Congress is now broadening the limited catastrophic illness coverage proposed by the Reagan administration for older Americans. While this is commendable, Congress should not confine its efforts to marginal improvements in catastrophic care. A longer term payback for the country would be achieved by joining catastrophic care for the elderly to expanded health-care benefits for low-income children and pregnant women.

The need for catastrophic coverage for senior citizens cannot be gainsaid. Its time has come some 15 years after former senator Russell Long proposed it. Medical bankruptcy from catastrophic illness is a haunting possibility for many American families. But a catastrophic bill alone would be a mistake.

First, passage of this popular measure, which primarily benefits the middle class, may dissipate political interest in filling in significant health-care gaps for less politically powerful Americans -- particularly poor children, who with their parents are part of the more than 30 million Americans with no private or government health insurance.

As the Carter administration was considering its national health insurance proposal, we were warned repeatedly by liberal public-interest groups against proposing a catastrophic-only bill because it would doom efforts for broader health coverage for children and the working poor. It is supremely ironic that when President Carter proposed a major first-phase national health measure in 1979, which linked catastrophic protection for all Americans -- not just the elderly -- with comprehensive health coverage for 16 million low-income Americans plus a number of pregnant women and infants, it was criticized as inadequate by many now supporting a catastrophic bill limited to those 65 years of age or older.

Catastrophic insurance then as now is the politically attractive engine to pull along the disadvantaged, who have difficulty achieving improved health-care coverage on their own.

Second, a health-care dollar spent on preventive care for poor children and pregnant mothers will provide a greater return to the country than one for catastrophic coverage. The United States already spends vastly more of the federal budget on the elderly than on children. Almost one-third of the pregnant women in our country have no health care during their crucial first trimester. America ranks 15th among the nations of the world in infant mortality, behind places such as Singapore and Hong Kong, with approximately 11 babies dying out of every 1,000 born. Low-birth-weight babies -- almost 7 percent of all live births -- are rampant in low-income communities. Our rate of low-birth-weight infants is higher than those of 12 other countries.

Low-weight births could be reduced by up to 15 percent, and an even higher percentage of costly birth defects could be prevented through good prenatal care -- at a vast savings for follow-up care. The National Academy of Sciences estimates that underweight newborn infants are 40 times more likely to die in the first year than other infants and face a much greater risk of developing health problems and disabilities. For every dollar spent on prenatal care, the academy estimates more than $3 in direct medical expenditures could be saved in the first year of a child's life, with even more dramatic savings considering the lifetime costs of birth defects.

We cannot have a competitive work force when so many low-income youngsters get no medical care during their crucial formative years. Catastrophic health insurance puts health resources at the very end of the medical health spectrum. Improved coverage for poor children puts it at the beginning, where it will do the most good.

Third, Medicare, upon which both the administration's and the congressional catastrophic health proposals are based, and Medicaid were both passed in 1965 in a politically linked compromise. One is a federal, largely payroll-tax-based program for the elderly; the other is a state-federal program funded by general revenues for the indigent and their children in Aid to Families with Dependent Children and other welfare programs. Medicaid benefits have been disproportionately cut during the Reagan era relative to Medicare. A catastrophic bill would make the two programs further imbalanced.

This is no argument to ignore the needs of the elderly in order to deal with those of the young. We should make progress with both. A bipartisan group of senators and congressmen, supported by many governors, has quietly made progress over the past several years to address the crying problem of low-income children by decoupling Medicaid eligibility from AFDC coverage. In 1984, Medicaid was expanded on a mandated basis to first-time pregnant women who would be eligible for AFDC if the child was born, with states covering children up to the age of 5 in families with incomes below state eligibility standards. The next year, prenatal-care coverage was added for pregnant women beneath state income standards. In 1986, states were permitted to cover on a phased-in basis children under age 5 up to the federal poverty line and pregnant women and infants even if their income exceeded state AFDC levels.

A vehicle exists to link a preventive program for pregnant women and children with catastrophic care for senior citizens. Reps. Waxman, Hyde and Miller and Sens. Bradley, Kennedy, Chafee, Chiles, Reigle, Durenberger, Matsunaga and Rockefeller have proposed a further Medicaid expansion. The phased-in coverage for children up to 5 years old passed last year could become effective immediately at state option, and coverage of poor children up to age 8 who meet AFDC standards would be required by 1991. Pregnant women and infants up to age 1 with family incomes up to 185 percent of the poverty line would be eligible if a state chose to cover them. An additional 79,000 low-income pregnant women and infants and 239,000 poor children would receive Medicaid health-care benefits. The cost is less than $300 million over the next few years, for which there is ample room in both the Senate and the House budget resolutions for fiscal year 1988.

If it were necessary for this Medicaid expansion to be revenue neutral, several federal programs, such as the Economic Development Administration, could be devolved to the states as proposed in a bipartisan plan proposed by Republican Sen. Dan Evans and former Democratic governor Charles Robb to extend Medicaid coverage for pregnant women and poor children up to age 9 by 1992.

It is not too late to act. Medicaid expansion could be added when the catastrophic health bill comes to the Senate floor or through the budget reconciliation process.

National health insurance is too expensive and its impacts too uncertain to accomplish in one fell swoop. Progress can only come incrementally. But the next step should permit the nation's elderly and its children to move forward in lockstep. Then Congress and the Reagan administration truly would have enacted a historic measure.

The writer, a Washington lawyer, was President Carter's chief domestic policy adviser.