State workers would see a change in how they get their health insurance under the 2009-10 budget proposal the Schwarzenegger administration unveiled Wednesday.

Gov. Arnold Schwarzenegger figures the change would save $132 million as he seeks to close a $40 billion general fund budget hole. Representatives of at least two state employee unions said they hate the idea.

"It's just another scheme to balance the budget on the backs of state employees," said Chris Voight, executive director of the 2,650-member California Association of Professional Scientists. "Bad idea."

The Schwarzenegger administration wants to take over contracting health care coverage for roughly 560,000 state workers and their families who receive it through the California Public Employees' Retirement System. The proposal estimates the state could save 10 percent of its current costs by contracting directly with insurers.

CalPERS spent more than $5.7 billion in 2009 to purchase health benefits for active and retired public employees and their families. Only the federal government spends more.

Schwarzenegger's office said the proposal to shift employee medical insurance from CalPERS' oversight shouldn't be interpreted as dissatisfaction with the fund's track record.

"The state is simply looking for ways to reduce the cost of health care, and this would provide flexibility to look at all options," spokeswoman Rachel Cameron said Wednesday.

Splitting off the state workers and their families would weaken Cal-PERS' bargaining power with insurance providers; that would probably mean higher costs for 1,100 local governments and school agencies who also buy coverage through CalPERS.

A CalPERS spokesman on Wednesday declined to comment on the proposal.

Union leaders didn't hesitate to blast the governor's plan as a first step toward cutting employee medical benefits.

"The way you get medical insurance savings is to reduce benefits," said Bruce Blanning, executive director of Professional Engineers in California Government. "This issue, like so many others, should be handled at the bargaining table."

Most of California's 200,000 unionized state workers have been without a contract since June. The talks have been hampered by what state Finance Director Mike Genest on Wednesday called "the most challenging budget situation the state has ever faced."

State workers like Ann Brown are tired of what they perceive as political brinkmanship that uses their livelihoods as a negotiating ploy.

"I marvel at the legislators and the governor who can vacation, not sign the budget and still draw large salaries," Brown said, "and then tell us we are the ones who have to take the hit."

With negotiations bogged down and no budget fix in sight, Schwarzenegger in December declared a state of emergency and issued an order requiring state employees to take two-days-a-month unpaid furloughs from Feb. 1 through June 2010 and give up two paid holidays.

The unions accused Schwarzenegger of an end run around the bargaining process and filed lawsuits in Sacramento Superior Court and complaints with the Public Employee Relations Board to block the order. Those actions are pending.

His new plan includes those same reductions to employee pay and benefits, and the medical insurance shift, as part of $15.4 billion in cuts.

Call The Bee's Jon Ortiz, (916) 321-1043. Read his blog, The State Worker, at sacbee.com/blogs.