President Barack Obama and first lady Michelle Obama in the Oval Office on Wednesday, discussing the Affordable Care Act with a group of mothers. Mike Theiler/Reuters

Also, the administration is opening up to the general population a special coverage plan created under the law for young adults. Regardless of their age, Sebelius said, people whose plans were canceled will be able to buy a bare-bones catastrophic plan originally intended for those under 30.

Health and Human Services Secretary Kathleen Sebelius said in a letter to a group of senators that she will use authorities in the law to issue a "hardship exemption" from tax penalties for those who received cancellations and were not able to line up new coverage. The administration estimates the number of affected individuals to be under 500,000.

People whose existing health care insurance has been canceled because of the Affordable Care Act will not be hit with tax penalties for failing to line up new coverage as required under the law.

"This is a common-sense clarification of the law," said Joanne Peters, a spokeswoman for Sebelius. "For the limited number of consumers whose plans have been canceled and are seeking coverage, this is one more option."

Additionally, the department is setting up a dedicated hotline for those who received cancellation notices.

In the health care law, there are 14 categories of hardships that may be used to get an exemption from the mandate to buy insurance, like a recent eviction or bankruptcy — but this is the first exemption added since the implementation of the law.

Democrats praised the steps as a necessary backup in a difficult situation while Republicans panned the administration action as another patch to an unworkable law. The insurance industry immediately criticized the moves.

"This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans. On Wednesday the industry had announced its own accommodation, giving consumers an extra 10 days to pay January's premiums.

The Oct. 1 launch of the HealthCare.gov website became an embarrassment for the administration after problems with the online gateway to coverage froze out millions of potential customers. But the biggest political damage to President Barack Obama has come from cancellations issued to at least 4 million people who had individual plans that did not pass muster under the ACA, which requires more robust benefits.

He was roundly criticized for failing to keep a longstanding promise that Americans who liked their plans would be able to keep them. Obama apologized, then said insurers could extend those plans for one year. Most state regulators followed his lead and gave insurance companies the latitude, but it's unclear whether the problem has been fully resolved.

Although the website is now working more smoothly, there's still a concern that technology problems may prevent some people who got cancellations from signing up for a new plan. Consumers have until Dec. 23 — Monday — to pick a plan if they want their coverage to take effect Jan. 1, thus avoiding a break in coverage. The industry says it will accept payment of the first month's premium until Jan. 10. Timely payment is required for new plans to take effect.

"There still may be a small number of consumers who are not able to renew their existing plans and are having difficulty finding an acceptable replacement," Sebelius wrote to Sen. Mark Warner, D-Va., and several of his colleagues. "These consumers should qualify for this temporary hardship exemption."

Insurers are concerned that healthy customers who could have bought full coverage may now stay out of the market, leaving the companies with a group of patients in worse health overall.

Al Jazeera and wire services