A Republican plan to replace Obamacare will not be voted on this week, effectively signalling its collapse.
Sen. Susan Collins (L) and Sen. Lindsey Graham leaving the the Senate chamber at the US Capitol after voting on the GOP 'Skinny Repeal' health care bill Photo: AFP
The party leadership said the bill would not come to the Senate floor after a third "no" vote emerged.
Susan Collins said she could not back the "deeply flawed" bill, despite a call from President Donald Trump and promises of money for her state.
It was a major blow for the president and Republican leadership, who have made Obamacare's repeal a top priority.
They could only afford two rebel senators to pass the bill, and were working to a deadline of the end of this week.
They now turn their attention to tax reform.
The party's last attempt to undo former President Barack Obama's 2010 healthcare law collapsed in July.
Ms Collins, a moderate Republican from Maine, said she objected to the Graham-Cassidy bill's sweeping cut in funding to Medicaid.
One in five people in her home state depend on the programme for low income citizens and disabled children.
Ms Collins also said the bill weakened protections for people with pre-existing conditions.
She joined Republican Senators John McCain (Arizona) and Rand Paul (Kentucky) in rejecting the proposal.
Senator Ted Cruz of Texas has also withheld his support and demanded changes.
Senators Lindsey Graham and Bill Cassidy, authors of the bill, had offered to boost federal healthcare funds by 43% in Maine.
They have also dangled sweeteners for other states with wavering senators.
Republicans hold a slim 52-48 majority in the Senate and must pass the bill by more than 50 votes before a 30 September deadline.
Senate Majority Leader Mitch McConnell wanted to hold a vote this week, but that looks increasingly unlikely.
Ms Collins announced her opposition shortly after a damning assessment from the non-partisan Congressional Budget Office.
It said millions of people would lose coverage for high-cost medical events if the bill became law.
The CBO also found that federal spending on Medicaid would be cut by about $US1 trillion from 2017-26.
The Senate held its first hearing all year on the proposed Obamacare repeal on Monday, but it was disrupted by protesters.
Police arrested 181 demonstrators.
The protesters, many of whom were in wheelchairs, were forcibly removed from the hearing room.
A new CBS poll released on Monday said 52 percent of Americans disapprove of the Graham-Cassidy bill, while 20 percent approve.
- BBC