Image created using Adobe Firefly AI

*Author's note: To see the SQL and R coding behind the visualizations in this blog post please visit my GitHub account.

I have long played with the idea of writing about prescription drug pricing, but A) I never seemed to find a related story interesting enough to use as a lens into this incredibly complicated topic and B) did I mention that it's an incredibly complicated topic?

Well, it's finally happened: I've decided to stop waiting around for a compelling story to launch me into the world of prescription drug pricing and just dive in. No more excuses. After some initial research, I thought I'd structure my first blog post about this subject by looking at trends in drug costs for people on Medicaid. As I got further into my research, I realized there will be some important changes to Medicare as well.

There are a couple of reasons for choosing to focus on Medicare and Medicaid when it comes to drug pricing. For one thing, much of the U.S. population is enrolled in one form of health insurance or the other…or both simultaneously. So the discussion is relevant to a significant number of people. Also, last year's Budget Reconciliation Act of 2025, also known as the One Big Beautiful Bill Act (OBBBA) also calls for significant changes to how prescription drugs are handled.

Before we get started, here's a quick reminder on what Medicare and Medicaid are all about.

Although much of the analysis of this post will focus on Medicaid, let's start with Medicare. As is stated at Medicare.gov, "Medicare is health insurance for people 65 or older. You may be eligible to get Medicare earlier if you have a disability, End-Stage Renal Disease (ESRD), or ALS (also called Lou Gehrig’s disease)."

Confession time: although it's not true that Medicare is only for retired senior citizens, that's how I tend to remember the difference between the two types of insurance. For me, Medicare is for older people, and Medicaid is for adults of any age who are struggling financially. This is a vast oversimplification, but it's helpful in discussions like this.

The OBBBA makes several significant changes to Medicare, including putting in place a nine-year ban on implementing improvements to Medicare Savings Programs (MSPs) and halting the national minimum staffing requirements for nursing homes. And while the legislation makes adjustments to the 2022 Inflation Reduction Act (more on this Act in a bit), including limiting Medicare’s ability to control costs for expensive medications, its effects on prescription drugs stem mostly from constraining eligibility requirements.

There are different varieties of Medicare: Parts A, B, C, and D. Without going into too much depth, Parts A and B are considered original Medicare and are available to U.S. citizens over 65, even if they are still employed. Medicare Part A is considered "Hospital Insurance" and Part B is "Medical Insurance." Medicaid Part C is what I call "Medicare adjacent," meaning that, according to the Department of Health and Human Services website, "Medicare Advantage Plans, sometimes called 'Part C' or 'MA Plans,' are offered by private companies approved by Medicare."

I could spend a whole blog post on the nuances just within Medicare Part A, but to simplify it, "Hospital Insurance" can be broken down into a free tier (most people get this) and a premium tier. Avoiding paying a premium for Medicare Part A depends on if a person has exceeded a certain threshold either in their own earnings, or in those of a spouse, parent, or child.

This is determined by looking at a person's "quarters of coverage", or work credits, which are earned through payment of payroll taxes during their career. To say any more about Part A coverage eligibility is beyond the scope of this post, so let's move on to Medicare Part B.

Like I mentioned above, Medicare Part B is considered "Medical Insurance." It covers medically necessary and preventative services. For a more in-depth understanding of what those services entail, check out Medicare.gov, but suffice it to say that Part B covers things like ambulance services, some outpatient prescription drugs, mental health and substance use disorders, and durable medical equipment.

As an aside, there's an interesting overlap between the prior and current Administrations for Part B enrollees that you've probably heard about. The Inflation Reduction Act of 2022 (also known as the IRA) capped out-of-pocket costs for insulin for people on Medicare at $35. That policy has continued to the present day for people on Part B who are purchasing an insulin pump (durable medical equipment). That means that beneficiaries can purchase a month's supply of insulin for $35. This deal also holds true for those enrolled in a Medicare Advantage Plan.

That brings us nicely to Medicare Part C, also called "Medicare Advantage." Confusingly, Medicare Advantage combines elements of Parts A and B. As another helpful page at Medicare.gov points out: Medicare Advantage is "A type of Medicare-approved health plan from a private company that you can choose to cover most of your Part A and Part B benefits instead of Original Medicare. It usually also includes drug coverage (Part D)."

This leads us to the part of Medicare that will be most relevant to this blog post: Medicare Part D, a.k.a. prescription drug coverage.

As the AARP puts it, "The program allows private insurers that the federal government regulates to sell voluntary, stand-alone drug plans to participants in original Medicare and to incorporate this coverage into most Medicare Advantage plans."

So, this insurance plan helps people enrolled in Parts A and B (original Medicare) and Part C (Medicare Advantage) pay for a range of prescription drugs. In 2024, notes the AARP, the average Medicare beneficiary had "21 stand-alone Part D options and 36 Medicare Advantage drug plans to choose from." (This was according to KFF, a nonprofit health policy research group.) The web page goes on to say that "Each has different premiums, deductibles, copayments, preferred pharmacies and lists of covered drugs, but they all must meet federal requirements."

The IRA plays a role here, too, because aside from providing clean energy tax breaks and incentivizing people to buy electric cars, according to the U.S. Government Accountability Office, the act "requires Medicare to negotiate prices for certain high-cost drugs. It also requires manufacturers to pay Medicare a rebate if their prices for certain drugs rise faster than inflation."

I could write several blog posts about how saving money for seniors when it comes to purchasing prescription medication became a political football during the 2022 U.S. primaries and the 2024 presidential election, but suffice it to say that when the new Administration came in, they sought to put their own signature on helping seniors afford prescriptions.

Now that we've got a complete handle on Medicare (haha), let's turn to how prescription drugs work in Medicaid. I'm going to spend less time explaining the ins and outs of Medicaid (big sigh of relief, I know) and instead, dive into an analysis that will provide a baseline that will help us watch how prescription drug coverage for those on Medicaid will likely shift in the coming months.

Before we jump into the numbers, however, let's get a few basic facts out of the way. First, Medicaid is, according to Medicaid.gov, "the largest source of health coverage in the United States." It's important to note that Medicaid is a joint program between the federal government and the states. Together with the Children’s Health Insurance Program, or CHIP (more on that here, which links to other past blog posts on the topic), Medicaid provides health care coverage to over 77.9 million Americans.

Beneficiaries include "Low-income families, qualified pregnant women and children, and individuals receiving Supplemental Security Income (SSI)." There is a list of "mandatory eligibility groups" that details exactly who is covered. The Affordable Care Act, also known as Obamacare, allowed states to expand Medicaid to cover low-income Americans under age 65, and currently 40 states plus Washington, DC have expanded coverage.

As with Medicare, the OBBBA's impact on prescription drug affordability for those on Medicaid will largely be felt in its narrowing of eligibility criteria. According to the KFF website, the playing field is changing significantly:

"...the 2025 reconciliation law, signed by President Trump on July 4, 2025, is expected to result in significant Medicaid funding cuts and coverage losses. The loss of Medicaid coverage altogether could make it more difficult and costly for families to access the prescription drugs they need."

I won't get into previous attempts at controlling prescription drug pricing for people on Medicaid, including "Most-favored nation” drug pricing and new Medicaid drug pricing models meant to curb spending on medications, but suffice it to say that the federal government is putting a premium on reducing spending in this area.

As I indicated above and in a previous blog post, Medicaid is largely run by the states, with the federal government paying some of the bill; with the feds now contributing less, and with eligibility requirements becoming more stringent, it's likely that a smaller pool of individuals would benefit from lower prescription medication costs.

To examine the state of Medicaid prescription utilization in 2025, I looked at two massive, publicly-available federal data repositories managed by the Centers for Medicare & Medicaid Services (CMS). These are the State Medicaid and CHIP Applications, Eligibility Determinations, and Enrollment Data (which I'll call Medicaid and CHIP Enrollments) and State Drug Utilization Data 2025 (SDUD) datasets.

Both of these datasets deal with Medicaid (and not Medicare) beneficiaries, which is the focus of this blog post. Because of their different scales (the SDUD database has over 5.2 million rows!) and reporting intervals, it was a challenge to reconcile the numbers. The Medicaid and CHIP Enrollment database tracks overall program enrollment monthly, while the SDUD tracks an incredibly large and highly granular number of pharmaceutical transactions quarterly.

To combine this data from separate sources into a single, unified metric, i.e. the average number of prescriptions ordered per month by Medicaid beneficiaries in all 50 states, I followed these steps:

I began with the Medicaid and CHIP Enrollment data. This national repository tracks monthly enrollment counts across all 50 states. To establish a baseline, I filtered for the calendar year 2025 and restricted the dataset strictly to entries marked Final_Report = 'Y'. This ensured my analysis relied on officially audited government figures rather than preliminary counts. I then calculated the Average Monthly Enrollment for each state to serve as a stable population denominator.

Next, I turned to the SDUD, a much larger repository containing over 5.2 million rows of transaction data for 2025 alone. This dataset tracks every state-covered prescription filled by a pharmacy. To prevent data anomalies from skewing our counts, I filtered out privacy-masked records and aggregated the total volume of prescriptions filled across all reporting quarters for each state.

Because drug data is reported quarterly and enrollment data is tracked monthly, a direct comparison would be mathematically invalid. To resolve this "data resolution mismatch," I scaled the drug transactions down to a monthly pace (dividing the total prescriptions by the number of active months represented in the reporting quarters).

By dividing this monthly prescription volume by the average monthly enrollment count, I arrived at the target metric: Average Prescriptions Per Person Per Month.

With a 50-state landscape, presenting raw data can easily become overwhelming. To provide a clear benchmark, I conducted a joint statistical median analysis, ranking every state by both its overall program size and its prescription rate to find the ultimate "middle-of-the-pack" representative.

Through this objective ranking system, Nevada emerged as the nation's true statistical baseline, sitting almost perfectly at the mathematical median of the entire United States.

By synchronizing these two federal data streams for 2025, I established a clean, audited baseline of how frequently Medicaid beneficiaries rely on pharmacy benefits. This provides a snapshot for trends before the OBBBA takes full effect.

My analysis revealed several core insights:

This baseline ensures that as future finalized data is released, I can track how shifting state policies and federal eligibility adjustments impact real-world medication access against a pre-transition standard.

Here is a table of the five U.S. states with the highest average prescriptions ordered per Medicaid beneficiary per month, contrasted with the five states with the lowest average numbers of orders. The red line separates the top from the bottom states in this category.

Now let's look at the numbers for the entire country. Nevada weighs in as the most average state with .747 prescriptions ordered per Medicaid beneficiary per month, and the average ordering rate nationwide is .77 per beneficiary per month.