It doesn't replace the insurance individuals already rely on. But it provides an alternative. It lets them make the decision. It's the health care equivalent of being pro-choice. And it thus serves two purposes. The first is to act as a public insurer. To use market share to bargain down the prices of services, much as Medicare does. To lower administrative costs. To operate outside the need for profit, and quarterly results. The Commonwealth Fund estimated that this would result in savings of 20%-30% over traditional private insurance.
The endgoal here--to reduce costs while increasing quality--will be exceedingly difficult (perhaps impossible) to reach. But we won't go anywhere at all unless health insurance market is recalibrated. How will that happen? By introducing a different type of competitor to the game. The theory:
If the public plan works, then private insurance will work better as well. In this telling, the simple existence of the public plan forces a more honest insurance market: Private insurers need to offer premiums closer to their marginal cost, and they have to cut administrative costs, and they have to work on their reputation for cruelty and capriciousness. The existence of another option changes the market. Individuals will have access to private insurers, but they'll no longer be stuck with them.