THE ADMINISTRATION proposes to raise the reimbursement rates for hospitals under Medicare by only 0.5 percent next year. It notes that hospitals made a "profit" of 14 percent from the program as recently as 1984, meaning reimbursement rates were that much higher than costs. The industry replies that any such cushion has long since been used up and that there has been no appreciable rate increase for two years. A spokesman calls the proposed increase next year "an insult, sure to have a bad impact on quality of care and access to care."

Health care costs are now 10 percent of the federal budget. The bulk of these are in Medicare, and the bulk of Medicare costs are hospital payments. Some of the biggest budget cuts of the Reagan years have been in health care programs; they have revolutionized the Medicare reimbursement system -- and with it, the way Americans pay for health care generally. The government used to pay hospitals pretty much whatever they spent to care for Medicare patients. Now, after a complicated series of calculations, it pays them what it thinks they should spend.

Every year since this new "prospective" payment system was put into effect in 1984 there have been heated arguments. The hospitals say the government is forcing them to put sick people on the streets. The government says the hospitals are trying to perpetuate an old order that the taxpayers can no longer afford.

Part of this now-annual argument is over, yes, "DRG creep." When the new reimbursement system was set up, all the problems for which a Medicare patient might be sent to a hospital were divided into 468 "diagnosis related groups." The problems in some DRGs are more costly to treat than in others. A profile was developed of the DRG mix in each hospital, and the hospital was paid accordingly. It now turns out that some hospitals are creeping up the DRG scale, reporting that their patients fall into costlier categories than earlier believed.

The system can lead to overcompensation to the hospitals unless corrected for. The Prospective Payment Assessment Commission, which Congress set up to advise in these matters, disagrees with the actuaries in the Department of Health and Human Services about how large the correction or offset to this year's rate increase should be. The disagreement is expressed in tenths of percentage points. But a percentage point in this new math is worth about half a billion dollars.

The transition to the new reimbursement system has gone remarkably well. Some of the argument that has characterized these early years will pass: the DRGs can only creep so far. There is nevertheless a new set of issues for politicians and the public to learn. The new system forces debate each year on whether, as a society, we are buying the right level of medical care and paying the right price for it.