A new Medicaid payment model will change what states pay for brand-name prescription drugs, but it will not change what most enrollees pay at the pharmacy counter. On Sept. 18, 2026, the Centers for Medicare & Medicaid Services announced that all 50 states, plus Washington, D.C. and Puerto Rico, applied to join the program. 40 states and Puerto Rico have already signed agreements.

The model is called GENEROUS, short for GENErating cost Reductions fOr U.S. Medicaid. In short, it ties what Medicaid pays for certain drugs to the lower prices charged in other wealthy countries. Meanwhile, the administration projects $64.3 billion in savings over 10 years.

However, the savings flow to state and federal budgets rather than to patients. Federal law already caps what Medicaid enrollees pay for prescriptions at a few dollars. So if you have Medicaid, the more important changes to watch are coming from a different law entirely.

What is the difference between Medicaid and Medicare?

The two programs sound alike. However, they serve different people and work differently.

Medicare is a federal program for people 65 and older, along with some younger people with disabilities. Eligibility does not depend on income. Medicaid, by comparison, is a joint federal and state program for people with low incomes. Each state runs its own version within federal rules. As a result, benefits and eligibility vary from state to state.

Some people qualify for both. For example, according to the 2026 Medicaid and CHIP Beneficiary Profile, 11.8% of Medicaid beneficiaries, or 8.7 million people, were dually eligible and received full Medicaid benefits as of June 2024. For them, Medicaid often picks up costs that Medicare leaves behind.

Who is eligible for Medicaid in the USA?

Eligibility depends heavily on where you live.

Under the Affordable Care Act, states can extend Medicaid to nearly all adults with incomes up to 138% of the federal poverty level. That threshold was $21,597 for an individual in 2025, according to KFF. 41 states, including D.C., have adopted that expansion.

10 states have not, and that gap falls hardest on Black Americans. KFF analysis found that uninsured Black people under 65 were more likely than their white counterparts to fall into the Medicaid coverage gap. The reason is geographic. Most non-expansion states are in the South, where a higher share of the Black population lives.

Farooq Zafar, MBA, MPH, an independent health policy analyst, said the eligibility changes ahead matter more than the pricing model, and that the gap is sharper in those 10 states. “Many low-income Black adults there have no Medicaid pathway at all, and the ones who do qualify are disproportionately exposed to the new work-requirement and six-month renewal churn,” he said. “A pricing model that never touches an enrollee’s copay cannot offset losing coverage to a missed renewal or an unmet work-reporting requirement.”

Beyond income, Medicaid also covers several specific groups in every state. Those include children, pregnant people, older adults with low incomes and people with qualifying disabilities.

Eligibility rules are about to change

The 2025 federal reconciliation law, signed on July 4, 2025, adds new conditions for expanding eligibility for adults. Starting Jan. 1, 2027, adults ages 19 to 64 in the expansion group must document 80 hours a month of work, school, job training or community service, or qualify for an exemption. In addition, the law moves eligibility renewals for this group from once a year to every six months.

Exemptions include pregnant people, people with disabilities and caregivers of young children. Still, KFF reports that the Congressional Budget Office expects work requirements to cause the largest increase in the number of uninsured people of any Medicaid provision in the law.

How does Medicaid payment work?

The federal government and states split Medicaid costs. Overall, Medicaid spending totaled $919 billion in the federal fiscal year 2024. Washington paid about 65%, and states covered 35%, according to KFF.

The federal share varies, however. Poorer states receive a higher match. Furthermore, the federal government pays 90% of the costs for adults covered through the ACA expansion.

Before the new Medicaid payment model, prescription drugs already ran through a separate system called the Medicaid Drug Rebate Program. Drugmakers that want their products covered must pay rebates back to states. Those rebates are large. In fact, KFF found they reduced gross Medicaid drug spending by 53% on average from fiscal 2019 through 2024.

Many states also negotiate additional rebates on their own. Typically, they do so in exchange for placing a drug on their preferred list.

What the new Medicaid payment model adds

GENEROUS layers an international benchmark on top of that system. Specifically, participating manufacturers pay extra rebates so that Medicaid’s net price for a brand-name drug matches what certain other countries pay.

According to a KFF brief, that benchmark draws on eight countries: the United Kingdom, France, Germany, Italy, Canada, Japan, Denmark and Switzerland. CMS then uses the second-lowest net price among them, adjusted for differences in national income.

The model is voluntary for both states and manufacturers. It launched in January 2026 and runs for five years. Notably, it covers brand-name drugs, not generics. HHS Secretary Robert F. Kennedy Jr. framed the goal plainly: “Americans should pay the same low prices for prescription drugs that other countries pay.”

What prescriptions cost with Medicaid

The Medicaid payment model does not change this part. For most enrollees, prescriptions already cost little or nothing. Federal rules cap copays for people with incomes up to the poverty line at $4 for preferred drugs. Non-preferred drugs max out at $8, according to KFF. Those limits rise slightly each year with medical inflation.

In fact, many states charge nothing. As of January 2026, only 19 of the 41 expansion states charged expansion adults cost-sharing on any service. Additionally, total out-of-pocket costs for a Medicaid household are capped at 5% of household income.

That is why this Medicaid payment model will not move your copay. KFF states directly that GENEROUS and similar models do not affect enrollee out-of-pocket costs. Federal law already limits those to nominal amounts.

What about without coverage?

By contrast, uninsured patients pay far more. Research cited by KFF found that U.S. drug prices overall were 2.78 times higher than international prices across 33 wealthy countries. For brand-name drugs, U.S. prices were 4.22 times higher.

Coverage gaps are not evenly distributed, either. KFF found that 10.1% of Black people under 65 were uninsured, compared with 6.8% of white people.

Dr. Diana Rangaves, PharmD, warns Blavity Health, “There is a lot of Medicare misinformation out there. Start early, well before your 65th birthday, and do your research. Otherwise, it may cost you more money. You don’t need to become a Medicare expert overnight, but it helps to know where to go for accurate and up-to-date information. One of the best resources is the official Medicare website, Medicare.gov, where you can compare Part D and Medicare Advantage plans and review cost estimates. The website also has a lot of resources on official Medicare coverage information, so you can learn straight from the source.”

She adds, “Another common source of confusion is how drug pricing works. You might hear someone say a drug used to cost $5 and now it’s $100. They blame Medicare when it may actually be due to changes in the plan’s formulary. In addition to the drug’s tier, or the pharmacy network. What worked for someone else’s plan last year may not apply to yours today.”

Factors that affect cost

For enrollees, cost depends on four things:

  • Your state: Each state decides whether to charge copays at all, up to the federal limits.
  • Your income: People with incomes above the poverty line may face slightly higher cost-sharing for certain services.
  • Your drug’s status: Preferred drugs carry lower copays than non-preferred drugs.
  • Your eligibility group: Some groups are exempt from cost sharing entirely.

For states and taxpayers, however, the new model’s savings depend on different factors. KFF notes that the impact will vary depending on which manufacturers and states participate and which drugs are included. It will also depend on how large each drug’s existing rebate already is.

That last factor matters a lot. For instance, KFF found that the blood thinner Eliquis carried an estimated Medicaid rebate of 100% in 2019, meaning states were likely paying little to nothing for it. By comparison, the HIV treatment Biktarvy carried an estimated rebate of 24%. Newer drugs with few competitors offer the most room for savings.

Insurance coverage details

First, certain care must be free. According to Medicaid.gov, states cannot charge out-of-pocket costs for emergency services, family planning, pregnancy-related services or preventive services for children. Children, people who are terminally ill and people living in institutions are also exempt.

Two parts of the new model also deserve attention. Drugmakers that joined received a three-year reprieve from tariffs as part of their pricing agreements, KFF reports. In addition, CMS and manufacturers will negotiate uniform coverage rules, including prior authorization and step therapy. KFF notes that those rules could end up broader or more restrictive than what states use today. So far, details have not been released.

Separately, the 2025 reconciliation law changes cost-sharing starting Oct. 1, 2028. At that point, states must charge expansion adults with incomes between 100% and 138% of the poverty line up to $35 per service. However, primary care, mental health and substance use treatment are exempt, and prescription drug limits stay the same.

If your doctor determines that a preferred drug would not work as well for you, or would cause side effects, federal rules require your state to charge the lower preferred-drug copay for the non-preferred drug you actually need. Ask your prescriber to document that decision, since the paperwork is what triggers the lower price.

How to save money

A few steps can protect both your coverage and your wallet.

  • Keep your contact information current: With renewals moving to every six months for expansion adults, missing a notice can end coverage even if you still qualify.
  • Know your exemptions: If you are pregnant, have a disability or care for a young child, you may be exempt from work requirements. Document it early.
  • Ask about preferred drugs: A preferred alternative may cost less, and if it will not work for you, request the exception above.
  • Track your household spending: Total out-of-pocket costs cannot exceed 5% of household income.
  • Use free services: Emergency care, family planning, pregnancy care and children’s preventive care carry no cost sharing.

Finally, if you manage a chronic condition such as high blood pressure, staying continuously enrolled matters more than any single copay. Gaps in coverage are where costs climb fastest.

Bottom line

The GENEROUS Medicaid payment model aims to reduce what governments pay for brand-name drugs by tying prices to those in other wealthy countries, though independent analysts say the real savings remain uncertain. It will not lower what enrollees pay at the pharmacy, since federal law already caps Medicaid copays at a few dollars. For most enrollees, the more consequential changes are the work requirements and the six-month renewals, which arrive in 2027.

Frequently Asked Questions

Does Medicaid pay 100% of anything?

Yes, Medicaid enrollees pay nothing out of pocket for emergency services, family planning, pregnancy-related care and preventive care for children.

How many US citizens are covered by Medicaid?

About 73.5 million people were enrolled in Medicaid and CHIP as of May 2026, according to CMS, including 66.4 million in Medicaid alone.

Citations

Centers for Medicare & Medicaid Services. CMS announces participants in landmark Medicaid drug payment model to bring down drug costs for most vulnerable Americans. Published September 18, 2026. https://www.cms.gov/newsroom/press-releases/cms-announces-participants-landmark-medicaid-drug-payment-model-bring-down-drug-costs-most

Centers for Medicare & Medicaid Services. GENEROUS (GENErating cost Reductions fOr U.S. Medicaid) Model. Updated September 18, 2026. https://www.cms.gov/priorities/innovation/innovation-models/generous

Williams E, Rudowitz R, Euhus R. A look at the GENEROUS model and factors that could impact Medicaid drug costs. KFF. Published May 8, 2026. https://www.kff.org/medicaid/a-look-at-the-generous-model-and-factors-that-could-impact-medicaid-drug-costs/

Mudumala A, Tolbert J. Understanding Medicaid cost sharing and policy changes from the 2025 reconciliation law. KFF. Published May 21, 2026. https://www.kff.org/medicaid/understanding-medicaid-cost-sharing-and-policy-changes-from-the-2025-reconciliation-law/

KFF. Tracking implementation of the 2025 reconciliation law: Medicaid work requirements. https://www.kff.org/medicaid/medicaid-work-requirements-tracker-overview/

KFF. Medicaid financing: the basics. Published April 21, 2026. https://www.kff.org/medicaid/medicaid-financing-the-basics/

KFF. Health coverage by race and ethnicity, 2010-2024. Published May 4, 2026. https://www.kff.org/racial-equity-and-health-policy/health-coverage-by-race-and-ethnicity/

Centers for Medicare & Medicaid Services. May 2026 Medicaid and CHIP enrollment data highlights. https://www.medicaid.gov/medicaid/program-information/medicaid-and-chip-enrollment-data/report-highlights

Centers for Medicare & Medicaid Services. 2026 Medicaid and CHIP beneficiary profile. Released January 2026. https://www.medicaid.gov/medicaid/quality-of-care/downloads/beneficiary-profile-2026.pdf

Centers for Medicare & Medicaid Services. Cost sharing out of pocket costs. Medicaid.gov. https://www.medicaid.gov/medicaid/cost-sharing/cost-sharing-out-pocket-costs

Zafar F, MBA, MPH. Independent health policy analyst. Written interview with Blavity Health. September 2026. https://www.linkedin.com/in/sfali789/