By John Reichard and Melissa Attias, CQ Roll Call

December 20, 2013 - Health and Human Services (HHS) Secretary Kathleen Sebelius said in a letter late last week to Sen. Mark Warner that Americans with canceled health policies will be permitted to buy low-cost catastrophic coverage so they can comply with the mandate in the health care law that they have health insurance in 2014.

The announcement means that in the case of those policyholders, they can be age 30 or older and still comply with the individual coverage mandate through the purchase of catastrophic protection, Sebelius told the Virginia Democrat. Previously, the Obama administration said that under the health care law (PL 111-148, PL 111-152) only those below age 30 would be able to comply in that way, or those with hardships, such as being homeless.

"The President and I want to do everything we can to ensure that individuals with canceled plans have as many options as possible," Sebelius wrote. Warner had raised the issue in a letter to HHS also signed by Democrats Tim Kaine of Virginia, Jeanne Shaheen of New Hampshire,Mary L. Landrieu of Louisiana and Heidi Heitkamp of North Dakota. Angus King of Maine, an independent, also signed the letter.

Warner had asked for clarification on whether a hardship exemption under the law for those who cannot obtain affordable coverage would apply to consumers with canceled plans who might be having difficulty paying for an existing bronze, silver or gold plan.

"I agree with you that these consumers should qualify for this temporary hardship exemption, and I can assure you that the exemption will be available to them," Sebelius said.

Sebelius also described "aggressive efforts" by insurers and the federal government to assist the millions of Americans whose policies were canceled in recent weeks because they do not meet 2014 standards in the law for a comprehensive package of benefits.

"The policy that President Obama announced in November that allows states and insurers to renew their 2013 health plans for 2014 is already helping many consumers who faced loss of their coverage," she said.

"Over half the states have accepted this option and many insurers have opted to renew plans so individuals can keep their coverage if they choose to do so," the secretary said.

She said the population of canceled policyholders lacking quality, affordable coverage for 2014 "is clearly shrinking."

Through its own "aggressive casework," HHS staff has "resolved nearly half of the cases we have received about canceled plans and another one-third are in progress," Sebelius said. She said the Centers for Medicare and Medicaid Services is setting up a separate hotline (1-866-837-0677) to help consumers with cancellations.

The group that would be permitted to buy catastrophic coverage is relatively small, an insurance industry source said, estimating that 90 percent of those hit by the cancellation notices have lined up other sources of coverage for 2014.

Under the health care law (PL 111-148, PL 111-152), Americans under age 30 and those with hardships are permitted to buy catastrophic plans sold on exchanges, so this would be a major policy shift just as the law is poised for full implementation in 2014, and one already drawing intense criticism from Republicans who argue the mandate should be delayed for all Americans.

An insurance industry consultant, speaking on background, said such a policy is problematic.

"Plans have not priced any such [catastrophic] plans for anyone over 30, so no plans will be available come Jan. 1, as they would have to get state approval," the consultant said.

Allowing an exemption from the individual mandate for those hit by cancellation notices "would further decimate the individual mandate by splitting up the risk pool, which must attract a good balance of young healthy people to offset the higher costs associated with expanding coverage to those who have existing medical conditions," the consultant said. "It will put pressure on premiums for 2015."

America's Health Insurance Plans President Karen Ignagni said in a recent statement, "This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers."

"No bandaid can heal the hemorrhaging this law has and will continue to cause," Rep. Marsha Blackburn, R-Tenn., vice chairman of the House Energy and Commerce Committee said in a statement.

"Rather than more White House delays, waivers, and exemptions, the administration should provide all Americans relief from its failed law."