This is a rush transcript from "On the Record," October 26, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The public option is in -- sort of. Senate Majority Leader Harry Reid says the Senate health care bill will include a government-run public option, but states will be allowed to opt out of the plan. Now, does that idea have a chance of getting through the Senate? Republican senator Lindsey Graham joins us live here in Washington. Good evening, Senator Graham.




VAN SUSTEREN: (INAUDIBLE) say no because (INAUDIBLE) You mean it's not going to get through.

GRAHAM: Good evening. And no.

VAN SUSTEREN: It's is not going to get through.

GRAHAM: I don't think so...


GRAHAM: ... because the public option has been roundly rejected by the public. The public is smart. If you call it something else, they'll figure out it's still the same thing. I know people in Washington think the public's a little slow, but this is ridiculous, to change the name and all of a sudden, Oh, that's OK, the consumer option. I think most people believe that the government goes into the insurance business, that private insurers will fall because nobody can compete with the government. Politicians will write these policies very generous. They'll never raise premiums. And eventually, people in the private sector will give way to the government plan.

VAN SUSTEREN: All right, explain the mechanics...

GRAHAM: Which is their goal, by the way.

VAN SUSTEREN: All right, explain the mechanics of this. We had the Senate Finance Committee hearings, and there was back and forth, back and forth...

GRAHAM: Right.

VAN SUSTEREN: ... and the Republicans got their nose a little bit out of joint thinking they didn't have much input, that it was Senator Baucus...

GRAHAM: Right. Right.

VAN SUSTEREN: ... all right? So then the bill comes out, and it doesn't have this opt-out provision and -- but it comes out of the Senate Finance Committee, a lot of hoopla, and then now today, Senator Reid says, OK, it has this opt-out provision. Is he putting that in himself?

GRAHAM: You left out one thing. The HELP committee passed a health care bill, the Education Health committee. The Finance committee passed a bill. One had a public option. The other did not.

VAN SUSTEREN: The public option was not a public option opt out.

GRAHAM: They are making this up as they go.

VAN SUSTEREN: This is what I don't get is the HELP committee has a public option, the Senate Finance had no public option.

GRAHAM: Zero public option.

VAN SUSTEREN: So this idea of this opt out.

GRAHAM: It kind of came out of nowhere. There are three people riding one sixth of the economy. Remember when President Obama ran that we will have C-Span the negotiations on health care. Where are they at? I don't even know where they're negotiating.

VAN SUSTEREN: The Republicans were there at the beginning, but now the Democrats, their noses should be out of joint because they were not even part of this.

GRAHAM: It is literally three people, the committee chairman, Harry Reid, and somebody from the White House sitting in a room in an undisclosed location writing a health care bill that no one will get to read.

This is one sixth of our economy. This is not change we can believe in. This is a legislative disaster. You cannot read these bills. The public option is a horrible idea, and they are making it up as they go.

VAN SUSTEREN: Why did we spend the money on all of these hearings if Senator Reid was going to decide by himself with Rahm Emanuel, essentially?

GRAHAM: They are trying to get votes. They got themselves in a corner, and this is a dangerous time for the American people. They floated this big government idea. The public did not like it, so they are trying to repackage it. You can opt out of it if you do not like it.

The people pushing this public option are the most liberal people in the country, and they have hit a wall with the American people. We have no idea what they are doing, and I have no idea even where they meet. I read a news conference and they said the public option with an opt-out is in. Well, where did that come from?

All I can say is this is a dangerous time for the American people to have the Congress behave this way. And this is not change that anybody believed would come about.

VAN SUSTEREN: Let's say I'm in Wisconsin, and my state decides to opt out. Do I still have to pay for your state?

GRAHAM: Who decides? Does the governor? Is it the legislature, the referendum? Can you opt out of the mandate or the penalties? Can you opt out of the increase in taxes? No.

So they are trying to get the 60 votes. The public option standing alone was roundly rejected, so they are coming up with a clever idea that no one has ever heard of before, and then they say, "If you do not like it, you can opt out."

But if you have a public option anywhere it will drive people out of business everywhere in the health-care industry in the private sector.

VAN SUSTEREN: Is the thought that this opt out is not going to pass and that we will go back to Senator Olympia Snowe's trigger and it's a way to bring her under the tent?

GRAHAM: They are trying to get Democrats united.

Here is the story. They have got 60 votes and they are hoping that this gets Ben Nelson, the opt out provision. Well, then they have lost Olympia Snowe. Nobody has heard of it before until today. So at the end of the day, what we should be doing is sitting down in a room with Republicans and Democrats.

VAN SUSTEREN: Actually, we do not need all of you senators.

GRAHAM: Apparently not. Apparently we do not need to read the bills.

VAN SUSTEREN: Anyway, senator, nice to see you, sir.

GRAHAM: Good luck.

VAN SUSTEREN: Republican Senator John Cornyn thinks Senator Reid's plan is a "Trojan horse." Earlier he went "On the Record."


VAN SUSTEREN: Senator, nice to see you, sir.

SEN. JON CORNYN, R - TEXAS: It's good to see you.

VAN SUSTEREN: Big news, Senator Reid came out and said the public option is on the table even with this opt-out provision. What do you think?

CORNYN: It is very odd. They worked very hard to get Senator Snowe on the finance committee bill, she was the only Republican who voted for it. She said she can't support the public option, and so now they have rejected her support for the bill which apparently does not even have 60 votes among Democrats.

So it is a very interesting strategy. I have not figured it out yet.

VAN SUSTEREN: Senator Snowe said she would do the public option with the trigger option, where if a certain amount of time passed and a threshold was met then it would trigger the public option. This is something different. Do you understand it?

CORNYN: Well, I think I understand it. If a state chooses to opt out, you do not have to have a public plan or government-run option in your state. But the taxpayers are still paying for these subsidies that would be enjoyed by everyone else who does participate.

I do not think we should be fooled by this. Some people have said, like Robert Samuelson has called it a mirage, meaning that it offers something that it does not in fact guarantee, which is private choice. It is a pathway to a government-run plan, a Trojan horse, if you will.

VAN SUSTEREN: Let me see if I understand it. If I am from Wisconsin and I pay into the federal fund but my state then decides to opt out so I'm not going to -- I am paying twice, essentially.

CORNYN: You got it.

VAN SUSTEREN: There is no rebate back to state that opts out in the plan?

CORNYN: Apparently not. I don't think it would work, because as you know, the two entitlement programs we have now, Medicare and Medicaid, have $38 trillion of underfunded liabilities. Those are broken already. This creates a third government-run plan or entitlement.

And, of course, the government is going to need the revenue from taxpayers in all 50 states to pay for it regardless of whether your state opts out.

VAN SUSTEREN: So is there any incentive for your state to opt out. What does your state get by opting out?

CORNYN: Is not clear to me, but I think the details are beside the point, because I do not think this is the goal. I think the goal is to create enough confusion that it allows them to get that Trojan horse into the fort.

Ultimately I think the goal is to drive private insurers out of business by undercutting them, encouraging employers to drop the employee's off of the employer-provided coverage so that ultimately you end up with a single-payer government-run health care system for all Americans. I think that is the goal.

VAN SUSTEREN: If Senator Reid cannot get Olympia Snowe, does they have the 60 votes to bust a filibuster?

CORNYN: I do not see how he does. Last week, he had a big surprise when 13 Democrats crossed over to join all Republicans to say we are not racking up $300 billions of more red ink on a debt as a over $1.4 trillion.

So regardless of whether he is getting a public option with a state opt-out in the bill, you are seeing looking at individual with insurance seeing those premiums rise, you're seeing taxes imposed on middle-class taxpayers, and you are seeing $500 billion cut out of Medicare benefits for seniors.

I do not see how that gets particularly very savory for those Democrats who got nervous at $300 billion of additional deficit spending.

VAN SUSTEREN: So who is he likely to lose?

CORNYN: I think there are 10 to 13 moderates.

VAN SUSTEREN: All of those?

CORNYN: I think there is a good chance. I think he is going to have a very tough time. These are going to be some very difficult votes, particularly for people up for re-election in 2010.

VAN SUSTEREN: Maybe he will be able to convince Senator Snowe to come back to his thinking. Any other Republicans say I may peel off into this public option?

CORNYN: I don't think so. It is a very strange strategy if your goal is to actually be successful and pass a bipartisan bill is to reject the only Republican who supported a bill in the finance committee and to do a bipartisan approach in the Senate.

So I think the substance will have to change before he can expect Republicans to come over and join him. We would like to work out something that makes sense, but this does not make any sense.

VAN SUSTEREN: How much consultation is there with you?

CORNYN: We had a little bit of back and forth in the Senate Finance Committee, but I think that was pretty much the end of it.

VAN SUSTEREN: So two weeks ago, three weeks ago? And you've had no calls since then?

CORNYN: No. As you recall they had Senator Grassley and Senator Enzi along with Senator Snow work with Senator Baucus and others...

VAN SUSTEREN: But since the end?

CORNYN: I am not aware of any other contact. I understand Senator Reid has been in regular contact with Senator Snowe, but I don't have personal knowledge of that.

VAN SUSTEREN: What do you think the odds are that the outline that Senator Reid made today with this opt-out public option? You do not think he will get to 60?

CORNYN: I do not think it will pass. I think the purpose of it, if I can sort of read his mind, is to show the left that we tried to do the public option. We could not get there. So now they need to do something else that might get more votes.

VAN SUSTEREN: Do you think he's had that conversation with Senator Snowe, that, look, I'm going out on a limb to say we want this public option, but do not worry, it will not pass. And when it doesn't pass we'll come back to your trigger point, and now you come in the tent? Is that the way this works?

I would not want to speculate, but I would not be surprised. There is a lot of conversations that occur behind closed doors here. That is why I feel so strongly that we need a more transparent exercise.

We have a bill that has been written behind closed doors, as you know, and none of us have seen it yet. So we need to see the bill. We need to see the language. We need to have the Congressional Budget Office tell us how much it will cost, because I suspect Americans would like to know what is in the bill as well as those of us who represent them. And they may have something to say about how it affects them and their coverage.

VAN SUSTEREN: Senator, thank you very much.

CORNYN: Thanks, greta.

VAN SUSTEREN: It's nice to see you, sir.

CORNYN: Thank you.


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