ABC News contributed to this investigation. A report will air tonight at 10 on "20/20."
The insurance companies responsible for their treatment under taxpayer-funded policies have routinely denied the most serious medical claims. Those insurers -- primarily American International Group (AIG) -- recorded hundreds of millions of dollars in profits on this business.
The civilian contractors have played an indispensable role in the two conflicts, delivering fuel to frontline troops, guarding U.S. diplomats and translating for soldiers during dangerous raids. More than 1,400 civilian workers have died and 31,000 have been wounded or injured in the two war zones.
Yet unlike wounded soldiers, who are offered healthcare, rehabilitation and support services by the military, the civilians have to battle a federally supervised insurance system marked by high costs and excessive delays, an investigation by the Los Angeles Times and ProPublica has found.
In contrast to the public outcry over squalid conditions at some military hospitals, the contractors' plight has drawn little attention.
"It's almost like we're this invisible, discardable military. Once we've done our jobs, they can actually sidetrack us and not worry about us anymore," said Tim Newman, a sheriff's deputy from South Carolina who lost his leg to a roadside bomb in Baghdad. Once back home, he fought an insurance company for a year to get a prosthetic leg that his doctors recommended.
"It's like we're disposable soldiers," said Newman, 44, who worked on a police training program in Iraq.
The insurance system for civilian contractors has generated profits for the providers, primarily AIG, the war zone's dominant player. Insurers collected more than $1.5 billion in premiums paid by U.S. taxpayers and have earned nearly $600 million in profit, according to congressional investigators.
A military audit deemed AIG's premiums "unreasonably high."
Insurance companies initially rejected 44% of claims from contractors involving serious injuries and more than half of all claims related to psychological stress, records show. As a result, civilians maimed or traumatized in the war zone often must wage lengthy court battles for medical care and benefits.
The high denial rate is partly due to government rules that give insurers only 14 days to decide the validity of a claim. Insurers often reject first and investigate later.
Those case-by-case investigations are usually resolved through mediation. When the two sides can't agree -- as has happened in more than 1,000 cases -- the dispute winds up in court. Workers win such appeals in 75% of cases, records show, but the process can last months or years.
Kevin Smith, 38, a truck driver from Abilene, Texas, was severely injured when his supply convoy was ambushed by insurgents outside Baghdad in 2004.
A round pierced his unarmored truck, shattering his left leg. He underwent a series of surgeries and a painful rehabilitation. Back home in Texas, he suffered nightmares and flashbacks. He awoke one night to hear the washing machine thumping and for a moment thought it was insurgent gunfire. A psychologist diagnosed him with post-traumatic stress disorder.
Months later, AIG -- the insurance carrier for Smith's employer, defense contractor KBR -- stopped paying the injured trucker's medical bills, saying his recovery was complete. In November 2007, AIG also stopped disability payments to Smith, although its own hired expert had agreed that he was partially disabled.
With medical bills piling up and a wife and baby to support, Smith went back to work driving a truck, though he said he was in pain and woozy from medication.
In December 2008 -- 4 1/2 years after he was injured in Iraq -- an administrative law judge for the U.S. Department of Labor ordered AIG to pay all Smith's medical bills and disability payments.
Judge C. Richard Avery ruled that the insurer had failed "to offer any medical evidence" supporting its position that Smith's PTSD was not caused by the convoy attack. Smith, the judge said, "has shown extraordinary effort in returning to work against the recommendations of his treating physicians and in spite of considerable physical pain."