Agree that its a soul destroyer and reduces incentives. But some people are REALLY badly disabled. Like blind people who need much help. If social security was provided by the private sector like keeping special seats for them or enabling teleworking, they would still be discriminated relative to the able people unless government provided them or passed on certain laws. Its not their fault that they are disabled.
As far as social security payments, I doubt if they would be provided by the private sector at all. It may reduce incentives to seek prosperity, but its alright if it is kept to a minimum. This will give the unemployed a chance to look for a job and at the same time, will create incentive because of the low payment.