PROVIDENCE — Blue Cross & Blue Shield of Rhode Island, long the state’s dominant health insurer, lost one of its biggest and oldest clients yesterday, as Providence decided to jump to rival United HealthCare of New England.

Mayor David N. Cicilline’s administration says the three-year contract will save $7.8 million for the city, which is splitting its health-care administration in two; United will administer health claims for the self-insured city, and CVS/Caremark will handle prescription drug coverage.

The city’s unions, however, are not taking the switch well. They fear that city employees will not have as many options in choosing doctors under United. The unions representing municipal employees and teachers say they are wary of switching, and want more information from the city. Cicilline’s critics in the city’s firefighters union say they will definitely challenge the move, either in court or before an arbitrator.

United, meanwhile, was crowing about its victory. The Minnesota-based insurer has tried to claw its way into the municipal market since scoring the state’s health-insurance contract in 2004, but has had a hard time overcoming union opposition.

The deal is “obviously very big for us. Providence is one of the largest employers in the state if not the second [largest],” said United New England chief executive officer Stephen J. Farrell.

Now in the space of four years, Blue Cross has lost its two highest-profile clients: the state, and the state’s biggest city.

James E. Purcell, president and CEO of Blue Cross & Blue Shield of Rhode Island, said the company “is always disappointed when we lose a customer, no matter how big or how small. We believe we priced the City of Providence’s business fairly, given the level of service we provide.”

City officials say the provider network will barely change for the roughly 9,800 employees and dependents receiving city health care. United offers 99 percent of the primary care physicians that Blue Cross did, said Providence Chief of Administration Richard I. Kerbel.

“There will be slight changes, obviously,” Kerbel said.

And prescription drug coverage should not change at all from an employee’s point of view, he said. “We feel like it’s a deal that offers a high level of benefits to employees with no change in service,” Kerbel said.

The unions aren’t so sure.

The differences, they say, may be in the fine print. Providence Teachers Union President Steven Smith said, for instance, that while United boasts that it offers access to every hospital in Rhode Island, Blue Cross had allowed its 2,000 teachers access to all hospitals in Rhode Island and nearby Southeastern Massachusetts.

Donald S. Iannazzi, business manager for Local 1033 of the Laborers International Union of North America, has seen United in action elsewhere in Rhode Island, and he said that what you get is not necessarily what you pay for.

“North Kingstown had United for one year. Then the town learned that that is not the type of health-care provider you want to do business with, because they were very disingenuous about the plan, how it was administered,” Iannazzi said.

Under the new deal with United, each individual will cost the city $32.09 a month to insure, which is $9.36 less than what employees and their families would have paid under Blue Cross. That translates to about $2.8 million less in administration costs for the city over three years.

The city’s firefighters’ union will fight the change in court or through an arbitrator, said union President Paul Doughty, arguing both that the United coverage is not equivalent and that the roughly 800 fire retirees left city service under contracts that effectively guaranteed them Blue Cross.

Absolutely, we plan on challenging it,” said Doughty, who argued that the change should have been negotiated. “It’s supposed to be give and take, and this was taking without any giving.”

Kerbel, the city’s chief of administration, says that individuals under the new CVS/Caremark prescription plan will get a discount on drugs due to the fact that the company, with its unique position as both as a retailer and pharmacy benefit manager, can negotiate bulk sales discounts with drug companies. The result is about $5 million in savings over three years for the city.

The deals, which are effective Jan. 1, 2009, and take the city through 2012, do not go to the city council for a vote, but still require approval from the city Board of Contract and Supply.

The board is expected to approve the deal on Tuesday.

Providence, which is self insured, has relied on Blue Cross to administer its health care for decades, but as the city’s deal with the company expired in June 2007, it weighed bids submitted by both Blue Cross and United.

While United’s bid was believed to be $2 million lower, the city chose to stick with Blue Cross. Then in April 2008, under the recommendation of a consultant, the city decided to split the contract into separate administration and prescription drug segments.

Five companies, including CVS/Caremark, submitted bids for the prescription plan, with the Woonsocket-based company’s far and away the cheapest, according to Kerbel.

Cicilline’s administration has already factored the health-insurance savings, about $1 million, into the current year budget. The city has 9,804 health-care contracts, of which 5,521 are for active employees and dependents and 4,283 are retired.

pmarcelo@projo.com