An effort by Blue Cross to put itself in position to dominate the expanding prepaid health plan movement temporarily has been halted by the federal government because of concern that the movement's potential to cut health care costs might be jeopardized.

The U.S. Civil Service Commission had considered contracting with Blue Cross to act as its agent in dealing what the large number of prepaid health plans that have applied to provide health care for U.S. employees.

The commission postponed a decision after the Department of Health, Education and Welfare, which is trying to promote prepaid health plans, cautioned that alternatives should be considered.

Prepaid health plans, which have been growing in number since a federal law was passed in 1973 to spur their development, offer a full-range of medical services to family and individual members at a flat fee. Supporters of prepaid health plans, also called health maintenance organizations, say they offer a means of providing quality health care at a lower cost than Blue Cross-Blue Shield or commercial health insurance.

Between 1970 and 1975, the number of persons enrolled in prepaid health plans have grown from about 2 million to about 6 million. In 1970, about four or five Civil Service Commission employees could handle the paper work generated from federal workers belonging to prepaid plans. Today, according to Commission Chairman Alan K. Campbell, it takes 20 employees to handle the work, and the number is growing.

With almost 50 per cent of the health insurance market nationally. Blue Cross-Blue Shield is far and the largest health insurer in the United States. About 1.7 million of the 2.5 million U.S. employees in the country are covered by Blue Cross-Blue Shield. Although about 70 different local Blue Cross-Blue Shield associations insure federal workers, the government negotiates one contract with the national Blue Cross Association to cover those workers.

By contrast, about 200,000 government employes belong to 64 prepaid health plans. Each plan negotiates a separate contract with the Civil Service Commission, creating a growing administrative problem for the commission.

For more than two years, the Civil Service Commission has been considering a proposal advanced by the Blue Cross Association to handle contract negotiations and other administrative details as the "network" or middleman between the commission and prepaid health plans insuring federal employees.

Several weeks ago, Campbell asked Health, Education and Welfare Under Secretary Hale Champion for his comments on the proposal prior to the commission's making a final decision on the Blue Cross proposal.

Champion, who served on the board of the prepaid Harvard Community Health Plan to Cambridge, Mass., before coming to Washington and who has publicly stated the Carter administration's intention to strengthen the health maintenance organization movement, said he expressed concern to Campbell that if Blue Cross got the contact to serve as the "network" it could hurt the development of health maintenance organizations.

Although Blue Cross does operate some prepaid health plans in certain cities, the main part of the association's business is providing health insurance for hospitalization and physician care on a fee-for-service basis. Prepaid health plans, which generally provide hospital and physician care for a flat fee to members, are a competing form of health care to Blue Cross and commercial insurors. Physicians in a prepaid plan generally are paid a salary or paid according to the number of patients they treat, regardless of what services they provide. Physicians in a fee-for-service system are paid according to what they do for patients.

The question of what organization will serve as the network between health maintenance organizations and the federal government is considered crucial by supporters of prepaid health plans.

"All organizations exist in their own interest and Blue Cross is no different." Champion said in an interview. "And there are other interests in this situation which are at least not clearly the same as Blue Cross's."

The federal government is the largest since purchaser of health care benefits in the country. Waiting in the wings are a number of major national companies, obligated by federal law to offer their employees a choice of private insurance or a prepaid health plan that meets federal standards, that face the same administrative problems confronting the Civil Service Commission.

Which ever organization is chosen by the commission as the federal government's intermediary would have a clear upper-hand in performing a similiar role for private industry.

Champion and others see a potential for the network to serve more than as a go-between.It could also, Champion said, help health maintenance organizations market their services to new subscribers and offer technical advice to plans trying to get started. The question of whether the network becomes the servant or master of the movement. Champion said, "is a very important consideration and will have a very important influence on the future development of health maintenance organizations.

Campbell said that his "conversation with Hale confirmed the direction I wanted to go anyway." Following the meeting with Champion, the commission decided to postpone acting on the Blue Cross proposal for six months to give commercial health insurance companies, health maintenance organizations through the Group Health Association of America and anyone else interested an opportunity to propose a network arrangement.

Campbell and Champion said it is still possible that Blue Cross could get a contract to be the intermediary. "I think that if alternatives don't come forward that are competitive, that at some point Civil Service will conclude that it's got to have that kind of help to do its job and use whatever instrument's available," Champion said.