This scheme is legal based on a custom of quantity price discount. The insurance company negotiates a price schedule with healthcare provider and if you buy their policy, you will get the discount. It is analogous to purchasing from a retailer where the price is the same for all customers vs. buying a large quantity from the distributor and paying much less per unit.

This mechanism may be a foundation of legality of health industry pricing practices, but it is grossly abused. Contrary to what is advertised, U.S. health care is not a free market. The pricing is made opaque by insurance industry and other middle man. This is the main reason why price gauging of that magnitude is possible. It is a cash cow that just keeps on giving and trying to change that will be extremely difficult.