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

For millions of low-income Americans on Medicaid, the difference between a generic drug and a brand-name one isn’t just about the label-it’s about whether they can afford to take their medicine at all. In 2023, 90-91% of all prescriptions filled through Medicaid were for generic drugs. Yet these same generics made up only about 18% of total Medicaid drug spending. That’s not a coincidence. It’s the result of a system designed to stretch every dollar for people who can’t afford to pay much-or anything-at the pharmacy counter.

Why Generics Are the Backbone of Medicaid

Medicaid doesn’t just cover generics because they’re cheaper-it covers them because they work just as well. 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 standards for quality, safety, and effectiveness. The only real difference? The price.

Take a common medication like lisinopril, used to treat high blood pressure. The brand-name version, Zestril, might cost $150 for a 30-day supply. The generic? Around $4. That’s not a typo. For someone on Medicaid, that $4 might be their entire copay. For someone without insurance, it could be a full day’s wages.

In 2023, the average copay for a generic drug under Medicaid was $6.16. For brand-name drugs? $56.12. That’s nearly nine times more. And yet, 93% of generic prescriptions cost less than $20 at the counter. That’s why Medicaid relies so heavily on generics-it’s the only way to keep millions of people on their medications without bankrupting the program or the patient.

How Medicaid Gets Such Low Prices

Medicaid doesn’t just ask drug companies to lower their prices. It forces them to. Since 1990, the Medicaid Drug Rebate Program (MDRP) has required manufacturers to pay rebates to state Medicaid programs in exchange for having their drugs included on the formulary. In 2023, those rebates cut Medicaid’s gross drug spending by 51.2%-a total of $53.7 billion.

For non-specialty generic drugs, Medicaid gets back an average of 86% of the retail price. That means if a generic costs $10 at the pharmacy, Medicaid only pays about $1.40 after the rebate. That’s the kind of discount no private insurer can match. Even the Department of Veterans Affairs, often praised for its low drug prices, doesn’t get rebates as deep as Medicaid does.

This system works because Medicaid is the largest single buyer of prescription drugs in the U.S. With over 80 million enrollees, states have enormous negotiating power. And they use it.

What Happens When Drugs Get Expensive?

Not all drugs are cheap. While generics dominate in volume, a tiny fraction of drugs are driving up costs. In 2021, drugs costing more than $1,000 per prescription made up less than 2% of all Medicaid claims-but over half of all spending. These are mostly specialty drugs for conditions like cancer, multiple sclerosis, or rare genetic disorders.

That’s why Medicaid’s net drug spending rose from $30 billion in 2017 to $60 billion in 2024. Generics kept the system afloat, but these high-cost drugs are pulling it in a different direction. In response, the Centers for Medicare & Medicaid Services (CMS) launched the GENEROUS Model in 2024. It’s designed to reduce waste, improve formulary management, and stop unnecessary use of expensive drugs.

There’s another problem: Pharmacy Benefit Managers (PBMs). These middlemen handle drug claims and negotiate prices between insurers and pharmacies. But they also take fees. In Ohio, PBMs collected 31% in fees on $208 million worth of generic drugs in just one year. That’s $64 million that could have gone to patient care or lower copays. And no one’s tracking how much of that gets passed on to patients.

Real Stories from Real Patients

For many Medicaid recipients, generics mean the difference between health and hospitalization. One mother in Michigan shared on Reddit that her daughter’s asthma inhaler switched from brand-name to generic, and her copay dropped from $25 to $3. “I cried,” she wrote. “I hadn’t realized how much I was stressing over that $25 every month.”

But it’s not always smooth. Another user in Texas said her son’s ADHD medication was switched to a generic, but the pharmacy wouldn’t fill it without prior authorization. “I spent three weeks calling, faxing, and waiting. By then, he’d missed two weeks of school.” Prior authorization is required for about 15-20% of Medicaid prescriptions. It’s meant to prevent overuse-but for people with no time or resources to fight bureaucracy, it becomes a barrier.

And then there’s the issue of rising copays. Even when the price of a generic drug drops, some states raise the copay. The Georgetown Center for Children and Families found that patients are often paying more out of pocket for generics even when the drug’s cost has gone down. That’s because state Medicaid programs sometimes use copay structures to control utilization-not to reflect actual drug prices.

Generics vs. Brand-Name: The Numbers Don’t Lie

Here’s a quick comparison of what Medicaid patients actually pay:

Medicaid Generic vs. Brand-Name Drug Costs (2023)

Category	Generic Drugs	Brand-Name Drugs
Average Copay	$6.16	$56.12
Percent of Prescriptions	90-91%	9-10%
Share of Total Spending	17.5-18.2%	81.8-82.5%
Cost Under $20 at Pharmacy	93%	59%

The data is clear: generics are the reason Medicaid works. They let people with no income, no savings, and no safety net stay healthy. Without them, the system would collapse under the weight of unaffordable prices.

What’s Next for Medicaid and Generics?

The future isn’t all bright. While generics will keep saving billions, the rise of high-cost specialty drugs threatens to undo those gains. The Inflation Reduction Act’s drug price negotiation rules currently apply only to Medicare-but experts at Stanford Medicine estimate that extending those rules to Medicaid could save $15-20 billion over ten years.

Biosimilars-generic versions of biologic drugs-are also coming online. These drugs treat conditions like rheumatoid arthritis and Crohn’s disease. By 2027, they could save Medicaid another $100 billion a year. But they need to be covered quickly and without unnecessary barriers.

States also need to fix the PBM problem. If 31% of generic drug spending is going to middlemen instead of patients, that’s a policy failure. Some states are starting to cap PBM fees or even bypass them entirely by creating state-run pharmacy networks.

What Low-Income Patients Should Know

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

• Always ask if a generic version is available. Pharmacists are required to substitute unless the doctor says no.
• Check your state’s formulary. Some states have tiered copays, and generics are almost always in the lowest tier.
• If you’re denied a generic, appeal. Many prior authorizations are overturned with a simple phone call.
• Know your copay. If it’s more than $10 for a generic, ask why. It might be a state policy issue, not a drug cost issue.
• Use your state’s Medicaid website or hotline. Every state runs its program differently, and knowing the rules helps you get the most out of your coverage.

Generics aren’t just a cost-saving trick. They’re a lifeline. For low-income patients, they mean fewer trips to the ER, fewer missed days of work, and the ability to manage chronic conditions without fear. The system isn’t perfect-but without generics, it wouldn’t exist at all.