The purpose of the rule is to ensure that the wrongful party pays the full cost of the harm caused, so that future harmful conduct is thereby deterred or, at least, fully included in the defendant's cost of doing business.
For example, in a personal injury action, evidence that the plaintiff's medical bills were paid by medical insurance, or by workers' compensation, is not generally admissible and the plaintiff can recover the amount of those bills from the defendant.
The collateral source doctrine has come under attack by tort reform advocates.
[2] As a result some states have altered or partially abrogated the rule by statute.
[3] Proponents of the rule note that without it, the wrongdoer [tortfeasor] gets the benefit of the injured party carrying insurance or obtaining minimal benefits through government programs and obtains a form of subsidy where the wrongdoer does not pay the full cost of their wrongful conduct but instead transfers some of that cost [insurance premiums] to the victims causing insurance rates to be higher.