It’s time to pick up your prescription medications, and you want to save a little money. You’ve always used the same name-brand drugs, but you’re thinking about trying less-expensive ones. The question is — are generic drugs just pale imitations of superior name-brand medications? Name-brand medicines have to cost more for a reason, right? Well, not necessarily.

Are Generic and Name-Brand Drugs Truly Different?

For a generic drug to get approval from the U.S. Food and Drug Administration (FDA), they must meet some pretty exacting standards. Generally, they have to work the same as the name-brand medications.

When the FDA approves a generic medication, it ensures the drug has the same active ingredients, strength, and quality as the name-brand medication. Both must also have the same dosage, way of being taken, and levels of stability, effectiveness, and safety. So, when you get a generic drug, you get the same benefits provided by the brand-name drug. This allows many people to switch from one to the other easily.

“Generic medicines use the same active ingredients as the brand-name medicines and work the same way, so they have the same risks and benefits as the brand-name medicines.” — U.S. FDA

There are a few differences between brand-name and generic drugs, but they’re mostly minor ones. Specifically, the FDA allows these drugs to differ in their inactive ingredients (which have no therapeutic effect). Inactive ingredients can slightly affect absorption rate (though the FDA requires the difference to be minimal), and change a drug’s look, including its size, color, shape, and packaging. Importantly, it also allows them to differ in cost, which can make prescription drugs more affordable for those on a budget.

Why Are Generic Drugs Cheaper?

Since generics are the same as name-brands in every way that seems to matter, how are they so much (80 to 85 percent on average) cheaper? This has less to do with why they’re so cheap and more about why name-brands are so expensive.

Unlike generic drug manufacturers, name-brand companies pay for developing and testing the medication, which can cost more than $2.5 billion.

Unlike generic drug manufacturers, name-brand companies pay for developing and testing the medication, which can cost more than $2.5 billion. To make up for this cost, name-brand companies charge more. The FDA also grants name-brand companies a patent protection exclusivity for seven years. Once this period is up, the FDA allows one generic to enter the market, which is usually less expensive than the brand-name drug. After six months, other companies can jump in. The resulting competition then lowers the drug price further.

What Does That Mean for the Medicare Program?

Since generic drugs are less expensive, they’re often favored by insurance plans offering prescription drug coverage. These plans usually put generics in lower tiers than their name-brand counterparts in a plan’s formulary, which means they cost less.

Using less expensive drugs can also help you avoid the coverage gap (or “donut hole”) in Medicare drug insurance plans. In the gap, Medicare insurance covers 75 percent of generic drug costs; you pay the 25 percent that’s left, ever since 2020 when the donut hole was declared “closed.”

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In 2016, generic medications saved people $253 billion around the country! Using them can be a great way to save money on prescription meds you may need. Before switching your medications, though, it’s always a good idea to talk to your doctor. This way, you can understand the full scope of what you need and what you’re getting. They’ll also know if there are inactive ingredients in different drugs that you may be allergic to.

If you’re eligible for the Medicare program, you have another way you may be able to save on out-of-pocket costs for prescription medications. A Medicare Part D or Medicare Advantage Prescription Drug plan may help cover the cost of your medications. Try the Shop & Enroll Plan Finder to see what plans are available near you and connect with a licensed insurance sales agent who can guide you through the process.

Further Reading

Scientific American — What’s the difference between brand-name and generic prescription drugs?