Money now vs. Money Later

All topics about cryopreservation costs, membership dues, etc.
southbay

Money now vs. Money Later

Post by southbay » Tue Dec 20, 2011 6:33 pm

One area that has come to concern me about Alcor over the years is the question of when Alcor is paid for what it does. In the traditional model, a cryonics company was paid upon suspension, when it actually provided the service to the customer. Of course, most customers funded this with insurance, so they paid a monthly premium, but they paid that premium to the insurance company, and the policy was their property. (Alcor has promised that any customer who wishes to leave will be assisted with removal of the irrevocable beneficiary clause.) The monthly money we pay is going into an account of ours.

However, there was also the membership fee. This fee served to keep the organization around, ready to suspend you. In theory that should have been needed only in the first few decades of an organization's life, because once suspensions grew frequent, the money flow, if suspensions were priced appropriately, would keep the org around.

In time though, it wasn't enough, and Alcor added a large emergency standby fee. This is a fee paid today for a standby service to be performed near your death, in the (hopefully) distant future. This is effectively Alcor selling insurance, and a violation of the original principle. Now it is proposed that underfunding be paid for not at the delivery of service, but today. And that strictly the payments today won't be to cover one's own underfunding, but rather to provide for a pool to handle other people's -- to keep the organization afloat.

There is one big problem with moving the cost of Cryonics to the present from the future. Money spent today to your cryo-org is gone. If you decide, in the future, to switch to another company, this money is just tossed aside. The same is true if Alcor falls and you are forced to switch (or just give up on cryonics.) Money into an insurance policy remains yours. If you switch, it goes with you.

This allows competition. Competition is good for everybody. Large up-front payments are a lock-in which discourage competition. There is not much competition in cryonics, of course, but everybody hopes that it might reach a level where that's not true. I don't want to be locked in to my cryonics company. I tolerated the membership fee, but things have changed. Now if you compute the present value of the annual fees they have become a major part of what you pay. $550 per year for 40 years (not unreasonable if you sign up at 40) at 6% is over $80,000 -- it exceeds the cost of your suspension! If you are $30K underfunded, and must pay $300 extra per year, the result is $130,000 40 years in the future.

This is not how it should be done. I'll pay something in advance to keep the org going, but there is a limit. I want to pay the vast majority of it when service is rendered, and the money I save in advance through insurance should belong to me, and be switchable to another provider if I want it.

If the rates are to go up with inflation, so be it. Let me increase my insurance, or let me add a bequest for the difference (with instructions on what to do if it is not enough) to my will. I understand why you don't want bequest-funded suspensions. You can limit them to some fraction of the total cost, and you can limit them only to handle underfundings of those who were promised a lower price and grandfathered. Charging more non-refundable money up front is very problematic.

bwowk
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Re: Money now vs. Money Later

Post by bwowk » Wed Dec 21, 2011 3:05 pm

That's a very good argument for increasing funding rather than paying an underfunding fee. I agree with it, and will further say that Alcor much prefers that members do this if possible rather than collecting more fees.

southbay

Re: Money now vs. Money Later

Post by southbay » Thu Dec 22, 2011 7:16 pm

Yes -- if it's an easy option for them. Buying an insurance policy when younger is easier than when older of course. This is unlike making a bequest which is just as easy at any age as long as the money is around, and usually easier later in life.

But let's be clear. Alcor, for reasons not under discussion, sold a product at a price that has turned out to be lower than its costs. It's not like Alcor didn't know the service would be delivered far into the future and that costs would rise. In fact, if you want the hard truth, inflation over the last few decades has been much lower than it was in the 70s and 80s, so in fact the mistake is even less excusable.

By many statistical arguments, the right thing to do is to leave Alcor until you get to around 65, and then re-join. The odds of death prior to 65 are low, and one could cover that risk with a different cyronics society, even if their suspension was judged inferior. The reality is that Alcor itself is still a crapshoot.

In the past, this was not the right thing to do because you were grandfathered on price. To leave and rejoin meant to give up your low price for the price you would get at 65. Now that's not clear, since Alcor really wants to increase everybody up to today's price no matter when they joined.

Of course, if people leave like that Alcor is in even more trouble. Economical suspension should depend on some economies of scale, and as noted the organization needs something to keep the lights on even if the patient fund will keep the dewars topped up.

I can say this: If there were a suitable quality suspension available elsewhere today, I would leave if presented with a bill for 1% of my underfunding. If a competitor arrives, the org may be in some trouble.

TDK
Posts: 179
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Re: Money now vs. Money Later

Post by TDK » Thu Dec 22, 2011 10:35 pm

I'd just like to see a wider variety of options when it comes to how members fund
their suspensions. And I also think the yearly fees are excessive...

First of all, you push younger people into delaying signing up, because
they may not be able to afford the yearly fees. The idea of paying $15/month
for life insurance is very reasonable to most people in their 20's and 30's.
They spend that on cel phones and WoW accounts. But having to cough
up $500-$1000/year for Alcor fees will make many of them hesitant.

The other issue is older members. We all like to hope we will be living
lives of luxury retirement, based on our marvelous investing skills. But
we all know there are many elderly people in this country who struggle
to pay even their basic bills on social security. And by the time we are
65, those retirement payments may be even smaller. I would hate to see
myself,or any other members, have to drop out of the organization at an
advanced age, because we can no longer afford the yearly fees.
Not all of us have children to cover our expenses or take care of us.

So I'd be much happier with some kind of setup where I can pay
for a lifetime membership now, when my earning power is at it's
highest. It would suck to be a member for 75% of my life,
and then have to drop out of the organization right before
I actually need it.

And as you mentioned, some people would prefer it the other way around.
Where they pay for the service when it's rendered, not in advance.

I am curious... What is the actual cost of the process of cryopreserving someone?
On average? Airfare, ice, meds, salaries of workers who preform the surgical elements, etc...
What if we paid for those costs up front, and if our long-term storage funding through
life insurance, or through our estate, does not come through, then Alcor does not
store the individual... I know it's kind of a harsh way to do it, but it seems like
the main historical reason they were unwilling to do cryopreservations without funding,
is because not everyone came through with funding, after the procedure was completed.
At least that would allow people to make their own funding arrangements.
That, plus a lifetime membership fee option, would be my ideal scenario.

Or alternately, a much higher funding level under life insurance,
and much lower yearly membership fees. That actually seems like the best option.
Get more money coming into the organization with each preservation.
If you take it from $100k to $200k, and you do 6 preservations per year,
that would be an additional $600k directly to the organization. Alternately,
if there are 800 members, and they each pay $800/year membership fees,
that's essentially the same amount. I'd just hate to see older and younger
members pushed out because those fees are too much for them.
The other advantage to rolling the operating costs into the life insurance,
is that the organization gets the extra money influx with each member
it preserves, even if they just signed up one year ago. So it's more
directly related to how much work the organization has to do, and how
many members it has in storage. It's not ideal to have the operating
income affected by membership ups and downs.

paulwakfer

Re: Money now vs. Money Later

Post by paulwakfer » Thu Dec 22, 2011 11:19 pm

TDK wrote:I'd just like to see a wider variety of options when it comes to how members fund
their suspensions. And I also think the yearly fees are excessive...

First of all, you push younger people into delaying signing up, because
they may not be able to afford the yearly fees. The idea of paying $15/month
for life insurance is very reasonable to most people in their 20's and 30's.
They spend that on cel phones and WoW accounts. But having to cough
up $500-$1000/year for Alcor fees will make many of them hesitant.
Very true, In fact, I have been advising anyone in good health under 40 as follows:

1) Get funding together according to Alcor;s requirements for neuro cryorpreservation with the additional amount required for last minute sign-up and make Alcor the "death" beneficiary of this funding. Get a simple will drawn up so that this cannot be challenged. A video and/or clear statement of intent and desire to be cryopreserved is also an important part of this arrangement.

2) Get the Alcor paperwork and any updates/changes as they occur and keep it all filled in and ready. Get one or more trusted friends (should be cryonicists either signed up or doing same as described here) to become totally knowledgeable about your arrangements, keep track of your whereabouts, know where your paperwork is and be wiling/able to get you signed up if/when needed.

3) Get involved and active with cryonics as if you were an already sign-up member - as much as that is possible.

4) Finally, but most important of all, learn and follow all possible healthspan and lifespan extending methods and keep abreast of developments in this area. Also and very important to not do anything dangerous like crossing the Sahara desert alone.
TDK wrote:The other issue is older members. We all like to hope we will be living
lives of luxury retirement, based on our marvelous investing skills. But
we all know there are many elderly people in this country who struggle
to pay even their basic bills on social security. And by the time we are
65, those retirement payments may be even smaller. I would hate to see
myself,or any other members, have to drop out of the organization at an
advanced age, because we can no longer afford the yearly fees.
Not all of us have children to cover our expenses or take care of us.
Again very true. It seems totally unjust that a person who has paid decades of these enormous yearly fees may in the end not be able to afford what he has been paying to be available. In fact, it is likely under many such scenarios that such person would have had sufficient funds for his cryopreservation if he had invested the yearly fees instead of paying them to Alcor, and signed up when he become terminal. This is similar to my advice to young people given above.
TDK wrote:So I'd be much happier with some kind of setup where I can pay
for a lifetime membership now, when my earning power is at it's
highest. It would suck to be a member for 75% of my life,
and then have to drop out of the organization right before
I actually need it.

And as you mentioned, some people would prefer it the other way around.
Where they pay for the service when it's rendered, not in advance.

I am curious... What is the actual cost of the process of cryopreserving someone?
On average? Airfare, ice, meds, salaries of workers who preform the surgical elements, etc...
What if we paid for those costs up front, and if our long-term storage funding through
life insurance, or through our estate, does not come through, then Alcor does not
store the individual... I know it's kind of a harsh way to do it, but it seems like
the main historical reason they were unwilling to do cryopreservations without funding,
is because not everyone came through with funding, after the procedure was completed.
At least that would allow people to make their own funding arrangements.
That, plus a lifetime membership fee option, would be my ideal scenario.

Or alternately, a much higher funding level under life insurance,
and much lower yearly membership fees. That actually seems like the best option.
Agreed. While this could not work decades ago, Alcor is now doing suspensions often enough that the income from those should also pay for the continuing existence of the organization. To use the old McDonalds analogy once again, McDonalds does not require that anyone wishing to purchase a hamburger, should pay a yearly fee to them to fund their physical plant and staff expenses of being ready to serve that hamburger when it is wanted. No! They charge a sufficient amount for each hamburger to pay for it as well as all the expenses of being ready to produce it . Perhaps Alcor does not yet do a sufficient number of cryopreservations often enough for this model to work, but such a funding method most certainly should be goal of the organization.
TDK wrote:Get more money coming into the organization with each preservation.
If you take it from $100k to $200k, and you do 6 preservations per year,
that would be an additional $600k directly to the organization. Alternately,
if there are 800 members, and they each pay $800/year membership fees,
that's essentially the same amount. I'd just hate to see older and younger
members pushed out because those fees are too much for them.
The other advantage to rolling the operating costs into the life insurance,
is that the organization gets the extra money influx with each member
it preserves, even if they just signed up one year ago. So it's more
directly related to how much work the organization has to do, and how
many members it has in storage. It's not ideal to have the operating
income affected by membership ups and downs.
Again I heartily agree. The yearly fees could fund a lot of extra life insurance, particularly for a younger member in excellent health - which is again why I advise such people as described above.

southbay

Re: Money now vs. Money Later

Post by southbay » Sat Dec 31, 2011 3:48 pm

Alcor did offer a lifetime membership. It was both a terrible deal and not so bad a deal, depending on how you look at it.

Back when Alcor's fees were approximately $350/year, they offered, I believe, a lifetime membership for $20,000. That was a dreadful deal, because even the most basic annuity you could get back then would pay you tons more a year if you put $20K in, and you would keep the principal to yourself. Even with anticipation that the fee would go up with inflation, it was still a terrible deal. It is only because the fee has gone up far more than inflation, with the addition of the standby fee etc. that it has made sense if you were younger. At the typical rate of 6% it takes 40 years at $1300 (quadruple the old rate.) Even at $800 year it does not make sense to buy a lifetime membership at any age for $20K, and I lost much respect for Alcor when it sold those.

So the advice above is the right advice, and what I would do if considering cryonics now and under 65 years old. Get the insurance, but don't join, just be ready to join on short notice. Use CI or somebody similar as an inferior backup until you start getting a reasonable probability of death. After that, switch.

It's hard to argue with this financially, though of course it presents a higher risk if you have a cryopreservable death prior to 65. But really, Alcor, should you really do your pricing in a way where delaying joining is the right decision?

One more piece of math: Paying 1% of an underfunding per year actually pays off your underfunding in about 33 years at 6% interest. (It takes about 24 years if you prefer to use the historical market return rate of 11% but that rate seems to have snuck away on us.) This presumes that the money you pay in is not reducing your underfunding as you pay it, if so it's faster.) So, if you accept the legitimacy of your price being changed on you, the 1% payment per year is a deal if your remaining lifespan is under 33 years (ie. late 40s) and a bad deal if you are younger than that.

TDK
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Re: Money now vs. Money Later

Post by TDK » Tue Jan 03, 2012 7:54 pm

To use the old McDonalds analogy once again, McDonalds does not require that anyone wishing to purchase a hamburger, should pay a yearly fee to them to fund their physical plant and staff expenses of being ready to serve that hamburger when it is wanted. No! They charge a sufficient amount for each hamburger to pay for it as well as all the expenses of being ready to produce it . Perhaps Alcor does not yet do a sufficient number of cryopreservations often enough for this model to work, but such a funding method most certainly should be goal of the organization.
Exactly. My ideal scenario would be where Alcor has a specific cost for coming out and
doing the cryopreservation, and I pay for that in advance. I understand there may be increases
in labor costs, and inflation, and perhaps new technologies and materials. So I am fine with
paying even twice as much for this. Let's say the cost currently is $10,000. I am fine
with paying $20,000 to cover the differences. And if some amazing new cryoprotectant
comes on the market, and it costs an extra $5000, then I should have the option to pay
more to have an improved result. But it's no different from reserving a plot, or paying
for a wooden coffin in advance. If I decide I want a new grave location that's prettier,
or decide I want a stainless steel coffin instead, I can pay the difference in price at
any time and upgrade. But I have at least paid for the basic services in advance,
and I know I will be buried, and my family will not have any extra expenses. If they
decide to pay for more, that's their choice. The same should be true with Alcor.
Maybe the base package doesn't include standby. They only fly out when you
are pronounced. If you want standby, you pay extra.

Then the rest of running the company, paying employees, doing research,
maintaining patients, should all come out of the main fund, which should be
funded by patient's life insurance. But again, this should be something
people can pay for in advance. It's a fee for long-term storage. If you pay
it now, you lock in your price. If you pay it at time of death, that cost
may have gone up. It's up to the patients to figure out how to pay for
those long-term storage fees. Could be life insurance, a trust, or even
the sale of the patient's estate, home, or provided by the patient's family.
But that should be paid *after* the cryopreservation is completed.

My main concern right now is actually with the yearly fees.
They concern me now, and I am making a very good income.
I consider cryonics very essential, so I pay the fees. But I don't like
how big they are, and I don't like the fact that they are increasing.
Because I am very worried about what happens when I am much
older, and may have much lower levels of disposable income.
So that's the number one thing I would like to see go away,
or be greatly reduced. I'd be much happier with an increase in
funding minimums, or an increase in cryoprotection costs, or long-
term storage costs, as long as the yearly fees don't keep going up.
My life-insurance monthly fees are set, for the life of my policy.
And those fees are affordable. Even on a fixed income. And
that policy will be paid in full before I get to that age. So my
main concern is with those yearly Alcor fees. I'd much prefer
the organization figure out a way to operate using the proceeds
from the long-term storage fund/patient care fund in some kind
of sustainable way that doesn't affect long-term patient care.

southbay

Re: Money now vs. Money Later

Post by southbay » Tue Jan 03, 2012 10:46 pm

Actually, that's a bit different from how I see it.

I think a Cryonics org should not be in the insurance business, not even indirectly. Services to be performed in the future should be paid for in the future. Services now should be paid for now. If you want to pay now for services in the future, you buy insurance, and the insurance pays in the future. (Alcor also insists on insurance because they want to be sure they will get their money before they begin your suspension, and most other routes are too risky or delayed, because heirs may stop them.)

The standby fee is Alcor selling insurance, plain and simple just not under that name. You pay now for services in the distant future. Some of the proposed underfunding fees are also insurance, though games may be played to name them something else because you can't sell insurance legally without proper licences and regulation.

There is a reason for that requirement of licences and regulation. When you buy services in the future with money now, there is a big risk that the company you contract with may not deliver, and may not even be around. The costs may change in unexpected ways (sound familiar.) That's why in some jurisdictions some organziations are prohibited from selling lifetime memberships -- the chance of people being cheated, either by deliberate fraud or simply poor planning, are too high. For example, a classic forbidden lifetime membership is for a gym. The gyms kept going out of business in a few years -- people did not realize the membership was for the lifetime of the gym, not for them. :(

Now it's hard to create a company where the revenue won't come in for decades. Alcor is unusual in that way, and so it needs an unusual solution. But it should not forget why the principles of distant future service are as they are.

Of course, fixing a system which was designed (or modified) against these principles and now is underfunded is difficult. But the fix should:
  • Involve no insurance. Suspension fees should cover all suspension standby, transport, storage, admin, revival research etc.
  • Make a profit on the suspension to cover certain other things.
  • Charge signup fee and/or annual fee for basic admin
  • Like most other businesses fund present-day losses, before the income comes in, from investors or in the non-profit case, donors
The last point is something that was forgotten. A normal business starts off spending money to create product, and then later it sells the product and makes back that money, and more. That early money, for R&D and product development and keeping the lights on before the sales come in -- that comes from the investors. The investors get a share of the business and the profits when they come.

In a non-profit, it's donors rather than investors, and donors just want to see something good brought into the world.

After the product starts selling, sometimes you did not plan well. Sometimes you need to raise more money. Sometimes you go out of business. Sometimes you make fat profits.

Alcor's horizon is much longer, of course, and investors on that horizon are hard to find. In particular because for many, the payoff comes after death and it may not be legal for them to own the shares after death. One of the reasons Alcor has that non-profit model. And it is of course hard for people to plan to buy a service decades in the future at a price that nobody -- not them, not the cryonics org -- can truly predict.

It's not easy to figure this out -- but if you want to ignore some fundemantal principles, you have to understand that you are doing it, and why.

paulwakfer

Re: Money now vs. Money Later

Post by paulwakfer » Wed Jan 04, 2012 3:03 pm

southbay wrote: ....
Excellent post, to which I mostly agree (except for your implication that certain government regulations are overall beneficial).

My major difference is that I have always thought that Alcor should be a for-profit organization with shareholder investors (but only those who are also enrolled for cryopreservation) as CryoCare was intended to be from the start (but which unfortunately was voted down by its founders in deference to one of those founders who made an ultimatum and was considered to be indispensable). Even if Alcor remains a non-profit which I grant may be necessary for some sound legal reason (damned State, always getting in the way of valid, rational choice), I think that for many reasons, and especially sound accounting and reduction of actual costs, the various services of Alcor should be unbundled (as in the CryoCare model) into at least 3 for-profit companies: one that does the cryopreservation from standby and legal death to final stabilization temperature, a second which owns the dewars and does the long term patient care and a third which is the Patient Care Trust and pays the long term care provider from its invested funds. At some time in the future, a fourth company will be needed: one which attempts to restore the patients to fully functioning human life.

southbay

Re: Money now vs. Money Later

Post by southbay » Thu Jan 05, 2012 12:42 am

Yes, the cryocare model had some value, though there is a counter argument that the whole field is too small to get too complex.

The for-profit/non-profit question is complex. Of course the non-profit offers deductable dues (of value to those with good income, not too valuable to those in retirement, which you may well be for a large fraction of your membership with today's lifespans.) But the issue is deeper than that. It's harder to get people to donate to a for-profit. Not just financial donors, but workers who work for below-market wages. While I could see people making bequests to a for-profit, they are more likely to do it to a non-profit and a lot of Alcor's money has come from bequests, and there is more to come that way.

With member/stockholders, the problem is that you can't own stock after you die -- your hiers do. You could pay for some of your funding by selling your stock, but that's very risky as who knows what the stock will be worth when you die, and you and Alcor must trust your executor to do that for you. You can't, in most countries, take it with you. I don't know if a corporation could have a stockholder agreement that says that repurchased stock would be held and then sold back at a good price to a reanimated member.

As for the beneficial nature of the regulations, that's not what I am saying. I am saying the regulations are there for a reason, that people got burned a lot doing deals where they paid now for far future services. What is key, regardless of regulations, is that people become very aware of the likely outcomes of such transactions before they are asked to do them. While you might want to not have the government forbid selling a lifetime membership in a gym, you might want the gym to have to say, "On average, most gyms only last 5 years and if this one goes under, your lifetime membership is wasted." Fewer people would buy them.

But it is market principles that lead me to not want any of us to pay now for services in the future. That's because I want it to be easy to switch cryonics org. I think that when the customers can switch, we get a better cyronics org because it has to respond to competitive pressure. If I pay for half my cryonics cost thorugh fees I can't get back (as is the case now) this penalizes switching. It's proposed that somebody $30K "underfunded" would now be paying $1,100 per year in fees, if you live 40 more years that's $170,000 -- more than double the cost of a neuro today, if the interest rate is 6%. In other words if you signed up for an d got a $50K neuro you are paying 77% of your total Alcor cost in fees. If they don't go up further and you live 40 more years.

The CMS fee has similar math at 6%. 40 years of CMS fee is $30,000. 30 years is just $15,000. The young are definitely paying for the old here.

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