FORMER President Richard Nixon's name came up twice in Washington the other week. The first time was on newly released Watergate tapes, treating a whole new generation to his once famous paranoid ramblings. The second time was when Sen. Edward Kennedy and other Senate leaders revamped and reintroduced his 1972 health-care plan.Nixon? Kennedy? In 1972, Senator Kennedy killed the Nixon plan, arguing that it was "irresponsible" and wouldn't cut down on the chaos and waste in the health-care system. In the years since, he's been the leading public figure fighting for a just health-care system. So it is all the more disheartening that he has joined with Senators Mitchell, Rockefeller, and Riegle to put forward a warmed-over version of Nixon's 1972 plan. It's not just that the proposal would actually offer less coverage for people than many states do now under Medicaid. The plan would also increase the nation's health-care bill, which is already eating up more than $750 billion a year. A more bold leadership would have offered a plan that resembles Canada's popular system, which offers coverage to all citizens at a much lower cost. While the US health-care crisis is complex, it can be boiled down to a simple maxim: We spend too much and get too little back. With 13 percent of the GNP spent on health care, an amount steadily increasing since Nixon first introduced his proposal, even those Americans lucky enough to have health insurance are finding that their plans cover less than ever before. The senators' plan would extend health-care coverage to more Americans, but would do little to cure the systemic ills that produce sharply rising costs. It would have employers "play or pay": Over a five-year phase-in period, they would be required either to start providing health insurance for their employees or to pay into a government plan. That plan, called "Americare," would cover those employees and help pay for the cost of covering the unemployed. While a minimum benefit package would be establish ed, it would leave out many services Americans consider essential. For example, prescription drugs, eyeglasses, dental care, and most long-term care would be excluded. Even worse, the play-or-pay plan fails to address the major cause of the health-care crisis: skyrocketing costs. Indeed, the only cost-saving effort offered under the Democratic plan is a national commission that would set state-by-state maximum health spending levels. Absolutely nothing would happen, though, to a state that failed to keep spending down. When asked what incentive states would have to meet spending limits, the best reply a Capitol Hill aide could come up with recently was "peer pressure." But worst of all, the play-or-pay plan leaves the nation's massive health bureaucracy intact. About 25 percent of the nation's $756 billion medical bill goes to the care and feeding of a bloated bureaucracy. There are more than 1,500 health insurance companies in the US plus two major federal programs, Medicaid and Medicare, each with its own set of arcane customs and piles of paperwork to go with them. Indeed, many doctors find they must employ small armies of staff just to manage claims and billing. If you don't believe that health bureaucracy is a growth industry, just look at the numbers: The ranks of health administrators swelled nearly 400 percent from 1970 to 1987, while the number of physicians increased less than 100 percent. If we want to fix what's wrong with the US health-care system, we need to get rid of the bloated bureaucracy. We need only look north to Canada to find an example of how to do it. A recent General Accounting Office (GAO) report estimates that the US could save $67 billion by switching to a system like Canada's - more than enough to extend coverage to the uninsured, with enough left over to offer more benefits and access to high-tech procedures than Canada does. Canada provides health care to all citizens through a tax-funded program that's much cheaper than the US system - mostly because it eliminates bureaucratic waste. Because everybody is covered under the Canadian system, there's no need for legions of actuaries furiously laboring to calculate whether or not to deny coverage to someone with diabetes - or someone who just has a high statistical chance of developing the disease. Indeed, Blue Cross of Massachusetts covers 2.7 million subscribers and employs 6,680 people, more than employed in all of Canada's provincial health programs - which insure 26 million Canadians. Canadians have managed to provide more health-care services to more people while spending less than the US. And despite some complaints over waiting lines for a handful of high-tech procedures, Canadians like their system much better than Americans like theirs. According to a 1988 Harris poll, nearly 60 percent of Canadians are satisfied with their health-care system, compared to 10 percent of Americans. So it's all the more puzzling why Democratic leaders have come up with a health-care proposal pieced together from Nixon leftovers. The Canadian model isn't perfect - for example, most of its provinces don't cover the cost of prescription drugs, something Americans ought to demand in their own system. But it manages to combine the practicality of cost savings with an inspiring ideal, equal coverage for all citizens. In contrast, a play-or-pay scheme simply won't work. It hasn't worked in Massachusetts, where the state play-or-pay scheme has led to cost problems that may cause its repeal even before the employer mandate is implemented in 1992. Congress should adopt a Canada-type plan - not rehash ideas that were rejected almost two decades ago.