As background, self-insured plans by religious non-profit entities have to fill out a different kind of “certification” under the final regulation’s “accommodation.” Their certification doesn’t merely declare a religious objection.  It doesn’t even merely mean that upon that certification, as you say, the TPA “assumes the obligation of providing the objected-to products to the employees.” The self-insured certification contains language that specifically designates the TPA to provide the objectionable coverage (also described as promised “payments”). The final regulation even points out that this added language is legally operative: the designation words themselves are what cause the TPA’s obligation to go get the coverage. Without the designation telling the TPA to go get that coverage, the TPA wouldn’t have any duty to be involved. The designation has legally operative power because of preexisting rules in ERISA. So it’s important to observe that for self-insured religious non-profits, there’s a “certification,” but there’s also a “designation”….This designation requirement also gives lie to the government’s mantra that religious non-profits don’t need to “contract or arrange for” objectionable coverage. The designation is, by definition, an act of contracting and arranging for the coverage….Because the designation constitutes legal “magic words,” the regulation goes on to specifically censor self-insured religious groups, by banning them from engaging in additional speech towards their TPAs to persuade them not to provide the objectionable coverage, for fear that such evangelical speech might negate the designation’s magic words. Finally, the regulation tells TPAs that if they get a self-insured certification+designation, and if they provide the birth control coverage, they will get reimbursed plus 10%.

In this context, the government has recently dropped somewhat of a bombshell into the non-profit lawsuits. It has declared that [it] didn’t realize until now that [its] penalty on TPAs does not apply in a “church plan,” because church plans are exempt from ERISA. (It’s important to note that “church plans” are not the same as a church’s plan. A church, which is exempt from the mandate, might have an insurance plan. But “church plans” are a defined category that enroll thousands of non-exempt non-churches, like universities, hospitals, charities, etc., who merely share a religious affiliation.) The government’s revelation has led to bizarre results. The government insists that entities enrolled in self-insured church plans must still file their designations, which contract and arrange for their TPA to obtain the exact coverage the organization objects to. But the government admits that the designation is false: it does not, as claimed on the face of the language, actually trigger ERISA duties on a church plan’s TPA, because these plans are exempt from ERISA.The designation does, however, trigger the TPA’s reimbursement plus 10% if they choose to cover the items. And the government vaguely says it will consider “fixing” this oversight (three years, six regulations, and 1 million public comments later). Of course all of this could have been “fixed” and avoided if religious objectors were exempt at the outset.

The impact of this revelation was on grand display in the EDNY case.

This church-plan “loophole” did not undo the standing of challengers, because they still must engage in compelled speech that designates TPAs to obtain objectionable coverage; they are still being gagged from persuading those TPAs not to provide that objectionable coverage; and the designation is still triggering the TPA’s remuneration if it does choose to provide the objectionable coverage. But this loophole has blown yet another huge gap in the alleged “uniformity” of the mandate, and thus in its supposedly “compelling” interests. The government has refrained from imposing any penalty on the TPAs of thousands of non-exempt religious non-profits, even if they provide no birth control coverage or payments. Remember, the government refused to “exempt” these non-profit non-church religious groups on the theory that their employees absolutely must receive birth control coverage one way or another. Yet now, for religious entities in self-insured church plans, the government has removed the penalty scheme to such a drastic extent that it contends those entities don’t even have standing.

This loophole adds to the tens of millions of women to whom the government refrains from requiring receipt of the Mandate’s benefits…and to the various other ways in which the mandate is not generally applicable. How, then, can the government impose its “designation” requirement on a self-insured non-profit group in a church plan, when the government admits that the designation is an ineffective falsehood?  For that matter, how can the government look at any non-profit college or charity and say that its employees absolutely must receive birth control coverage under the “accommodation,” even while the government has refrained from penalizing the TPAs of thousands of identically situated non-exempt non-church entities? And how can the government impose the mandate on objecting families in business, when it has added tens of thousands of women to the rolls of the millions of other women who, by the government’s own choice, are not getting the Mandate’s benefits, despite the government’s previous assertion that these newly “burdened” women absolutely must receive it? How can the government claim that refraining from delivering the Mandate’s benefits to a woman constitutes discrimination, or denial of entitlements, or third party harm, or an Establishment Clause violation, when the government itself has chosen to refrain from delivering the Mandate’s benefits to thousands of additional women on top of the tens of millions already exempt?

This incongruity led the judge in New York to understandably exclaim: “The Government’s belated ‘realization’ that the challenged regulations may not actually result in the provision of contraceptive coverage to plaintiffs’ employees is difficult to fathom. It is unclear how citizens like plaintiffs and their TPAs are supposed to know what the law requires of them if the Government itself is unsure. After almost 18 months of litigation, defendants now effectively concede that the regulatory tale told by the Government was a non-sequitur. … [T]he Government’s belated revelation that the regulations do not even require plaintiffs’ TPAs to provide contraceptive coverage fatally undermines any claim that imposing the Mandate on these plaintiffs serves a compelling governmental interest. To demonstrate a compelling interest in remedying an identified harm, defendants must show ‘that the regulation will in fact alleviate these harms in a direct and material way.’ (Turner Broad.) Here, the Government implicitly acknowledges that applying the Mandate to plaintiffs may in fact do nothing at all to expand contraceptive coverage, because plaintiffs’ TPAs aren’t actually required to do anything after receiving the self-certification. In other words, the Mandate forces plaintiffs to fill out a form which, though it violates their religious beliefs, may ultimately serve no purpose whatsoever. A law that is totally ineffective cannot serve a compelling interest.”….

The Mandate just became massively more underinclusive, without becoming any less offensive, since it still obstinately refuses to extend its religious objector “exemption” to comply with RFRA.