he health reform bill signed by President Barack Obama on March 23 increases the services Medicare provides and reduces some prescription drug costs for seniors. The legislation also creates a voluntary long-term-care insurance program and changes the ways doctors and hospitals are paid for providing services to Medicare patients.

Here's a look at how the Patient Protection and Affordable Care Act will affect retirees:

Free preventive care. Patient cost-sharing for preventive services such as cancer screenings will be eliminated Jan. 1, 2011, for Medicare beneficiaries. Government payments to doctors for preventive services will be increased. Coverage of an annual wellness visit that includes a comprehensive health-risk assessment and a personalized prevention plan will also be added to the services covered by Medicare.

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"It gives people an incentive to get a preventative service that they might not otherwise have done," says Jack Hoadley, a health policy analyst at Georgetown University. "Getting things taken care of early and regularly will cut the overall cost."

Prescription drug rebate.Most Medicare Part Dprescription drug plans have a coverage gap — often called the doughnut hole — during which beneficiaries must pay the entire cost of their prescription drugs. The gap begins once a senior has spent $2,830 on prescription drugs (the maximum amount in 2010) and lasts until catastrophic coverage kicks in, which is when a patient has spent $4,550 out of pocket on medications. The new legislation provides a $250 rebate to Medicare beneficiaries who reach the Part D coverage gap in 2010.

"More than 3 million people with Medicare have spending in the doughnut hole, and those seniors will see an immediate reduction in their out-of-pocket costs," says Tricia Neuman, the director of the Medicare Policy Project at the Kaiser Family Foundation.

Doughnut filling. The doughnut hole will be gradually filled in before completely closing in 2020. Beginning in 2011, pharmaceutical manufacturers will be required to provide a 50% discount on brand-name prescriptions in theMedicare Part D coverage gap, and in 2013 federal subsidies for generic prescriptions will also be phased in. The out-of-pocket amount that qualifies an enrollee for catastrophic coverage in Medicare Part D will also be reduced beginning in 2014 through 2019 until the doughnut hole is eliminated.

High-income retirees pay more. High-income retirees already pay higher Medicare Part B premiums than other Medicare recipients. While most retirees who signed up for Medicare in 2010 paid $110.50 each month, premiums for wealthier retirees ranged from $154.70 for individuals earning between $85,000 and $107,000 annually to $353.60 monthly for single tax filers with income topping $214,000 annually. These income thresholds typically increase each year, but the new legislation freezes the income thresholds from 2011 through 2019 at 2010 levels.

"They are freezing the income threshold so, given inflation, it will start to affect more people over time," Hoadley says. Medicare Part D will now also charge high-income beneficiaries higher premiums. The health bill reduces the premium subsidy for individuals with incomes above $85,000 and couples who earn more than $170,000 annually.

Gustavo A. Viera, CPA