Your Money: Questions Often Asked About Health Law

Those who managed to create accounts or peruse the plans offered in their state left with many questions about the Obama administration’s health care plan. Among them: What does all of this mean for my 26-year-old child, who is now too old to remain on my own policy? The premium subsidies are based on my income, but what if I have no idea what I may earn next year? How is “modified adjusted gross income” calculated anyway?

Last week, my column addressed the broad outlines of how the exchanges will work, from how the different tiers of coverage would be structured to what types of individuals would qualify for tax credits on their premiums.

Dozens of additional queries landed in my in-box this week. Here’s are some of the most frequently asked questions and an attempt at answering them:

Q. I haven’t seen any discussion about students. My son will be 26 next month, and thus can no longer be on my plan. He is a full-time student in another state and fully dependent on my financial support. Do you know where he fits into this system?

— Mark Alper, Berkeley, Ca.

A. Adult children lose coverage through a parent’s policy on their 26th birthday. But they can then immediately enroll on the exchange — even outside the open enrollment period, which ends on March 31. Individuals under age 30 may also qualify for a “catastrophic” plan, which carries a lower premium but a very high deductible (equivalent to the out-of-pocket maximum, or $6,350 for a single person, in 2014). Tax credits, however, cannot be applied to catastrophic plans.

Q. My difficulty and confusion is I don’t actually know what my annual income is or will be in the coming fiscal year. I am a freelance classical musician, meaning I have seasonal employment from as many as 20 employers in a year and I file tax returns in seven states and three countries.

— gibarian, San Francisco

A. The experts I spoke with said you needed to make your best educated guess when estimating your income. The exchange will verify it by checking your tax return from last year as well as your current income. (The federal government has contracts with firms that provide that information.) If your self-attested income varies by more than 10 percent when compared to those two sources, you will be asked to provide more documentation, according to a spokeswoman at the Department of Health and Human Services.

Q. I have very little annual personal income, but am fortunate to have other savings/resources that would allow me to pay for one of the better plans with higher premiums. (I have no access to any employer-sponsored plan). I am willing to enroll in one of these better plans on my state’s health exchange even if I don’t get any subsidy for it. (I seem to earn too little to qualify for a subsidy anyway.) Will I be allowed to do this, and do this without penalty or added taxes?

— KRyan, New York City

Q. I am currently unemployed but have a sizable trust fund. Do I qualify for discounts/tax credits when buying health insurance? Will I be required to show my federal tax return?

— Jory, Columbus, Ohio

A. You can certainly buy coverage on the exchanges when you don’t have coverage through an employer. Whether or not you pay full price or qualify for a premium tax credit depends on your modified adjusted gross income, which is based on your latest tax return (and yes, the exchanges will check your return).

If your household’s modified adjusted gross income is from 100 to 400 percent of the federal poverty level (that’s $11,490 to $45,960 a year if you’re filing as an individual and $23,550 to $94,200 for a family of four), you may be eligible for a premium tax credit, according to CCH, a tax and accounting service.

Several readers had questions about how the modified adjusted gross income is calculated. It’s basically your “adjusted gross income,” which can be found on line 37 of your 1040 tax return form. But it requires that you add back certain items like nontaxable Social Security income, tax-exempt interest and foreign-earned income, Mark Luscombe, a principal analyst at CCH, said.

The figure also includes income from items like dividends, interest, real estate and retirement account withdrawals. So even if you do not have much earned income, but have significant income from other sources, you obviously won’t qualify for financial assistance.

Premium tax credits and cost-sharing subsidies are generally based on your household income, which includes your spouse and any dependents for whom you file a personal exemption and who also earn enough money to file a return, he added.

Q. I get insurance through my employer. My same-sex husband has little to no income and will be using the exchange. Our state of residence (Virginia) is letting the federal government run the exchange. Our state does not recognize our marriage, but the Internal Revenue Service does. How will he determine income when using the exchange?

— S.G., Eastern U.S.

A. The I.R.S. said last month that all married same-sex couples would be treated as married for federal tax purposes, regardless of where they live. And starting in the 2013 tax year, all married couples will be required to file their returns together as either “married filing jointly” or “married filing separately.”

The insurance exchanges will also see you as married. In fact, if you’re a married couple buying insurance on the exchange — gay or straight — you’re required to file a joint federal return, the Treasury Department said. (Why? Imagine how many more people would qualify for subsidies if they used “married filing separately” status.)

Detroit’s Creditors Are Asked to Accept Pennies on the Dollar

Presenting a grim take on the city’s fiscal standing in a closed-door meeting, the emergency manager, Kevyn Orr, a bankruptcy lawyer from Washington who was appointed in March, made a case to dozens of bondholders and union leaders that deep cuts alone cannot save Detroit. He said that painful sacrifices must be shared.

“This is not meant to be a hostile act,” Mr. Orr said at a news conference in which he discussed the session. “It isn’t meant to be combative. It is meant to be an acknowledgment and recognition of the realities that we can no longer deal with.”

The proposal includes an offer that amounts to less than 10 cents on the dollar on some of the city’s unfinanced debt obligations like unsecured bonds and a portion of unfunded pension liabilities, which together total more than $11 billion. He will hold another meeting next week with labor leaders and retirees for further discussions on the plan, which also includes a proposal to reduce health care benefits for retired city workers.

To save money, Mr. Orr announced he would stop making some of Detroit’s debt payments, including $39 million that was due to creditors on Friday. “What the average Detroiter needs to understand is that we’re tapped out,” he said.

On Thursday, the rating agency Moody’s downgraded several of Detroit’s debt obligations, and after Friday’s session it raised the prospect of further action.

“We also believe the city’s risk of bankruptcy has increased over the last six months,” Moody’s said in a statement. “All of Detroit’s ratings remain under review for possible downgrade as we analyze the ongoing discussion between the city and its creditors and stakeholders.”

Friday’s gathering, and the talks that are expected to follow in the weeks ahead, are moving the city to a moment of truth. Some government restructuring experts speculate that it may not be long before Detroit becomes the largest municipality in the nation to file for Chapter 9 protection. Mr. Orr said the odds were 50-50.

Since he took the job, Mr. Orr has painted an ominous portrait of severe cash flow shortages, junk credit ratings and at least $17 billion in long-term obligations that, if left unchecked, would eat up about 65 percent of the city’s total revenue by 2017. City operations are in desperate need of mending, he has said, including an overhaul of public services for the 700,000 residents now living in a city that once was home to 1.8 million.

The proposal presented to creditors on Friday would spend about $1.25 billion over the next 10 years on reinvestment in city services and crumbling infrastructure, including public safety and fixing city operations. Detroit has already started negotiations with its surrounding counties over a possible deal to sell its water system to an independent authority, Mr. Orr said.

City and state leaders have said bankruptcy is a last resort. It is unclear whether the mere threat will be sufficient to persuade enough creditors and union officials, some of whom feel Mr. Orr is exaggerating the problems, to embrace voluntary cuts.

Patrick Darby, a lawyer who has been advising Jefferson County, Ala., as it navigates the country’s largest municipal bankruptcy to date, said about Chapter 9 cases in general, “I think it’s possible that a lot of people will convince themselves that the threat is not serious.”

Such a move for Detroit would be unusual because of the city’s size, said James E. Spiotto, a bankruptcy specialist at the law firm of Chapman & Cutler in Chicago.

Since 1954, Mr. Spiotto said, more than 60 cities, towns, villages or counties have filed for Chapter 9. Of those, 29 were dismissed or resolved before reaching a final plan of debt adjustment.

Large cities in financial trouble — like New York and Cleveland in the 1970s and Philadelphia in the 1990s — have found other paths outside of bankruptcy court, he said, noting the stigma, legal costs and unknown market repercussions that bankruptcy might bring.

“We don’t know with a municipality that size and that much debt what effect, if any, it will have,” Mr. Spiotto said, suggesting the uncertainty might be enough to scare lenders into a compromise. “It would be a change from what historically has happened, and we can’t rule out that there might be consequences.”

Several creditors declined to comment as they walked out of the meeting on Friday. They are expected to take a couple of weeks to digest the proposal before it will be clear whether an out-of-court agreement is within reach.

Labor leaders said they had much to discuss with Mr. Orr next week, though some were not sure they would ever feel comfortable with the plan, arguing that retirees have worked hard for their pensions and should not be treated the same as creditors.

“This is on their balance sheets,” said Delia Enright, president of a local union that represents civilian police workers like 911 operators. “But this is on our lives.”