The bill by Geneva MP Liliane Maury Pasquier was rejected by 31 votes to 13 on Tuesday, with the Senate judging that limits should not be imposed at federal level.
According to Pasquier some families end up paying 22,000 francs ($22,500) a year for basic health insurance – obligatory in Switzerland – which equates to more than 20 percent of their income.
Speaking after the vote, Pasquier said she thought many senators did not understand “the difficulty that these premiums represent for most households,” reported 20 Minutes.
The senator pointed out that when the law on compulsory medical insurance, called LaMal, was devised in 1990 the federal government stated its aim for premiums to equate to no more than eight percent of a household income, said the paper.
But as a result of rises to premiums, many families are being forced to compromize their health, for example by not consulting a doctor because of the cost.
Premiums for compulsory medical insurance are set by the country's 60-odd private insurers each year, usually at the end of September, with figures approved by the federal government.
Premiums for 2016 rose on average by four percent on the previous year, with some cantons seeing an eight percent rise.
Since the law on compulsory health insurance came into force in 1996 the average standard premium has risen by 4.6 percent a year, taking monthly payments from 173 francs in 1996 to 428 francs in 2016.
The federal government and cantons both contribute to subsidies offered to certain people on low income to reduce their health insurance premiums.
But the question of who is entitled to a reduced premium is set at cantonal level. It is usually determined by salary and the number of children in a household.
Speaking after Tuesday's vote, Home Office minister Alain Berset recognized that paying for basic medical insurance was a big cost for households, but said the federal council had already made efforts to contain premium rises, reported news agencies.
In 2008 the Swiss parliament decided that cantons, not the federal government, should be responsible for regulating any premium limits and that should be respected, said Berset.
Despite failing to get her bill passed at federal level Pasquier said she maintained hope that the ten percent principle would be considered at cantonal level and that some cantons are already making steps in that direction.