An administration official said tonight that Health and Human Services Secretary Kathleen Sebelius "misspoke"[.] . . . A second official, Linda Douglass . . . said that President Obama believed that a public option was the best way to reduce costs and promote competition among insurance companies, that he had not backed away from that belief, and that he still wanted to see a public option in the final bill.
In terms of broader perspective, Jacob Hacker has one of the best defenses of the public option that I've seen. One important point he raises is that it's actually a way to prevent overreliance on excessive regulations and bureaucracy.
The argument is fairly simple. Any type of reform is going to require a lot of regulatory oversight. That means detailed regulations, lots of regulators, etc. If, however, the country had a public option, the insurers would suddenly have a market incentive to comply with these requirements without so much regulatory coercion and administrative costs.
In this respect, the public option actually reduces the need for government -- and reduces the threat of agency capture and other public choice-ish problems (especially at the state level).