It's cost effective is likely the main reason, besides the significant public health concern.
When chlorine treatment was introduced in the early 1900's diseases like typhoid, cholera, and dysentery were commonly carried in drinking water and chlorination effectively eliminated them. BUT:
I quote:
"... the July [1992] issue of the American Journal of Public Health, researchers found that people who regularly drink tap water containing high levels of chlorinated hydrocarbons have a greater risk of developing bladder and rectal cancers than people who drink unchlorinated water. The study estimates that about 9% of all bladder and 18% of all rectal cancer cases are associated with long-term consumption of these hydrocarbons. This amounts to over 20,000 new cases each year!"
European water treatment has largely shifted to ozone and filtration, and they have found it works. Plus the chlorine residuals are about 10 times less than in US water.
Your question is timely for me because my public water company just sent me a letter announcing that the drinking water was above regulatory limits for trihalomethanes-and this is caused by chlorination. Dibromochloromethane is associated with cancer risk of one per million at 0.6 micrograms per liter. That's about the same as 6 parts per billion. Not terrible odds at 1 per million, but I don't like that ppb since the smallest I can measure in the lab is probably about 3 parts per billion. In other words, it’s barely measurable.
Anything like water that one consumes in large quantities daily for year after year deserves some attention. I am often the first to dismiss the latest crazy report about something else that will kill me, but with water it is statistically different. I see no choice but to filter drinking water. What else can you do?
Fluoride? Well, you probably get a fair amount in your toothpaste. It’s normally kept around 1 ppm in drinking water so I doubt it is really that much of a problem. I suspect that using fluoride cuts down on the amount of chlorine needed so it may not always add to costs of treatment.