Why a public option is needed

For me, the case for including a public option in health insurance reform comes down to cost control. Most of us, don't really have an option when buying health insurance. Our employer offers a plan and that is what we get. Some larger employers may offer several different plans with different degrees of coverage. But many do not. In Massachusetts, we have mandated coverage and the bill now before the US House would require the same thing nationally. But if the only choices are private insurances with their demonstrated inability to control costs, then we are forcing people to buy into a system that doesn't achieve one of (and I think maybe the most important) goals of reform. Massachusetts has found that costs have not been adequately restrained and is considering new measures to do so. The areas where a public option program can better private insurances ...

... are profits and administration costs. The public option program would be non-profit and, if Medicare administration costs can be matched or even approximated, would have significantly lower admin costs.
Paul Krugman's New York Times opinion is one of the best arguments for a public option that I have read to date. He concludes with this,

the argument against the public option boils down to the fact that it’s bad because it is, horrors, a government program. And sooner or later Democrats have to take a stand against Reaganism — against the presumption that if the government does it, it’s bad.