THE GOVERNOR of New York and the mayor of New York City announced support this week for a plan limiting health-care options for Medicaid recipients in one portion of the city and, perhaps, ultimately in all parts of the state. In pursuing this departure from the traditional "freedom of choice" principle upon which Medicaid was constructed, New York will be joining many other states in seeking ways to restrain a program that has become the fastest-growing item in many state budgets.

Although their budgets have been squeezed by the recession and cuts in federal aid, most states have avoided cutting either eligibility or major services provided by Medicaid to low-income persons. Instead, they have been taking advantage of new flexibility in federal law to experiment with ways to encourage patients and health-care providers to be more prudent in using medical services.

One general approach, most thoroughly applied by New Jersey, relies upon close regulation of the costs of hospital and other services. In contrast to this regulatory approach is the "competitive" model exemplified by the states of California and Arizona; it restricts Medicaid payments to hospitals and health organizations that submit the lowest bids for providing services to Medicaid patients. Patients may also be required to pay small fees for certain services to discourage unnecessary use.

The New York plan would follow the California approach by requiring Medicaid patients either to join one of several "health maintenance organizations" operated by hospitals, clinics or groups of doctors or be assigned to a private practioner who would manage all their health care, including referrals to hospitals or specialists. A similar approach for certain Medicaid patients was recently suggested for the District by its new public health commissioner, Dr. Ernest Hardaway.

Critics of restricted service argue that it denies Medicaid patients the same health-care choice enjoyed by more affluent citizens. But under the current supposedly unrestricted system, most Medicaid patients are lucky to get second-class care. Many doctors refuse to accept Medicaid patients because of low fee limits. As a result, the poor often resort to high-cost hospital outpatient clinics or to Medicaid practitioners who make up for low fees by high patient volume and, sometimes, by questionable billing practices.

It's important to remember that "freedom of choice" was put into Medicaid not as a favor to the poor, but as a sop to the medical lobby, which feared that direct government subsidies to providers of service would pave the way for socialized medicine. In retrospect, it seems that the government would have been wiser if it had invested the hundreds of billions it has spent on Medicaid in expanding good-quality services for the poor, rather than in simply reimbursing the doctors who chose to serve them.