This is a rush transcript of "Special Report With Bret Baier" from August 17, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

OBAMA: The public option, whether we have it or don't have it, is not the entirety of health care reform. This is just one sliver of it, one aspect of it.

KENT CONRAD, (D) NORTH DAKOTA: The fact of the matter is there are not the votes in the United States Senate for the public option. There never have been. So to continue to chase that rabbit, I think, is just a wasted effort.

(END VIDEO CLIP)

BRET BAIER, "SPECIAL REPORT" HOST: Well, President Obama at one time said it was crucial, imperative that a public option, government-run health insurance, at least one plan included on the table, be a part of whatever comes out of Congress.

Now there is some question about that. His Health and Human Services secretary this weekend, asked about the public option said this — "What is important is choice and competition. And I'm convinced at the end of the day, the plan will have both of those, but that, public option, is not the essential element."

Well, that is not sitting well with the left. Representative Barbara Lee, the chairwoman of the Congressional Black Caucus, called it "deeply troubling," all of this talk, and said "Any bill without a public insurance — health insurance plan like Medicare is not health reform."

So what is the status of all of this? Let's bring in our panel — Steve Hayes, senior writer for the "Weekly Standard," A.B. Stoddard, associate editor of "The Hill," and syndicated columnist Charles Krauthammer.

A.B., last week you said they need to get it out on the table and just leave the public option. Is this it?

A.B. STODDARD, ASSOCIATE EDITOR, "THE HILL": I think it's the White House's way of walking us back. I think they realize they squandered half of August. President Obama has held town halls defending what is basically indefensible within his party, and many purple states and many conservative districts that Democrats won from Republicans. And he's actually lost a lot of time.

The problem is the House leadership is going to stick with this plan. From my conversations today, they have more liberals than conservatives. They are going to hope that they can come back and pass a bill on the House floor that contains the public option, knowing it's not going to make it into the law.

And ultimately, I think President Obama should have done what he and his administration this weekend but, though sooner.

BAIER: So is this a cat and mouse game, Charles, with semantics? Are we just seeing the end result now that they will eventually pull it off the table?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It's a full retreat. Look, Obama had wanted the public option a lot because it is the road to a government-run system, which is what, in his heart, he wants.

And he wanted to have planted it in his presidency so it wouldn't become government-run until the very end. It wouldn't have had its major effect until perhaps after his presidency. But he would have been known as the father of national health care. But he's not going to get it and he knows it.

And he knew it early, but he hung on because it would be a bargaining chip when he goes for the minimal plan, which would be health insurance reform, where he slaps a lot of restrictions on the insurance companies when there are no preconditions, et cetera. And in return, he would offer to drop the public option. That's why he wanted to hang on until the end.

The reason he had to drop it now is because of the town halls and the public rebellion. It's because of the reaction, the angry agitated, educated reaction of people against the public option, understanding that it's a way to national health care that it became a distraction and a liability.

And if you're going to drop it any way, he had to drop it now. But it takes away his leverage with negotiations in the end with insurance companies.

BAIER: Steve?

STEVE HAYES, SENIOR WRITER, "THE WEEKLY STANDARD": I don't agree with Charles, if I'm understanding him correctly, that he knew he would have to drop this and he saved it to be a bargaining chip.

I think that he declaratively that this must be in the bill, we want this in the bill, as recently as about a month ago. And I think he did that because — he may have had in the back of his mind this idea that it could be a bargaining chip. But I think he really did it because he really wanted it and he thought he could get it, because he's Barack Obama.

His polls were high. They had started to slip but they hadn't sort of tanked the way we have seen them do really in the past six weeks.

I think he is in a tough, tough spot right now with the left of his party protesting, and protesting loudly, as we saw earlier in the show, and realists, I think, like Senator Conrad saying, look, there just aren't the votes to this.

BAIER: A.B. — go ahead and respond.

KRAUTHAMMER: Look, as long as it was in Congress and behind closed doors and in negotiations, he could have hung on until the end. It's when it became — when Congress adjourned and all of this exploded in the public and it became a national issue and a huge liability and a drag on his own popularity, that's when he understood it had to go.

And yet he hung on for a couple of weeks longer than he should have, until he understood he had to cut his losses, because it was destroying the rest of the plan.

BAIER: When you have the left, A.B., coming out and saying if the public option is not there, that this is not health care reform, this isn't reform. Howard Dean, you have Representative Lee, and you have others who are out there now with very declarative statements.

Whatever comes out of Congress, and if he signs something and it actually gets passed, will it be less of a victory for this White House?

STODDARD: I don't think so. If they don't infuriate the middle and take a devastating hit in the midterm elections, if they pass incremental insurance reform that actually reins in the industry in ways that most of the American public desires, no preexisting conditions will preclude you from coverage, et cetera, more affordability it if you lose your job.

Every one of us at this table if we get a cancer diagnosis and we lose our job, we're in peril in this system today. Everybody knows that. What members of Congress wanted in the Democratic Party from liberal to conservative is something to pass.

The problem is the liberals have seen the debate shift. It is now targeting the insured. We know now the bank is broken. The party sees that it can no longer cover the uninsured, and so they're shifting to restrict the industry and regulate insurance.

Something is better than nothing, but liberals are set to kill health care reform if they talk in ways we heard them today. Congressman Wiener from New York, Howard Dean, former governor from Vermont, everyone saying "Well, I want to be onboard, but I can't without a public option."

BAIER: Steve, you're shaking your head.

HAYES: No chance. Liberals won't kill health care reform. They're talking a big game now because they're disappointed.

The White House I would say is still pandering to them today. Robert Gibbs in his gaggle insisted that there was no change in the language despite the obvious differences between what they were saying a month ago and what they are saying now. No, no, there is no change. The president still wants a public option.

So they're cognizant of the political ramifications of doing what they're trying to do right now. But liberals are not going to kill health care.

BAIER: Last word, Charles.

KRAUTHAMMER: The reason liberals are so devastated is because this was an opportunity to slip national health care through at a time when Americans are anxious. If you have the incremental stuff, that's going to happen.

If you have health insurance reform, where everyone holds on to their insurance and you can't be denied, if that is passed, it will eliminate all the anxiety and most of the disappointment with the current system, and that means they will never have national health care. So the left understands that it's now or never, and it's going to be never.

BAIER: President Obama talks about this week's crucial Afghanistan election and Taliban efforts to disrupt it. We'll find out what the panel expects, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: This will not be quick nor easy. But we must never forget this is not a war of choice. This is a war of necessity. Those who attacked America on 9/11 are plotting to do so again. If left unchecked, the Taliban insurgency will mean an even larger safe haven from which Al Qaeda would plot to kill more Americans.

So this is not only a war worth fighting. This is fundamental to the defense of our people.

(END VIDEO CLIP)

BAIER: The president speaking to the VFW convention in Phoenix, Arizona today, talking about Afghanistan and the situation there as that country gets ready for national elections this Thursday.

We're back with our panel. Steve, what about the situation there ahead of these elections? Some of the places in the south, the Pashtun areas, they're saying they won't even have ballot boxes because it is so dangerous.

HAYES: I think there are two problems potentially that we're looking at with the elections. One is security. And two is what might happen because people are concerned about this.

If you have vast numbers of Afghans who don't show up, what does that do to the legitimacy of the elections afterward looking back?

BAIER: And the president touched on it a lot today, A.B., in his speech about how this war is a necessity and portrayed it as the good war, if you will, as we've talked about before on this panel. What was your take on what he said and what the administration is doing?

STODDARD: Well, he has to make a case. He has doubled the amount of troop levels since he came into office. We expect another increase when General McChrystal's report comes in. It will be an extremely tough sell on Capitol Hill with his own party.

Public support for this war is waning. He will continue to make the case it's a winnable war, but that is a huge debate right now. It really looks like this is going to become his Iraq War, where the public was onboard for that one. But they are war weary.

And the context now is an extremely anxious country — broken, jobless, in deficit, in debt. And really, I think, those numbers on the war will continue to move downward, and I think it's an uphill battle for him to earn more — to get a hold of more resources and more support for that war.

BAIER: So your sense is there is a deadline on Capitol Hill for how long he has in Afghanistan?

STODDARD: Right. The window is closing.

KRAUTHAMMER: And I think Obama understands that. And that's why if you watch and you listen to him in the speech he gave today to the VFW, if you listen carefully, he is already beginning a tactical retreat.

When we heard in that clip he talked about defending us against Al Qaeda, he defines the war in Afghanistan entirely in terms of Al Qaeda, not Afghanistan.

And later in the speech, he talks about the reason that we're in Afghanistan is to decrease the area of Taliban control, thus decreasing the area in which Al Qaeda has freedom of action.

If you look at the war that way, and your intention is to fight and defeat Al Qaeda — he used the words "dismantle and defeat Al Qaeda," then what you're arguing in favor of is a war in Afghanistan which is a war of containment against expansion of the Taliban, and that is a minimalist war which he could sustain.

Now, a year — in a year, the Democrats in Congress will be in revolt, and he will have to defend even that minimalist war. But he is not talking about remaking the country, establishing a democracy, or anything of that sort.

BAIER: But George W. Bush would have said something like this, to present a safe haven in Afghanistan, and I remember points in his speeches where he made that point.

KRAUTHAMMER: Except that very early on when we had that swift victory and we won astonishingly quickly with very few casualties and defeated the Taliban and got them out of power. It looked as if we might be able to remake Afghanistan and hold it as an entity and as a democracy.

With the resurgence of the insurgency and its strength, we're beginning to understand it is not a country, unlike Iraq, that we can remake and put together. Iraq had been a country. Afghanistan never was.

BAIER: Steve, will he run into problems with what he has previously said about the Iraq War overlaying on top of what he is facing in the Afghanistan war?

HAYES: Yes, to a certain extent, I think he will.

As you said, we have talked about Afghanistan being the good war. I think he will run into more problems with Afghanistan as Afghanistan.

If he retreats now, it will look like all of his campaign rhetoric was totally opportunistic, that he wanted to run as a national security candidate, but didn't want to run on Iraq because he'd opposed it so strongly.

And that will, in retrospect, make him look very opportunistic if he tries to back out or even go sort of halfway on Afghanistan now.

Content and Programming Copyright 2009 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2009 CQ Transcriptions, LLC, which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.