The Trump administration announced late Thursday that it has concluded it can no longer legally make critical Obamacare “cost-sharing” payments and will cut them off, dealing another blow to the struggling 2010 health law.

The payments had specifically been denied by Congress but President Obama had made them anyway, drawing a rebuke from a court who said he was overstepping his powers. The case has raged for months, and both the Obama and Trump administrations had continued making payments — until now.

White House press secretary Sarah Huckabee Sanders, in a statement, said the Justice Department has concluded the judge’s ruling is correct, and there is no valid legal ability to make the payments.

“The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system,” Mrs. Sanders said. “Congress needs to repeal and replace the disastrous Obamacare law and provide real relief to the American people.”

The White House statement doesn’t explicitly say Mr. Trump won’t make the payments anymore, but a Justice Department statement said the agencies responsible for them “have decided not to spend money to fund those payments.”

The cost-sharing payments go to insurance companies to pay for reimbursements for low-income customers’ out-of-pocket costs.

Without the payments, insurers have said they would jack up premiums, which would further upend the already shaky economic underpinning the Affordable Care Act.

The move comes just hours after Mr. Trump signed an executive order pushing his administration to allow association health plans, which would allow individuals and small businesses to join up and purchase insurance on the group market across state lines.

Association plans are a boon for those struggling with high-cost plans, though analysts say it could sap those customers — and their high premiums — from existing markets, leaving the sick and elderly to pay more because their costs are no longer subsidized by the healthy.

Combined, the association health plans and the renunciation of cost-sharing payments amount to Mr. Trump ripping the band-aid off Obamacare, forcing Congress to confront the program with all the warts it’s sprouted over the years.

Mr. Obama had managed to patch over many of those using executive actions, and the cost-sharing payments were one part of that. Though envisioned by the original Obamacare law, the payments were left up to the annual appropriations process.

The president asked for the money but Congress zeroed it out. Mr. Obama made the payments anyway, drawing a lawsuit from the GOP-controlled House.

A GOP-appointed federal judge in Washington, D.C., ruled against Mr. Obama, and the case now sits with an appeals court — though the lower-court judge allowed the payments to be made while the appeal is ongoing.

The payments cost about $7 billion a year, according to the latest accounting.

Mr. Trump’s decision Thursday means he’s accepting the original judge’s legal finding. It’s similar to the move he made last month on DACA, the Obama-era deportation amnesty, where the administration concluded it would likely be unable to defend the program in court, so it instead announced a phaseout.

“This administration is committed to the rule of law, and a fundamental premise is that Congress holds the power of the purse. We will not usurp its authority,” said Justice Department spokeswoman Sarah Isgur Flores.

Democrats said the president will take the blame for rising health care premiums in the wake of his moves Thursday.

“It is a spiteful act of vast, pointless sabotage leveled at working families and the middle class in every corner of America,” said House Minority Leader Nancy Pelosi and Senate Minority Leader Charles E. Schumer.

The White House said exposing Obamacare’s flaws should put pressure on Congress to come up with a better system.

House Republicans have passed a repeal-and-replace bill through their chamber, but Senate Republicans have struggled to find a consensus on their own bill. Senate Majority Leader Mitch McConnell has tried three separate versions, twice having to pull back and once facing an embarrassing floor defeat.

• Andrea Noble contributed to this article.

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