senate — in the States Senate on national issues like health care and climate change and Supreme Court appointments.

BAIER: But this is the second prominent Republican to announce an affair in as many weeks, with Nevada senator John Ensign coming out. What does this mean for your party?

MCCONNELL: Bret, I think the important thing for us to do for the American people is the business we were elected to do.

We've got massive issues to talk about in the United States Senate, to debate and vote on. That's what the American people expect us to do. And that's what we intend to do.

BAIER: Senator, as always, thank you for joining us.

MCCONNELL: Thank you, Bret.

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