This is a rush transcript from "On the Record," December 22, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN: Senator Nelson [is] defending himself.


SEN. BEN NELSON, D - NEB.: As a senator back here, I've also fought against unfunded and underfunded federal mandates. And this was, in fact, exactly that. And while we weren't able to get in this legislation an actual opt-out or opt-in for a state-based decision, what we did get is at least a line, if you will, so that in the future, other states are going to be able to come forward and say, Hey, either the federal government pays for that into the future, or the state will have the opportunity to decide not to continue that so that we don't have an unfunded federal mandate.

So I'm surprised. I'm shocked. Well, actually, I'm not shocked. I'm disappointed that this would be used and misused in this fashion.


VAN SUSTEREN: Karl Rove joins us live. Karl, the senator is shocked, not shocked. He's disappointed. He says it's been misused, this -- what everyone's characterized as a sweetheart deal for the state of Nebraska. Is it a sweetheart deal?

KARL ROVE, FORMER BUSH SENIOR ADVISER, FOX CONTRIBUTOR: Oh, sure. Sure it is. It is the Cornhusker kickback is a -- you know, is sleazy. Senator Ben Nelson of Nebraska, in essence, got a special provision that said newly eligible Medicaid recipients in the state of Nebraska would have their complete costs picked up by the federal government.

This is one of five instances in the bill in which a state gets special preferential treatment for Medicaid. One is Harry Reid's Nevada, where he gets special treatment. One is Nebraska, where Senator Nelson, who was a no vote right up to the end, got paid off with this. We have a special breakout for Vermont and Massachusetts. Those two states get -- Vermont gets six years' worth of special Medicaid money, $500 million. Massachusetts gets three years' worth of special Medicaid money, $600 million.

So look, this -- this is -- this bill is jammed with payoffs and loosely -- you know, and political bribes. I mean, loosely described, this bill is just stuffed with illicit vote-buying left and right.

And you know, Ben Nelson's not one of the most expensive. In fact, you know what? This is only one. You've touched on only one of three instances in this bill in which Ben Nelson has gotten special treatment for somebody connected with Nebraska. Did you know that?

VAN SUSTEREN: I know (INAUDIBLE) insurance companies in Nebraska. I mean, they're -- I mean, Nebraska really cleaned up on this with Ben Nelson, which -- which, I mean...

ROVE: Yes, yes, yes.

VAN SUSTEREN: You know, I guess the thing is, like...

ROVE: Look, and here's -- well, why should Nebraska -- I mean, we have -- we have two other ones. We have the -- I call it the "Wild Kingdom" -- the "Wild Kingdom" winner because what he's got in there is a - - is Mutual of Omaha on its medigap policies gets exempted from the tax on insurance companies.

And then we've got what I call the Nebraska-Michigan compromise. You might want to ask Senator Stabenow about this. In Nebraska and Michigan, the Blue Cross Blue Shield companies in those states get exempted from the taxes being levied on every other insurance company in America, including every Blue Cross Blue Shield company outside of Nebraska and Michigan.

I mean, Michigan's got another deal, the Michigan-Connecticut compact, where you've got Michigan and Connecticut -- their hospitals get a special -- additional payments under what's called section 508. Nobody else in the country gets it.

I mean, this bill has got all kinds of payoffs and bribes. Why should people in one part of the country be treated so much differently than people in the other part of the country? Why should we pay more money in Texas or in Colorado or California because Ben Nelson was up in the air to the end and was able to get these special provisions written into law to benefit people back home?

VAN SUSTEREN: You know, I sort of wonder, when Senator Harry Reid negotiated this with Senator Ben Nelson, when they so much wanted -- when he so much wanted this bill to pass, what was going through his mind? Do you think that he thought we'd never notice or that nobody else would notice, or it's just -- or that's just the way it's done, so that he never even anticipated there would be a backlash because, you know, people have been selling this -- I mean, my word -- doing this for many, many decades?

ROVE: Yes, look, this has been going on for a long time. But the scope and the number and the cost and the brazenness of what's going on in this bill is appalling. I mean, Senator Reid, Harry Reid, on Monday said if a member hasn't gotten stuff stuffed into this bill, then shame on them, they haven't been doing their job. I mean, that's an incentive for this.

I mean -- and Greta, it's succeeding. We have not yet talked about the biggest single payoff in the bill. This is the -- I call it the "Sunshine state sweepstakes." In Florida, Senator Bill Nelson -- no relation to Ben, except in his habits -- got a $25 billion to $30 billion carve-out for Medicare Advantage patients in their state.

Every Medicare Advantage policy holder in America, except those in Florida, will see a huge cut in the federal support for those policies, and as a result, a dramatic decline in their benefits and an increase in their premiums, except if you live in Florida. And the price tag for keeping these people, who have a Medicare Advantage policy in Florida from suffering a cut is estimated to be between $25 billion and $30 billion over the next 10 years.

So I mean, look, think -- I mean, Senator Nelson of Nebraska sold out for $100 million for Medicaid for his state that his own governor doesn't want, and Senator Nelson of Florida got $30 billion for people who've got Medicare Advantage policies in his state get treated differently than the Medicaid (SIC) policy policyholders everywhere else in the country.

VAN SUSTEREN: You know, what's interesting is I'm trying to sort of assign who I'm most critical of. And of course, we left off the fact that Senator Dodd, who's in deep political trouble in Connecticut, got maybe $100 million for a hospital in his state. But you know, above and beyond - - you know...

ROVE: Well, and don't you -- don't you love the way that -- don't you love the way that was described, too? They wrote it into the bill. They said if it is a state facility in which there is only one public medical and dental school together -- and there's only one state in the union that fits that. He had the brazenness to out and say, yes, I got that written in there. I got $100 million for my state's medical school.


ROVE: What about the other 49 states, their medical and dental schools?

VAN SUSTEREN: I know, and that's the whole bit about I really hate being had. I'd rather have it told to me straight than sort of sneaking and sliding. But I'll tell you the thing that disappoints me most of all in this is that this has been going on in Congress for years, since we know about it. Maybe it's more brazen now. Maybe it's more -- is horrible now. But the thing that distresses me more is that President Obama hasn't shown more leadership when he specifically told us that this was going to end. And that's the thing that bothers me because he said things were going to change. And you know -- you know what? As bad as this is, they've been doing it for years. The Republicans have been doing it for years. But President Obama said something very different during the campaign. That's the problem I have with it.

ROVE: I think you put a finger on a big, big problem. I hold two people responsible for this. One, Senator Harry Reid, for encouraging this climate, and you're right, President Obama. Look, I've seen -- in the years that I was in the White House, I saw members of Congress step up and try and do this stuff all the time on bills unrelated to -- you know, they wanted things -- payoffs for things that were unrelated to the issue at hand. And you have to have people resist it. And the president of the United States needs to set the tone. And on Monday...

VAN SUSTEREN: It's not even...


ROVE: ... called Senator Reid...

VAN SUSTEREN: Karl, it's not just setting the tone. He told us. It's not just the talking about leadership...

ROVE: He told us. Absolutely.

VAN SUSTEREN: ... or whatever. He told us specifically, expressly, multiple times during the campaign this wasn't going to happen. That's -- you know...

ROVE: Well, and...

VAN SUSTEREN: ... and many American voters believed him on that.

ROVE: Well, remember, he did -- he also this year signed a stimulus bill filled with earmarks, which are a variant of what we're seeing here. And after he did so in the stimulus bill, he said, That's the last time we're going to do that. And then the Congress passed a $1.2 trillion spending bill stuffed with more earmarks. And now we got a health care bill that's stuffed with even larger earmarks. I mean, think about it...

VAN SUSTEREN: Well, maybe...

ROVE: ... a $30 billion earmark -- $30 billion!

VAN SUSTEREN: Well, maybe -- he still hasn't signed this one, so maybe we've got a chance. But Karl, stand by. We have much more with you in a just few minutes.

And did you hear about today's defection, a stunner! A Democratic congressman jumped ship. He says, Now I am a Republican. Who and why, coming up.


VAN SUSTEREN: Well, he jumped ship. Democratic congressman Parker Griffith no longer. He is from Alabama and he switches party and joins the GOP Yes, he's now a member of the minority party. He was in the majority, but now he's in the minority.


REP. PARKER GRIFFITH, R - ALA.: As the 111th Congress has progressed, I have become increasingly concerned that the bills and policies pushed by the current Democratic leadership are not good for north Alabama or our nation. And more importantly, they do not represent my values and convictions. While I voted against health care, I voted against cap-and-trade and two huge spending stimulus bills, I now believe that I have to go even further and stand with a party that is more in tune with my beliefs and convictions.


VAN SUSTEREN: Well, Karl Rove is back with us. Karl, my first thought is, why now? I realize that in the last election cycle, that was a very strong Republican district that he came out of, so maybe he's trying to save his seat. But why the timing now?

ROVE: Well, I think, first of all, because it's sort of the end of the year and he's been -- he's been faced with a number of votes in which he's broken with the leadership. I mean, that's pretty amazing. I mean, think about it. He voted against the stimulus bill, voted against cap-and- trade, voted against the second stimulus bill, voted against health care. And he's a doctor. And so this put him on the opposite side of the leadership. In fact, in August he came back from the recess with some very strong comments saying he wouldn't vote for Nancy Pelosi again as Speaker.

So we're coming to the end of the year. It's a natural turning point. Also, the filing deadline is approaching for Alabama, and I think he sort of said, you know, two Republicans had already emerged from -- as prospective candidates, one a county commissioner in his home county there, Madison County, Huntsville, and the other one a businessman. And I think he said, You know what? If I'm going to switch and run as a Republican, better to do it now, rather than later. But it's a big blow to the Democrats.

This has been historically a Democrat seat, albeit represented previously by Bud Cramer, another conservative Democrat. But you're right. I mean, for somebody to switch from the majority to the minority is pretty unusual. We've seen plenty of people switch from the minority to the majority, but giving up his committee assignments and giving up the majority status is a pretty strong statement about how strongly he feels about what he is being asked to vote on as a Democrat that he could not bring himself to vote for.

VAN SUSTEREN: But it's sort of interesting. It's sort of like being dumped in high school a little bit for him to sort of dump the Democratic Party. But they still have numbers, 257 to 178, so they don't need him. He's probably a thorn in their side, so they probably thought, Good riddance, glad you're out of here. And they also want their money back that they invested in him. So you know, it's sort of interesting from that standpoint.

ROVE: Well, the same thing happened with Arlen Specter. He switched parties going the opposite direction in order to join the majority. You can't -- you -- you can bet there are a lot...

VAN SUSTEREN: Well, that's a better move.

ROVE: ... of (INAUDIBLE) Republicans who were upset with it. Well, but you know what?

VAN SUSTEREN: That's a much better move.

ROVE: It's a matter of convenience. It's a matter of convenience. This was a matter of principle, obviously. I mean, again, you don't go from the majority to the minority unless you're pretty well convinced that you philosophically belong someplace other than where you are.

And again, it's -- you know, it's an interesting -- Alabama has a history of party switchers. In fact, the Republican senator from the state, Richard Shelby, was elected as a Democrat and switched when the Republicans became into the majority. But again, for a Democrat to switch to the Republican minority in the House is a pretty strong statement. And not...


ROVE: They've already had four other...

VAN SUSTEREN: How do you think it went down?

ROVE: Well, they've been talking to him...

VAN SUSTEREN: They just went in and sort of...

ROVE: ... for a while.

VAN SUSTEREN: ... hustled him and visit him? I mean, how does it work?

ROVE: Well, they've been talking to him for a while because, you know, look, there were only 11 Democrats who voted against the stimulus bill. And for a freshman like him to break with the leadership on such an early vote was a signal of something. So there have been Republicans from the House leadership and from his own home state that have been talking to him.

And look, I suspect practical politics entered into it. If he's voted as conservative as he has, obviously, there are going to be some liberals who are not excited about him. And he was looking at next year, when there'll be an open race for governor that the Republicans are likely to keep, and Senator Shelby is on the ballot has $13 million in the bank and no likely Democrat. And if you're number three on the ballot underneath those guys, you might start thinking, If I'm going to be -- if I'm not going to have enthusiasm on my left because I'm a conservative and I'm going to have energy on my right because Republicans are going to be running a candidate, you know, those entreaties to, Come on over, the water's fine over here, probably -- probably ultimately wore through to him.

But again, it's -- it's not good for the Democrats. They've got four other seats where the incumbent in a red district -- like, Griffith's district, is 61 percent for McCain. There are four Democrats in similar red districts who have already bailed out and I suspect we're likely see more before this is all over.

VAN SUSTEREN: Karl, thank you.

ROVE: Thank you, Greta. Merry Christmas.

VAN SUSTEREN: Merry Christmas.

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