Mayor Marion Barry has killed legislation that would have required the city to subsidize health insurance premiums for the Whitman-Walker Clinic, the city's major AIDS service organization, and other free clinics.

The legislation was approved two weeks ago at the D.C. Council's last legislative session before its summer recess. But Barry did not sign the legislation as of midnight Friday, the deadline for approving the bill, according to Garland Pinkston, director of intergovernmental relations.

The "pocket veto" disappointed Jim Graham, Whitman-Walker's administrator. Graham, who had warned that the clinic could be forced out of business without outside assistance on the insurance problem, said he hopes "that this is not a sign of a lack of willingness on the mayor's part to find a permanent solution."

Barry said in an interview that he vetoed the Whitman-Walker measure because it would "set a bad precedent . . . . What about other nonprofit groups" that need assistance? Barry said the city is "looking at other ways to help" the clinic.

The clinic's health insurance premiums have more than quadrupled in the last two years, in part because of the cost of treating some of the clinic's employees for AIDS.

Under emergency legislation approved two weeks ago, Whitman-Walker and four other clinics would have been required to carry health insurance policies identical to one of the District's plans. The clinics would have picked up the cost equal to the total rate the District pays for its own employees. The District would have picked up the rest.

The annual cost of the subsidy had been estimated at about $250,000.

Administration officials had expressed concern about the cost of the bill, as well as the precedent of establishing an open-ended entitlement program. They also said the council should have deliberated more carefully over the bill, which was introduced and approved within two weeks this summer.

Pinkston said the city recently increased its contract with Whitman-Walker by $177,000 to cover the health insurance costs of 48 of the clinic's 90 employees, for an annual contribution of $1.8 million to the clinic's operations.