Why I'm quitting Alcor -- they now have the math all wrong

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

Why I'm quitting Alcor -- they now have the math all wrong

Post by southbay » Thu Aug 02, 2012 2:11 pm

I've decided to quit Alcor after over 15 years, not because I disbelieve in cryonics, but rather because they have taken a financial path that no longer makes sense and breaks the financial rules under which I think cryonics should work.

Cryonics is a service you will get in the distant future -- the most distant future service you will ever buy, at least in this life cycle. The open question is when you should pay for it.

In the original vision of cryonics, you pay for the service when it is delivered -- upon your suspension. Alcor insists you do this with life insurance, and that makes sense, and life insurance is and should be the only future service you pay for in the present. Generally the right time to pay for a service is when you receive it, and ideally you should shop for the service as close to receiving it as is practical.

This late-shopping is particularly important when you have a technological service which will change and improve greatly over time. Shopping for and paying for a computer you will get in 2040 would be just plain crazy. You have no idea what a computer in that era will be like and what it should cost. Rather you should save the money and then buy the right computer with the knowledge of 2040.

Likewise with cryonics, which we all hope to buy many decades from now. Selecting and paying for your cryonics procedure with the knowledge of 2012 seems about as poor a way to make the decision as can be.

This is what has changed with Alcor. When it began fees were in the range of $300 per year. One could argue this was higher than it should be, but it's a far cry from today's situation. Now the fee is $800 per year, in part because it has a mandatory standby insurance program. The standby fee program is life insurance -- you pay the fee monthly, but it only pays out to you upon your death or near-death and gives you nothing otherwise. In addition, it has been proposed but not finalized that Alcor will add another fee to handle formerly grandfathered members (such as myself) who are now classed as underfunded. For a party funded at $50K, like those who joined Alcor in mid-90s, this will be another $300 per year, coming to $1,100 a year -- more than triple the original fees in a period where inflation has been much more modest.

But this increase in fees is not simply justified by new evaluations of the cost of cryonics and standby. Rather, it represents a large shift in the balance of the cost of cryonics. To understand this you must do some financial math, understanding the time value of money, and examine either the present value or the future value of the money you will pay for cryonics.

The future price of a suspension is as quoted -- it's $80,000 for a neuro suspension upon your death, though that price of course might change.

Now consider the value of your annual fees over that 40 years. $1,100 a year for 40 years at a a fairly typical historical interest rate like 6% has a future value in 2052 of $170,000. (Plan to die in 30 years and it's a more reasonable $87,000.)

The consequence is clear: You're paying the bulk of your payment for cryonics in fees prior to suspension, not in the suspension fee itself. This is a big shift from the earlier approach, where the bulk of the cost was in the suspension fee, and far from the ideal approach, when almost all the cost is paid upon suspension.

Why is that ideal? Because the money you pay in fees to Alcor are Alcor's. You don't get them back if you switch cryonics companies. They are like term life insurance, the value is gone at the end of the term. Your suspension fee you pay for monthly with a life insurance (whole or universal.) The money you pay in remains yours even if you decide to switch cryonics companies, or leave cryonics altogether. If, 30 years from now there is a new cryonics company that is clearly better, you can switch with no loss on that insurance policy. The annual fees you paid Alcor will be gone.

By moving the bulk of payment into fees, Alcor has made it so you must choose and pay irrevocably for most of your future suspension today, with the knowledge of 2012, not with the knowledge you will have in the future.

Alcor charges those fees because they need money today to survive. In fact they underestimated what they need, and so they have asked for even more money. This does create a conundrum, because we in order to get suspension in 2050 you need a company to exist in 2050, and you need research to be done before 2050 on how to suspend you.

In a typical business though, those things are considered investments. People pay money to fund infrastructure and research that will pay off in the future. Alcor is getting its investment from its members, and that's the wrong way to do it.

A cryonics firm, like any business, should not confuse its investors and customers. Customers should pay money at the time of service, and should shop at the time of service. Investors pay now for return later. A stable cryonics firm will need investment to get going, until it is bringing in enough from serving customers to pay its expenses. That's how business works and has always worked. Cryonics gets no special exception.


Problem 2: Standby and dying young

A second problem is the standby fee. As noted, this is really insurance. However, even though it only pays out to you when you are near death, it is charged the same regardless of your age or health, which is not what any competitive insurance company would do. It's also not very wise insurance to buy.

The truth is, before you are a senior citizen, it's most likely you will die by surprise. Sadly, the odds of a successful suspension in a surprise death are low, and the value of a standby is also lower. According to one inside source, the number of successful suspensions Alcor has done of people who died by surprise is, in round figures, zero. Zilch. Nada.

A standby is more useful when one dies from a condition that kills you more slowly. You are far more likely to need it when older. I would venture that you are so unlikely to need it when in your 30s as to make it a rather unwise use of your money -- far better to save that money away in your insurance fund to pay for a better suspension and standby in the future.

And this is the next core problem -- what is the best strategy to assure your own quality suspension if you have constraints on your funding? It looks a lot better if you do not join a high-fee cryonics organization, and instead feed that $1,100 per year into your insurance policy, and thus be able to afford a far more expensive suspension when the time comes, which you or your proxy would select near that time, based on the knowledge of that time. For many people, adding $1,100 per year to an insurance policy or savings plan could easily add $100,000 to the benefit amount. That's a huge, huge difference, doubling or tripling the amount of suspension you can pay for at the time.

While it might seem scary to not have a suspension contract during your healthy years, the math says otherwise. It's having far less for suspension during your aging years that should be scary.

It's also an option to use a lower quality cryonics company with lower fees while healthy, and switch to the best available cryonics company that you can afford with your much fatter insurance policy when you become less healthy. This leaves you with a lower quality suspension in the highly unlikely event that you die young, without warning, and can get a suspension at all. As noted, this is so unlikely that it has never happened. The vast bulk people will die with plenty of warning and time to switch if they put all the tools and paperwork in place. For the rare but possible situation where you will die with only a few days notice while young, you should a trusted agent with full power of attorney in case you are incapacitated.

Of course, once you reach old age, you can switch to the best available company, including those with high fees. When your life expectancy has dropped to a decade, the cost of the fees becomes less dominant. If the fees truly do provide a gold plated service, this is the time you will use it and not pay that much.

The ideal and the reality:
The math is clear, but the cryonics market is not an established and efficient one with many competitors. Cryonics is so speculative that Alcor has found itself driven to charge these fees to fit the role normally filled by investors. An ideal cryonics organization would have enough to survive, and be doing suspensions in sufficient volume that customers can pay for all their suspension costs -- standby, transport, suspension, their share of the operating costs, research and development costs, patient care fund costs and fixed costs -- upon delivery of service.

But suspensions are infrequent and much R&D is still needed so there is no cryonics org that fits the ideal. Perhaps it is some time until there will be. As such our choices are more limited. Still, it is better if an org gets as close to the ideal as practical, and it doesn't go against the basic math and logic of the time value of money and the rules of buying a technological service for the future.

One thing that should have offered hope is bequests. Several people have donated large sums from their estates to their Cryo-org. Millions have come this way, and this shows signs of continuing. The generosity of these donors (who selfishly also wish to assure their org remains strong after suspending them) may be the way to get the money that should have come from investors.

Another problem with the ideal approach outlined here is that many people, as they age, become much more fatalistic. Even cryonicists have trouble resisting the strange appeal of death that comes upon the aged. As such, some people would find their future selves never bothering to make the switch and set up their final cryo-arrangements when they become seniors, or even just keeping the money for their retirement or heirs. You may swear this would never happen to you but it is a documented risk -- some people have even abandoned fully prepared cryo-contracts when near death.

I hope that my letter will get Alcor and other orgs to rethink the math behind what they are doing, and work towards a system that doesn't ignore the realities that come from the time value of money, the probability of different types of death at different ages, and the vital lessons about when to make decisions about future technologies. When they do, I'll be back. (Whether I will still be able to post here after such a critical letter and membership cancellation is another matter.) I post this here not so much to cause Alcor trouble but to suggest that other members try to wake them up so I can have the cryo-org I want again.

LazarusLong
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by LazarusLong » Tue Aug 07, 2012 1:06 pm

Southbay,

Will you be joining another cryonics organization?

Regards,
LazarusLong

southbay

Re: Why I'm quitting Alcor -- they now have the math all wro

Post by southbay » Tue Aug 07, 2012 3:34 pm

It is my current plan, one with low annual fees like CI or TransTime. I don't consider these orgs to provide the level of service or stability Alcor does, however this matters less than you might expect.

Prior to becoming a senior citizen, your odds of death are fairly low. Before the 50s, the most likely cause for that unlikely death is sudden -- accident, violence, poisoning, suicide, and over time the slower causes of death become more common.

If you are subject to a slow death, and you prep your paperwork in advance, and you have an advocate with full powers assigned, you can sign up for the best cryonics you can afford at the time. That might be Alcor, though Alcor could decide to not suspend fully prepared, fully funded patients on short notice and that is a risk. It might be another firm which will accept such a patient.

If you are subject to a quick death -- again the odds of this are quite low -- you probably are gone. However, even if you have a suspension agreement with Alcor or another org, you are not going to get what would be considered a quality suspension. You will sit in warm ischemia for some time, degrading, until you are discovered by somebody who reads the bracelet and is willing to do a cool-down. While we all like to imagine that we die in this situation in an ambulance with at attendant who reads the bracelet and obeys it, the reality is that this is, while possible, unlikely, and as I said, a former Alcor staffer told me that a quality suspension has never been done on a surprise death. This doesn't mean it could not happen, of course, but simply that it's not where to allocate your money. Rather than allocating most of my cryonics budget to handle this unlikely event, the math says I should instead allocate it to having a bigger budget available in the most likely situation -- slow death while old.

This is not an easy math for people to accept sometimes. The more risk averse will say, "I can't imagine remaining uncovered" while young, but that's a false logic. The math I did above is for a typical 40 year old joining Alcor with a 40 year life expectancy. (Perhaps medicine will increase that lifespan, I hope so.) The choice is to be covered the rest of your life and have $80,000 to pay for your cryopreservation upon your death, or to be uncovered (or poorly covered) during mid-life and have $200,000 to pay for your cryopreservation at age 80. (All this presumes a historical interest rate of 6%. In reality while the 2000s were an exception, the historical stock market rate of return is over 10% which would give you $430,000 to pay for your cryopreservation -- The same $80K of insurance and $350K from the unspent fees.)

These numbers are so overwhelming it's hard to imagine why any person with the most basic understanding of math would remain with Alcor in early or mid-life. And yet, I know most of you will, because fear overwhelms our true understanding of the math. Cryonicists are death-averse, after all, and driven by fear of it. But it's wrong for them to trade away a superb cryopreservation in the most likely situation of death while old to protect against the low risk of death while young.

bwowk
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by bwowk » Tue Aug 07, 2012 4:34 pm

CMS fees are now a substantial part of the annual fee burden of Alcor members.

http://www.alcor.org/BecomeMember/standby.html

CMS fees go into a dedicated CMS Fund from which Alcor pays for standby/stabilization/transport costs and bills certain ongoing readiness expenses. I personally believe that Alcor's caseload may now be large enough to forgo this regular income stream and instead build the costs of standby/stabilization/transport entirely into cryopreservation funding minimums. There is already a partial allocation of CMS costs built into minimums, but a larger allocation would in principle allow CMS fees to be ended.

This will likely require an increase in cryopreservation minimums, but be a step toward the financial model that Southbay advocates where members keep more of the cost of cryonics inside their life insurance policies until it is actually needed. Insurance companies would then become the defacto collectors of all standby/stabilization/transport costs via premiums computed according to actual risk instead of Alcor charging a flat fee to all adult members.

The objection to this plan is that Alcor would then have to pay for standbys that do not result in cryopreservation without an offsetting revenue source like CMS fees. This will require a caseload that is steady enough, and CMS cryopreservation funding allocation large enough, to buffer the CMS fund against such expenses.

Aschwin.de.Wolf
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by Aschwin.de.Wolf » Tue Aug 07, 2012 7:00 pm

I am glad that there are some Board members who are considering modifying (or cancelling) the CMS program to bring down the total annual burden for Alcor members. I never liked CMS in the first place for a long list of reasons:

http://www.alcor.org/forums/viewtopic.php?f=15&t=78

but when it started affecting the ability of some members to remain Alcor members I started taking this topic a lot more seriously. The intention of CMS was to eliminate the messy practice of having a credit card on file for standbys and enhancing Alcor's services. In reality, this "enhancement" may have forced some of our members to cancel their arrangements altogether!

A little while ago Paul Wakfer argued on this forum that Alcor should honor its commitment to grandfathering for existing members. I do not think I agree with this reasoning but one can make a more modest argument and that is that it was not reasonable for Alcor to expect its members to anticipate the CMS program and the corresponding increase in cryopreservation minimums. In the case of members who are just a little underfunded, it can be argued that Alcor *created* this problem. So I hope that Alcor will not cancel membership for members who have not dropped below today's minimum for cryopreservation and long term care.

Although I'd rather see Alcor developing a voluntary and more flexible program that pools money for standby and stabilization, eliminating the annual CMS dues in favor of higher cryopreservation minimums is a step in the right direction and very welcome. I hope the whole Board can be persuaded of its merits.

"Insurance companies would then become the defacto collectors of all standby/stabilization/transport costs via premiums computed according to actual risk instead of Alcor charging a flat fee to all adult members."

That is an excellent argument in favor of this approach and makes me more optimistic about where this debate could be heading.

As for the concern that Alcor may sometimes have to recoup costs associated with standbys that do not result in cryopreservation, I think these (relatively rare) scenarios can be accommodated by allocating an amount to the cryopreservation minimums that reflects this fact. Yes, this sometimes may lead to Alcor deploying a standby for a person that will never be cryopreserved by Alcor, but considering the fact that the existing CMS program is a lot more distributive in nature, this would still constitute a step forward.

To my own chagrin, I must admit that the argument that a person who prefers Alcor could be better off by making arrangements with another organization and switching to Alcor at old age seems financially sound. I once called this the CI-Alcor straddle. I do think there is a lot more to supporting Alcor than money, but it would be great if making cryonics arrangements at Alcor would be structured in such a manner that such a strategy would not make sense. There is a difference between grandfathering and rewarding long-term membership and Alcor needs to find a financially sound way to reward long-term support.

bwowk
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by bwowk » Tue Aug 07, 2012 7:18 pm

Aschwin.de.Wolf wrote: To my own chagrin, I must admit that the argument that a person who prefers Alcor could be better off by making arrangements with another organization and switching to Alcor at old age seems financially sound.
It's a tragedy of the commons. If everybody did it, storage would go on, but the cryopreservation infrastracture for living members would cease to exist. Perhaps someday case volume will be high enough that all operating costs can be covered by some portion of regular revenue from cryopreservations, but that day is not yet. I am nevertheless sympathetic to Southbay's point that things should be moving in that direction rather than the opposite.

Merkle
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by Merkle » Tue Aug 07, 2012 8:41 pm

My advice to people who ask me if they should sign up with Alcor or CI is: if you can afford it, sign up with Alcor. If you can't, sign up with CI.

Having talked with Southbay, I think he is placing more weight on the financial savings than is justified, at least in his particular case.

More broadly, Alcor has traditionally tried to avoid raising cryopreservation minimums on existing members. This has led to a number of problems, and in particular has led to pressure to increase other sources of income, as well as diversion of donations and bequests to fund ongoing operations. In particular, it has led to pressure to increase both dues and CMS fees.

Decreasing dues and CMS fees, and compensating for this decrease by increasing cryopreservation payments (larger insurance policies) was not feasible in such an environment.

However, we are currently in the process of introducing an Underfunding Plan, whose primary purpose is to increase cryopreservation minimums to a level adequate to cover costs, but to do so in a way which is equitable for existing and new members, does not create undue hardship, and deals with the kind of longer term issues that Southbay is raising.

Once the Underfunding Plan is in place we expect to receive adequate payment for cryopreservations (not all of which will necessarily come directly from the member who is cryopreserved), rather than having to scramble to figure out how to compensate for the ever increasing losses they cause.

In this new environment, giving members the option of paying lower dues and/or CMS fees and paying more in cryopreservation payments (with bigger insurance policies) becomes realistic.

Exactly how fast we can make this shift in our revenue model is harder to say, as analyzing the issues and carrying out the detailed implementation required often takes more time than one expects.

criley
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by criley » Tue Sep 11, 2012 12:33 pm

Aschwin.de.Wolf wrote:...eliminating the annual CMS dues in favor of higher cryopreservation minimums is a step in the right direction and very welcome. I hope the whole Board can be persuaded of its merits....
Aschwin,

Perhaps an option to select one of two options might make sense:
1. Higher cryopreservation minimums
or
2. Annual CMS dues.

The reason is that there are no doubt members who can afford the CMS dues, but are not able to purchase more insurance for a variety of reasons (age, health etc). This gives the best of both worlds and makes more people happy, and it provides Alcor with some funding stability in the annual fees from some.

Likewise if Alcor increases minimums, it might be useful to allow a combination of funding. For example, you might have $200k of insurance, but not be able to purchase more. You could make up the difference with an annuity, trust or could prepay.

Mike.Perry
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by Mike.Perry » Fri Oct 05, 2012 11:14 pm

Is there any possibility of reducing CMS costs by having a team of trained volunteers carry out the procedure that would otherwise be done by a paid-for organization like SA? There are various locations around the country and even abroad where such a team might be organized. Each team member could get training and certification from Alcor, which might be refreshed from time to time. This sort of thing is done already, but apparently now is bypassed in favor of having a professional team do the operation. Professionals who are licensed in various specialties including perfusion are nice if you want them and have the money, but if you don't, willing volunteers could offer a reasonable alternative.

Mike Perry

criley
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Re: Why I'm quitting Alcor -- they now have the math all wro

Post by criley » Sun Oct 07, 2012 5:37 pm

southbay wrote:Cryonicists are death-averse, after all, and driven by fear of it.
Some might say, cryonicists are pro-life, after all, and driven by love of it. :D

I'd also think that perhaps Alcor could be better viewed as a membership club - country club, beach club, yacht club, whatever - where the annual fees are there to maintain the facilities, do research and keep them ready for our use. If Alcor switched to solely insurance funding, then a lean year could kill the organization. Even eliminating only the standby, a lean year, with several standbys could gravely hurt the organization. (Perhaps Alcor is close to being able to eliminate standby, but (as I've said), everyone at Alcor could earn the $1/day with simple things online.)

Southbay, I'm sure everyone here wishes you the best no matter what you end up doing. I think if you keep the associate membership you can still post here. It does look like Alcor is working on the issues as best they can given the recent posts.

I believe that having several options for funding, higher minimums and no-CMS or lower minimums plus CMS etc make the most sense given that there are various stages of life for people. Some people can get more insurance, but others can not.

:-)

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