Industries with "public option" alternatives
Mail delivery: U.S. Postal Service vs. FedEx and UPS
Education: Public schools vs. Private schools
Personal Protection: Police Department vs. Private Security
Health Care Systems: VA and Medicare vs. Private Health Insurance
Media: Public Airwaves vs. Cable and Satellite TV
Roads: Public Roads vs. Private Tollways
As you can see, having a public option does not necessarily mean the end of private industry. However it does mean the private insurance industry will have to do a better job, with lower prices and better customer service, or people will flee to a government run health care program. A public option should be available for services considered so essential they are considered a universal right such as education and protection. Certainly the public services listed above leave a lot to be desired (don't get me started on all the post office jokes). But a public option is not supposed to represent best in class. It is just a fall back that provides the minimum level of competence to get a job done. That leaves the door open for private industry to do a better job and offer a profitable alternative. Industries that say they can't compete against a government run service aren't trying very hard.