Background: Chronic insomnia is a growing health problem with significant consequences for both the individual and the health care system. This study compared health care costs and utilization for patients diagnosed with insomnia with a set of matched controls. Methods: This is a retrospective cohort study using data from a large Midwestern health plan to compare a cohort of 7,647 adults with an insomnia diagnosis during the years 2003 to 2006 with an equal-sized matched cohort of health plan members without an insomnia diagnosis. The study also compared a subset of patients diagnosed and treated for insomnia to a group diagnosed and not treated for insomnia. Results: A multivariate analysis was used to estimate the association between study cohort and costs in a baseline and follow-up period controlling for covariates. The analysis found that the average cost for the insomnia cohort during the 6-month baseline period was $5,484, 39% higher than the control cohort average of $3,937. In the 12 months after diagnosis, the insomnia cohort had 86% higher costs, on average, than the matched control cohort. The subset of patients diagnosed and treated for insomnia also had higher costs in the baseline and follow-up periods, and a greater increase in cost from the baseline to the follow-up period, than the untreated subset. Conclusions: The insomnia cohort had a greater increase in costs from baseline to follow up than the control cohort, as did the pharmacologically treated subset compared with an untreated subset. Although we cannot conclude a causal relationship between insomnia and health care costs, these outcomes suggest the need to look beyond the direct cost of insomnia to its interaction with co-morbid conditions and the risks and benefits of insomnia treatment.