Inside the Proposed State 'Obamacare Opt-Out' Plan

This is a rush transcript from "On the Record," February 1, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Majority leader Harry Reid, look out! Republican senators are charging right at you full-speed. One day after explosive ruling in Florida that says the federal health care law is unconstitutional, two Republican senators who you know very well are introducing a measure to let states opt out of the health care law's individual mandate, Medicaid expansion and the employer mandate. If several states opt out, exactly who will be paying for the health care law should the Supreme Court ultimately hold it constitutional?

Republican Senators Graham and Barrasso are leading the charge and they join us now. Welcome, gentlemen.

SEN. JOHN BARRASSO R-WYO.: Thanks for having us.

VAN SUSTEREN: So let me go over (INAUDIBLE) if the -- if the opt-out -- and I have Senator Barrasso explain it in a second, but if the opt-out were to go through, and let's 26 states opted out because 26 are part of that action in Florida because they don't like it...

BARRASSO: Right.

VAN SUSTEREN: ... how does this health care bill get paid for?

SEN. LINDSEY GRAHAM, R-S.C.: It fails. You can't pay for it. The whole goal is to allow people to speak about the bill. This is the bill that was passed on Christmas Eve in the dead of night behind closed doors without one Republican vote, sleazy tactics to get the 60th vote. Remember that bill? We're talking about a process that stunk up the place. And the fact that the American people are not happy with the result should not be surprising.

So what we're trying to do is take debate out of Washington to the state level and let people at home vote as to whether or not they want to be in Obama health care. My view of the matter would be if you allowed the states to opt out, over half would. That would make us start over with a new bill.

VAN SUSTEREN: Explain that opt-out, Senator.

BARRASSO: Well, you know, we want to do is for patients, we want to make sure that they get the care that they need from the doctors that they want at costs they can afford. And by giving states the individual choice, they can opt out of the individual mandate, they can opt out of the employer mandate, this huge Medicaid mandate, which is really the mother of all unfunded mandates, they can opt out of that, plus these high levels of over-insuring people -- they can opt out of that. It's to give states the choice, the legislators, the governor, to come together to say, Do we want this to apply to the people in our state, because, ultimately, people are opposed to this bill. Fifty-eight percent want it repealed.

You know, Harry Reid two weeks ago said there will not be a vote. Greta, there's going to be vote tomorrow on repealing this health care law, and it's going to be a vote in the Senate because Republicans are keeping their promise to the American people.

VAN SUSTEREN: So no one really expects that the Senate will pass it, has the votes to pass it. Do you both agree with that?

GRAHAM: It probably won't get 60.

VAN SUSTEREN: OK. So the way -- as I understand the strategy of the Republican -- for the Republicans -- the senator -- is -- in the Senate is to basically, you know, cut it off at the pass and defund it in whatever way. Opt-out is one way. Any appropriations is another way.

GRAHAM: You got it. The courts are taking this one. It's a three- front war. It's in court, repeal and replace the whole thing, opt out at the state level, defund it because I believe the election of November of last year was about this bill as much as it was anything else. People hated the process. It was everything bad about Washington coming together at one moment to pass a bill that affected all of our lives. So the process stunk. The substance is overreaching. And we're going to attack it every way we can. We feel we have the mandate to do this.

VAN SUSTEREN: Is there a point sort of -- a point upon -- a point of no return, in the sense that we get the machinery going of implementing these 2,700 pages and we can't turn around (INAUDIBLE) economically unwise, and we're just so invested -- so invested in the new process?

BARRASSO: Well, that's why the administration is dragging its feet on getting this to the Supreme Court. I think that ruling yesterday out of Florida -- that is the second stake in the heart of "Obamacare." We're at a point in this country -- 9.4 percent unemployment -- we're trying to create new jobs by making it easier and cheaper to create private sector jobs. And with these additional expensive mandates, it's harder for the job creators, the small business of the country, to be able to meet with these mandates. And that's what's making it harder and more expensive to create new private sector jobs.

VAN SUSTEREN: I don't know how the Supreme Court is going to rule constitutional or unconstitutional because you can't jump into their minds. But they certainly -- I'm convinced that it's a big, fat lie that it should take any more than 30 or 60 days because there's nothing that has to be pled anymore. It's not complicated. It's just decide the thing. And anyone who drags his feet on this or says it's complicated is lying!

GRAHAM: Well, I heard you last night. You made a very good point. The whole economy is limbo. We don't know what the taxes are going to be because this bill hasn't been defined yet. By 2014, if we don't replace this thing, it will take effect. In my state of South Carolina, under this bill, by 2014, when it becomes fully implemented, 29 percent of the people in South Carolina will be eligible for Medicaid. That's a dramatic increase. It will be $1 billion more in cost to the state of South Carolina to get federal funds because you have to put a state match. And where does that money come from? Higher taxes, reduced benefits. So you're dead right. If we don't get this thing turned around by 2014, it will take hold and it's going to bankrupt states like South Carolina.

VAN SUSTEREN: (INAUDIBLE) intriguing aspects of it -- you know, the political aspect is probably someone like Senator McCaskill, a Democrat who is in favor -- one of the first supporters of Senator -- then Senator Obama over Senator Clinton to be president. Then she has last August this vote in Missouri where some horrendous percentage, like about 71 percent, wanted to dump the individual mandate. And now she's got to do some backpedaling because her state just doesn't want this. What's she going to do?

BARRASSO: Well, I don't know, but you saw that the secretary of Health and Human Services has now granted 2.2 million waivers for people so it doesn't apply to them. A lot of...

VAN SUSTEREN: Which is like the opt-out. That takes the money out of the system! So who's going to pay for this?

BARRASSO: Yes, and look who's getting the option (INAUDIBLE) opt out -- it's 167 of them are unions.

VAN SUSTEREN: How many?

BARRASSO: It's 167 unions, 880,000 union employees. They have 40 percent...

VAN SUSTEREN: But how many got -- how many got waivers?

BARRASSO: Forty percent of the waivers have gone to union employees, and they're just 7 percent of the workforce. There are a total now of over 500 waivers, 2.2 million Americans. And we just think every American ought to be able to get a waiver from this terrible health care law.

VAN SUSTEREN: All right, when are we actually going to get a vote on your bill?

GRAHAM: We don't know, but repeal and replace will be voted on tomorrow. I hope it passes. I hope we start over. But John and I are committed to making sure that this amendment is placed on any bill that comes through the Senate until we get a vote. If the people of this country could speak, not just judges, this bill would be replaced. And our opt-out provision gets it out of Washington to the state level, where we can have a meaningful debate in public, not behind closed doors in Washington.

VAN SUSTEREN: Senators, thank you both.

BARRASSO: Thank you.

GRAHAM: Thank you.