Medicaid and Generics: How Generic Drugs Save Money for Low-Income Patients
Jan, 1 2026
For millions of low-income Americans, Medicaid is the only way they can afford prescription drugs. But here’s the surprising part: generics are the reason most of them can even get their medications at all. In 2023, 90% of all prescriptions filled through Medicaid were for generic drugs. And yet, those same generics made up just 18% of total Medicaid drug spending. That’s not a typo. Generics are saving the program-and the people it serves-billions every year.
Why Generics Are the Backbone of Medicaid
Medicaid doesn’t pay retail prices for drugs. Thanks to the Medicaid Drug Rebate Program (MDRP), the government negotiates deep discounts directly with manufacturers. For generic drugs, those rebates average 86% of the retail price. That means if a generic pill costs $10 at the pharmacy, Medicaid only pays about $1.40 after the rebate. Compare that to brand-name drugs, where rebates are still high but not nearly as steep-around 77% on average. The result? A generic prescription can cost a Medicaid patient $6.16 at the pharmacy counter. A brand-name version? $56.12. Nearly nine times more. This isn’t just about big numbers. It’s about real people. A single mother with diabetes might need insulin, metformin, and blood pressure meds. If those were all brand-name, she’d be paying hundreds a month out of pocket-even with Medicaid. But because those drugs are generic, her total monthly copay is under $20. That’s the difference between taking her medicine and skipping doses.How Much Money Are We Talking About?
In 2023, Medicaid spent $80.6 billion on prescription drugs before rebates. But because of those rebates, the program saved $53.7 billion. That’s more than half of what was spent. Those savings keep Medicaid solvent. Without them, states would have to cut benefits, raise taxes, or turn away patients. The savings ripple outward too. A 2024 report from Stanford Medicine found that between 2009 and 2019, generic drugs saved the U.S. healthcare system $2.2 trillion. That’s not just Medicaid-it’s every program, every insurer, every patient. But Medicaid is where those savings matter most. Low-income patients don’t have savings accounts or credit cards to cover surprise drug costs. Generics keep them alive.Generics vs. Brand-Name: The Real Numbers
Here’s what the data shows when you compare generics and brand-name drugs in Medicaid:| Category | Generic Drugs | Brand-Name Drugs |
|---|---|---|
| Percentage of prescriptions filled | 90-91% | 9-10% |
| Percentage of total drug spending | 17.5-18.2% | 81.8-82.5% |
| Average patient copay | $6.16 | $56.12 |
| Percentage of prescriptions under $20 at pharmacy | 93% | 59% |
| Average rebate from manufacturer | 86% | 77% |
The numbers don’t lie. Generics are the only reason Medicaid can cover so many people. Without them, the program would collapse under the weight of brand-name drug prices.
The Hidden Problem: PBMs and Pharmacy Fees
But here’s the catch: not all the savings make it to the patient. Pharmacy Benefit Managers (PBMs)-middlemen between drug makers, insurers, and pharmacies-take a cut. In Ohio, a 2025 audit found that PBMs collected 31% of the total cost on $208 million worth of generic drugs in just one year. That’s over $64 million in fees. Some of that goes to administrative costs, but a lot of it just disappears into corporate profits. This doesn’t change the fact that generics are still far cheaper than brand-name drugs. But it does mean that even when generic prices drop, patients don’t always see it. Some states have started requiring PBMs to pass savings directly to patients, but most haven’t. That’s why you’ll still hear people say, “My generic cost went down, but my copay didn’t.”Why Specialty Drugs Are Breaking the System
The biggest threat to Medicaid’s cost savings isn’t brand-name drugs-it’s specialty drugs. These are high-cost medications for conditions like cancer, multiple sclerosis, or rare genetic disorders. They’re often biologics-complex molecules that can’t be easily copied like traditional generics. In 2021, drugs costing more than $1,000 per prescription made up less than 2% of all Medicaid claims. But they accounted for over half of total drug spending. That’s the new problem. While 90% of prescriptions are cheap generics, the most expensive 2% are driving up costs faster than ever. Medicaid net spending jumped from $30 billion in 2017 to $60 billion in 2024. That’s a 100% increase in just seven years. The Centers for Medicare & Medicaid Services (CMS) launched the GENEROUS Model in 2024 to tackle this. It’s designed to push states to use better formularies, reduce unnecessary prescriptions, and negotiate better prices on high-cost drugs. But it won’t fix the core issue: we’re running out of affordable alternatives.
What Patients Need to Know
If you’re on Medicaid, here’s what you should remember:- Generics are almost always the cheapest option. Ask your pharmacist to substitute unless your doctor says no.
- Your copay is likely $5-$10 for a 30-day supply. That’s normal. If it’s higher, ask why.
- Some states require prior authorization for certain generics, even if they’re on the formulary. That can delay your refill by days or weeks.
- Don’t assume a brand-name drug is better. Generics have the same active ingredients, same quality standards, and same FDA approval.
- Check your state’s Medicaid website. Each one has its own formulary and rules. Some are easier to navigate than others.
One Medicaid user on Reddit shared that her daughter’s asthma inhaler switched from brand to generic-and her copay dropped from $25 to $3. But it took three weeks of phone calls to get approval. That’s the reality. Generics save money, but the system still gets in the way.
The Future: Biosimilars and Price Negotiation
The next big wave of savings will come from biosimilars. These are cheaper versions of biologic drugs-like insulin or rheumatoid arthritis treatments-that are currently priced like luxury cars. The Association for Accessible Medicines predicts biosimilars could save Medicaid $100 billion annually by 2027. There’s also talk of extending the Inflation Reduction Act’s drug price negotiation rules to Medicaid. Right now, Medicare can negotiate prices for a handful of high-cost drugs. If Medicaid got the same power, experts estimate it could save $15-20 billion over ten years. But none of this matters if we lose sight of the big picture: generics work. They’re safe, effective, and affordable. For low-income patients, they’re not a convenience-they’re a lifeline.Are generic drugs as safe as brand-name drugs?
Yes. The FDA requires generic drugs to have the same active ingredients, strength, dosage form, and route of administration as the brand-name version. They must also meet the same strict manufacturing standards. Generics are not cheaper because they’re lower quality-they’re cheaper because they don’t need to pay for advertising, clinical trials, or patent protection.
Why does my generic drug cost more than last month?
Even though the manufacturer’s price may have dropped, your pharmacy or PBM might not pass that savings on immediately. Some states require pharmacies to notify patients of price changes, but most don’t. If your copay went up, ask the pharmacy for the reason. You may be able to switch to a different generic version or request a price match.
Can I buy generics cheaper outside of Medicaid?
Sometimes. Services like Mark Cuban Cost Plus Drug Company offer lower prices on some generics, but only about 11% of the most common ones. For most Medicaid patients, the program’s negotiated prices are still the best deal-especially when you factor in the rebates and no out-of-pocket costs beyond the small copay. Buying outside Medicaid means losing coverage for other medications and risking gaps in care.
Do all states offer the same generic drug coverage?
No. While federal law requires Medicaid to cover all medically necessary drugs, each state controls its own formulary. Some states have more generics on their list than others. Some require prior authorization for common generics. You can check your state’s Medicaid website or call their pharmacy help line to see which drugs are covered and what rules apply.
Why do some generics have different names?
Generic drugs are named after their active ingredient, not the brand. For example, the generic version of Lipitor is atorvastatin. But different manufacturers may label it as Atorvastatin Calcium, Atorva, or just Atorvastatin. These are all the same drug. Always check the active ingredient on the label, not the brand name on the bottle.
