The Trump administration can expand the sale of short-term health insurance policies that don’t meet the standards of the Affordable Care Act, a federal judge ruled, advancing the government’s efforts to undo Obamacare.

U.S. District Judge Richard Leon in Washington rejected challengers’ claims that policies sold under a government regulation that took effect in October 2018 unlawfully undermine the ACA.

“Not only is any potential negative impact” from the rule “minimal, but its benefits are undeniable,” Leon wrote in a 40-page ruling on July 19. He said there’s no evidence the rule “is having or will have the type of...