BURRILLVILLE — The town and the municipal employees union have signed a three-year agreement that officials estimate could save the community as much as $125,000 per year.

The union’s last contract ended more than four months ago, but lengthy negotiations regarding a shift in health care coverage for employees prolonged the settlement process.

The new contract was ratified by the Town Council Wednesday night.

Municipal Employees Council 94, Local 186 is made up of about 50 members, including public works employees, administrative staff and police dispatchers.

Under the deal, which is retroactive to July 1, the municipal workers will receive hourly wage increases as follows: 70 cents per hour next year and 60 cents per hour in the second two years of the contract.

For employees on the upper end of the town’s pay scale, that’s roughly a 3 percent raise. For those on the lower end, it’s closer to 4 percent.

But the biggest change in the new contract involves health coverage. All municipal employees will switch to Healthmate Plan 500, a variation on the old Blue Cross plan.

Seasoned employees will continue to receive premium-free health-care coverage, meaning they will not be required to contribute out of pocket for health insurance. But newer employees will have to pay about $40 per pay period for their plans.

Under the new plan, hospitalization carries a $100 deductible for everyone and emergency room fees have spiked to $250 per visit, something Town Manager Mike C. Wood says is designed to discourage hospital visits for routine care.

“What we hope to do is change the way employees utilize the health-insurance program,” Wood said. “It is sensible for them to use a lower-priced service for initial problems rather than running to the emergency room, which is the highest-cost option in terms of how it affects our rates. Hopefully they’ll go to a walk-in center, or a doctor instead.”

Wood said the skyrocketing cost of medical insurance was taking a bite out of the town’s annual budget. Two years ago, the Town Council set the goal of cutting insurance costs.

The municipal workers are the second and final bargaining unit in this town to switch their health-care coverage. The police union transferred its policy when it signed a contract last year.

Overall, the new plan is expected to save the town between $120,000 and $125,000 per year, the town manager estimated.

Wood attributed the delay in settling the municipal contract to the complexity of reconfiguring the health plan.

But he characterized the negotiations as “constructive” and expressed thanks to the municipal and police unions for their cooperation in finding “a meaningful way to reduce health-care costs for all Burrillville taxpayers.”

He said the next step will be to encourage the school unions to do the same, so as to provide similar financial relief for the town’s schools.

A Local 186 municipal union official could not be reached for comment late yesterday.