Judge Rosemary Collyer's ruling, which she immediately stayed pending an expected appeal by the administration, came in response to a lawsuit filed by the Republican-controlled House of Representatives against the administration for spending that money without congressional authorization.
At stake is more than $150 billion expected to be paid to insurers over the next decade.
If Collyer's ruling in House v. Burwell is ultimately upheld by a higher court, it would mean that many customers of Obamacare exchanges would continue receiving subsidies from insurers to lower their out-of-pocket health costs — but leave the insurers without any reimbursement from the federal government.
That, in turn, could lead some insurers to either exit the Obamacare marketplaces, or to raise their premium prices significantly to compensate for their loss of expected money.
"This ruling could eventually increase health-care costs for as many as 7 million people with low and moderate incomes," tweeted Sara Collins, vice president for health-care coverage and access at the Commonwealth Fund.
"Ultimately, this could destabilize the marketplace resulting in higher premiums for everyone," Collins wrote.
More than half of the nearly 13 million customers on Obamacare exchanges currently receive the so-called cost-sharing reduction assistance as part of their health plans.
The assistance with copayments, deductibles and coinsurance charges is available to those customers whose household incomes are between 100 and 250 percent of the federal poverty level. Some of those customers would likely not sign up for Obamacare plans if they did not have cost-sharing assistance, which can greatly reduce their out-of-pocket co-medical costs, and, in some cases, eliminate them altogether.