Which of these persistent illusions of the '80s do you believe?

*It is possible to cut taxes, raise military spending and balance the budget at the same time.

*The poor are better off with fewer food stamps and less income support.

*The elderly sick will be happier and healthier, now that Medicare is covering fewer hospital, nursing-home and home-health bills.

By and large, the middle class has lived comfortably with the first two illusions, because they saved money on taxes and didn't lose anything that mattered to them personally. But the third untenable proposition is hitting home, as they or their elderly parents slam up against the new, tightfisted Medicare system.

In theory, the revamped rules only "squeeze out the fat," but that's another illusion. Cutting costs ultimately means cutting care. That may be all right for the average patient, but for some of the critically ill, tragedy results.

Medicare now pays hospitals a flat fee for each type of illness, regardless of its severity or complications. It is also denying payment for patients that, in the view of a review committee, should not have been hospitalized at all or, if admitted, should have been sent home earlier.

The intent: to encourage medical cost-cutting, by punishing hospitals accepting patients that, the committee thinks, should be treated at home; and by rewarding hospitals that treat inpatients for less.

It's working superbly. Hospital admissions are down sharply while hospital profits are sharply up. Meanwhile, the American Association of Retired Persons is being blitzed with bitter letters from the elderly and their children, frightened by these new denials of medical care:

*It is harder to get into a hospital. Certain procedures must be done on an outpatient basis -- which may be fine in most cases, but not for all. One gynecologist had a patient who was elderly, obese, hypertensive, diabetic and lived alone. Medicare forced him to operate on her as an outpatient, even though he considered it unsafe.

*It is harder to stay in the hospital. One hospitalized patient who suffered a massive stroke was transferred to a rehabilitation center after only four days, even though he was incontinent and couldn't walk or talk. After eight more days, and still in the same condition, he was sent home to the care of his wife. Two days later he died.

"Many times I have no choice but to send patients home with inadequate resources to meet their needs," hospital social worker Bonna Cornett told the Senate's special subcommittee on aging, headed by Sen. John Heinz. As a result, she said, "problems often develop which lead to readmission."

John W. Willer, head of the Alabama Quality Assurance Foundation, told of patients discharged with uncontrolled bleeding, open surgical wounds with drainage, abnormal temperatures and continued chest pain.

*When discharged from a hospital -- quicker and sicker than patients were in the past -- it is harder to qualify for Medicare coverage in a skilled nursing home or home-health-care program. Dr. Raymond Cogan, medical director of the Willowcrest-Bamberger home in Philadelphia, describes it as a "drastic change" over the past 12 months.

Here's an example of a patient recently deemed not to need skilled nursing-home care: an 80-year-old man recovering from two straight operations and a stroke, severely diabetic and newly taking insulin, on a catheter, able to walk only with a walker and living alone in a second-floor apartment with no elevator. Dr. Leon Malamud of Temple University Hospital in Philadelphia says it took "one full week of intense activity" to get him past Medicare's rules for admission to Willowbrook.

William Dombi, co-director of Legal Assistance to Medicare Patients in Willimantic, Conn., adds that the home-health benefit has been harshly pruned. Says the AARP: "They're going into a no-care zone."

It's becoming increasingly common for patients to be told to leave the hospital (because their Medicare benefit has "run out") or else start paying the bills themselves. But Medicare is supposed to pay as long as it's medically necessary for you to be there, the AARP's Steven Mehlman told my associate, Virginia Wilson.

The AARP offers a free booklet that explains your rights in this situation (write for Knowing Your Rights, Fulfillment, 1909 K St. NW, Washington D.C. 20049). Briefly, you can ask for written notice of discharge, after which you have two days to appeal.

But elderly patients who are ill, confused and in pain are hardly in condition to prepare appeals. Sen. Heinz says that Congress ought to pass his bill mitigating the harshness of today's Medicare denials, and he's right. If you agree, send your congressmen letters and tell them so.