A new Reagan administration rule restricting deductions enjoyed by many Medicaid recipients could be bad economic news for many aging or disabled Utahns, officials said.

The rule, which individual states have the option of implementing, would discontinue Medicaid recipient's deductions from their income before determining how much they must pay for care.If the Utah Health Department chooses to employ the rule within the next several months, Utah Medicaid recipients will no longer be able to deduct for such items as dental wear, eyeglasses, physical therapy and vitamins.

State and federal governments could see a savings of $160 million to $615 million, the U.S. Department of Health and Human Services said. But eliminating the deductions may mean additional payments by the elderly and handicapped of $50 to $75 monthly, said Rod Betit, director of the Division of Health Care Financing.

The deductions will cause hardship among the 20-50 percent of potentially affected Medicaid recipients, Betit acknowledges, emphasizing that the department is still reviewing the rule change.

"What we're doing is reviewing our current policy . . . and we'll see if we want to respond," he said, adding the rule will first be reviewed by the 15-member Medical Advisory Committee.

Under the proposed change, personal allowances for Medicaid recipients in nursing homes actually would be raised from $27 to $30. But because of the elimination of the deductions, that money may have to go toward personally funding some needed items, forcing recipients into an unrealistic financial situation, Betit said.

"A move like that would be penny wise and dollar foolish," said Bill Walsh, director of Utah Issues, a low-income advocacy group.

"The average elderly person in Utah gets $354 a month. Living on that amount, there just isn't any loose change," he said.

Medicaid recipients affected by the proposed rule might stop purchasing preventative medicine, Walsh said. That means "we may end up actually paying more," because of illness due to a lack of preventative care.