Obstructive sleep apnea is an under-diagnosed, but common disorder with serious adverse consequences. Cost data from the year prior to the diagnosis of sleep-disordered breathing in a consecutive series of 238 cases were used to estimate the potential medical cost of undiagnosed sleep apnea and to determine the relationship between the severity of sleep-disordered breathing and the magnitude of medical costs. Among cases, mean annual medical cost prior to diagnosis was $2720 versus $1384 for age and gender matched controls (p<0.01). Regression analysis showed that the reciprocal of the apnea hypopnea index among cases was significantly related to log-transformed annual medical costs after adjusting for age, gender, and body mass index (p<0.05). We conclude that patients with undiagnosed sleep apnea had considerably higher medical costs than age and sex matched individuals and that the severity of sleep-disordered breathing was associated with the magnitude of medical costs. Using available data on the prevalence of undiagnosed moderate to severe sleep apnea in middle-aged adults, we estimate that untreated sleep apnea may cause $3.4 billion in additional medical costs in the U.S. Whether medical cost savings occur with treatment of sleep apnea remains to be determined.