The House voted 360 to 66 yesterday to repeal the 1988 law designed to protect the elderly from the costs of catastrophic illness. After the vote to kill a program once hailed as the Reagan administration's major achievement in social policy, its supporters proposed a compromise that would have retained some benefits, but eliminated its most controversial component -- a special income-based surtax. The House, however, was in no mood to compromise, and defeated that plan by a vote of 269 to 156. The dramatic turnaround in the House -- which approved the program overwhelmingly last year -- followed an intense lobbying campaign by elderly Americans who bitterly opposed the surtax, which could cost the most affluent up to $1,050 a year by 1993. If the Senate follows the House's lead, it will mark the first time since the rise of the welfare state that Congress has acted to retract a major entitlement program. Supporters of the repeal yesterday said they were responding to the wishes of the elderly, while opponents warned that the House was making a mistake that would haunt it. The 1988 law "has no support among the people we purport to help," said Rep. Brian J. Donnelly (D-Mass.), cosponsor of the repeal move along with Reps. Bill Archer (R-Texas) and Marty Russo (D-Ill.). But Fortney H. "Pete" Stark (D -- Calif.) said, "You allow the most well-to-do and highly organized of the seniors to turn you away from 20 million" who have no catastrophic protection of their own. "We are being stampeded by a small group . . . the wealthiest, to deny benefits to everyone else." The catastrophic law increased three major Medicare benefits. It extended from 60 to 365 the number of days each year of hospitalization that would be paid for by Medicare; imposed a limit of $1,370 a year on a person's out-of-pocket costs for Medicare-eligible doctor bills, and created a new prescription drug benefit under which the government would pay for the bulk of outpatient prescription costs once out-of-pocket payments reached $600 a year. All three improvements, along with some lesser ones, would be eliminated if the House bill passes the Senate. Three major Medicaid health benefits for low-income people would be retained. Opposition to the catastrophic law first surfaced when Congress convened last January and has increased in intensity ever since. Objections from the elderly centered on an income-based premium, or surtax, required to be paid by the 40 percent of the elderly with the highest incomes to help finance benefits. The amount rises along with income and could reach $800 a person this year for the better-off elderly. Although only 5.6 percent of the elderly would pay the $800 maximum this year, and three-fifths would pay no surtax because their incomes are too low, the provision prompted an avalanche of protests that even caught groups such as the American Association of Retired Persons, which supported the bill, by surprise. Archer, the prime Republican sponsor of the repeal, called the special premium "an unfair tax" that subjects everyone who must pay it to "the highest tax rates of any group" in the country in order to finance benefits for fellow seniors who pay nothing and for the disabled who receive Medicare, including a growing AIDS population. Policy analysts yesterday could not recall a similar instance where Congress repealed a major benefit and predicted that the controversy will dampen any enthusiasm for future legislation to benefit the nation's growing elderly population. "This is without precedent," said Robert M. Ball, who served as Social Security commissioner under three presidents and is a Washington consultant. Congress has trimmed entitlement benefits, but usually adds or improves benefits for others in the process, Ball said. Hugh Heclo, a political science professor at George Mason University and an authority on the federal bureacracy, said he could recall only two similar instances of Congress wiping out benefit programs. The most recent occurred in the 1930s when Congress, furious at the Agriculture Department, abolished programs designed to help tenant farms. The other was in the 1870s when it disbanded the Freedman's Bureau, which was created to help former slaves. Yesterday's vote, Heclo said, "lays the seeds for more inter-generational conflict," with younger people questioning why "we have been too generous to that portion of the population . . . . They're taking it all and we're having to pay for it. They're not grateful for what we're trying to do." Among the explanations given by members of Congress for the severity of the protests: The benefit is the first to be funded entirely from premiums on beneficiaries, whereas benefits for the elderly traditionally have been paid for in whole or in part by general taxes on the whole population. An estimated 5 million elderly already have roughly equivalent benefits financed in whole or in part by their former employers. For them, the high premiums are seen, in the words of one critic, as "a dead loss." The mistaken belief by many elderly who will pay little or nothing because their incomes are too low that they they must pay the $800. The belief by many elderly that long-term nursing-home care or custodial home care is preferable to additional hospital and doctor bill protections. Calling for repeal, Donnelly said, "We didn't see a year ago . . . the fatal flaws. Over half the beneficiaries already had this coverage. We forced them to take it and pay an added fee" and did not give them "the right to choose their health coverage." Rep. Willis D. Gradison Jr. (R-Ohio) said a better course than repeal would be to "refine" and correct the act's flaws. He said at least 15 million to 20 million elderly "will be much worse off" because of benefit loss from repeal. "We in the Congress can't take the heat from a wealthy few," said House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.). "All principles are abandoned . . . . Five million senior citizens may be complaining about the supplemental," but many millions more of the 33 million on Medicare, he said, are being hurt by repeal. Like the Donnelly-Archer proposal, the substitute introduced by Stark, Gradison and Henry A. Waxman (D-Calif.) proposed to kill the premium and wipe out most of the major catastrophic-illness benefits of the 1988 law. But it would have retained the 1988 law's new prescription-drug benefit, several other Medicare benefits, including routine mammography screenings, and the Medicaid provisions. The substitute was drafted last week in a last-ditch effort to stave off the repeal move. Archer, Donnelly and other advocates of repeal said the best course would be to repeal the whole law and start over again to construct some form of program that contained the benefits the elderly want with what they viewed as a fairer financing mechanism. Staff writer Bill McAllister contributed to this report. WHAT WAS VOTED DOWN The catastrophic-illness insurance program that the House voted to repeal yesterday was signed into law by President Ronald Reagan 15 months ago. The following key provisions would be eliminated from the law if the Senate concurs: Unlimited hospitalization coverage. A cap on out-of-pocket payments for doctors' bills. Help in paying for prescription drugs. Mammogram coverage. Improved coverage for nursing home care. Improved benefits for care in the home. Improved hospice benefits. A special premium or surtax of up to $800 per person this year that would have helped finance the benefits. A flat monthly fee ($4 in 1989). SOURCES: The Washington Post, Democratic Study Group, Congressional Quarterly Almanac