Three Republican senators, including John McCain of Arizona, rejected the bill in a late-night vote, with 49-51 the final count.
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Votes on the measure were held late in the night, with tallies coming in after 1:30 a.m. EST.
Buoyed by a signal from House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell had introduced the pared-down health care bill late Thursday that he hoped would keep alive Republican ambitions to repeal "Obamacare."
McConnell, R-Ky., called his bill the Health Care Freedom Act, but among his colleagues it's known as "skinny repeal." It was not intended to become law, but to open a path for a House-Senate conference committee to try to work out comprehensive legislation Congress can pass and send to President Donald Trump.
After the vote McConnell said: "This is clearly a disappointing moment. From skyrocketing costs to plummeting choices and collapsing markets, our constituents have suffered through an awful lot under Obamacare. We thought they deserved better. It's why I and many of my colleagues did as we promised and voted to repeal this failed law."
The bill would have repealed the unpopular Affordable Care Act provision that requires most people to have health insurance or risk a fine from the IRS. A similar requirement on larger employers would be suspended for eight years.
The Congressional Budget Office said 16 million more uninsured would result from the GOP's pared-down health care bill.
Additionally it would deny funding to Planned Parenthood, and suspend for three years a tax on medical device manufacturers. It would allow states to seek waivers from consumer protections in the Obama-era law, and increase the amount that individuals could contribute to tax-sheltered health savings accounts for medical expenses.
Sen. Chuck Schumer, D-NY, said it was time to move on from efforts to repeal Obamacare.
"It's time to turn the page," Schumer said after the vote. "We are not celebrating. We are relieved - that millions and millions of people who would have been so drastically hurt by the three proposals put forward will at least retain their health care."
Ryan, R-Wis., opened a path for McConnell earlier Thursday evening by signaling a willingness to negotiate a more comprehensive bill with the Senate. Some Republican senators had been concerned that the House would simply pass the "skinny bill" and send it to Trump. That would have sent a shock wave through health insurance markets, spiking premiums.
Ryan sent senators a statement saying that if "moving forward" requires talks with the Senate, the House would be "willing" to do so. But shortly afterward, his words received varied responses from three GOP senators who'd insisted on a clear commitment from Ryan. It was not immediately clear whether the maneuver would succeed.
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"Not sufficient," said McCain, who returned to the Capitol Tuesday to provide a pivotal vote that allowed the Senate to begin debating the health care bill, a paramount priority for Trump and the GOP. The 80-year-old McCain had been home in Arizona trying to decide on treatment options for brain cancer.
The convoluted developments played out as a divided Senate debated legislation to repeal and replace Obama's Affordable Care Act. With Democrats unanimously opposed, the slender 52-48 GOP majority was divided among itself over what it could agree to.
After a comprehensive bill failed on the Senate floor, and a straight-up repeal failed too, McConnell and his top lieutenants turned toward a lowest-common-denominator solution known as "skinny repeal." It would package repeal of a few of the most unpopular pieces of the 2010 law, along with a few other measures, with the goal of getting something, anything, out of the Senate.
That would be the ticket to negotiations with the House, which passed its own legislation in May.
But that plan caused consternation among GOP senators after rumors began to surface that the House might just pass the "skinny bill," call it a day and move on to other issues like tax reform after frittering away the first six months of Trump's presidency on unsuccessful efforts over health care.
Ryan responded not long after with a discursive and far from definitive statement that blamed the Senate for being unable to pass anything, but said, "if moving forward requires a conference committee, that is something the House is willing to do."
"The reality, however, is that repealing and replacing Obamacare still ultimately requires the Senate to produce 51 votes for an actual plan," he said.
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Lobbyists said Republicans were also planning to include a one-year ban on federal payments to Planned Parenthood, extra money for community health centers and waivers for states to permit insurers to sell policies with far narrower coverage than current law allows.
But leaders were encountering problems. The Senate parliamentarian advised that the waiver language violates chamber rules, meaning Democrats could block it. And plans to eliminate Obama's medical device tax could be abandoned because Republicans need that money for their package.
The insurance company lobby group, America's Health Insurance Plans, wrote to Senate leaders Thursday saying that ending Obama's requirement that people buy insurance without strengthening insurance markets would produce "higher premiums, fewer choices for consumers and fewer people covered next year."
And a bipartisan group of governors including John Kasich of Ohio and Brian Sandoval of Nevada also announced against it.
On their own, the changes in the skinny bill could roil insurance markets. Yet the scenario at hand, with senators trying to pass something while hoping it does not clear the House or become law, was highly unusual.
"We're in the twilight zone of legislating," said Democratic Sen. Claire McCaskill of Missouri.
The back-and-forth played out as the Senate prepared for a bizarre Capitol Hill ritual, a "vote-a-rama" on amendments that promised to last into the wee hours of Friday morning - at the end of which, the path ahead would perhaps be clearer.