The House Appropriations Committee, completing its work on Gov. Harry Hughes' $7.5 billion state budget, took advantagetoday of an unexpectedly favorable contract for state employes' health insurance to cut $9 million from the spending plan.

The $9 million equals the first-year savings generated by a four-year, $500 million contract with Blue Cross and Blue Shield of Maryland announced Thursday by Hughes.

The cut was immediately denounced by representatives of state employe unions, who argued that the money should be returned to the state's 60,000 employes by reducing their health insurance premiums.

Employes who currently pay about 15 percent of the cost of their health insurance could save about $150 a year if the $9 million is applied against their premiums, argued Joseph Adler, executive director of the Maryland Classified Employes Association. Adler said he is hopeful the cut will be restored by the Senate, whose budget committee is still reviewing the spending blueprint.

The $9 million reduction was the largest in a total of $18 million in cuts the Appropriations Committee made in Hughes' budget, which called for more than $200 million in new spending.

Perhaps the most important changes made by the Appropriations panel were in shifting the focus of some of Hughes' so-called "youth initiatives" and in demanding tighter management of the state's prison system.

The committee cut $230,000 from the Department of Human Resources, part of it by eliminating 15 extra foster-care workers requested by Hughes, in the hope that the governor will shift the funds to pilot programs for foster children in need of specialized care.

The panel also adopted tough language demanding better accountability from the state's Division of Corrections, citing the prison system for "systemic deficiencies" in management, security, personnel and inmate programs.

Legislators who regularly deal with the prison system have repeatedly criticized the management of the department by Public Safety and Correctional Services Secretary Frank A. Hall, particularly in the wake of the slaying of a prison guard at the Maryland Penitentiary in October.

But Appropriations subcommittee chairman Timothy F. Maloney (D-Prince George's) urged his colleagues today to give Arnold Hopkins, the new corrections commissioner, time to resolve some of the prison system's endemic problems.

"We express our confidence in the new commissioner," said Maloney. "What he needs is time. We need to let the executive branch do its job."