This is a rush transcript from "On the Record," October 30, 2009. This copy may not be in its final form and may be updated.

JAMIE COLBY, FOX NEWS GUEST HOST: Tonight: Good evening, everyone. I'm Jamie Colby, in for Greta Van Susteren. And take a look at this! It is not the encyclopedia, it is the House health care bill, and Karl Rove said it could cost you $1.25 trillion! Karl went "On the Record."


COLBY: Karl, I want to ask you a basic question because we've seen Americans take an interest in health care more than they ever have, perhaps, in the past. They came out to tea parties. Doctors all across the country tried to be heard, even those who serve in Congress. In the bill that was presented by Nancy Pelosi, were their messages heard, and were they implemented into this version?

KARL ROVE, FORMER BUSH WHITE HOUSE ADVISER, FOX CONTRIBUTOR: I don't think so. First of all, this is an enormous bill. It is the most complicated piece of legislation since at least the Clean Air Act of 1970, and it's 1,190 pages long and it is very complicated. I've been trying to go through parts of it and to look at some of the highlights. But there are some big issues here, and it doesn't seem like the Congress, particularly the House, has paid much attention to the public sentiment in the last several months, starting with the price tag.

The price tag of this bill -- she rolled it out -- Speaker Pelosi rolled it out as $894 billion, which supposedly kept it under the president's goal of $900 billion. Well, in actuality, it is $1.05 trillion, plus the so-called "doctor fix." The CBO came out and said the actual price tag of the bill is $1.05 trillion, and that doesn't include what the Senate had, $247 billion in the so-called "doctor fix" under Medicaid. So this could be a bill that runs $1.25 trillion in the first decade.

ROVE: Is that a deal breaker? And in the end, the CBO gives these numbers -- do you think that the 36 million people that Nancy Pelosi said will be covered includes a number of people that could afford health care right now on their own, if they chose to get it? Should that be the responsibility of other Americans?

ROVE: Yes. Well, first of all, let me tackle that second one. We've heard this number they used earlier this year of 47 million Americans who are without health insurance. What we know is the Census Bureau says 9.7 million of those are people who are here illegally or legally but are aliens. They may be here on a visa and legal, or they may be here illegally, but they're aliens. And the question is, Should we American taxpayers pick up the tab for their health insurance? And I suspect most Americans would say no.

That leaves, then, about just somewhere north of 37 million people who supposedly are without insurance. Seventeen million of them make 300 percent or more of the poverty level. That means they make $50,000 or more a year. Many of them are younger people. The cost for a personal insurance policy runs on average about $5,000 a year. These are people who may make $80,000 or $90,000 or $100,000 and have just elected not to have insurance. And the question is, Should they assume some personal responsibility?

Fourteen million of them are people who are already eligible for Medicaid, SCHIP or some other government health care program and the government hasn't signed them up for it. So that leaves roughly five million people, gross, that would be -- that would be working poor not eligible for Medicaid and not able to afford it on their own.

Now, actually, the number is probably slightly more than that because there's probably overlap of those other three groups. But these numbers we get tossed around about how people are not able to get insurance -- remember, a bunch of them already have health coverage, but the government's done a lousy job of signing them up. An even bigger chunk are people who make 300 percent or more of the poverty level and ought to be able to afford some or all of the cost of health insurance.

COLBY: And add to that the fact that the president said that the bill that he wanted would cover 30 million Americans that needed coverage, now we're up to 36 million. Where did the extra six million come from?

ROVE: Unclear. But look, again, these are sort of -- these numbers are being plucked out of the air. I'll tell you where six million of those people are likely to come, and that is, in the House bill, there's a provision that says if you're in the individual market -- that is to say, you are self-employed and you're buying insurance on your own, this basically, within a short period of years, wipes that out and moves you from your private insurance into the government-run plan.

So I mean, this bill -- and you know, look, I've been trying to keep a list of these things. Millionaire tax -- they're going to hit people making $500,000 or more a year. Well, we know that of the people who make $250,000 or more a year, filers, 73 percent of them are actually small businesses filing on the individual tax rate. So they're going to have a big tax on small business in order to fund this.

They've got bigger cuts in Medicare in the House version than they did in the Senate version. So they're going to emasculate Medicare Advantage. They're going to take lots and lots of money out of Medicare. They've got an employer mandate. They obligate small businesses to provide health care for their employees, and if they don't, they have to pay a fine. If it's - - say your payroll is about $750,000 a year and you don't provide health insurance to your employees, you have to pay a fine of 8 percent of the cost of your payroll to the government. The CBO has already said that this fine would be paid by workers in the form of lower compensation.

They've got all kinds of tax. They've got an $8 billion tax on people who take money from their health savings account to purchase over-the- counter drugs. Shouldn't we be encouraging that? If you can solve your problem with an over-the-counter drug, shouldn't we be encouraging people, rather than slapping an $8 billion tax on them?

COLBY: You know, Karl...

ROVE: I mean, I could go on, but I mean...

COLBY: I know, you could, and it's almost dizzying for somebody listening at home to hear this will happen, that will happen. It sounds like more government-run than ever before on health care...

ROVE: Right.

COLBY: ... for some people who could have health care on their own, at a cost to those the most vulnerable -- Medicare recipients and small businesses, which are really the backbone of the economy. Is that the case? And if so, what will happen? What -- how fierce of a debate do you expect on the floor when this is actually discussed?

ROVE: Well, if it is discussed -- I mean, Speaker Pelosi wants to ram this through, they said today, with a minimum, if any, amendments. So they intend to jam this thing through and to jam it through quickly.

But look, there are lots of problems with it and this is going to call all kinds of fissures. Imagine that you are a Democrat congressman from a district with a lot of senior citizens. Are you going to want to go home and say to people, I voted to cut your Medicare? If you represent a fiscally conservative district, are you willing to go home and say, You know what? I voted to front load the revenue and tax the increases and back load the expenses so that this thing is going to -- -- and -- and -- and -- and maybe its financing.

"The Washington Post" attacked it today editorially for having unsustainable sources of revenue -- of -- of financing to make it work. I mean, think about this. In the Senate bill, one of the ways that they kept the costs down was that they said, We're going to expand Medicaid. Follow me on this. By saying, We're going to expand Medicaid, what they said is, We're going to move more people out of private insurance or keep them from being on the government-run health care plan by putting them in Medicaid because by expanding the population of people eligible for Medicaid, we're dropping some of the costs onto the state. The federal government pays 57 percent of the cost of Medicaid. State governments pay, on average, 43 percent, with each state paying a different rate.

Well, every single governor came out in opposition to this provision in the Senate bill, and in the House bill, they expand Medicaid even more. So what they're going to do is they're going to say to states, You don't have any say in this matter, but we're going to dump a bunch of people into your budget for you to pick up the tab for, and it's going to basically bankrupt states. So say you've got a governor mansion of West Virginia, who spoke out very strongly, and Governor Rendel of Pennsylvania, very strongly against this provision. What happens if the House votes for this and you're going to go back to West Virginia or Pennsylvania as a Democrat congressman and explain to your Democrat governor how it is that you blew up his state budget by voting for this provision?

COLBY: I want to ask you about that -- "shall." Is that significant? There's been some discussion about the fact that it is mentioned more than 3,000 times.

ROVE: Yes. Right. Well, it's prescriptive, and it sort of says, Things will happen in this way. You know, There will be a board that will make these decisions. You know, The government will determine more and more and more of the intimate detail of the decisions that our doctors make for us individually. And it's very, very problematic.

I mean, it's -- you know, that's one of the biggest problems with this. And look, remember -- wasn't this exercise we were supposed to do this to cover more people, to hold down -- to reduce premium costs and to bend the so-called health care curve? That is to say, to lower the future cost of health care. You know what? The CBO preliminary analysis says this doesn't bend the health care curve, and every bit of analysis we have thus far indicates that people are going to be paying higher premiums, not lower premiums, and they're going to be paying the higher premiums most of all if they get stuck in the government-run problem.

It will have premiums significantly higher than the private insurance market. I mean, this is like "Alice in Wonderland." Everything we were told we wanted to try and do is not going get done in this thing, and it's going to have a price tag of over $1.25 trillion for the first 10 years by the time we get finished with it.

COLBY: That we know of so far. Costs go up over the years, as well.

ROVE: That we know of so far. That's right. Well, and you're right. There's been only one health care program in the history of the federal government, from Indian health care to Medicaid to Medicare to Uchampus (ph), Tricare, you name it -- there's only been one health care program that has come in under estimate, and that was the Medicare prescription Part D benefit, the prescription drug benefit, and that's because it's being delivered by private sector and by competition, not by government, and not with the kind of prescription, if you -- if you don't mind the pun -- of "Shall, shall, shall," as this bill has.


COLBY: Up next, much more with Karl. Is President Obama about to get a bad report card? Some major political races are simmering to a boil. The outcomes could be good or they could be very bad for the president. Karl's on that next.

Plus, Greta takes you all the way to Pakistan. She's taking you deep into the heart of a very dangerous country that could hold the fate of the Middle East in its hands. Greta in minutes.


COLBY: Election Day is coming up on Tuesday, and President Obama isn't on any ballot, but many people think this could be the real test of this president's popularity. There are two key races to watch, the races for governor in Virginia and New Jersey.

White House Press Secretary Robert Gibbs was asked today whether the outcome of those races is a referendum on the president.


ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: In 2001, if I'm not mistaken, in Virginia and New Jersey, a Democrat won in either one of those. I don't think anybody thought that when they looked at the election results in 2002, they thought that President Bush was significantly hampered by that.


COLBY: We asked Karl Rove about that.


ROVE: Well, first of all, his analogy to 2001 -- I was around in 2001. President Bush made no campaign appearances in either Virginia or New Jersey,, that I recall. In fact, I'm pretty confident in the aftermath of 9/11, he made no appearances until well into 2002 in any political race in the country.

And Democrats -- the races had been set, you know, pretty well earlier in the year, and Democrats won both of them. And he's right, it didn't forecast what happened in 2002 because President Bush campaigned strong for Republican candidates on the basis of policies that the country found to be attractive.

What we have here is we have Democrats who are clearly in trouble, particularly in Virginia, because President Obama's popularity has fallen through the floor in Virginia almost as fast and almost as far as the popularity of his policies. And clearly, the Obama voters from 2008 are not motivated to vote in Virginia in 2009.

And in New Jersey, we have a blue, blue, blue, blue state in which -- which the president won with 57 percent of the vote, where he's going to have to go back on Sunday and make two campaign appearances -- I think it's his third visit to the state and he'll make two appearances on Sunday, one in the northern part of the state and one in the southern part of the state, to help Jon Corzine try and get back in as governor.

And it's pretty remarkable -- you know, for the White House to say, This doesn't matter -- they're spending a lot of time and a lot of effort and a lot of energy trying to make it happen. They told, in fact, Corzine in August -- we find out this week in a report in "Politico" that they told Corzine in August, You better fire you campaign pollster and bring in the Obama pollster in order to help guide your campaign in the final two months of the campaign. So for a White House that claims not to be interested, they're acting awfully interested.

COLBY: The congressional district in New York is in a unique situation...

ROVE: Right.

COLBY: ... because they have a Republican candidate. They also have a Conservative candidate. What's a Republican to do there? What would you do? And could you see that situation being duplicated in other states?

ROVE: Yes, I don't see it being duplicated elsewhere because it came about as a result of a quirk in the New York law. The New York election code says that when there's a vacancy like this one -- the vacancy was brought about by the Obama White House luring an otherwise undefeatable Republican to vacate the seat in order to become the secretary of the Army. And so a special election was set up.

And New York law says is that the county chairmen -- and there are 11 counties in the district -- choose the candidate of each party. And so they had 11 Republican county chairs get together. Eight candidates came to be interviewed. They settled upon a liberal Republican assemblywoman and made her the endorsed Republican candidate and put her on the ballot.

One of the other candidates, who was one of the disappointees, if you will, an Saranac Lake accountant named Hoffman, tossed his hat in the ring as -- as a -- as -- on the Conservative Party line. So I don't see...

COLBY: And is that a problem...

ROVE: ... that happening next year.

COLBY: ... for the Republican Party, Karl?

ROVE: Oh, sure. Absolutely. Absolutely, it is because what you have is a very Republican district where the Republican vote is being split between two Republicans, one a more liberal Republican and one a more conservative Republican. Now, ironically enough, the endorsed Republican candidate, according to some polls, is running third, and with the race now being between Hoffman, the Conservative Party candidate, and Owens, the Democrat.

Now, what has happened is, is that the Republicans' leadership in the House has said, If Hoffman wins, we welcome him to caucus with us. This was a good move, in my opinion. They made it today. I wrote about this in my column yesterday. But I think it was a good move to sort of say, you know, if he's running first, let -- and wins, he's going to be with us and sort of encourage Republicans, if they're torn between their loyalty to the endorsed candidate and going with the candidate who appears to have a better shot at winning, that they can do that.

And we'll know Tuesday. If Hoffman wins, it will be highly unusual because it's very unusual when you have -- even in a Republican or a strongly Republican or strongly Democrat district, if the party splits, normally, what that means is the other party sneaks in. But the polls are showing that this is a very competitive race. Hoffman is ahead in most of the last-minute polls. But we'll see Tuesday. It's going to be a very interesting night.


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