If this is, indeed, a psychological problem and not a physical condition (do have a doctor look at his leg if his discomfort doesn't seem to be going away) you might try giving him something that will "keep the bugs away". It doesn't actually have to be bug repellent; the two of you could get together and figure out what smells bugs hate and make him an "ointment" that he can put on his leg or his bed at night to make the bugs "run away". You might start with something fairly strong smelling but not unpleasant, maybe peppermint or wintergreen. Don't be afraid to let him try different scents, even unpleasant ones, and let him tell you which one(s) work best. Bear in mind that this isn't going to be a permanent thing, just long enough for him to get over whatever fear he is currently experiencing.
I've seen this technique be used successfully for night-time fears. One of my friends had a four year old who started having nightmares. He was terrified of going to bed because he was afraid that the monsters would get him. So she filled a spray bottle with peppermint and water, told him it was monster repellent, and let him spray his room before going to bed. It took a while and they had to experiment with different scents, but he eventually found one that "worked" and he slept more peacefully. Of course, that didn't completely prevent him from having nightmares, but every time he had one they changed the mixture and that seemed to satisfy him.
Somebody from our church shared with the congregation that her son was having terrible nightmares. His mother was about to call in someone to do an exorcism, she was convinced that demons were attacking her son. I gave him a small gun that lit up and made pew-pew-pew noises and told him that it was a monster killer and that he should sleep with it under his pillow. The next week at church she mentioned that he hadn't had any nightmares that week and she was convinced that her threat of calling in the troops had chased the demons away. I have no idea whether he actually had to use the pew-pew-pew (I showed him how to use it in silent mode, it lit up pretty spectacularly) but since I never caught her glaring at me I'm hoping that just having it under his pillow was enough to ward off the monsters.
Because so much of their lives are dependent on and controlled by adults, kids often feel helpless. There are so many things they are unable to do, or not allowed. Giving them a little bit of power or control can help them feel safer.