Medicaid and Generics: How Generic Drugs Save Money for Low-Income Patients

For millions of low-income Americans on Medicaid, the difference between a brand-name drug and its generic version isn’t just about the label-it’s about whether they can afford to take their medicine at all. In 2023, 91% of all prescriptions filled through Medicaid were for generic drugs. That’s not a coincidence. It’s the result of a system designed to keep costs down for people who can’t afford high prices. And it works. Generics cut out-of-pocket costs by nearly 90% compared to brand-name drugs, making treatment possible for families living paycheck to paycheck.

How Much Do Generics Actually Save Medicaid Patients?

The numbers speak for themselves. In 2023, the average copay for a generic drug under Medicaid was just $6.16. For a brand-name drug? $56.12. That’s more than nine times more. For someone on a fixed income, that difference isn’t just a number-it’s whether they refill their diabetes medication, fill their asthma inhaler, or skip their blood pressure pills entirely.

And it’s not just about what patients pay at the pharmacy. The entire Medicaid system saves billions because of generics. In 2023, Medicaid rebates-money drugmakers pay back to states-cut gross drug spending by 51.2%, saving $53.7 billion. That’s money that goes back into covering more services, more doctors, more care. Without generics, Medicaid’s drug budget would have exploded long ago.

Why Are Generics So Much Cheaper?

Generic drugs aren’t cheaper because they’re lower quality. They’re cheaper because they don’t need to recoup the billions spent on research, marketing, and advertising that brand-name drugs do. Once a brand-name drug’s patent expires, other companies can make the exact same medicine. The FDA requires generics to have the same active ingredient, strength, dosage form, and route of administration as the brand. They must also prove they work the same way in the body.

What makes Medicaid’s savings even stronger is the Medicaid Drug Rebate Program (MDRP). Created in 1990, this law forces drugmakers to give states a discount-often more than 80% off the list price-for every generic drug they sell to Medicaid. In 2023, for non-specialty generics, Medicaid got back an average of 86% of the retail price. No other government program gets prices this low. Even the Department of Veterans Affairs, which negotiates hard, doesn’t match Medicaid’s net pricing.

Who’s Making These Generics-and How Much Are They Making?

Most generic drugs sold to Medicaid come from a handful of big manufacturers: Teva, Viatris (which includes Mylan), and Sandoz. Together, they supply nearly half of all generic prescriptions filled under Medicaid. These companies make money on volume, not high prices. A single pill might cost pennies to produce, and Medicaid buys them in bulk.

But here’s where things get messy. Between the drugmaker and the pharmacy, there’s a middleman: the Pharmacy Benefit Manager, or PBM. In 2025, the Ohio Auditor found that PBMs took 31% in fees on $208 million worth of generic drugs in just one year. That’s over $64 million in fees on drugs that were already cheap. That money doesn’t go to the patient. It doesn’t go to the state. It goes into corporate pockets. Experts warn that these fees are eating away at the savings generics were supposed to deliver.

Generics vs. Brand Names: The Real Cost Difference

Let’s say a Medicaid patient needs a common blood pressure pill. The brand-name version might cost $150 for a 30-day supply. The generic? $5. Even after the $6.16 copay, the patient pays less than half the cost of a single brand-name dose. That’s why 93% of generic prescriptions cost under $20 at the counter. Only 59% of brand-name prescriptions do.

Some people think buying generics online or from discount pharmacies like Mark Cuban Cost Plus Drug Company saves more. But studies show that for Medicaid patients, that’s rarely true. In one 2023 analysis, uninsured people saved a few dollars per prescription using those services-but Medicaid patients were already getting better prices. For low-income patients with coverage, Medicaid’s system is usually the cheapest option available.

What About High-Cost Drugs? Are Generics Still Enough?

Here’s the problem: while generics make up 91% of prescriptions, they don’t make up 91% of spending. A tiny fraction of drugs-less than 2% of all claims-are specialty drugs that cost over $1,000 per prescription. These are things like cancer treatments, rare disease therapies, and complex biologics. Even though they’re rarely used, they account for more than half of Medicaid’s total drug spending.

That’s why Medicaid’s net drug spending jumped from $30 billion in 2017 to $60 billion in 2024. It’s not because people are taking more generics. It’s because they’re taking more of these ultra-expensive drugs. The federal government is trying to fix this with the new GENEROUS Model, launched in 2024. It’s designed to cut costs by better managing which drugs get covered, pushing for biosimilars (generic versions of biologic drugs), and cracking down on unnecessary spending.

What Patients Actually Experience

Most Medicaid patients don’t think twice about generics. Pharmacists automatically substitute them unless a doctor says otherwise. But the system isn’t perfect. Some patients report delays getting approved for even generic versions of essential drugs. One Reddit user, ‘MedicaidMom2023,’ shared that her daughter’s asthma inhaler switched to a generic and her copay dropped from $25 to $3-but it took three weeks and multiple phone calls to get approval.

Another issue? Copays are creeping up in some states. Even when the cost of the drug drops, some Medicaid programs raise the patient’s copay. That’s not how it’s supposed to work. The point is to make drugs affordable, not to shift costs onto patients.

How to Make the Most of Medicaid’s Generic Drug Benefits

If you’re on Medicaid, here’s what you need to know:

1. Always ask if a generic version is available. Even if your doctor prescribes a brand, you can request the generic.
2. Know your state’s formulary. Some states have tiered systems where generics are in the lowest tier-meaning the lowest copay.
3. Check your state’s Medicaid website for approved drug lists. Many list which drugs require prior authorization.
4. If you’re denied a drug, appeal. Medicaid must cover medically necessary drugs. If your doctor says you need it, you have a right to it.
5. Use mail-order pharmacies if available. They often have lower copays and can save you trips to the store.

Most importantly: don’t skip doses because of cost. If you’re struggling to afford your copay, talk to your pharmacist or Medicaid caseworker. Many states have programs to reduce copays for low-income patients.

What’s Next for Medicaid and Generics?

The future looks mixed. On one hand, biosimilars-generic versions of complex biologic drugs-are starting to hit the market. Experts predict they could save Medicaid another $100 billion a year by 2027. On the other hand, drugmakers are finding new ways to delay generic competition, and PBMs continue to take large cuts.

One big change could come from the Inflation Reduction Act. It lets Medicare negotiate drug prices. If that power is extended to Medicaid, it could bring down costs even further-potentially saving $15 to $20 billion over ten years.

But the core truth remains: generics are the backbone of affordable care for low-income Americans. They’re safe, effective, and dramatically cheaper. Without them, millions would go without treatment. The challenge now isn’t whether generics work-it’s whether the system is still doing everything it can to protect those savings.