(Corrects spelling of cardinal's name to Dolan from Donlan throughout)
By David Morgan
WASHINGTON, Feb 7 (Reuters) - U.S. Roman Catholic bishops on Thursday rejected the Obama Administration's latest bid for compromise over a hotly disputed health policy that requires employees at religiously affiliated institutions to have access to insurance coverage for contraceptives.
Cardinal Timothy Dolan of New York, president of the U.S. Conference of Catholic Bishops, said his group would redouble efforts to reach an agreement on the contraceptives issue after more than a year of protest and scores of federal lawsuits from Catholics groups and other social conservatives.
But the cardinal, one of the most prominent voices in the American Catholic Church, said new federal rules proposed last week offer only "second-class status" to church-affiliated universities, hospitals and charities by failing to grant them the same full exemption afforded to houses of worship.
"These ministries are integral to our Church and worthy of the same exemption as our Catholic churches," Dolan said in a statement released by the bishops conference.
"The government would require all employees in our 'accommodated' ministries to have the illicit coverage - they may not opt out, nor even opt out for their children," he said.
His remarks, coming on the heels of rejections from other opponents, including the Becket Fund for Religious Liberty, illustrate the scale of resistance facing one of the most controversial provisions of President Barack Obama's 2010 Patient Protection and Affordable Care Act.
The Catholic Health Association of the United States, the leading church-affiliated healthcare provider, declined to comment on Thursday, saying it was still seeking input from its 2,200 members, including 600 hospitals.
The contraceptives coverage is backed by liberal Catholic groups and women's rights activists.
The healthcare law already requires secular employers to cover all contraceptives and sterilization methods approved by the U.S. Food and Drug Administration, including the "morning after" pill.
But the administration is trying to reach an accommodation for religious nonprofit institutions whose employees would begin receiving coverage on Aug. 1.
REDRESS IN COURT
Dolan criticized the administration for not addressing the issue of business owners who also oppose the policy on religious grounds.
"We cannot now abandon them to be forced to violate their morally well-informed consciences," he said. "We will continue to stand united with brother bishops, religious institutions, and individual citizens who seek redress in the courts for as long as this is necessary."
The proposed rules, issued on Feb. 1 by the U.S. Department of Health and Human Services, would allow religiously affiliated employers to avoid paying for coverage. Private insurers would instead provide birth-control benefits through separate insurance policies.
Administration officials say insurers that provide group plans would be compensated by lower costs from fewer pregnancies and abortions.
Religiously affiliated institutions that provide their own health insurance for workers or students would be served by third-party administrators.
Third-party administrators would find an outside insurer to provide the contraceptives coverage. Those insurers' higher costs would then be compensated by lower user fees for participating in state-based healthcare exchanges, which are scheduled to begin operating on Jan. 1, 2014.
The proposed regulations are open for public comment through April 8.
"We have been assured by the administration that we will not have to refer, pay for, or negotiate for the mandated coverage. We remain eager for the administration to fulfill that pledge," Dolan said.
"We welcome and will take seriously the administration's invitation to submit our concerns through formal comments, and we will do so in the hope that an acceptable solution can be found." (Additional reporting by Ros Krasny; Editing by Jackie Frank and Philip Barbara)