Key Takeaways

• Even though generic drugs are intended to be more affordable, some Medicare plans still charge high out-of-pocket costs depending on formulary placement and plan design.

• The way your Medicare Part D or Medicare Advantage plan categorizes generic medications significantly affects your costs, especially after you enter different drug coverage phases.

Generic Drugs Aren’t Always Low-Cost—And Here’s the Reason

Generic medications are supposed to be the budget-friendly option. In 2025, they remain a key tool for keeping prescription drug spending down across Medicare. But surprisingly, many beneficiaries still encounter high costs—even for widely available generics. If you’ve ever wondered why your generic drug still costs too much, the answer often lies in the details of your Medicare plan.

Let’s unpack how pricing works and what steps you can take to better manage your drug expenses under Medicare.

What Counts as a Generic Drug Under Medicare?

Generic drugs have the same active ingredients and work the same way in the body as their brand-name counterparts. Medicare recognizes them as safe, effective alternatives. They’re typically approved by the FDA after brand-name drug patents expire.

Despite being much cheaper to produce, generics can still carry significant out-of-pocket costs for you if your plan design or pharmacy choice doesn’t favor them.

Four Factors That Raise Generic Drug Costs on Medicare Plans

1. Tier Placement in Your Plan’s Formulary

Every Medicare Part D and Medicare Advantage drug plan has a formulary—a list of covered drugs. These drugs are divided into tiers. Most plans use 5 or more tiers, where lower tiers mean lower costs.

• Tier 1: Preferred generics

• Tier 2: Non-preferred generics

• Tier 3 and beyond: Brand-name or specialty medications

If your generic drug is on Tier 2 instead of Tier 1, you’ll pay more. Worse, some generics may be placed on higher tiers due to plan-negotiated pricing or limited availability.

2. Coverage Phase You’re In

In 2025, Medicare drug plans still operate under a phased model:

• Deductible phase: You pay 100% until the deductible is met (maximum $590 in 2025).

• Initial coverage phase: You pay a portion of the cost (copayment or coinsurance).

• Catastrophic coverage phase: You pay nothing after reaching the $2,000 out-of-pocket cap.

Even low-cost generics can be expensive if you’re still in the deductible phase. Once you pass that, costs typically drop—unless the drug is in a higher tier.

3. Preferred vs. Non-Preferred Pharmacies

Your plan likely has a pharmacy network, including preferred and standard pharmacies. Prices for the exact same drug can vary drastically between them.

• Preferred pharmacies often offer lower copayments for generics.

• Non-preferred pharmacies may not pass on negotiated savings.

If you fill a prescription at a non-preferred location, you may pay more—even for a Tier 1 generic.

4. Step Therapy and Prior Authorization

Some Medicare drug plans use cost-control tools like:

• Step therapy: You must try cheaper drugs before the plan pays for others.

• Prior authorization: Your doctor must get approval before certain drugs are covered.

These rules can delay access to a generic or require you to pay full price upfront if conditions aren’t met.

How the $2,000 Out-of-Pocket Cap Affects Generic Costs in 2025

A major update in 2025 is the $2,000 cap on out-of-pocket spending for Part D prescription drugs. Once your total spending on covered drugs reaches this threshold, you pay nothing for the rest of the year.

While this helps with high-cost drugs, it can also provide relief for those who take multiple generics—especially if those generics are in higher tiers or come with significant copays.

However, the $2,000 cap only applies after you’ve already paid it. Until then, you could still see high costs, especially early in the year.

Why Generic Prices Vary by Plan

Each Medicare plan negotiates its own prices with pharmacies and drug manufacturers. This creates wide differences in costs—even for identical drugs.

Factors include:

• Plan’s preferred formulary pricing agreements

• Pharmacy benefit manager (PBM) contracts

• Cost-sharing rules and coinsurance percentages

• Tier definitions and utilization controls

Two plans in the same ZIP code may have completely different prices for the same generic. This is why comparing plan documents in detail is essential.

Watch Out for These Common Misunderstandings

• “All generics are cheap”: Not true. Tier placement and pharmacy choice heavily influence cost.

• “If it’s a generic, prior authorization won’t apply”: In some cases, even generics require plan approval.

• “Switching pharmacies won’t matter”: It can. Prices may drop significantly at preferred pharmacies.

What You Can Do to Lower Generic Drug Costs

Check the Plan Formulary Annually

Each year during Medicare Open Enrollment (October 15 to December 7), review your plan’s formulary. Generic tier placement may have changed from the previous year.

Compare Costs at Different Pharmacies

Use your plan’s website or customer service to compare drug costs at nearby preferred pharmacies. Some plans even offer mail-order discounts.

Ask Your Doctor About Therapeutic Alternatives

Sometimes a similar generic drug is in a lower tier. Your provider can help switch you to an equally effective option that costs less.

Use Medicare’s Plan Finder Tool

Medicare.gov offers a searchable Plan Finder. You can enter your prescriptions and see what plans offer the best pricing for your medications—including generics.

Track Your Progress Toward the $2,000 Cap

If you take multiple drugs, track your spending throughout the year. Once you hit the out-of-pocket maximum, your costs will drop to $0 for covered medications.

Why Mail-Order Pharmacies May Help

Mail-order options can be cost-effective if they’re within your plan’s preferred network. You may also receive a 90-day supply instead of 30, potentially reducing your overall spending.

However, not all drugs are eligible for mail order, and not all plans support this option for every medication. Confirm the mail-order benefits through your plan.

What to Expect in the Coming Years

In 2025, Medicare is implementing reforms that may stabilize generic pricing, including increased transparency requirements for pharmacy benefit managers and expanded negotiations for brand-name and biosimilar drugs.

While these changes primarily target high-cost drugs, the ripple effect could help bring more consistency to generic pricing as well. But until then, plan comparison and smart choices remain your best defense.

The Bottom Line on Why Generics Still Cost Too Much

Even with Medicare’s structured design and cost-saving initiatives, generic drugs can still come with unexpectedly high costs. Factors like formulary tier, coverage phase, and pharmacy choice all play a role.

Staying informed about your plan and reassessing it during each year’s Open Enrollment can lead to better savings—even on drugs that should be inexpensive. If you feel like you’re overpaying, you’re not alone—and it may be time to switch plans or change pharmacies.

Still Paying Too Much? Here’s What to Do Next

If your generic medications feel more expensive than they should be, it may be time to take action:

• Review your current plan’s drug formulary

• Compare costs across pharmacies

• Consider other Medicare drug plans during Open Enrollment

For personalized help, get in touch with a licensed agent listed on this website who can walk you through your options and ensure you’re not overpaying for generics—or anything else in your coverage.