Officials of Blue Cross and Blue Shield of Maryland announced yesterday that they have withdrawn a proposal to take over the state's Medicare program.

They said they have spent months discussing health care concepts with the state's elderly and will pursue improved coverage in the future.

However, Carl Sardegna, the organization's president, said it will continue to administer the Medicare program in Maryland as it has for the past 21 years and work to improve existing coverage.

"We have learned a great deal about the needs of senior citizens and will continue to seek ways to offer then new choices in coverage with improved benefits at lower out-of-pocket costs," he said. "We intend to continue our dialogue with the seniors we serve."

Federal officials said the government has initiated a review and analysis of alternatives for Medicare reform, adding that the organization could be asked to resume negotiations for a takeover in Maryland at some point.

"It would not be fair to Blue Cross and Blue Shield and the state of Maryland to withhold judgment until that process is completed," the Health Care Financing Administration wrote in a statement delivered Friday. "If the health administration decides to test the geographic capitation concept, we would be pleased to have Blue Cross-Blue Shield resubmit its application."

Officials said the organization's decision to withdraw its bid to become the sole operator of Maryland's Medicare program was a joint decision reached by the insurance group and the health agency.

"Our proposal was developed in response to a request from the health administration for new ideas to help stem the tide of rising health care costs and give the elderly new choices in coverage that are not now available to them under Medicare," Sardegna said. "While we are disappointed by this development, we also are realistic enough to recognize the problems the health agency is facing.

"As a result, we will concentrate our energies and resources on other alternatives."