It would seem that Bishop Morlino does not view providing insurance coverage for contraception as having crossed a line in the sand. As reported in the Wisconsin State Journal and the Diocesan newspaper, in 2010 Wisconsin introduced a contraception mandate that did not include a religious conscience exemption. The only way to avoid it was to self-insure. The Diocese and the Catholic hospital in Madison tried this route and found it cost too much. They therefore went back to offering insurance that included contraceptive coverage.
Now they were very upset by this, and began lobbying for a religious exemption. However, with regards to the discussion taking place on other posts (here and here), it would seem that Bishop Morlino, and notably conservative bishop, does not feel that the Church is engaged in material cooperation with evil. Neither article works through the precise moral calculus, but the results speak very loudly about what is or is not permissible. (I am not saying ideal or desirable, just permissible.)