WASHINGTON (Reuters) - An upset Democratic win in a congressional election in New York showed the power of Medicare as a campaign issue, giving the party new hope and a possible blueprint for reversing last year's heavy losses in 2012.
Republicans cautioned against reading too much into Democrat Kathy Hochul's victory in a conservative upstate House of Representatives district, as a self-described Tea Party candidate siphoned off Republican support.
But for the first time since their landslide loss in 2010, Democrats were optimistic on Wednesday about the outlook for 2012 when control of the White House and both chambers of Congress will be up for grabs.
"If the election of a Democrat in one of the most conservative Republican districts in the country isn't a flashing warning to Republicans, I don't know what would be," Representative Steve Israel, head of the House Democratic campaign committee, told Reuters.
The special election to replace disgraced Republican Chris Lee, who resigned in February after his shirtless photo appeared on the Internet, was initially expected to be a rout for Republican Jane Corwin in the heavily Republican district.
But the race tightened as Hochul turned a spotlight on Corwin's support for Republican plans to cut spending and overhaul Medicare, the government-run healthcare system for the elderly.
Outside groups poured money into the race, which represented the first test of voter sentiment about Republican Paul Ryan's Medicare plan. Even some conservatives acknowledged the initial results were not promising for Republicans.
"What is clear is that this election is a wake-up call for anyone who thinks that 2012 will be just like 2010," said Steven Law, president of the conservative outside group American Crossroads, which spent heavily on the race for Corwin.
He shrugged off Republican arguments about the influence of third-party candidate Jack Davis, who drew 8 percent of the vote. He said the 2012 election clearly would be fought in a tougher political environment for Republicans.
"The debate over whether Medicare mattered more than a third-party candidate who split the Republican vote is mostly a partisan Rorschach test," Law said.
Republicans rolled to big election victories last year with promises of dramatic cutbacks in federal spending and government. Ryan's budget for fiscal 2012, approved by House Republicans but blocked by the Democratic Senate, proposes sharp changes in Medicare.
Ryan rejected suggestions the result would be a death knell for his Medicare plan, and said the Democratic campaign focused more on frightening the elderly than enlightening them.
"It's demagoguery, it's scaring seniors," Ryan said of the Democratic criticism during an interview on the MSNBC cable network. "I think the primary problem is the third party that got involved here."
Representative Pete Sessions, who heads the Republican House campaign committee, said drawing broad conclusions from special elections was risky. A Democratic win in a closely watched Pennsylvania special election last year meant little six months later when Republicans swept to huge House gains.
"If special elections were an early warning system, they sure failed to alert the Democrats of the political tsunami that flooded their ranks in 2010," Sessions said.
Israel said Democrats will target 97 Republican-held House districts that are more Democratic-friendly than the New York district, where Republicans held a six percentage point voter registration advantage. That includes 61 House Republicans in districts won by Obama in 2008.
"I'm not saying we can win all of them, but I'm saying there are 97 Republicans who lost sleep last night," Israel said.
Some Republicans argued Corwin was a poor candidate, echoing last year's Democratic complaints that the weakness of their Massachusetts Senate candidate was a bigger factor in Scott Brown's stunning special election win than voter anger over the healthcare overhaul.
But just as Brown's January 2010 win changed the tenor of the political debate on healthcare, Hochul's victory could have an impact on the Capitol Hill debate on Ryan's Medicare overhaul.
"The voters in NY-26 sent a clear message that ending Medicare as we know it is not how we should tackle our nation's deficits, and that's a message that will reverberate across the country in 2012," Democratic Representative Steny Hoyer said.
Additional reporting by Thomas Ferraro; Editing by Vicki Allen