"(W)hat about an individual's moral convictions and religious freedom?" he asked. "Will they be respected and preserved?"
Apart from religious beliefs, many doctors oppose sex reassignment surgeries for medical reasons. Statistics show that individuals who have these surgeries can face serious psychological consequences and are at a significantly higher risk of suicide.
Once a pioneer in sex reassignment surgery, Johns Hopkins University has since ended the practice, finding that it was actually damaging to those who undergo it.
If finalized, the proposed regulation would be binding on all health insurers that offer plans under the Affordable Care Act, including those participating in health insurance exchange plans.
The regulation would also apply to approximately 133,000 health care facilities, all state Medicaid programs, all private insurers that receive federal funding, as well as almost all physicians in the United States who accept some form of federal reimbursement.
Failure to comply could result in a loss of government funding and other legal penalties.
"The authority for the government to revoke funds for health facilities and doctors that do not comply is vast," said Severino. "So many health facilities and doctors would be run out of business because their business model is based on government funding."
"They would be hit very hard," he stressed. "Practically all of them would suffer millions of dollars in losses if their funding was cut."
Doctors who refuse to conduct gender reassignment treatments and surgery because of their religious beliefs, personal convictions, or for other medical reasons could risk losing their job.
"If a hospital is threatened with the loss of millions of funds, you would expect them to fire any person who does not comply," said Severino. "Hospitals will not want to be sued, so the easy way out is to fire anyone who disagrees with the mandate and jeopardizes their funding."
"But therein lies the conflict," he continued. "This mandate threatens religious liberty because it forces individuals to choose between violating their conscience or risk losing government benefits or their job."
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Legal experts believe that legal challenges against the proposed regulation could be successful in the courts.
"It is unconstitutional for religious doctors and health facilities to be forced to violate their beliefs," said Scruggs. "No federal court has ever said that sex includes gender identity or sexual orientation."
"Individuals who refuse to comply with this mandate will have recourse under the First Amendment and under the Religious Freedom Restoration Act," he added.
This is not the first time that the Affordable Care Act has stirred up controversy surrounding religious freedom.
In recent years, hundreds of plaintiffs have filed lawsuits against the federal contraception mandate, which was issued under the Affordable Care Act and requires employers to offer health insurance plans covering contraception, sterilization and some drugs that can cause early abortions.
The Supreme Court ruled against that mandate as it applies to closely-held for-profit companies in 2014. Another case involving numerous non-profits that object to the mandate on religious grounds will be heard by the court this year.