How Medicaid Generics Save Low-Income Patients Money on Prescriptions

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, generics made up 90% of all prescriptions filled through Medicaid, but they accounted for less than 18% of total drug spending. That’s not a coincidence. It’s the result of a system built to stretch limited dollars as far as possible-without sacrificing access.

Why Generics Are the Backbone of Medicaid

Medicaid doesn’t just cover low-income patients; it has to stretch every dollar to cover as many people as possible. That’s where generics come in. These are exact copies of brand-name drugs, approved by the FDA to work the same way, with the same active ingredients, dosage, and safety profile. The only differences? The name, the color, and the price.

On average, a generic drug costs 80-85% less than its brand-name counterpart. For Medicaid, that adds up fast. In 2023, the average copay for a generic prescription 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.

The system doesn’t stop at just lower prices. The Medicaid Drug Rebate Program (MDRP), created in 1990, forces drug makers to give states a cut of the profit. In 2023, those rebates cut Medicaid’s gross drug spending by $53.7 billion-over half of what was originally paid. That’s money that went back into covering more people, more services, and more prescriptions.

How Much Money Are Patients Really Saving?

Let’s look at real numbers. In 2022, generics saved the U.S. healthcare system $408 billion. Of that, Medicaid accounted for a huge chunk. Here’s why: 93% of all generic prescriptions filled under Medicaid cost less than $20 at the pharmacy counter. Compare that to brand-name drugs, where only 59% fell under that threshold.

For a patient with diabetes, switching from a brand-name insulin to a generic version might drop their monthly out-of-pocket cost from $80 to under $10. For someone with high blood pressure, a generic lisinopril can cost as little as $4 for a 30-day supply. These aren’t theoretical savings. These are daily realities.

And it’s not just about the price tag. Lower copays mean better adherence. A Stanford Medicine study found that when patients pay less, they take their meds more consistently. For chronic conditions like asthma, heart disease, or depression, that means fewer hospital visits, fewer emergencies, and better long-term health.

How Medicaid Gets Such Low Prices

Medicaid doesn’t just rely on generics-it actively negotiates. Unlike private insurers, Medicaid has leverage. Because it covers nearly 85 million people, states can demand steep discounts. Manufacturers know that if they don’t offer rebates, they won’t be on the formulary. No formulary = no sales to a huge chunk of the population.

For non-specialty generics, Medicaid gets an average rebate of 86% off the retail price. That means if a drug costs $100 at the pharmacy, Medicaid pays $14 after the rebate. And because these drugs are so widely used, manufacturers are willing to accept lower margins to keep volume high.

Even compared to other government programs, Medicaid wins. A 2021 Congressional Budget Office study found Medicaid gets the lowest net prices in the country-even lower than the Department of Veterans Affairs. That’s because Medicaid’s rebate structure is more aggressive than Medicare Part D’s, which had a 86% generic fill rate in 2022 compared to Medicaid’s 90-91%.

Where the System Still Falls Short

It’s not all perfect. While generics are cheap, patients don’t always see the full benefit. Some states have raised copays for generics over the years, even as drug prices dropped. One patient in Ohio reported her generic asthma inhaler went from $3 to $15 after a formulary change-even though the wholesale price had fallen.

Then there’s the Pharmacy Benefit Manager (PBM) problem. PBMs are middlemen between drug makers, insurers, and pharmacies. In 2025, an Ohio audit found PBMs took 31% of the value on $208 million in generic drug sales in just one year. That’s $64 million in fees. That money doesn’t go back to patients or Medicaid-it stays with the middlemen. That’s a hidden leak in the system.

Prior authorization is another barrier. A Reddit user in r/Medicaid shared that her daughter’s generic inhaler cut her copay from $25 to $3-but getting approval took three weeks and six phone calls. For someone without a car, a flexible schedule, or reliable internet, that delay can mean going without medication.

What’s Changing in 2025 and Beyond

Medicaid’s drug spending jumped $10 billion between 2022 and 2024, mostly because of high-cost specialty drugs. These aren’t generics. These are biologics, cancer drugs, and rare disease treatments that cost thousands per dose. Even though they make up less than 2% of prescriptions, they account for over half of Medicaid’s drug spending.

To fight back, the Centers for Medicare & Medicaid Services (CMS) launched the GENEROUS Model in 2024. It’s designed to reduce costs by tightening formularies, encouraging generics, and cracking down on unnecessary prescribing. States are also starting to test direct-to-patient pricing models, cutting out PBMs entirely.

Looking ahead, biosimilars-generic versions of biologic drugs-are coming online. Experts predict they could save Medicaid $100 billion a year by 2027. That’s not just a number. It’s thousands of patients who won’t have to choose between rent and their next refill.

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 your doctor says no.
• Check your state’s formulary list online. Some states have tiered lists showing which drugs cost $4, $10, or $20.
• Call your pharmacy if your copay suddenly went up. Sometimes it’s a system error, not a price change.
• Use mail-order pharmacies if available. Many states offer 90-day supplies at the same cost as a 30-day retail fill.
• If you’re denied a drug because of prior authorization, ask for help. Many clinics have patient advocates who can file appeals.

Generics aren’t a loophole. They’re the reason millions of low-income Americans can manage their health without going broke. The system isn’t flawless-but it’s working. And with more biosimilars on the horizon, the savings are only going to grow.