A judge’s ruling on Friday extended a battle between the city and its police and fire unions over changes in city employees’ health insurance plans.

In response to a lawsuit filed earlier this month by the local Fraternal Order of Police, Marion Superior Court Judge Cynthia Ayers determined the parties would have to go through a grievance process to address the unions’ concerns.

The dispute centers around a change in the city’s health insurance policy that would disqualify any employees’ spouses who can get at least 50 percent of their premiums covered through their own employers.

City Controller David Reynolds estimates that would affect about 20 percent of all spouses of city employees and could save the city as much as $4 million next year.

“Moving into 2011 and 2012, we feel this is a step we need to take to continue to get our expenses in line with our revenues,” Reynolds said.

But the FOP says that change violates its contract, which is effective until the end of 2010. The union argues the policy change eliminates an employee’s ability to select certain plans available under the contract and increases the premium amount employees must contribute.

The Firefighters Local 416 joined the FOP in the suit.

“You’re basically taking the family option away because you’re forcing (an officer) into one of those different tiers,” said William Owensby, the FOP president. “They violated, if not the letter of the contract, the spirit of the contract in changing our insurance offerings.”

The FOP had asked the court to bar the city from implementing the spousal exclusion, but Ayers sided with the city in saying the matter should be dealt with through the grievance process.

Owensby said the union plans to move forward with the grievance process, which involves several steps that can include forming a four-member board that votes on the matter.

“We’re confident in our position,” he said. “We are absolutely not dropping this.”

Meanwhile, under the judge’s order, police officers and firefighters’ spouses who are affected by the policy can sign up under the city’s plan but could later be excluded, depending on the outcome of the grievance process.

Brandon Mills is among the officers who would be affected by the proposed changes.

The 12-year patrolman, who is a plaintiff in the lawsuit, said his family, which includes his wife and 19-month-old daughter, would see premiums increase by about $2,340 next year under the spousal exclusion. His health plan would cost less, but Mills’ wife, who works for Community Health Network, would have to pay $244 per month in premiums.

The extra cost would cancel out his union pay increase, he said.

“We would completely have to rearrange our monthly budget,” Mills said.

But city leaders point out that the policy is similar to those used by several schools, as well as private employers such as Clarian Health and American United Life. If spouses of firefighters and police officers are exempted, Reynolds said, it would cost the city an estimated $1 million in savings.

“The goal is to make sure that people are insured; we’re not trying to exclude somebody and leave them out in the cold,” said Samantha Karn, the city’s chief deputy corporation counsel. “We’re using our tax dollars in the best manner.”

Under Ayers’ order, the grievance process would have to begin Tuesday and be completed by Dec. 24, before next year’s health plans take effect.