This article is general information, not insurance, medical, legal or financial advice. Medication decisions belong with your prescriber and pharmacist, and drug pricing and plan rules vary by country, plan and pharmacy.
When a plan covers medications, the amount you pay at the counter often depends heavily on whether a drug is a generic or a brand name. In many plans, generic versions tend to cost less, sometimes noticeably so. Understanding why can help you ask better questions.
What generic and brand mean
A brand-name drug is sold under a proprietary name by the company that developed it. A generic drug is typically a version of the same active ingredient, sold after the original company’s exclusive marketing period ends, usually under the ingredient’s common name.
In many countries, regulators require generics to meet standards showing they work in essentially the same way as the brand in the body, in terms of the active ingredient, strength, dosage form and route. Generics can differ in inactive ingredients, shape, color or packaging. Your pharmacist can explain differences that might matter to you, for example an inactive ingredient you are sensitive to.
Not every medication has a generic. Newer drugs, or those still under protection, may only be available as brand names.
Why generics often cost less
Several general factors are usually involved:
- Competition. Once several manufacturers can sell the same ingredient, prices tend to fall.
- Development costs. Generic makers typically do not repeat the original research and large clinical trials, and so recover less cost through price.
- Marketing. Brand-name products often involve more advertising and promotion.
These are tendencies, not rules. Some older brand-name drugs have modest prices, and certain generics can be surprisingly pricey, especially when few manufacturers make them.
How plans usually treat the difference
Health and prescription plans commonly sort drugs into tiers on a formulary, which is the plan’s list of covered medications. A typical pattern, though details vary:
- a lower tier for generics, with a smaller copay
- a middle tier for preferred brand names, with a larger copay or a percentage
- a higher tier for non-preferred brands or specialty drugs, with the highest cost to you
Plans design it this way partly to encourage lower-cost options when they are clinically suitable. Your plan’s cost-sharing may also include a deductible that applies to drugs before the copay structure kicks in. The general topic of prescription drugs and the difference between a copay and coinsurance are covered separately.
A hypothetical example
The following copays are invented to illustrate how tiers work, and are not typical of any plan.
- Generic tier: $10 per 30-day fill
- Preferred brand tier: $40 per 30-day fill
- Non-preferred brand tier: $80 per 30-day fill
If you take one medication monthly, a year is 12 fills. That would be $120 a year on the generic tier ($10 times 12), $480 on the preferred brand tier ($40 times 12), and $960 on the non-preferred tier ($80 times 12). The difference between the generic and the non-preferred brand in this example is $840 a year ($960 minus $120).
If your plan uses coinsurance instead, you would pay a percentage of the drug’s price, so a lower-priced generic would also lead to a smaller payment.
Situations where the answer is less simple
- Not always interchangeable. Some people do better on a particular formulation, and prescribers sometimes specify a brand for good reason. Do not switch on your own.
- Brand name preferred by the plan. Occasionally a plan’s negotiated arrangement makes a specific brand cheaper than expected.
- Cash price versus plan price. In some cases, a generic’s cash price at a pharmacy may be lower than your plan copay. A pharmacist can tell you, though paying cash may mean the amount does not count toward your deductible or out-of-pocket maximum.
- Restrictions. Plans may require prior authorization or step therapy, meaning you try a lower-cost alternative first before a more expensive drug is covered.
- Dispense as written. If a prescriber marks a brand as required, a pharmacy may not substitute a generic, and you may owe more.
Questions to ask
- Is there a generic or lower-cost alternative that is appropriate for me?
- What tier is this drug on in my plan, and what will I pay?
- Would a 90-day supply or mail-order option lower my cost? Some plans offer lower per-fill costs for longer supplies, but not all do.
- Does this drug need approval from the plan before it is covered?
- Is the cash price lower than my copay, and what happens to my deductible if I pay cash?
Your plan’s benefits summary and drug list usually show the tiers and costs, and member services can confirm them. If a drug is not covered, your prescriber may be able to suggest an alternative or request an exception.
Costs and outcomes vary. Asking about generics is a low-pressure conversation to have with your pharmacist or prescriber, and it is one of the more common ways people reduce what they spend on medications.