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

When you pick up a prescription, do you ever wonder why two pills that do the same thing cost so differently? One might be a well-known brand-name drug, and the other looks almost identical but costs a fraction of the price. That’s the generic version. But here’s the twist: out-of-pocket costs don’t always follow the logic you’d expect. Sometimes, the cheaper generic costs you more. And sometimes, the expensive brand-name drug ends up being the better deal - especially if you’re on Medicare.

Generics are cheaper - usually

Most of the time, generics cost 80 to 85% less than their brand-name equivalents. Nine out of every 10 prescriptions filled in the U.S. are for generics. That’s not because people are trying to save money - it’s because doctors prescribe them, and pharmacies stock them. They work the same way. The FDA requires them to have the exact same active ingredient, strength, and dosage form as the brand. They’re just made by a different company, often with different fillers or coatings that don’t affect how the drug works.

But here’s what most people don’t realize: even though generics make up 90% of prescriptions, they only account for about 18% of total drug spending. Why? Because brand-name drugs are priced so high. A single pill of a brand-name drug can cost $10, $20, even $50. The generic version? Maybe 50 cents. That gap is massive. And it’s why generics saved the U.S. healthcare system nearly $338 billion in 2020 alone.

Insurance design changes everything

Your out-of-pocket cost isn’t just about the drug’s price. It’s about how your insurance works. There are three main ways insurance handles prescriptions: copay, coinsurance, and deductible.

• Copay: You pay a fixed amount - say $10 - no matter what the drug costs. If the brand-name drug goes from $100 to $120, you still pay $10. Your insurance picks up the rest.
• Coinsurance: You pay a percentage - say 30% - of the drug’s price. If the drug costs $100, you pay $30. If it jumps to $120, you pay $36. You feel every price hike.
• Deductible: You pay 100% until you hit a certain amount (like $1,500). After that, copays or coinsurance kick in.

A 2021 study in JAMA Network Open looked at 79 brand-name drugs over two years. The median list price increased by 16.7%. But for patients with flat copays? Their out-of-pocket costs didn’t budge. For those on coinsurance? They paid more - directly tied to the rising list price. So if your plan uses coinsurance, you’re not just paying for the drug. You’re paying for the drug company’s pricing decisions.

The Medicare Part D trap

If you’re on Medicare Part D, things get even weirder. There’s a gap in coverage called the “donut hole.” Once you and your plan have spent a certain amount on drugs, you enter this gap - and you pay more out of pocket until you hit catastrophic coverage.

Here’s the twist: brand-name drug manufacturers give discounts during the donut hole. Those discounts count toward your out-of-pocket spending. So if you’re taking a brand-name drug, you hit catastrophic coverage faster - and then you only pay 5% of the drug’s cost.

Generic drug manufacturers? They don’t give those discounts. So if you’re on a generic, you have to spend way more before you get to catastrophic coverage.

In 2019, a patient on brand-name drugs needed to spend $982 to reach catastrophic coverage. Someone on generics? $3,730. That’s almost four times more. And in 2020, the threshold jumped from $5,100 to $6,350. That made the gap even worse.

So yes - sometimes, a $100 brand-name drug costs you less than a $10 generic because of how the system is built. It’s not about the drug. It’s about the rules.

What about cash prices?

If you’re uninsured, or if your insurance is making you pay too much, paying cash might be smarter. Companies like Mark Cuban Cost Plus Drug Company (MCCPDC) and Blueberry Pharmacy sell generics at transparent, low prices - no insurance needed.

A 2024 study found that for 11.8% of generic prescriptions, patients saved money by paying cash instead of using insurance. The median savings? $4.96 per prescription. For some drugs, it was over $20. Uninsured patients saved the most. Medicaid patients? No savings - because their plans already set fixed prices.

And here’s the kicker: 97% of all cash payments for prescriptions in 2020 were for generic drugs. Why? Because that’s where the real savings are.

Why are generics still expensive?

You’d think with so many companies making generics, prices would be rock bottom. But that’s not always true. A 2022 analysis from the USC Schaeffer Center found that patients were overpaying for generics by 13 to 20% - not because of manufacturing costs, but because of middlemen.

Pharmacy Benefit Managers (PBMs) - the hidden middlemen between insurers, pharmacies, and drug makers - often take a cut based on the list price. So if a generic drug’s list price is inflated, even if the manufacturer sells it cheap, the PBM keeps more. And patients pay more at the counter.

That’s why a $5 generic might cost you $15. It’s not the drug. It’s the system.

What can you do?

You can’t control drug prices. But you can control how you pay.

• Ask your doctor: “Is there a generic version?” If they say no, ask why. Sometimes, they just default to brand-name because it’s easier.
• Check if your plan uses copays or coinsurance. If it’s coinsurance, generics are almost always better.
• If you’re on Medicare Part D, look at your drug list. If you’re taking high-cost generics, compare your out-of-pocket spending to what you’d pay if you switched to a brand-name version. It sounds backwards - but it might save you money.
• Try GoodRx or MCCPDC. Enter your drug and zip code. See what cash price is lower than your insurance copay. Pay cash. Skip the insurance.
• Ask your pharmacist: “Can I get this drug through a 90-day mail-order program?” Sometimes, bulk pricing lowers your cost.

It’s not about quality - it’s about cost structure

Let’s clear up one myth: generics are not inferior. They’re not “second-rate.” They’re chemically identical. The FDA tests them. They’re just made by different companies. Dr. Eric D’Agostino, a pharmacist at Brown University Health, says it plainly: “Generic medications are just as safe and effective as branded medications and will most likely cost less money out of pocket.”

The problem isn’t the drug. It’s the system. The system rewards high list prices. It hides discounts. It punishes patients who use generics. And it lets middlemen profit from confusion.

The good news? You have power. You can shop. You can ask. You can pay cash. You can save.