This is a rush transcript from "On the Record," September 2, 2009. This copy may not be in its final form and may be updated.

MARTHA MACCALLUM, FOX NEWS GUEST HOST: There you have it, people talking to (ph) power and democracy in action, talking a lot about health care and more. Republican senator Jon Kyl has a big problem with the Democrats' health care reform program involving what he calls "jackpot justice." So what does that mean? Senator Kyl joins me live. Senator, good to have you with us tonight. Welcome.

SEN. JON KYL, R - ARIZ.: Thanks, Martha.

MACCALLUM: You know...

KYL: Thank you.

MACCALLUM: ... let's start with that. What's "jackpot justice," and why did -- why would you like to see it addressed more head-on in this health care or health insurance reform bill, whatever you want to call it.

KYL: How about addressed at all? This is the great untold story of the health care debate. You hear a lot of sacrifices that senior citizens are going to have to suffer, a $400 billion or $500 billion cut in Medicare. Small businesses are going to have to have a tax increase, and so on. But the president and the Democratic leaders have not asked the trial lawyers to sacrifice, and that's the big untold story here because there is a huge amount of money that could be saved. And after all, the number one problem here that we're trying to resolve is the problem of increasing costs of health care delivery.

And one of the biggest contributors to that is our medical malpractice system, or the lawsuit abuse problem that results in the "jackpot justice" that I wrote about. That is something that the Democratic leadership and the president have been unwilling to address, and the reason is very simple. Howard Dean, former national Democrat chairman, said in a town hall meeting in northern Virginia on August 17th that the reason that tort reform is not in the legislation is very simple. And that is, the authors of the bill did not want to take on the trial lawyers.

MACCALLUM: Yes, well, that's a problem, Senator, because everybody I speak to, every doctor that I, you know, see, I ask them, What do you think about this? What do you think about this plan? Not one of them has not mentioned what they have to pay in medical malpractice insurance and how onerous that is to just being a doctor today. I'm so glad that you are bringing this up because it is something that needs to be addressed.

You -- so President Obama is not -- do you think this is one of the things he might be willing to stand up and say next week when he speaks to Congress, Look, put this in this bill? Is he bold enough to say that?

KYL: No. He's had a long time to say it up to now, and he hasn't said it. And the reality is, Howard Dean is exactly right. The trial lawyers won't let them do that. It's a huge constituency of the Democratic Party, and they don't want to have anything to do with it.

And incidentally, the problem is not just the cost to the doctors of the premiums, although it is true that there's one estimate that about 10 percent of every health care dollar is spent by doctors on their health care liability insurance. In fact, a neurosurgeon might pay as much as $200,000 a year...

MACCALLUM: That's right.

KYL: ... on his malpractice insurance. But the problem is they have to pass that cost on to the insurance companies, who pass it on to...

MACCALLUM: Exactly.

KYL: ... guess who? You and me. And that's the problem. And the other problem, which is even bigger in a way, is the problem of defensive medicine. There's a study that demonstrates that over $100 billion in defensive medicine expenses could be saved every year if physicians didn't have to worry about getting sued just because they didn't order that one more test or refer the patient to one more specialist, and so on. That's a huge cost that could be avoided. We could cover the 12 million people who don't have insurance and can't afford it...

MACCALLUM: Right.

KYL: ... just with that $100 billion savings alone.

MACCALLUM: You know, I mean, there is, to some extent, an argument to be -- a good argument to be made that if someone is, you know, subjected to something that injures them in the course of medical treatment or surgery, they should have the right to sue...

KYL: Sure. Sure.

MACCALLUM: ... and they should have the right to, you know, seek restitution from the doctor who failed them. But the points that you're bringing up are so important, I think, and there has to be some way to reform that system so that that measure can still be met and yet the system isn't bloated by all this.

But I want to get to a couple of other quick things because a lot of people are saying -- and we just heard it on Sean Hannity's show moments ago -- that Republicans don't have any, you know, sort of viable, you know, alternative here, and that they're just the naysayers and they're shooting this whole down and they really haven't come up with anything better along the lines.

But you really are saying something pretty controversial, and that is people ought to pay more for their own medical care, for their own medical, you know -- they ought to pay more of their own bills. Tell me why you think that.

KYL: Well, I'm not sure -- plan one fore most Republican bills is medical malpractice reform. There is a positive, constructive idea that would save at least $100 billion, probably closer to $200 billion a year.

MACCALLUM: Right.

KYL: We also -- we also support small business or association health plans so the small employers can have the same purchasing power as big businesses in negotiating with insurance companies. We believe that you ought to have the right to buy insurance across state lines.

MACCALLUM: Right.

KYL: You can buy your car insurance from...

MACCALLUM: Which would immediately drop...

KYL: ... (INAUDIBLE) why not health insurance?

MACCALLUM: I have to believe -- excuse me for interrupting you -- that would immediately drop costs, if you could, you know...

KYL: Exactly.

MACCALLUM: ... sort of (INAUDIBLE) across lines -- state lines, and have a little more competition. What I was getting at...

KYL: Right.

MACCALLUM: What I wanted to ask you to address before we go is the fact that people need to sort of take responsibility for their own health care. And you have said that, you know, it should be...

KYL: I see what you're driving at.

MACCALLUM: ... sort of the bigger items on the table that you want to be covered for, but the small items, when you go in for, you know, a cold or a virus or something, maybe paying out of pocket isn't such a bad idea because it makes people a little more responsible for their own health care? Am I right? And what you're...

KYL: Right. Yes, and (INAUDIBLE) One of the options that we want to promote is an option for people who are generally younger and can afford insurance but choose not to go out and buy it, and that is catastrophic health insurance, where, just like with your car -- if your car is totaled or it's got $5,000 in damages, your insurance pays for it. But it doesn't pay for tires or battery or gasoline or an oil change. And the same thing for those who want that kind of insurance, they ought to be able to buy a plan that's very inexpensive and it doesn't cover their cold or their first visit to the doctor. You may have a $20 or $30 co-payment...

MACCALLUM: Right.

KYL: ... or a larger deductible. In fact, you may pay $1,000 or $2,000 in expenses for the year, but you're covered for that major expense of $5,000 or so. And for a lot of people, that's a good option. But again, there are provisions in law today that make that difficult.

MACCALLUM: I am out of time, but I want to ask quickly, if you can, sir, what would you do with the -- I know you estimate it's actually about 18 million uninsured. What would you do to help them?

KYL: Well, there are 18 million people today who are uninsured. Throughout the course of the year, 47 million people at one time or another might be uninsured. But you have to break that number down. And the way it breaks down, if you take the illegal immigrants out and others who qualify for Medicaid but just haven't signed up, and so on, and those who make $75,000 a year or more and simply choose not to buy insurance -- what you're left with is about 12 million people who really cannot afford good insurance. We can help them through vouchers, through subsidies, through other means of making insurance more affordable for them...

MACCALLUM: Right.

KYL: ... by providing assistance to them. And as I said, you could buy them the insurance by just what you save in the excess costs of defensive medicine that's practiced because of this "jackpot justice" system that we have today.

MACCALLUM: Well, these are certainly important points that need to be in the mix, Senator, and I thank you very much for joining us tonight. Senator Kyl...

KYL: Thank you, Martha.

MACCALLUM: ... thank you, Senator Kyl from Arizona.


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