SMITHFIELD - A retirement benefit for most Johnston Health employees disappeared with a policy change that took effect last week.

In a letter last month, Timothy Hays, vice president of human resources, told most employees that a rule change by an accounting-standards board meant they would not be getting health insurance through the hospital when they retired.

Before the change, Johnston Health paid the full cost of retirees' health insurance until they reached age 65, then paid their Medicare coinsurance after they became eligible for the federal health-insurance program. To get the benefit, employees either had to serve 30 years at the hospital; work 25 years and be 60 years old at retirement; or work 20 years and be 65 at retirement.

"Because you will not meet the requirements for post-retirement health insurance until after 2015, you will not be eligible to receive health insurance through Johnston Health at the time of your retirement," read the letter from Hays, dated Jan. 7.

The hospital understood the "importance" of the benefits, the letter said, but financial rule changes had forced a "very difficult decision."

Late in January, The Herald received a letter signed "Concerned Employees of Johnston Health."

"Employees are leaving because we have nothing to stay for anymore," read the anonymous letter. "There are employees who have given this hospital 20, 22, 24 years of service but miss the deadline by 16 days [to] 7 years and now will have NO insurance at the time of retirement."

The hospital said it allowed seven current employees to keep the benefit; they qualified for it before Feb. 1. For the 39 employees who would qualify between then and 2015, the hospital will pay half of their insurance costs after retirement. The hospital has 917 other full-timers, but not all would necessarily have qualified for the benefits.

The free health insurance was part of the package that the hospital offered employees when it hired them, along with salary and other benefits. But as wages can be cut and raised, benefits be reviewed and changed, Jim Perpich, the hospital's marketing director, wrote in an e-mail response.

The hospital's decision was spurred by a change in the rules of the Governmental Accounting Standards Board, a private group that dictates accounting standards for state and local governments.

In years past, the hospital reported the costs of its retirement benefits year-by-year; each budget included only what the hospital paid to support current retirees' benefits. For fiscal year 2010, Johnston Health expected that cost to be about $450,000.

But the GASB's "Statement 45" says the hospital must count the future costs of the plan as a current liability. In other words, Johnston Health must project and account for the cost of benefits for every potential retiree now on its payroll. Suddenly, $450,000 becomes $3.15 million.

"It would mean financially that our organization would have had $2.7 million in additional expenses," said Chuck Elliott, the hospital's interim chief executive. "You would have to have additional revenues or increased charges to cover those expenses, so it drives up the cost of everything else."

In their letter, the "concerned employees" questioned the hospital's spending priorities, pointing out that employees had already lost hours, raises and some bonuses.

"[We] understand that during tough economic time[s] we all must bend [a] little, but it seems as far as the cuts at the hospital, it is only affecting the employees," the letter said. "What about management? What kind of cuts are they having?"

Perpich said everyone at the hospital has had to deal with changes brought on by tight finances. And for its part, hospital leadership said its choices hadn't been easy, and

"This was a very difficult decision that was reached only after lengthy debate and deliberation," Hays wrote in his letter to affected employees.