Providing Medicare coverage of yearly mammograms for all women over age 65 could reduce breast cancer deaths by 22 percent by the year 2000, but would raise the cost of the federal insurance program by about $1.5 billion annually by that year, according to a new report by the congressional Office of Technology Assessment.

The OTA report, commissioned by the Senate Committee on Labor and Human Resources, is the latest contribution to a debate over whether finding more breast cancers at an earlier and more curable stage would save money by reducing treatment costs.

The report concludes that expanding Medicare coverage for the special breast X-rays would raise rather than lower health care costs, but would save about 5,200 lives a year if all eligible women had the test as currently recommended.

Breast cancer is the second most frequent cause of cancer deaths in women, with approximately 41,000 women expected to die of the disease this year. It is 50 percent more common in women over 65 than in younger women, yet studies indicate those in the older age group are less likely to have regular breast examinations and mammograms.

Because studies have shown that the test can reduce mortality by detecting cancers earlier than is possible with a physical examination, routine mammograms are recommended every one to two years for women over 40 and annually for women after age 50.

Medicare does not pay for the test unless it is ordered for specific medical reasons, such as a lump in the breast or a past history of breast cancer. That is because the program, as created by Congress in the mid-1960s, was designed to pay for treatment rather than preventive care, said Ross Anthony, associate administrator for program development at the Health Care Financing Administration.

"There's absolutely no question from a medical point of view that this test is appropriate," he said. ". . . But let's face it, we're under a very tight budget situation today."

Anthony said only about 16 percent to 18 percent of women over 50 undergo annual mammograms to screen for breast cancer. The OTA report said it is unlikely that all Medicare recipients would have the test yearly. It estimated that if 30 percent of women over 65 on Medicare had the test annually, the death rate from breast cancer would be reduced by 3.5 percent in the year 2000 at an annual cost of about $185 million, which is less than one-twentieth of 1 percent of total Medicare expenditures.

The report said that the savings achieved by reducing breast cancer treatment costs would be more than offset by the expense of the annual X-rays and of performing additional tests, including biopsies, in approximately 2 percent of mammogram recipients who have "false positive" results -- tests suggesting that cancer is present when it is not.

The Senate version of the recently passed bill on catastrophic health care coverage allows the cost of an annual mammogram to be counted toward an $1,850 annual cap on individual out-of-pocket health care expenditures. The House version contains no provision on mammograms, but a number of bills to expand Medicare coverage of mammograms have been introduced in both houses, according to Rose Kushner, director of the Breast Cancer Advisory Center in Kensington.

Kushner said a mammogram costs an average of $130 in the Washington area.