swa/bsc business case

SWA/BSC Business Case July 12, 2021

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©Businessolver.com, Inc. 2021. All rights reserved.

EXECUTIVE SUMMARY Southwest Airlines (referred to as SWA) seeks to analyze the market and service delivery models for third-party benefits administration service providers in support of their US benefits-eligible Employees, including the alternative solution to bundle a benefits enrollment module within a future Human Capital Management (HCM platform, Workday). The goal is to offer best-in-class services and to partner with an organization that will work in a collaborative, cost-effective, solution-oriented, and responsive way throughout the relationship. At its core, this initiative serves to enhance SWA’s competitive positioning and benefits administration service delivery by:

1. Ensuring Regulatory and Legislative Compliance: o Under the Affordable Care Act (ACA), SWA requires a highly-defensible benefit

offering and strategy. o Ongoing, SWA must support hundreds of new local, municipal, State and Federal

regulations each year. 2. Driving Down Healthcare Costs:

o By implementing a benefits administration outsourcing platform/partner, thus, moving away from a transactional orientation, SWA’s benefits staff can shift their focus to more strategic and cost-effective plan designs and other initiatives.

o Through cost shifting and enhanced personal Employee ownership, ongoing annualized budget increases may be neutralized.

3. Reducing IT and HR Complexity: o Retaining the establishment and maintenance of carrier data fee ds with a third-

party provider will avoid placing an unnecessary burden on SWA’s limited IT staff.

o SWA can leverage existing resources for material enhancement to other high priority initiatives (e.g., recruiting, talent management, portals, etc.).

4. Increasing Front Line Productivity: o SWA considers their Employees as their greatest strength and competitive

advantage in the market. As such, SWA Employees cannot be distracted from their mission of serving Southwest customers by HR centric transactional activities.

o Accordingly, a single-source benefits service delivery solution saves Employees precious time (some of which is on payroll time) from seeking the correct answer to their questions by providing a comprehensive and intuitive benefits technology platform at their fingertips.

5. Enabling Employee Self-Service: o The demographic makeup of SWA dictates the same level of device independent

self-service and electronic enablement offered to SWA’s clientele. o Currently, SWA is not benefiting from Businessolver’s full suite of enhanced HR

service delivery mechanisms.

After investigating several service delivery alternatives (included below), it is strongly recommended SWA retain their current benefits administration outsourcing solution. The costs associated with this solution are absorbed fully within the existing budgetary allocations with significant downstream cost reductions, including internal (HR, Payroll, IT and Finance) and external cost centers.

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THE BUSINESSOLVER APPROACH The savings associated with SaaS are proven. The partnership between SWA and Businessolver provides value well beyond the transactions of benefits enrollment. We focus on improving outcomes in health care spend and trend. Those savings are derived from four primary categories:

1. Delivery efficiency – including improved quality of data removing leakage and leveraging an evergreen platform

2. Employee engagement – which improves Employee’s perceived value of the generous benefits you offer and has a positive impact on retention

3. Reduced healthcare spend - by improving appropriate utilization of current programs and high-cost healthcare services

4. Unique funding arrangements potential - access to market-changing design and funding arrangements to improving value and cost savings

Let’s start by diving into the savings provided through delivery efficiencies produced through our technology and service delivery model. We’ll highlight the remaining 3 categories further along in this document. Delivery efficiency. We built our system, Benefitsolver, from the back-end forward. Being a single source SaaS platform means that our solution set—including COBRA, ACA, Dependent Verification, Reporting and Analytics and more—work from the same dataset at the same time. We don’t have multiple systems that require integration. You have full transparency into all our activity. Additionally, as we launch new tech stacks, they apply across our solutions. This includes current capabilities like elastic search and chat functionality with Sofia, our AI-enabled virtual assistant.

OUTCOME: Given our system is 100% configurable, and not a custom code build per client, SWA is able to take advantage of new releases at no additional cost. SWA will always be on the latest version of the system. This approach significantly reduces cost for continuous improvement of system functionality and saves SWA ~$1M annually.

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EFFICIENCIES THROUGH OUR APPROACH VS ALTERNATIVE MODELS

SWA’s Scope of Services For the purposes of this document, we focused on the “Must Have” delivery categories to ensure clarity of focus and a proper range of pricing in support of these capabilities. Those specifics are included in the appendix of this business case along with a detailed outline of specific levels of service and various service model definitions.

OPTION 1 – INSOURCE Description SWA would evaluate current and future technology capabilities but would bring all benefits administrative services in house.

Benefits and Risks

Benefits Risks • Retain trust by controlling participant

experience • Eliminate the dependency on third-party

call centers • Maintain and extend internal controls of

all data processes

• Current technological infrastructure requires upgrading and increased maintenance or implementing new technology

• Non-compliance with respect to legislative and regulatory (federal, state and local) laws may result in significant exposure

• Purchase of new technology to truly support an internal Employee call center (example of new investments – call center case management, call recording, document/file imaging enabling all participant records to be combined into one common place)

• Increased headcount to support call volume, administrative functions and oversee all ongoing operations

• Technology/data/security integration monitored and maintained by SWA’s IT staff

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Conclusion SWA would retain trust by fully-controlling the participant experience, thereby eliminating, or reducing dependency on third-party call centers or any other untenable communications vehicle that may drive down participant satisfaction. Moreover, SWA would maintain and extend internal controls of all data and processes. Conversely, SWA is potentially at risk of falling out of legislative and regulatory compliance due to a lack of resourcing to monitor, assess and remediate any potential concerns stemming from this rapidly changing environment. To truly insource, additional SWA staff would be required to enhance the existing benefits call center operation, increasing the transactional orientation of SWA and drawing limited resources away from higher value and cost reduction activities. Given these considerations, insourcing should only be considered if SWA is prepared to make the investment in technology and people to provide a competitive benefit experience to the Employees. Costs Additional cost centers would include:

Item Estimated Initial Cost

Estimated Ongoing Cost

Assumptions

Custom Technology Build & Third-Party Integrations

• $625K • 4-6 FTE

• $125K (License fee)

• $1.125M Ongoing Tech Support

• 8- 10 FTE

• SWA would need to license a new HCM platform that includes benefit enrollment capabilities

• Includes initial call center technology investment to match BSC’s current capabilities

• This work is oftentimes outsourced to a third-party systems integrator but still managed and governed by SWA’s IT and benefits staff

Internal Call Center • $500K • 3 – 5 FTEs

• $1.35M • 16 – 20 FTEs • $845K • 10 – 12 FTEs

• Building training, reference material, call routing, etc.

• Assumed core staff plus temporary staff (flex staff) increasing during open enrollment and

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* Development of or updates to a Communication Portal may apply to year one, but additional fees were not included in estimate.

other high-volume periods

• The selection, deployment, maintenance and extension of all associated call center technologies

Ongoing Project and Program Management

• $500K • 3 – 5 FTEs

• $1.125M • 8 - 10 FTE • $625K • 4 – 6 FTE’s

• Initial build requires process, reporting, requirements, etc. development

• File management, case processing, reporting, etc.

• Ongoing processing work – COBRA, QMCSO, Direct Bill, etc.

• Communication Portal*

Annual TOTAL ~$1.6M ~$5.2M • Costs assume a one-year enhancement build out of the call center, with Year 2 and Year 3 costs dropping to ~$5.2M

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OPTION 2 – CO-SOURCE Description SWA would elect to selectively source an external benefits administration platform while building out or leveraging an existing internal call center capability. As an alternative, SWA could potentially utilize the case management system of the benefits administration partner to take advantage of having all benefit-related Employee data and documents within one system. This, however, does not completely mitigate the need to enhance current call center technologies. Benefits and Risks

Benefits Risks • Maintain a balance between internally

and externally governed services • All participant calls would be managed by

internal SWA Employees maintaining a high-touch level of engagement

• Non-compliance with respect to legislative and regulatory (federal, state and local) laws may result in significant exposure

• Purchase/License of new technology to support a co-sourced Employee call center (example of new licensing investments – benefits administration software, call center integration)

• Technology/data integration with all external third-party providers still maintained by SWA’s IT staff

• Increased headcount to support the call volume associated with a fully insourced model

Conclusion SWA would maintain a balanced portfolio of internal versus externally governed service delivery while launching a fully capable benefits administration tool. Moreover, SWA would ensure that all participant calls are managed by internal resources to maintain a high-touch level of participant engagement. SWA’s risk of falling out of legislative and regulatory compliance would be partially mitigated using an external service provider’s benefits administration tool. However, SWA’s call center operations would still need to monitor, assess, and remediate any potential concerns stemming from this rapidly changing environment. Like insourcing, SWA staff would, however, still be required to enhance call center operation, increasing the transactional orientation of SWA, and drawing limited resources away from higher value and cost reduction activities such as material plan design changes. Given these considerations, co-sourcing could be considered a viable option but only if a credible benefits administration partner is utilized within this approach.

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Costs Additional cost centers would include:

Item Estimated

Annual Costs Assumptions

Benefits Administration Technology Licensing

• $2.8M • Calculated based upon a median price of $43 per Employee per year (all-inclusive**) x 65,000 participants.

Implementation Fees • $0 • Many benefits administration service providers will include and/or amortize the cost of implementation within the overall PEPY. In some cases, the fees are waived all together.

Call Center • $1.35M • 16 – 20 FTEs • $845K • 10 – 12 FTEs

• Assumed core staff plus temporary staff (flex staff) increasing during open enrollment and other high-volume periods

• The selection, deployment, maintenance and extension of all associated call center technologies

Project and Program Management

• $400K • 2-4 FTEs

• Dedicated to managing all aspects of the initiative for upwards of two years

Annual TOTAL ~$5.4M **All Inclusive means the following benefit administration services are provided by the co-sourcing partner

• Enrollment & Eligibility • Billing and Financial Reporting

** Excludes

• Fully Outsourced Service Center • COBRA • Direct Billing (Retiree and LOA) • QMCSO Administration • Dependent Verification • Condolence Processing

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3 – OUTSOURCE – CURRENT MODEL Description As in today’s model, SWA outsources the full scope of benefits administration services to Businessolver. Benefits and Risks

Benefits Risks • Significantly shift the risk for legal and

regulatory compliance to a third-party provider across all US geographies

• Rapid leap forward in technological enablement and flexibility, removing all benefits codependency and integration placing the burden on the outsourced provider

• Increased agility to respond to SWA’s future growth allowing limited resources to focus on high value tasks

• Reduced Cost/Headcount – SWA would keep reduced headcount by retaining the burden of call center and regulatory compliance with Businessolver

• Change management and communications will need to be closely governed and thoughtfully deployed

Conclusion SWA significantly shifts its risk for legal and regulatory compliance to a third-party provider (BSC) across all US geographies and population centers. Moreover, SWA benefits from a rapid leap forward in technological enablement and flexibility, removing all benefits codependency and integration and placing that future burden squarely on the shoulders of the selected provider. With an increased agility to respond to SWA’s rapidly evolving business environment, SWA is extremely well positioned for future growth and allows its limited resources to focus on high value tasks such as material plan design changes, wellness initiatives, Employee financial wellness and so forth, thereby driving down fully burdened benefits cost across the enterprise.

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Costs Cost centers would include:

Item Estimated Annual Costs

Assumptions

Benefits Administration Outsourcing

• $3,4M • Calculated based upon a median price of $52 per Employee per year** x 65,000 participants, inclusive of technology, call center and other related services.

Project and Program Management

• $400K • 2-4 FTEs

• Dedicated to managing all aspects of the initiative for upwards of two years

Annual TOTAL ~$3.8M ** All Inclusive means the following benefit administration services are provided by the outsourcing partner

• Enrollment & Eligibility • Billing and Financial Reporting • Fully Outsourced Service Center

** Excludes

• COBRA • Direct Billing (Retiree and LOA) • QMCSO Administration • Dependent Verification • Condolence Processing

RECOMMENDED OPTION Based upon all known information with respect to current technology capabilities, future growth initiatives, ever changing legislative landscape and growing Employee expectations, the fully outsourced benefits administration approach will continue to afford SWA the best and most consistent outcome. Genuine cost advantages and economies of scale would only be realized if all services are outsourced to a single benefits administration provider. This is the most efficient means of achieving all required and desired benefits at the lowest cost and risk.

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NOT ALL BENEFITS ADMINISTRATION PROVIDERS ARE CREATED EQUAL While evaluating options in the market, it is critical to draw direct, fulsome comparisons as it relates to the technology platforms, true scope of services and the pricing model presented.

Benefits Administration Technology

The choices of benefits administration technology platforms certainly abound the market and can make the evaluation process overwhelming and highly confusing. In some cases, there are benefit administration providers that have been in the market for many years. Based on their pedigree of clients and history of delivering benefit outsourcing solutions, it could easily be interpreted as not only having great services but also a strong technology platform to support their success. In other cases, there are benefit administration providers that have not been in the market quite as long, nor do they tout a decades long pedigree of client relationships. What separates these benefit administration providers in the case of technology is the overall age of the platform itself and the true investment in updating / upgrading the architecture and the foundational code on which they were constructed. In the case of the “legacy” providers, many still operate on mainframes from three decades ago. Conversely, the “younger” providers operate in a nimble three-tier architecture and are more object oriented in their structure. The difference is multifaceted.

• Configuration versus Customization – due to the nature of their technology capability, the legacy providers are required to “customize” the technology for each client. Whereas the younger provider’s systems are more “configurable” resulting in shorter implementation timelines

• Changes – in this case, changes refer to client requested changes that will occur over time as their business expands / contracts, business initiatives flex and communications needs arise. Legacy providers typically require days, weeks and sometimes months to complete. In comparison, younger providers have more flexibility with the technology that changes often can be measured in minutes, hours or, in some cases, days to complete.

• Integration with HRIS / Payroll platforms – While most benefit administration providers integrate with popular and/or widely used HRIS and payroll platforms, the younger providers typically do so without requiring specific file formats resulting in less work for client organizations IT departments during implementation or when changes or upgrades are made to those underlying systems.

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Scope of Services & Pricing

Equally as critical to the evaluation process and the attempt to assess the strengths and weaknesses of technology, is the assessment of the “true” scope of services and the pricing models associated with each proposed solution. Two common areas of confusion are per event fees and work delivered via change order. On the former, you will want to understand how services like Dependent Verification, Leave of Absence Administration, QMCSO, and so forth, are presented and invoiced. By focusing strictly on the core service fees and not anticipating the work that your team may even be required to do in support of these services, you will not be able to make an accurate assessment of your options. Similarly, as you go into annual enrollment, consider adding new vendors, want to make design changes to your portal, as well as other typical types of modifications, you will want to know what to expect in terms of costs from your provider and the work your team would need to complete. Many providers in the market have annual targets for additional fees delivered via change order in excess of twenty percent (20%) of core fees. Some will also require much more lead time and have extremely specific windows for submitting the work, while others have more flexibility and lower to no cost. That said, when looking specifically at the current scope of services, organization size and complexities, the market typically supports core fees in the $70 PPPY range while your current set of core fees reflect <$50 PPPY with respect to the current pricing structure. Conclusion When performing a market scan ensure that your organization is prepared to ask the “right” questions. Understand the differences in technology platforms, change order process and timelines, implementation timeline, investment of time from internal resources, and what is “truly” included within the cost model presented. Not all benefit administration providers are created equal. In many cases, it is easy to see the difference if you are prepared to ask the right questions.

ADDITIONAL VALUE DRIVERS Employee engagement and productivity – self-service capabilities ensure members get the information needed, when and how it best fits their situation without having to take time during regular business hours. Employees interact on our mobile app an average of 4 times per month, 1/3 of Sofia chats are on nights and weekends, and over 50% of Sofia interactions were outside of election or enrollment questions.

Opportunity: Expanding the tools available from our platform to support an enhanced self-service solution provides an estimated savings of employee time/increased productivity of over $4 million annually. This does not consider the potential savings to SWA due to reduction in turnover as a result of improved employee perceived value of the benefit program and increased engagement.

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Healthcare cost and trend management – activating employees into available plans, programs and resources to amplify appropriate utilization and increase ROI of spend. SWA offers a plethora of programs and resources – from telemedicine that is broadly applicable to your population, to condition-focused support. Leveraging personalization and easy omni-channel access will increase activation into these programs and drive positive outcomes.

OPPORTUNITY: Reinforcing SWA’s programs and resources, and potentially expanding the toolset to include a provider cost and quality tool, would impact the plan spend by an estimated $7 million to $20 million annually.

Cost transparency to unique funding arrangements – access to design and funding arrangements that improve value of benefit spend. We offer a market-leading solution that leverages a captive structure for voluntary benefit offerings (Critical Illness, Hospital Indemnity and Accident) to shift the surplus of premium back to SWA to fund the aforementioned value drivers to tangibly benefit employees and SWA’s bottom line for benefit spend.

OPPORTUNITY: SWA could leverage approximately $1.2 million annual commissions for its existing voluntary benefit offerings with a traditional level insured model, or up to an estimated $3.5 million in a captive distribution model. Funds could be allocated toward additional employee engagement services supporting year-round sustainable engagement in available plans and programs

Furthermore, where it gets exciting is when we begin discussing Value Creation; below, we have summarized how Businessolver partners with SWA to create previously untapped value prior to our relationship. As we take care of all the blocking and tackling, you can focus on developing new and improving existing SWA strategic initiatives. Through our partnership, we provide value by increasing:

• Employee education and engagement in current programs and offerings while embracing a year-round engagement platform

• Flexibility to adapt to market changes • The ability to focus on strategic initiatives • Access to timely data and insight into your medical spend with the ability to act swiftly,

and implement innovative new strategies without breaking the bank Through our partnership, we mitigate:

• Technology overspend while improving quality • Leakage through carrier over-payments, payroll errors, and ineligible dependents • Risk of compliance exposure • The burden of transactional tasks • Investments to support seasonal staffing.

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In Summary

Many of our clients that come to us from an ERP solution (like Workday) have been frustrated for years by the lack of investment in their platform specific to benefits, and the inability to move quickly in the areas of program innovation and design due to being held captive to systems that are not flexible or transparent. The benefits industry is evolving quickly (new communication channels, plan changes, evolving regulatory requirements), and securing the funds and IT resources necessary to stay current is almost impossible in most organizations. All Businessolver clients (including SWA) are on a single secure platform. While each solution requires specific configurations, the underlying system is consistent. This allows us to roll out global enhancements to all clients including SWA simultaneously; it’s their option if they turn specific enhancements on. All clients are “evergreen.” We invest 25% of our annual budget back into product improvements. If a client submits a specific or custom technology request, our first step is to evaluate that request as a free global enhancement rather than a change order. That approach means that less than one half of one percent (<0.5%) of revenues come from change orders. We are committed to immediately delivering an improved solution and investing in that solution on an ongoing basis while maintaining a consistent cost model. As a privately held and financially-sound organization, our fierce independence affords Businessolver (and our clients) the unique advantage of control. We control our hiring, our training, initiatives like Enterprise Quality (Baldrige as an example), our investments in Centers of Excellence, and our product roadmap. We control our destiny and can focus solely on benefits administration and delighting SWA Employees every day. Founded by HR professionals like you, Businessolver approaches benefits administration with an immense level of thoughtfulness, innovation, expertise, and empathy. We know benefits. We understand the importance of our role as your partner, and we take that responsibility very seriously. We will strive to delight in each interaction we have with every person from SWA, because we fully understand the importance and value of what we do. We know that SWA Employees leveraging Benefitsolver are not just data points in a system but are real people with real families looking to us for support. We are experienced working with SWA and your HCM provider and will provide a benefits system of record in which SWA can have full confidence and be proud of the experience it provides your greatest asset, your people. Thank you.

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APPENDIX

Plan Administration

SWA’s required capabilities within this quadrant include:

• Eligibility Determination • Newly Eligible Enrollments • Annual Enrollments • Dual-Year Processing • Evidence of Insurability* • COBRA administration • Direct Billing and Payment Administration • Dependent Verification • Beneficiary Designation* • Imputed Income Calculations • Dual Coverage Coordination • Flexible Spending Accounts* • QMCSO Qualification and Administration • Federal/State/Local Updates and Compliance

Participant Services


• Service Center (including options for daytime hours and after-hours chat functions) • Interactive Voice Response (IVR) • Designated Customer Service Representatives (CSRs) • CSR Call Monitoring (including audit, tracking, recording and retrieval) • Case Management Initiation and Access • Chat (both human and artificial intelligence) • Benefits Portal • Educational Videos • Decision Support • Email Communications and Fulfillment • Paper Communications and Fulfillment • Email Capture – Work/Personal • Cell Phone Capture – Work/Personal • Mobile Application Support (native preferred, browser secondary) • Tablet Application Support (native preferred, browser secondary) • Multi-Language Call Center (TDD and language line)

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Event Administration SWA’s required processing capabilities within this quadrant include:

• New Hires • Newly Eligible • Rehires/Reinstates • Terminations • Condolence Administration • Severance – Extended Benefits • Leave of Absence (including paid, unpaid and return to work) • Intra-Company Transfers • Disability – STD, LTD and RTW • Status Changes (either date driven, participant driven or modeled) • M&A Support

Data, Reports and Feeds


• SAP Interface • Carrier/Vendor Interfaces • Carrier Premium Reporting • Carrier Premium Billing • Robust Standard Reports • Robust Ad-Hoc Reporting Toolkit • W2 reporting • Health Care Reform (ACA) Reporting* • Daily Annual Enrollment Reporting • Participant Activity Dashboard • Service Level Agreement Reporting (monthly and quarterly) • Governance Reporting (monthly and quarterly)

Tiered Support Levels Benefits administration service delivery often includes references to very distinct “tiers” of participant interaction, including:

• Tier 0: This includes automated or electronic transactions, often described as “participant self-service”.

• Tier 1: Often called "First Line Support", Tier 1 inquiries involve the capture of basic participant information, the logging of cases and resolution of the most common transactional issues. These calls/cases may also redirect to Tier 2 if a specialized case arises.

• Tier 2: This includes specialized support that often segmented by transaction types (e.g., LOA processing, spousal support for death processing, etc.). Tier 2 may also encompass escalated Tier 1 transactions where the resolution is not clear.

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• Tier 3: The second level of escalation, Tier 3 covers specialized circumstances (e.g., denial of coverage, etc.) that must be resolved through somebody of research or explicit exception handling. Especially aggressive or unreasonable participants may also be handled via Tier 3. Tier 4: The highest level of escalation, Tier 4 often involves significant legal, medical and/or privacy issues. Executive notification may be required or desired should a Tier 4 case be opened.

Service Delivery Models

Since the options referred to in this business case, include utilizing an HCM platform to administer benefits or gaining the efficiencies of a benefits administration outsourcing partner, it makes sense to consider various delivery model approaches available to SWA. Terms such as “insource”, “co-source” and “outsource” are used in describing the potential service delivery mechanism that may be employed in support of the above scope of services. Definitions for these terms are:

• Insource: A company is considered “insourced” when all service delivery is governed and operated by internal staff with little-to-no dependency on outside firms.

• Co-Source: When a company elects to contract with a third-party for select components of

service delivery and participant communications, this is considered a “co-sourced” relationship. Co-sourcing is also often used when describing the use of an external benefits administration technology for participant transactions, carrier feeds and reporting but does not include the call center experience.

• Outsource: This is SWA’s current solution. While governed by SWA, outsourcing involves the

wholesale shift of end-to-end transactional support to a third-party organization. In this example, SWA fully directs all participants to interact with a third-party technology platform (Benefitsolver) and call center interface to address most all transactions, questions, and needs, relying on SWA's benefits resources for Tier 3 or Tier 4 escalations and exception handling. Full benefits administration outsourcing includes support for all the capabilities defined under the four scope of services quadrants above.

swa/bsc business case

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