Urban Institute has an article by John Holahan and Linda Blumberg concerning the type of public plan that   should be included in health reform legislation:

This paper makes the argument that a public plan is important to healthreform because it will contribute to cost containment, primarily byaddressing problems caused by increased concentration in insurance andhospital markets. We describe how the public plan might be structured,how many people might be expected to enroll, and how much money thepublic plan might save. We discuss the most frequent arguments that aremade in opposition to the public plan. We conclude that the privateinsurance industry would survive at about the same size but be moreefficient and more effective in controlling health care spending.. ..

The arguments around the public plan too often ignore what we believe is the central reason for including a public plan as a component of reform: that health insurance markets today, by and large, are simply not competitive. And as such, these markets are not providing the benefits one would expect from competition, including efficient operations and consequent control over health care costs. We believe that the concentration in the insurance and hospital industries that has taken place over the past several years has been a significant contributor to this problem. The role of the government plan is to counter the adverse impacts of market concentration and, in doing so, slow the growth in health care costs….