Out-of-Pocket Costs: What Patients Really Pay for Generic vs Brand-Name Drugs

Most people assume that generic drugs are cheaper than brand-name drugs. And they’re right-generic drugs usually cost 80 to 85% less. But what you actually pay at the pharmacy counter isn’t always that simple. For many patients, especially those on Medicare Part D, the out-of-pocket cost for a generic drug can sometimes be higher than for the brand-name version. It sounds backwards, but it’s real-and it’s built into how insurance works.

Why Generics Are Usually Cheaper (And Why That Doesn’t Always Help)

Generic drugs have the same active ingredients as brand-name drugs. The FDA requires them to work the same way in your body. They’re not weaker. They’re not less safe. They’re just cheaper to make because the manufacturer doesn’t have to repeat expensive clinical trials. That’s why nine out of every ten prescriptions filled in the U.S. are for generics.

But here’s the catch: just because a drug is generic doesn’t mean your bill at the pharmacy is low. Your out-of-pocket cost depends almost entirely on your insurance plan. If you have a flat $10 copay, then your generic costs $10 whether the drug is $5 or $500. If you’re on a coinsurance plan-say, 25% of the drug’s price-you’ll pay more if the list price goes up, even if the drug is generic.

And that’s where things get messy. Brand-name drug prices have been rising faster than inflation for years. In one study, median list prices for brand-name drugs jumped 16.7% over two years. But patients with flat copays didn’t pay more. Patients with coinsurance? They paid the full increase.

The Medicare Part D Trap

Medicare Part D is where the system breaks down in the most surprising way. The program has a coverage gap, often called the “donut hole.” Once you and your plan spend a certain amount on drugs, you enter this gap and pay more out of pocket-until you hit catastrophic coverage, where you only pay 5% of the drug’s cost.

Here’s the twist: brand-name drug manufacturers are required to give discounts during the donut hole. Those discounts count toward your out-of-pocket spending. Generic manufacturers? They don’t have to. So if you’re taking a high-priced generic drug, you have to spend way more before you reach catastrophic coverage.

In 2019, a patient on a brand-name drug needed to spend $982 to get out of the donut hole. A patient on a high-priced generic? They had to spend $3,730-nearly four times as much. That’s not a mistake. It’s policy. And it means patients using generics can end up paying more over time, even if the drug itself is cheaper.

Who Pays the Most-and Why

The people who pay the most aren’t always the ones you’d expect. Uninsured patients can sometimes pay less than insured ones by skipping insurance entirely. Cash-only pharmacies like Mark Cuban’s Cost Plus Drug Company let you pay a transparent price without insurance markups. In 2024, patients saved an average of $4.96 per prescription on 11.8% of generic drugs using this model. For uninsured people, the savings were biggest.

But if you’re on Medicaid, you won’t save anything by going cash-only. Medicaid already negotiates deep discounts, so there’s no room for better deals. And if you’re on a private plan with a high deductible, you might be paying hundreds of dollars for a generic drug because your plan hasn’t kicked in yet.

Even more confusing: some insurers and pharmacy benefit managers (PBMs) profit from opaque pricing. A 2022 analysis found that patients may be overpaying for generics by 13 to 20% because middlemen take a cut without passing savings along. The system isn’t broken-it’s designed to make money for companies, not lower costs for patients.

When Brand-Name Drugs Are the Better Deal

It’s rare, but it happens. If you’re on Medicare Part D and your generic drug is expensive, it might actually be cheaper to switch to the brand-name version-even if the brand costs more upfront. Why? Because the manufacturer discount during the donut hole counts toward your out-of-pocket spending. Once you hit catastrophic coverage, you pay just 5% of the price. So if the brand costs $200 but you get a discount that counts toward your cap, you’ll reach catastrophic coverage faster than if you used a $150 generic with no discount.

This isn’t advice to always pick the brand. It’s a warning: your plan’s structure matters more than the drug’s label. Ask your pharmacist or insurer: “Does this drug’s price count toward my out-of-pocket maximum?” If the answer is no, you might be paying more than you need to.

What You Can Do Right Now

You don’t have to accept whatever bill you get. Here’s what works:

• Ask if your prescription can be switched to a lower-cost generic. Not all generics are priced the same-ask your pharmacist to compare prices at different pharmacies.
• Use GoodRx or SingleCare. These apps show cash prices that are often lower than your insurance copay, especially for generics.
• Try cash-only pharmacies like Mark Cuban Cost Plus Drug Company. They’re not for everyone, but if you’re paying over $20 a month for a generic, it’s worth checking.
• Ask your doctor to write “dispense as written” only if you truly need the brand. Otherwise, let the pharmacy substitute the generic.
• If you’re on Medicare, review your plan every year during open enrollment. Your drug costs can change dramatically between years.

The Bigger Picture

Generics saved the U.S. healthcare system $338 billion in 2020 alone. Over ten years, that adds up to nearly $2.4 trillion. But those savings aren’t reaching patients evenly. The system is rigged to reward volume over affordability. PBMs, insurers, and manufacturers all get paid based on list prices, not what patients actually pay.

That’s why even though 90% of prescriptions are generics, they make up only about 18% of total drug spending. The rest? Brand-name drugs, priced like luxury goods, with insurance plans that don’t protect patients from the highest costs.

The fix isn’t simple. But awareness is the first step. You’re not being lazy or careless if you’re confused. The system is designed to be confusing. The good news? You have more power than you think. You can shop around. You can ask questions. And sometimes, paying cash is the smartest move of all.

Common Myths About Generic Drugs

• Myth: Generics are weaker or less effective. Fact: They must meet the same FDA standards for safety and effectiveness as brand-name drugs.
• Myth: If your doctor prescribed the brand, you have to stick with it. Fact: Your doctor can write “dispense as written,” but you can still ask for a generic unless it’s medically necessary.
• Myth: Insurance always gives you the lowest price. Fact: Sometimes the cash price is lower-especially for generics.
• Myth: All generics cost the same. Fact: Two different pharmacies might charge $5 and $40 for the same generic. Always compare.