In his column Oct. 25, James J. Kilpatrick decried the demise of the formaldehyde home insulation industry ("Destruction by Press Release," op-ed). We should feel sorry, he claimed, for the manufacturers and installers of urea-formaldehyde foam insulation--victims of vicious and unfounded publicity by the U.S. Consumer Product Safety Commission.

His argument is flawed on two counts: he totally ignores the significant health hazards posed by formaldehyde, and he puts the cart before the horse in blaming the CPSC for arousing public concern.

The chemical formaldehyde is, as Kilpatrick states, "all around us." Approximately 6.4 billion pounds of formaldehyde were produced in the United States in 1978, a total that will grow to an estimated 7.5 billion pounds by 1983. Its effectiveness as a bonding agent has made it an integral part of products ranging from cosmetics to draperies and home insulation.

Unfortunately, formaldehyde also makes people sick.

Kilpatrick claims that there is "no convincing evidence whatever of serious hazard to humans." Yet, consumers' experiences paint a very different picture.

Consider the case of Carol and Al Palmero of Connecticut. In December 1977, they installed urea-formaldehyde foam insulation in their home. That winter soon became a nightmare of illness for the entire family: Carol Palmero developed respiratory problems, stomach pains, jaundice, eye irritations and ear growths. Al Palmero experienced eye irritation and vision problems. Their 14- year-old daughter suffered nausea and vomiting. Their son developed eye pains and coughing spasms. All family members developed swollen lymph nodes.

Nor is formaldehyde poisoning limited to insulation. Helen Miller of Moultrie, Ga., has had to breathe through an air filtration system, or bubble, since she was poisoned by formaldehyde fumes emanating from particle board flooring added to her home in 1975.

"My life was hell," she recently told a reporter. "It thought I was going to lose my mind. The horrible headaches, coughing spasms, and my eyes . . . I was going blind."

Kilpatrick talks of 1,200 "dubious" complaints, yet some 1,400 complaints have been received by authorities in just two states, Connecticut and Minnesota. Even those complaining represent a fraction of the total number of people being poisoned. Most customers go for months or even years without knowing that their physical symptoms are those of formaldehyde poisoning.

Kilpatrick blames "zealous CPSC staff members" for the formaldehyde industry collapse. His wrath is misplaced. While the CPSC dragged its feet over the past year, formaldehyde victims have organized themselves and spread the word of the product's negative health impacts. They have formed a national grass-roots organization, Save Us From Formaldehyde Environmental Repercussions (SUFFER), with members in 26 states. The ban of formaldehyde foam insulation enacted in the state of Connecticut last June was largely a result of their efforts.

The victims have spread the adverse publicity based upon personal experience. It is the American free market system, not a government bureaucracy, that is killing the formaldehyde industry.