This is a rush transcript from "Special Report," December 23, 2010. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: We are now closer to health care reform than we have been before, and that's due in no smart part to the outstanding team you have at AARP.

I'm extraordinarily pleased and grateful to learn that the AARP and the American Medical Association are both supporting the health insurance reform bill.

GAIL WILENSKY, FORMER MEDICARE ADMINISTRATOR: There are just hundreds and hundreds of provisions that most people, even those who think they're informed, don't know about it. You can count on every year for the next six or seven years as this unfolds that we are going to discover provisions that no one was aware was in the legislation.

This legislation is incredibly complicated and complex.


BRET BAIER, ANCHOR: We talked about it a lot, that the HHS -- the Department of Health and Human Service -- will be putting out regulations as we get closer to the entire health the law being implemented in 2014. This is just one of the regulations that came out Tuesday, a couple days ago, it's 136 pages long. In it, health insurance company lobbyists suggest that President Obama's reform law is essentially giving preferential treatment to the AARP for its sponsorship of a Medicare supplement plan. We will explain all of this. It gets down into the weeds. But it also tells a bigger picture about the health care law.

Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, Erin Billings, deputy editor of Roll Call, and syndicated columnist Charles Krauthammer.

All right, shorthand it for us. Why is it a concern, Steve? And what does it mean?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: Well, I think it's a concern because the AARP, who, as you pointed out, lobbied for the bill, has supported health care reform of one kind or another for decades really, clearly has the exemptions. And the White House says it's categorically untrue it has these exemptions, but the White House I think is playing game with semantics.

The AARP is not technically an insurer, but what they do is they license -- they provide their name to insurance companies and market their products to other people so that seniors will buy the products.

BAIER: One of them is Medigap.

HAYES: One of them is Medigap. I mean they do this for Standard Insurance. They do this for Medigap. They do it for any number of things and they make a ton of money doing this -- some $650 million doing this.

And so what the White House is saying, what the administration is essentially saying is well, yes they might have these exemptions, but because they're not technically insurance companies, we don't have to treat them the same way that we would treat insurance companies and therefore these exemptions aren't -- there is nothing untoward about them.

BAIER: And they get -- AARP does -- gets a kickback, what they call a royalty, each time they bring someone to these programs. And they've testified on Capitol Hill that they were going to release how much they get for each person they sign up. But they have yet to do that.

HAYES: They haven't done that yet, which is ironic given that the administration trumpets its own transparency again and again and again. But we do know roughly of the $1.14 billion that the AARP brings in every year, some $650 million-plus of that is due to their royalties. And of that amount, 65 percent is due to health-related royalties.

BAIER: And the head of AARP has said that potentially could be a problem.

HAYES: Right. Exactly.

And the head of the AARP, who's an Obama donor, there are legal lobbyists who worked in the Clinton administration, some 90 percent of the campaign contribution of the 2010 cycles that were affiliated with the AARP went to Democrats.

BAIER: OK, now that I've grilled Steve enough, Erin, big picture.

Republicans talked in the new Congress of trying to unravel the health care law with examples and regulations coming out all the time and complexity here. Does their job get easier or harder?

ERIN BILLINGS, DEPUTY EDITOR, ROLL CALL: Well, things like this are exactly what Republicans will seize on to build that political argument. You know, they know they can't repeal this law right now. They know with Obama in the White House, they can't do it.

So what they are going to try to do is build at least a political argument. One Republican said it's a death by 1,000 cuts. So if they take issues like these exemptions and further regulations and the challenges in the court to be able to build that argument that this law is flawed and that hey, we don't really know what's in it and how does it affect you? Maybe it's not so great for you. Then they can get to 2012 and say put Republicans in office, put Republicans in the White House and we can really get rid of this health care law.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The problem is the inherent complication and complexity of the law.

You held up that wide package of regulation for one provision. There are hundreds of provisions in the bill and there are some we don't know about or will discover in time. Each of them is going to give -- imagine the power the HHS Department has in writing it. And you can write it in ways that will exempt A and include B.

And look at the power it exerts over the private sector? All this complexity doesn't just introduce inefficiency and also introduce huge increases in cost, it's inherently corrupt.

One example, a few weeks ago, McDonald's said it would have to drop the coverage for its workers because of an arbitrary provision in the bill where the insurers could only allocate 20 percent of revenues to overhead and profit, a number picked out of a hat. It could have been 26 percent. Well, it turned out the McDonald's and other employers couldn't do that. So they went on bended knee to HHS and they got waivers. Some companies will get waivers, others won't.

Think of the power it exerts on the person on the other side of that transaction. They have to calculate. They are going to be impacted by these provisions and waivers. They don't want to impose or annoy in any way the administration in power. And that is what is wrong with the system this complex and with this many arbitrary provisions.

BAIER: Steve, the White House Press Secretary Robert Gibbs asked this week about the Republican efforts to try to unravel health care. He continues to portray insurance company as the bad guys.


ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: I think there are general benefits that the law provides to Americans and they'll have to talk about what happens when you put insurance companies rather than families in charge of medical decisions.


BAIER: That is their argument.

HAYES: Well, setting aside the bogus argument that it's actually family that are going to be in charge of medical decisions rather than a government board, this has been their argument all along.

And it's very interesting to me to see the tonal difference from the administration with respect the insurance companies and stakeholders or people supporting the bill, like the AARP.

Remember, Kathleen Sebelius, when insurance companies came out and said we going to have to really raise premiums because this law will set us back, it will require us to cover more people and sicker people. We're going to have raise our premiums. She wrote a sharp letter, basically warning them, you can't make those decisions. We decide what is reasonable and what's unreasonable. And we're telling you it's not reasonable for you to raise premiums.

Then on the other hand, you take the sort of way that they're treating the AARP, which is exemption here, exemption here, exemption here, for what the AARP is doing with a law that, in all likelihood, will benefit the AARP by bringing in more royalties to an organization that supported the law in the first place.

BAIER: Erin, how does this go? Republicans take up a repeal, symbolic because it can't get through a Democratic Senate and a Democratic president, but then unravel it in committee?

BILLINGS: Well, I mean that is going to be part of the strategy. There's certainly going to be oversight hearings, they're going to try to attack it from all sides. The repeal, I mean it may get through the House, it probably will, but it's not going to go anywhere in the Senate. And then there will be attempts to de-fund it. They will go after it from every angle possible. This isn't going to be a one-trick strategy here for them. They really want to get at it from all sides.

BAIER: Charles, clearly there will be a lot of material.

KRAUTHAMMER: And power the Republicans have acquired in winning the House is they can have the open hearings where these issues, these exemptions, these instances of what looks like corruption or at least favoritism, are exposed not just on the evening news but in hearings.

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