MEDICAID IS costly, yet the health care program for the poor doesn't do the job. Combined federal state expenditures are more than $70 billion a year, twice what they were just seven years ago. Yet now as then, the program covers fewer than half the poor.

The states are under federal and moral pressure to expand the coverage, of poor children especially. But they can't easily afford it. Medicaid has become a driving force in their budgets, and in recent years they have tried to cut back on both the services they cover and how much they will pay for them. The economizing has occurred even as Medicare and private insurers, who used to pay a little extra toward the cost of caring for the poor, have themselves been cutting costs. Hospitals in particular no longer have a place to turn. In a fourth of the states they are suing Medicaid to pay them their full costs.

The state of Oregon has now come up with what it says is, if not quite a solution to the problem, then at least a better way of apportioning scarce dollars. Instead of rationing care by cutting people out of the program, Oregon would cut out services. All the poor would be let into Medicaid. A novel effort would be made to list the thousands of services that the medical profession now performs according to their social value. The state would then go as far down the list each year -- cover as many services under Medicaid -- as its budget would allow. High-tech and high-cost but low-yield surgery would tend to give way to lower cost and less glamorous preventive measures.

That sounds rational and fair enough, if not exactly kind and gentle. But to put the plan into effect the state needs a waiver of basic Medicaid requirements including one that states provide all medically necessary care to all recipients, and some members of Congress and advocacy groups that you might think would be in favor are sharply opposed. In Oregon, as nationally, Medicaid is really two programs. Roughly half the money goes for institutional care, mainly for the needy elderly. The other half pays for normal medical care, mainly for welfare mothers and their children. It is only the second group to which the new rules would apply. In effect, poor women and children would be asked to bear the cost -- in the form of reduced benefits -- of extending care to the poor not currently covered. Though a final list has not yet been drawn up, the benefit reductions might also be extensive. It is not just high-tech surgery but, critics say, some basic services that would have to be cut out.

The state officials nurturing this plan are imaginative and well-meaning. They say they have no choice but to work within the confines of the Medicaid program; that is the hand they have been dealt. But the poor are not the place to look for funds to benefit the poor. This country now spends more than a tenth of its gross national product on health care, yet misses about an eighth of the population. That is how many people lack health insurance and ready access to care; they are disproportionately poor. If a reallocation of resources is the right way to help them, then everyone with the medical equivalent of ability to pay must make a contribution. The health care system is too Balkanized to try to solve this problem as Oregon has felt compelled to, existing program by existing program.