The Senate Finance Committee's 14-9 vote, which was largely along party lines, comes after months of fierce disputes between lawmakers and interest groups and paves the way for the entire Senate to consider the reform plans in the coming weeks.
"I never count chickens before they've hatched, but this is obviously another step forward," Obama told reporters after a meeting with Spanish Prime Minister Jose Luiz Rodriguez Zapatero.
The finance committee's version of health reform is considered to have the best chance of passing Congress. It is the only one of five potential bills that will help reduce the massive US budget deficit, according to the non-partisan Congressional Budget Office.
"Ours is a balanced plan that can pass the Senate," said Senator Max Baucus, the Democratic chairman of the 23-member committee. "This is our opportunity to make history."
The bill is estimated to cost $829 billion over 10 years and is designed to rein in the world's costliest health care system. It requires people to buy insurance, extends coverage to nearly 30 million people currently uninsured, increases government subsidies for the poor and expands competition in a bid to lower costs.
But the reforms are still disputed. Obama has lobbied heavily for the first major overhaul of the US health care sector in more than four decades. He wants a final bill passed by the end of the year.
Baucus and two fellow-Democrats spent months in closed-door meetings trying to find a compromise with three potential Republican supporters. The committee then held weeks of public meetings, adopting 41 amendments to the legislation.
In the end only one Republican senator, Olympia Snowe, offered her lukewarm support for the Baucus bill. She said the US public "want us to continue working" on the issue.
Most conservatives argue the reforms do little to lower health costs and amount to heavy government encroachment on a largely private industry. They also fear that hard-won compromises could be erased as the bill is merged in the coming weeks with a separate, costlier version approved by the Senate Health Committee.
The bill is "already moving on a slippery slope to more and more government control of health care," said Senator Charles Grassley, the top Republican on the committee. "We can now see clearly that the bill continues its march leftward."
The lower House of Representatives is considering its own proposals. Democratic House Speaker Nancy Pelosi has vowed to include in her bill a government-run insurance option, which is fiercely opposed by Republicans but has divided Obama's own party.
