Washington (CNN) —
The Obama administration proposed new guidelines on Friday that would allow women to receive contraception coverage at no charge and without violating employer religious concerns, and give those entities an avenue for opting out the mandate, a shift in federal healthcare policy.
The new plan attempts to resolve the contentious issue of how non-profit organizations, such as religious hospitals and universities, can decline to provide contraception coverage to their employees on religious grounds without facing a penalty.
"Today, the administration is taking the next step in providing women across the nation with coverage of recommended preventive care at no cost, while respecting religious concerns," Health and Human Services Secretary Kathleen Sebelius said in a statement.
"We will continue to work with faith-based organizations, women's organizations, insurers and others to achieve these goals," she said.
As part of the new initiative, groups that are insured -- such as student health plans at religious colleges -- would be required to let their insurer know that certain participants would like contraception coverage. The provider would pay for the contraception separately.
"The insurer would then notify enrollees that it is providing them with no-cost contraceptive coverage through separate individual health insurance policies," an HHS statement on the new policy said on Friday.
The move would allow the religious organization to avoid paying for contraception.
The original mandate on providing contraception was part of the new federal healthcare law spearheaded by President Barack Obama, the Affordable Care Act.
It required that insurers provide, at no cost to those insured, all forms of contraception approved by the Food and Drug Administration.
Houses of worship were exempt immediately and the administration widened those exemptions last year to include other religiously affiliated organizations, like universities and hospitals.
That still left groups across a wide spectrum of faiths, many of which teach that contraception is morally wrong, covered by the mandate. They denounced it as an infringement of religious liberty. A group of 43 Catholic organizations challenged the rules in federal court in May.
The administration had long defended the mandate, saying that it did not violate religious liberties.
The new proposal also clarifies the definition of a religious employer.
Instead of using a multi-part test that requires an employer to show "religious values as its purpose" and to "employ persons who share its religious tenets," the mandate would follow the International Revenue Code's definition that includes "churches, other houses of worship, and their affiliated organizations."
In March, after an uproar among religious institutions that didn't want to pay for contraceptives, the Obama administration offered several alternative suggestions. The proposal offered on Friday is a result of that effort.
The proposed update will be open for public comment through April 8, 2013. The administration would then decide whether to make it final.
A source with knowledge of the matter but not authorized to speak on the record said administration officials would discuss the new plan with faith-based organizations later on Friday.
The source also said the administration called key leaders, including presidents of Catholic universities, before the announcement.
Women's groups, including Planned Parenthood and NARAL Pro-Choice America, heralded the announcement.
"Today's draft regulation affirms yet again the Obama administration's commitment to fulfilling the full promise of its historic contraception policy," said Ilyse Hogue, president of NARAL. "Thanks to this commitment, most American women will get birth control coverage without extra expense."
"This policy makes it clear that your boss does not get to decide whether you can have birth control," said Cecile Richards, President of Planned Parenthood Federation of America.
Cardinal Timothy Dolan of New York, president of the United States Conference of Catholic Bishops, took a wait-and-see approach.
"Today, the administration issued proposed regulations regarding the HHS mandate" he said in a statement. "We welcome the opportunity to study the proposed regulations closely. We look forward to issuing a more detailed statement later."