The proposal, from the independent Social Security Advisory Committee, will be welcomed by ministers searching for significant cuts in the pounds 93bn Social Security budget.
One Whitehall source said the Government's development of the private Stakeholder's Pension would eventually make it much easier to "bolt on" other elements of private provision - like private health insurance, covering disability for those in work.
The bill for long-term sickness and disability is expected to reach pounds 23.5bn this year - one quarter of the Social Security budget. The burden rose by 60 per cent in the last five years, and there are now an estimated 2 million claimants.
That means there are now more disabled claimants than unemployed, but their benefits bill is more than three times as much as the pounds 7bn paid to those who are out of work.
Yesterday's report said: "We remain of the view that the private sector is not currently in a position to take on the wide range of risks which the State must cater for if there is to be a safety net for everyone...
"But there is a growing market in group permanent health insurance. By sharing the risks among all the employees of a company, the premiums are lower than for each individual."
The report concluded: "There is a growing climate of opinion that the State should not undertake functions which can be done better or more economically by the private sector...
"There is no certainty that a suitable package could be devised, but we believe that a greater involvement by employers and/or the insurance industry in provision for longer-term incapacity/disability is worth exploring."
The advisory committee report, which complained about the "gulf" in benefit provision between people with different incapacities, said there was an inbuilt disincentive for those who received long-term Incapacity Benefit or Severe Disablement Allowance to attempt to work.
Gordon Brown allocated an initial investment of pounds 200m for Harriet Harman, Secretary of State for Social Security, to explore ways of devising a welfare-to-work package for the disabled. But yesterday's report said: "A disabled person who has the drive and capacity to do some work risks losing entitlement to benefit, with no guarantee that it can be regained in the future if, having sought and found work, it does not endure or the disabling condition worsens permanently or temporarily.
"Unless forced to take work, or assured of a permanent, well-paid job, there is every incentive for a beneficiary to `sit tight'."
In a separate development, Ms Harman last night welcomed a Joseph Rowntree Foundation report on lone mothers, which said that training and qualifications gave the women a much improved chance of getting work and more money.
"Those with even the lowest level of school qualifications averaged 20 per cent more in hourly earnings than those without any qualifications," the report said.Reuse content