By Stephanie Simon

(Reuters) - Xavier University, one of the oldest Roman Catholic colleges in the United States, will cut off birth-control coverage for its employees in July, a move that has divided faculty members and students on the Cincinnati campus.

The abrupt cancellation of insurance benefits at the Jesuit university in Ohio comes amid a furious dispute between the Obama administration and the nation's Catholic bishops over contraception.

The administration has mandated that nearly all health insurance plans provide free birth control by this summer, with limited accommodations for religious institutions that oppose contraception on moral grounds. Top Catholic bishops have blasted that mandate as an attack on religious freedom.

President Barack Obama's allies, in turn, have accused the church of obstructing an important benefit for women.

The controversy prompted Xavier President Michael Graham, a Jesuit priest, to review the health insurance plan offered to the university's 935 employees. Graham announced this week in a letter to the faculty that the plan will cease to cover contraception on July 1.

Some faculty members who relied on the coverage said they were surprised and upset at the sudden end to benefits, which could raise their out-of-pocket costs for contraception by hundreds of dollars a year.

"It hadn't occurred to me that this would ever be an issue," said Tina Davlin-Pater, an associate professor in the department of sports studies.

Davlin-Pater, an athletic trainer who is not Catholic, said she viewed the denial of birth control coverage as an indication that "it's still OK to discriminate against women in today's world."

Student Facebook pages crackled with similar comments on Tuesday as word of the decision circulated. Amid the anger, a few on campus stood up to back the university administration.

'NEVER SHOULD HAVE BEN THERE'

"That coverage never should have been there in the first place," said Meghan Savercool, a junior majoring in theology. She called the move a crucial means of "upholding the Jesuit Catholic identity of the university."

The contraception mandate that sparked the Xavier move is part of a broad push by the Obama administration to provide free access for Americans to a variety of preventive services, from mammograms to childhood vaccinations to birth control.

The Catholic church considers artificial contraception a sin - and does not view pregnancy as an ill to be prevented - and the bishops have protested the inclusion of contraception as a mandatory benefit.

Surveys have shown that an overwhelming majority of Catholic women of reproductive age have used contraception at some point, despite the church's teaching.

The birth-control mandate is tied to Obama's broader 2010 healthcare law now under review by the U.S. Supreme Court.

If the court strikes down the law, the mandate would likely evaporate. If the law is upheld, nearly all plans would have to cover contraception by August 1. Religious institutions will have an extra year to comply, though several have filed suit to try to block the provision from ever taking effect.

The controversy has jolted some Catholic college presidents into scrutinizing the health insurance plans offered to their employees, hunting for potential conflicts with church doctrine.

"Many times, contraception was covered and the organization didn't even know it," said Michael O'Dea, executive director of the Christus Medicus Foundation, which promotes Christian healthcare.

It is not clear whether Xavier officials knew contraception was covered in their plan. A spokeswoman said the university's administration would not comment.

Some on campus said they suspected Graham had come under intense pressure from the diocese, and perhaps from conservative donors as well, to publicly demonstrate Xavier's fidelity to Catholic doctrine by cancelling the birth-control coverage.

"How it was handled ... (made it) seem more political, like they were trying to make a statement, rather than it being in the interest of their employees," said Jimmy Geiser, a junior majoring in philosophy.

Though she would not speculate as to why the university president made his decision, Dorothy Engle, chairwoman of the biology department, said she and many colleagues found the timing suspect.

"It seems unusual to change the healthcare plan in the middle of the year," rather than wait until the open enrollment period when employees could sign on to a spouse's plan or look for other coverage, Engle said.

Xavier, which was founded in 1831 and serves 7,000 students, has a strong academic reputation. Engle, who has been a faculty member for more than 20 years, said the university has also been known for its "ecumenical" feel, welcoming students and faculty of all religions and encouraging lively discussions about faith.

"It's always been very open," she said. "That's why it's a surprise that health insurance benefits would become an issue."

Some Catholic education experts said they hoped other colleges would follow Xavier's lead. "This is a very positive move," said Patrick Reilly, president of the Cardinal Newman Society, which pushes Catholic colleges to stay true to the church's teachings.

The contraception debate, Reilly said, "has certainly made Catholic colleges more aware, both of what their own (insurance) policies are, and of what the church expects of them."

Several other prominent Catholic universities in the U.S., including Georgetown, DePaul and Fordham, offer contraceptive coverage as part of employee insurance plans. A spokesman for Fordham said the university was not re-evaluating its coverage. Spokeswomen for Georgetown and DePaul did not return calls.

(Reporting by Stephanie Simon in Denver; Editing by Will Dunham)