Amid a severe shortage of affordable housing, Minnesota officials this week launched an innovative program that aims to help thousands of people who are poor or have disabilities to find their own homes and avoid living on the streets.

The program breaks ground in that it uses funds from Medicaid, the state-federal health insurance program for the poor, to pay for a wide range of housing-related services for people at risk of becoming homeless. It will help people search and apply for housing, negotiate leases and ultimately prevent evictions by identifying tenant problems before they become crises, among other services. State officials said they expect the benefits package — called Housing Stabilization Services — will help about 7,000 people on Medicaid find and retain housing within the program’s first three years.

The initiative took several years to prepare and reflects a shift in the way policymakers and state agencies are approaching the problem of homelessness. Health and housing programs historically served many of the same people, but they have been administered separately by a patchwork of nonprofits and government agencies with different funding sources. Yet a growing body of research shows a link between health and housing: that a person’s overall health improves once they find a stable place to live.

Other states are pursuing a similar model, but Minnesota is the first to receive federal approval to offer housing support services in its basic publicly funded Medicaid program.

“This is a huge breakthrough and could become a model for the rest of the country,” said Michelle Decker Gerrard, senior research manager at the Wilder Foundation, a St. Paul-based nonprofit that tracks the state’s homeless population. “It recognizes that housing is absolutely essential to a person’s health and well-being, and that many of the folks experiencing homelessness also have chronic health problems.”

The new benefit comes as state and local officials struggle to find practical solutions to the affordable housing crisis, which has become more visible during the coronavirus pandemic. On Monday, police cleared a sprawling homeless encampment at Minneapolis’ Powderhorn Park, which had swelled to several hundred people, citing increasing crime and health concerns. In Hennepin County alone, officials estimate there are about 80 homeless camps, most with just a few tents. The camps have grown in size and number, outreach workers say, because many homeless people fear catching the coronavirus in a shelter.

In response, Hennepin and Ramsey County officials launched an unprecedented effort to move hundreds of homeless people at risk for the coronavirus to hotels, but they are still struggling to bring social services to a hard-to-reach population of people sleeping outside who have mental illness and substance abuse issues. A Wilder Research study released last year found that 64% of homeless adults in Minnesota have a serious mental illness, and 24% have a substance use disorder. Nearly 60% have a chronic physical health condition, Wilder found.

“We know that housing is a powerful determinant of health,” said Erin Sullivan Sutton, director of housing and support services at the state Department of Human Services (DHS), which launched the new benefit on Monday. “You are more apt to be healthy if you have some stability in your life and a home.”

The process for creating the new benefits package was set in motion five years ago, when the federal Centers for Medicare and Medicaid Services issued a critical bulletin outlining how Medicaid could cover housing-related services.

Those who qualify for the new services would get help finding a place to live, making sure a home is safe and ready for move-in, as well as assistance negotiating with potential landlords. But unlike many short-term housing programs, the support does not end once a person moves into a home. The program also pays for a variety of tenant services, such as early identification of behavioral problems and tenant training designed to prevent evictions.

The new Medicaid benefit does not cover the cost of rent, but it would help cover tenant services that are provided by a patchwork of organizations across the state. Until now, these providers have had to cobble together funding through federal, state and local agencies, often combined with private grants, to pay for such services. Sometimes the services are interrupted or end when the money runs out, leaving tenants in the lurch, say nonprofit organizations.

“The fact that these benefits are part of the overall Medicaid package is really groundbreaking,” said Susan Haigh, former president of Twin Cities Habitat for Humanity who helped spearhead a state emergency fund for the homeless. “It helps stabilize the funding stream and will enable providers to broaden and sustain their array of services.”

Jill Wiedemann-West, chief executive of People Incorporated, a St. Paul-based nonprofit, said her organization has struggled for years to finance housing support services for the homeless with grants. The nonprofit has street outreach teams that help transition people to stable housing, as well as case managers who work with people over a longer period to help them avoid eviction. The program, known as Housing First, has provided support services to about 420 people since its launch in 2015.

But the outreach work can be demanding and time-intensive, Wiedemann-West noted. “You can’t just say, `Welcome to your house, here’s a set of sheets and some pots and pans and good luck to you,’ ” she said. “We have individuals suffering from trauma who have been living outside so long that they don’t have the basic skills necessary to manage day-to-day in a more closed, normal environment.”

On Thursday afternoon, a homeless outreach worker with People Incorporated, Tony Vang, lugged a bag of food, water, socks and other provisions deep into a wooded area on St. Paul’s East Side where a half-dozen Hmong men and women have been living in makeshift tents and lean-tos tucked near a large cottonwood tree. Vang, who is fluent in Hmong, has been coming to this hidden camp twice a week since the pandemic began to build trust with the small community of tent dwellers and to help them transition to housing.

Much of the work involves getting people signed up for health and other social services so they can succeed once they move into their own apartment, Vang sad. The effort is complicated by the fact that many people who are chronically homeless are suffering from trauma and mental health problems that make it difficult for them to trust outreach workers. Many have been on waiting lists for so long that they have given up looking for housing, Vang said.

“Building trust is very, very important and takes time,” Vang said after visiting with people living at the camp. “People who don’t want services often have lost trust in the system.”

Yet this initiative has never had a sustainable funding source and has been operating at a loss for years, Wiedemann-West said. With the new Medicaid benefit, the nonprofit is hoping that funding for such services will become more consistent. “The reality is, nothing good can happen if you’re not in a safe environment that supports recovery and healing,” she said. “And being homeless doesn’t support any of that.”

The Department of Human Services estimates the annual cost of the new housing stabilization benefit will be about $2.6 million.