Medicaid and Generics: How Low-Income Patients Save Hundreds on Prescription Drugs

For millions of low-income Americans on Medicaid, the difference between a brand-name drug and its generic version isn’t just a label-it’s whether they can afford to take their medicine at all. In 2023, Medicaid filled over 1.2 billion prescriptions, and more than 90% of them were for generic drugs. That’s not a coincidence. It’s the system working as designed: generics keep costs down so people can actually get the pills they need.

Why Generics Are the Backbone of Medicaid

Medicaid doesn’t just cover generic drugs-it relies on them. In 2023, 90 to 91% of all prescriptions paid for by Medicaid were generics. Yet these same drugs made up only 17.5% of total drug spending. That’s because generics cost a fraction of their brand-name counterparts. The average copay for a generic drug under Medicaid? Just $6.16. For a brand-name drug? $56.12. That’s nearly nine times more.

This isn’t magic. It’s the result of a powerful federal program called the Medicaid Drug Rebate Program (MDRP), created in 1990. Drug companies must give Medicaid huge discounts-often 86% off the retail price-for their generic drugs to be included in the program. That’s why Medicaid gets some of the lowest net prices in the entire U.S. healthcare system, even beating out the Department of Veterans Affairs.

How Much Money Does This Save?

In fiscal year 2023, Medicaid rebates saved the program $53.7 billion. That’s more than half of what would’ve been spent if drugs were sold at full price. The savings aren’t just numbers on a spreadsheet-they translate directly to real people. A single asthma inhaler switched from brand to generic can drop a patient’s monthly copay from $25 to $3. That’s $270 a year back in someone’s pocket.

The numbers get even more striking when you look at the big picture. From 2009 to 2019, generic drugs saved the U.S. healthcare system $2.2 trillion. In 2022 alone, generics and biosimilars saved $408 billion. For Medicaid enrollees, that means more consistent access to medications. Studies show that when out-of-pocket costs drop, people take their pills on time. That leads to fewer hospital visits, fewer emergency room trips, and better long-term health.

Who’s Behind the Scenes? PBMs and the Hidden Fees

But not all the savings make it to the patient. Pharmacy Benefit Managers (PBMs)-middlemen between drug makers, pharmacies, and Medicaid-take a cut. In Ohio, a 2025 audit found that PBMs collected 31% in fees on $208 million worth of generic drugs in just one year. That’s $64 million in fees on drugs that were already discounted by 86%.

These fees aren’t always transparent. Many Medicaid beneficiaries don’t know why their copay went up even though the drug’s wholesale price dropped. Some states have started pushing back. A few now require PBMs to pass along a larger share of rebates to the state or to patients directly. But nationally, this remains a major leak in the system.

Generics vs. Brand Names: The Real Cost Difference

Here’s what the numbers look like in practice:

Average Prescription Costs for Medicaid Patients

Drug Type	Average Copay	Percentage of Prescriptions	Share of Total Spending
Generic Drugs	$6.16	90-91%	17.5%
Brand-Name Drugs	$56.12	9-10%	82.5%

Even though generics make up most of the prescriptions, they’re still the cheapest option. Over 93% of generic prescriptions cost less than $20 at the pharmacy counter. For brand-name drugs, that number drops to 59%. That means most Medicaid patients can walk out of the pharmacy with a month’s supply of their medication for the price of a coffee.

Where the System Falls Short

The problem isn’t the generics themselves-it’s the barriers around them. Many states require prior authorization before a generic can be dispensed, especially for drugs used to treat chronic conditions like asthma, diabetes, or high blood pressure. One Medicaid recipient in Texas reported waiting three weeks and making six phone calls to get approval for her daughter’s new generic inhaler. By then, her daughter had gone without treatment for over a month.

Another issue: not all generics are created equal. While most are safe and effective, some patients report differences in how they feel on a generic version. This isn’t always due to the drug itself-it can be the filler ingredients or how it’s absorbed. When that happens, doctors can override the automatic substitution. But navigating that process can be confusing for patients who aren’t familiar with their rights.

The Real Threat: High-Cost Specialty Drugs

Here’s the catch: while generics are saving billions, a tiny fraction of drugs are eating up most of the budget. In 2021, less than 2% of Medicaid prescriptions were for drugs costing over $1,000 per claim. But those few drugs accounted for more than half of all Medicaid drug spending. These are often specialty medications for rare diseases, cancer, or autoimmune conditions-drugs like Humira or Enbrel.

Even when generics exist for these drugs (called biosimilars), they’re still expensive. And Medicaid’s rebate system doesn’t work as well for them. While rebates on generic drugs average 86%, rebates on high-cost specialty drugs hover around 60%. That means the savings aren’t as deep, and the financial pressure on states keeps growing.

In 2024, Medicaid’s net drug spending hit $60 billion-up $10 billion from just two years earlier. That’s why the Centers for Medicare & Medicaid Services (CMS) launched the GENEROUS Model, a new program aimed at cutting costs through smarter formularies and better use of generics.

What Low-Income Patients Can Do

If you’re on Medicaid, here’s what you can do to maximize your savings:

• Always ask if a generic version is available-even if your doctor prescribed a brand name.
• Check your state’s Medicaid formulary online. Most have searchable lists of covered drugs and their tiers.
• If your copay goes up unexpectedly, call your pharmacy and ask why. Sometimes it’s just a PBM fee change.
• If you’re denied a drug due to prior authorization, ask for a medical exception. Many are approved on appeal.
• Know your rights: Medicaid must cover all medically necessary drugs. If your state denies coverage without a valid reason, you can file a formal appeal.

Most states use managed care organizations (MCOs) to handle pharmacy benefits. That means rules can vary widely. In California, generics are automatically substituted. In Florida, some drugs require a prior authorization even for generics. Know your state’s rules.

What’s Next?

The future of Medicaid pharmacy spending hinges on two things: more biosimilars and better control over PBM fees. By 2027, experts predict biosimilars could save Medicaid another $100 billion a year as more biologic drugs lose patent protection.

The Inflation Reduction Act’s drug price negotiation rules-currently only for Medicare-could eventually be extended to Medicaid. Stanford Medicine estimates that could save $15 to $20 billion over ten years.

But until then, generics remain the single most powerful tool Medicaid has to keep low-income patients healthy and out of the hospital. The system isn’t perfect. PBMs take too much. Prior auth delays are frustrating. But the core truth hasn’t changed: generics work. They’re safe. And they’re saving millions of people from choosing between medicine and rent.