WASHINGTON - A poorly run Pentagon program for providing workman's compensation for civilian employees in Iraq and Afghanistan has allowed defense contractors and insurance companies to gouge American taxpayers, a House committee said Thursday.

Insurance companies alone have collected nearly $600 million in excessive profits over the past five years, says a Democratic staff report from the House Oversight and Government Reform Committee, but the Defense Department refuses to adjust its approach for managing the program.

According to the committee, the Pentagon allows its contractors to negotiate their own insurance contracts. By contrast, the State Department, U.S. Agency for International Development and Army Corps of Engineers have all selected a single insurance carrier to provide the insurance at fixed rates.

"What makes the situation even worse is the people this program is supposed to benefit -- the injured employees working for contractors -- have to fight the insurance companies to get their benefits," committee Chairman Henry Waxman, D-Calif., said at a hearing Thursday. "Delays and denials in paying claims are the rule."

KBR Inc., one of the largest defense contractors in Iraq, paid the insurance giant AIG $284 million for medical and disability coverage under the Defense Base Act, a reference to the federal law mandating the insurance. Because of the way KBR's contract is structured, this premium, along with an $8 million markup for KBR, gets billed to the taxpayer.

"Out of this amount, just $73 million actually goes to injured contractors, and AIG and KBR pocket over $100 million as profit," Waxman said.

In an e-mailed statement, AIG spokesman Chris Winans said the company is reviewing the staff report. But AIG is confident its coverage is accurately and fairly priced, Winans said, given the high risks to workers in war zones and the potential for sizable claims.

All contractors doing work overseas for U.S. government agencies are required to insure their civilian employees, many of whom are handling dangerous jobs in hostile areas. Contractors get the coverage from private insurance companies; then they're reimbursed for what they spend. The insurance costs are included in the contract's overall price.

Waxman asked John Needham of the Government Accountability Office if U.S. taxpayers were getting the most for their money.

"It's not apparent they are," Needham answered. He added that the Defense Department has been unable to collect data on how much is spent on insurance for defense contracts.

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