SCHIEFFER: And good morning again. Joining us now in the studio, Senator Chuck Schumer, Democrat from New York and Senator Jon Kyl , Republican of Arizona. If there were two key players in this -- leading up to the Senate deciding to debate this whole health care issue, it is you two.

So I'd just like to get your reaction, Senator Schumer, on what happened last night.

SCHUMER: Well, I thought last night was a very good night for us. Look, there are still many bumps in the road, discussions, arguments, disagreements. But I think, now, the wind is at our back. There's real momentum.

And the good news here is we still have a very diverse caucus, but every Democrat, from the most liberal to the most conservative, very much wants to get a bill.

SCHIEFFER: And on the other side, every Republican, from the most liberal to the most conservative, voted against it.

KYL: And the reason is because, ordinarily, when you do start debate on a bill like this, it ends up passing. And most of our constituents are saying you need to do everything you can to stop it.

And the best way to stop it is not to start it but rather to go back and start over again with more Republican ideas in the legislation than is currently the case. So that's why you had every single Republican saying, no, not this.

SCHIEFFER: Orrin Hatch said the Republicans will launch a holy war of delay. Is that going to happen?

(LAUGHTER)

KYL: Well, first of all, the American people, by public opinion surveys, have made it very clear they want this whole thing aired out. They would rather have us do it right than do it quickly.

We've had so many deadlines -- it has to be done before August; it has to be done before October, and so on. And now the president says he's got to have it by the end of the year.

The reality is this is a huge issue affecting every American. And we do need to do it right. And the object is not to delay for delay's sake but rather to have an opportunity for everyone to see what's in it, to understand it, to know how much it costs and to know how it's going to impact their lives.

SCHIEFFER: Senator Schumer, there are at least three or four Democrats, right now, and maybe more, who have real problems with this bill. Senator Lincoln from Arkansas said yesterday, "Don't think that I'm for this bill as it now stands, just because I'm voting to go ahead with debate."

Senator Landrieu from Louisiana -- what, now, $100 million in federal funds had to be channeled to Louisiana -- they're calling it the "Louisiana purchase" -- in order...

(LAUGHTER)

... to get her vote to begin debate. You've got some real problems here.

SCHUMER: Well, look, we are a diverse caucus. And when we become 60 members, we get members from red states. But what we've shown is unity throughout. Every time there's a major challenge, the caucus comes together for the good of the nation.

Our belief is two-fold. One, we believe we have debated this a long time. It's been debated in America for the last decade and a half. But in terms of legislative deliberations, the HELP committee began -- that's the health care committee -- began in May. The Finance Committee, on which Jon and I sit, had extensive hearings all through the spring.

This has been debated for a long, long time. And now the time is to act. And, frankly, you know, there are a lot of people on the other side of the aisle who don't want health care. They haven't put together an alternative proposal that's out there on the Web the way our proposal is. And I think what Orrin Hatch said is right. It's dilatory tactics.

SCHIEFFER: But what about this idea that it takes $100 million in federal funds channeled to one state to get -- I mean, should that be added to the cost of the health care bill?

SCHUMER: Well, no. Mary Landrieu is a very good legislator, and she does two things very well. One, she delivers the goods for Louisiana. She has constantly, and I think the people of Louisiana respect her for it.

But second, she has real views on health care, and those are taken into account as well.

SCHUMER: One of the issues that she has pushed very hard is foster children because she has great experience with them, and health care for foster children.

SCHIEFFER: Well, what about that, Senator Kyl? What about this idea of funneling all of this money? I mean, how much is this going to cost in the end? Do you think there are any Republicans here? I mean, what would Republicans charge to get...

KYL: Well, you haven't heard Republicans saying, here is my price. That's the problem when you have to get 60 and people in your caucus have severe reservations about the bill. In order to get every single vote, sometimes you do resort to things that appeal to a particular senator, or in the case of the House, to a particular representative.

The American people don't like that when they see it. It should be on the merits. And when these senators, for example, say, well, we'll vote to start the bill but that doesn't guarantee our vote at the end, the pressure at the end of the process is enormous.

And the real question ought to be, are you representing the will of your constituents? And incidentally, all of the public opinion polls show the American people don't want this. In fact, Gallup just came out with a poll that showed independents oppose it by better than 2-to-1. So do you abide by the wishes of your constituents or succumb to the dictates of your leaders?

SCHIEFFER: Well, now is that exactly right, because I've seen polls that show a majority do want health care. Some don't want the public option, some don't want this or that. But to say that the majority are against it, is that accurate?

KYL: I can cite 10 polls that the majority in every one of them oppose this health care legislation. When you say health care, of course, we all support health care. The question is, do you support this legislation or would you be more likely to vote against a senator who supports it than not?

And that was the exact question in that Gallup poll.

SCHUMER: Well, the polling is all over the lot. I can cite 10 polls on the other side. I think we have to do what's right. And what's right is this, the health care system, if left on its own, is crashing. Medicare will be broke in seven years. It's running out of money because it's just so expensive. And for those who argue, oh, that's the government at work because Medicare is a government program, and I always find it an irony my Republican colleagues are against government programs but love Medicare. But at the same time the private sector costs double every six years.

And what is going to happen, Bob, over the next five or six years is tens of millions of Americans will be told by their employers that they can no longer afford health care for them. So we have to get this in line.

And the goal of our bill, above all, is this: We try to get rid of the waste, the fraud, the abuse, the duplication, the inefficiency. Every individual has experienced that. You get a bill back from your hospital and you say, what was this? What are they charging me this much for that? I didn't even see that person there.

So we all know there's a ton of that kind of waste, fraud, abuse, inefficiency in the system. And we're trying to get at that so that we can preserve Medicare, so that we can preserve private insurance basically as it is. And we know all the providers don't like it because sometimes their axes will be gored if they're doing the waste, fraud, abuse, and inefficiencies.

SCHIEFFER: Let me just ask Senator Kyl about the most controversial part of this. And that is the so-called public option, which would be a government insurance program like Medicare for younger people. Why are you so opposed to that, Senator?

KYL: Well, there are several reasons.

Incidentally, I was going to quote from the Congressional Budget Office letter that points out that the expenditures here are going to increase, not decrease, so it's not as if we're actually cutting the costs of these government programs like Medicare.

But in any event, the government-run program is objectionable for two primary reasons. First of all, a lot of people will acknowledge, even members of Congress, that it is the first in a two-step process to get to a single-payer system. And there are people on the left in this country who support that. Most people do not, and this is seen as a way to get there.

And how do you get there? As Senator Schumer just mentioned, you get a lot of people that have policies today with their employer. And according to the Lewin and Associates study, 88 million of those people will drop the coverage with the employer or be dropped because the employer can't -- it will be cheaper for him to dump them into the government-run program, put it that way.

Eighty-eight million people. And that then brings up the second point. if you like your insurance you get to keep it. No, not true. You have your insurance with your employer. He says it's cheaper for me to send you to the government plan than it is for me to continue to provide it, you don't get to keep your policy anymore. Now you're in the government-run system. So that's the other objectionable feature. In addition to which there are a lot of costs associated with it and dictates from the federal government as to what is covered and what is not.

SCHUMER: Let me answer that. First, the Lewin study which Jon cites is widely discredited for one good reason. they're fully funded by UnitedHealth, a health insurer. So it's...

KYL: It doesn't mean they're wrong.

SCHUMER: In this case they're very wrong. CBO says our plan, a more modest public option, there would be 4 to 6 million people, and they're not funded by anybody. They're impartial and we both go by their readings.

Here's the reason we need a public option. And we do, we very much do.

SCHUMER: The insurance industry is about the most highly concentrated industry in the country. In many states, 81 percent of the insurance is by one company. In 40 states, two companies dominate.

When there is no competition or very little competition, every economist, left, right and center, will tell you the costs go way up. And that's what's happened here.

So you need to inject some competition into the insurance industry. The best way to do that is a public option. And the program that we've put together is set up by the government but then it's on its own. There is no intent for it to compete unfairly against private insurance. Some of the original plans were. The House plan, at the beginning, I would admit it was.

But I came up with the idea, and the HELP committee adopted it as well, of a level-playing-field public option. It gets an infusion of dollars from the federal government at first. It has to pay it back like it is a loan over a period of time. Then it has to meet the same rules, requirements, regulations, reserves as any private insurer.

Now, I believe a public option will work better. Why?

SCHIEFFER: Well, let me ask you this. Can you get enough Democrats -- can you get 60 votes to vote for a public option?

Because, right now, independent Democrat Joe Lieberman says, "Look, no health care reform is better than health care reform with a public option in it." Senator Lincoln has a real problem with that. Senator Landrieu already has said she has a problem. Ben Nelson says he has a problem. And I'm just talking about Democrats.

Can you -- is it possible to find some way to get those Democrats to vote for this?

SCHUMER: I believe we can. And here's why, two reasons. First, as I said, this is a modest public option. Many of those folks, when I spoke to them over the course of the last several months, their great was Jon's fear, that this would transmogrify into a government plan and would knock out everybody else.

And by the way, the people from private insurance, in reference to what Jon said, are not even allowed to go into the exchange where the public option is. So they can't. So the bottom line is, though, it is not -- it is a level playing field. And then what we will say to the people from the more red, conservative states, your state doesn't have to take it. But don't make it so that my state, which would like a public option, can't take it. And the opt-out works.

And I think, at the end of the day, everyone is going to be together. And I think the proposal that Leader Reid wisely put into his bill, which is a moderate, modest proposal, sort of, in the middle of public option land -- there are some on the left who don't like it; they want it to be more liberal, some on the right -- will, at the end of the day, be where we end up.

SCHIEFFER: All right.

KYL: If you want it today, you can do it today. Maine has a public option. Massachusetts has the ultimate public option. Massachusetts has the second highest premiums in the country. It turns out public option doesn't drive premiums down. Maine is having problems, as Senator Susan Collins , the former insurance commissioner from Maine, has pointed out.

If a state wants to go that route, they can do it today. But it's not advisable. And, you know, to think that you can be both a competitor and the umpire and you're not going to have the advantage is -- is...

SCHUMER: They're not the umpire.

KYL: Well, the government is the umpire.

SCHUMER: No.

KYL: Chuck, please don't interrupt me, here. I've read good portions of this bill. The government makes decisions.

And I think there are over 3,000 times where, in the legislation, it says "shall." The secretary of health and human services has tremendous power under this legislation.

And as a result, a lot of people fear that, when the government is both the competitor and the umpire, obviously they win.

The final point on the public option: There are a lot of states where there aren't enough people, either in terms of a risk pool or in terms of the network of physicians and hospitals, to put together a lot of different competing plans. You don't help that by adding one more plan.

SCHIEFFER: Is this plan...

(CROSSTALK)

SCHIEFFER: Are people going to have to pay more taxes because of this?

KYL: Yes.

SCHUMER: No.

(LAUGHTER)

SCHIEFFER: Yes, no, right?

SCHUMER: Let me say this, first, on the public option. First, yes, someone makes the rules, but under our plan, unlike what was feared before, the same rules apply to private insurance and to the public option.

In other words, we say to private insurance, "You have to have reserves in case you go bankrupt so your policy holders are still there." Same with the public option. We say that you cannot cut people off when they pay too much -- you know, when their insurance -- when their health care bills go up too much. Same at the other.

So it's a level-playing-field public option. And it is not -- one does not have an advantage over the other. It just creates good old-fashioned American competition.

SCHIEFFER: Let me just ask you this, Senator. I mean, obviously, the wealthier people are going to pay more taxes.

SCHUMER: Yes.

SCHIEFFER: But aren't people down the line going to have to pay more taxes as well?

SCHUMER: No.

SCHIEFFER: Isn't this going to cost them more?

SCHUMER: What we have focused on, particularly in the Finance Committee bill, and then in the bill that Leader Reid put together, which I think has the best of the HELP bill and the Finance bill, and that's why I believe it's going to pass the Senate with 60 votes -- maybe 61, 62.

SCHUMER: Who knows -- and the reason is, we focus mainly on cutting the waste, inefficiency and the duplication, the runaway costs...

SCHIEFFER: All right.

SCHUMER: Yes. Are there a few taxes on Botox and things like that? Yes. A small increase in the Medicare rate, but only for people above $250,000.

SCHIEFFER: We're out of time here.

SCHUMER: The average citizen, no tax increase.

SCHIEFFER: I'll give you 30 seconds to response.

KYL: If you have insurance, you get taxed. If you don't have insurance, you get taxed. If you need a life-saving medical device like a stent or a diabetic pump, you get taxed. Pharmaceutical.

The Congressional Budget Office says and the Joint Tax Committee says that these taxes imposed on others will be passed through. And why does the letter from the CBO say it is going to cost between $5 and $10 billion for the IRS? Because the IRS has to enforce these tax provisions.

SCHIEFFER: All right. We have to end it there. Thank you all both for a very enlightening discussion. Back in one minute.