How Medicaid Generics Save Low-Income Patients Money on Prescription Drugs

For millions of low-income Americans on Medicaid, the difference between a generic pill and a brand-name one isn’t just about the label-it’s about whether they can afford to take it at all. In 2023, Medicaid generics filled 90% of all prescriptions under the program, but they made up less than 18% of the total drug spending. That’s not a coincidence. It’s the result of a system built to stretch every dollar for people who can’t afford to pay full price.

Why Generics Are the Backbone of Medicaid

Medicaid doesn’t just cover low-income patients-it’s designed to keep them healthy without bankrupting them. And generics are the reason it works. When a doctor prescribes a medication, Medicaid’s pharmacy system automatically fills it with the generic version unless there’s a medical reason not to. That’s not a restriction-it’s a feature. The generic version of a drug has the same active ingredients, the same effectiveness, and the same safety profile as the brand-name version. The only difference? The price.

In 2023, the average copay for a generic drug under Medicaid was $6.16. For a brand-name drug? $56.12. That’s nearly nine times more. For someone living paycheck to paycheck, that difference means choosing between medicine and groceries. Generics make the impossible, possible.

How Medicaid Gets Such Low Prices

Medicaid doesn’t just rely on competition between drugmakers to keep prices down. It has a powerful tool: the Medicaid Drug Rebate Program (MDRP). Created in 1990, this rule forces drug companies to give back a big chunk of what they charge Medicaid. For most generic drugs, the rebate is around 86% of the retail price. That means if a generic costs $10 at the pharmacy, Medicaid pays less than $1.50 after the rebate.

In 2023, these rebates saved the program $53.7 billion-over half of what was spent on drugs before rebates. That’s more than the entire annual budget of many U.S. states. Medicaid gets better prices than even the Department of Veterans Affairs, which is known for its aggressive pricing. And it’s not just about volume. Because Medicaid covers so many people, it has leverage that private insurers don’t.

The Hidden Cost: Pharmacy Benefit Managers (PBMs)

But here’s the catch: not all the savings make it to the patient. A big slice of the money gets eaten up by Pharmacy Benefit Managers-middlemen hired by states to manage drug benefits. In Ohio, a 2025 audit found that PBMs took 31% of the cost on $208 million worth of generic drugs in just one year. That’s $64 million in fees on drugs meant to be cheap.

These fees don’t show up on your receipt. You won’t see them on your Medicaid card. But they’re there, reducing the savings that should go to patients and taxpayers. Some states are starting to push back-requiring more transparency and capping PBM fees. But nationally, the system still favors intermediaries over the people who need the drugs most.

Generics vs. Brand-Name: The Real Numbers

It’s easy to say generics save money. But the numbers tell the real story:

• 90-91% of Medicaid prescriptions are for generics
• Generics account for only 17.5-18.2% of total Medicaid drug spending
• 93% of generic prescriptions cost less than $20 at the pharmacy counter
• Only 59% of brand-name prescriptions cost under $20
• The average generic copay: $6.16
• The average brand-name copay: $56.12

These aren’t estimates. They come from the Association for Accessible Medicines and the Medicaid and CHIP Payment and Access Commission. The data is public, consistent, and undeniable. Generics aren’t just cheaper-they’re dramatically cheaper.

What’s Making Drug Costs Rise Anyway?

If generics are so cheap, why is Medicaid spending on drugs still going up? The answer isn’t generics. It’s specialty drugs.

Less than 2% of Medicaid prescriptions are for drugs that cost over $1,000 per claim. But those few drugs account for more than half of all Medicaid drug spending. Think cancer treatments, rare disease therapies, and biologics. These aren’t generics. They’re expensive, complex, and often without competition.

Net Medicaid drug spending jumped from $30 billion in 2017 to $60 billion in 2024. That’s a 100% increase in just seven years. And while generics are still filling 90% of prescriptions, the cost of those few high-price drugs is pulling the whole system up. That’s why CMS launched the GENEROUS Model in 2024-to find ways to control spending on these specialty drugs without cutting access.

What Patients Actually Experience

Real people don’t care about rebate percentages or PBM fees. They care about whether they can pick up their medication without stress.

A mother in Texas told her story on a Medicaid support forum: “My son’s ADHD medication switched from brand to generic. My copay dropped from $25 to $4. I cried in the pharmacy line. I hadn’t realized how much I was stressing over that $25 every month.”

But it’s not always smooth. Some patients face delays. One Reddit user wrote: “My daughter’s asthma inhaler was switched to generic. Copay went from $25 to $3. But it took three weeks and six phone calls to get approval.” That’s the downside of prior authorization-a system meant to prevent overuse but often becomes a barrier.

States vary widely in how they handle these rules. Some have streamlined systems. Others require paperwork that feels designed to discourage people from getting help. The National Association of Medicaid Directors gave state transparency a 7.2 out of 10 in 2024. That means nearly a third of patients are left guessing what’s covered and why.

What You Can Do as a Medicaid Beneficiary

You don’t need to be a policy expert to get the most out of your coverage. Here’s what works:

1. Always ask if a generic is available-even if your doctor prescribes a brand name. Pharmacists can substitute unless the doctor says no.
2. Know your state’s formulary. Some states have tiered copays. Generics are almost always Tier 1-the lowest cost.
3. Use mail-order pharmacies if available. Many states offer 90-day supplies of generics for the same copay as a 30-day fill.
4. Call your state’s Medicaid office if you’re denied a drug. You have the right to appeal.
5. Check if your pharmacy offers a discount card. Some generic drugs cost less through manufacturer coupons than through Medicaid.

The Bigger Picture: Generics Are a National Success Story

Since 2009, generic drugs have saved the U.S. healthcare system $2.2 trillion. In 2022 alone, they saved $408 billion. That’s not just Medicaid’s win-it’s every taxpayer’s win. For low-income families, it’s life-changing.

The system isn’t perfect. PBMs take too much. Specialty drugs are a growing problem. Some states make it harder than it should be to get your meds. But the core idea-using generics to keep people healthy without breaking the bank-works better than any other part of the system.

As more biologic drugs lose patent protection over the next few years, biosimilars-generic versions of complex biologic drugs-could save Medicaid another $100 billion a year by 2027. That’s the next frontier. And it’s one worth fighting for.

What’s Next for Medicaid and Generics?

The future of Medicaid drug spending depends on two things: keeping generics affordable and controlling the cost of specialty drugs. The GENEROUS Model is a start. So is the Inflation Reduction Act, which lets Medicare negotiate drug prices. Experts believe if those same rules applied to Medicaid, the program could save $15-20 billion over the next decade.

But none of that matters if patients can’t get their meds. The real measure of success isn’t how much money Medicaid saves-it’s how many people are taking their pills every day. And right now, thanks to generics, millions are.