The nation's largest federal government employes union called yesterday for the resignation of Donald J. Devine, director of the Office of Personnel Management, and accused him of engineering a series of illegal cuts in health insurance benefits that could jeopardize coverage for 10 million federal workers, retirees and dependents.

In a statement prepared for a House subcommittee hearing, Kenneth T. Blaylock, president of the American Federation of Government Employees, said Devine's actions had created "chaos" in the Federal Employes Health Benefit Program (FEHBP). This situation, he said, could only be "nipped in the bud by assuring that OPM is directed by a federal manager who understands the rule of law, the role of Congress and the right of all Americans to be free from arbitrary and capricious agency action."

Blaylock, whose union represents 700,000 federal workers, was out of town and did not deliver his attack on Devine in person. But other AFGE officials did testify against the OPM director and Blaylock later issued a follow-up statement to make it clear the union was calling for Devine's resignation.

Devine came under fire from AFGE, other employe groups and some insurance carriers who testified before the subcommittee on compensation and employe benefits of the House Committee on Post Office and Civil Service. Rep. Mary Rose Oakar (D-Ohio), the subcommittee's chairman, opened the hearing by saying that OPM under Devine had put the federal health plan "in a shambles" by reducing benefits a total of 12 percent and raising premium costs an average of 9 percent.

Another union official, National Treasury Employees Union president Vincent L. Connery, accused Devine of trying to impose his conservative philosophy on the federal health plan with a mind set that "rests firmly in the 19th century."

Devine could not be reached for comment yesterday. He has said, however, that he ordered the benefit cuts and premium increases in 126 government employe health plans to avoid presenting the government with a $440 million bill to pay its share of funding federal health benefits at the current level. His decision resulted in several lawsuits and led Devine to cancel, for now, the so-called "open season" period that allows federal workers to shop around for the plan best suited to their needs and finances.

Oakar said yesterday that Devine should have consulted Congress before taking such action, and her oversight committee is looking into whether OPM's authority in negotiating federal health benefits should be curbed.

Two of the largest government insurance carriers, Blue Cross/Blue Shield and Aetna Life Insurance Co., did not blame Devine for the admitted disarray of the federal health program. Instead, they argued that skyrocketing health care costs and the practice of "adverse selection" --where healthy people choose cheaper, less comprehensive plans and sick people choose more extensive and therefore more expensive coverage --had contributed to the plan's problems.

Blue Cross/Blue Shield said postponement of an open season would stabilize the situation to permit the firm to underwrite its program, but other critics accused Devine of stifling competition and giving special consideration to the insurance carrier, which had negotiated OPM's permission to opt out of the program if an open season is held.

The hearings continue Nov. 19 and Dec. 2.