Cryonics costs: given estimates are low
One of the sticking points for cryonics is how expensive it is. Unfortunately, the estimates on LW (eg. in Normal Cryonics) are likely to be low as they are current costs. This is starting to come to a head for Alcor, with Alcor’s low growth rate meaning it faces a rising tide of aging members (hence that emphasis on young cryonicists) and fundamental flaws in its prices; the official word has come down in the latest issue of Cryonics, issue 2011 q4:
Cryopreservation Funding and Inflation: The need for Action; A Discussion Article by the Management and Board of Directors of Alcor
The cryonics economies anticipated by Robert Ettinger in 1965 were never realized. By the 1970s, the cost of whole body cryopreservation as offered by TransTime and Soma (the for-profit arm of IABS, which later merged with Alcor) was $60,000 (1). As shown in Fig. 1, the nominal dollar cost of cryonics has risen steadily with Consumer Price Index (CPI) inflation since then. By 2011, the minimum funding for whole body cryopreservation with Alcor was $200,000. Even this large number has not kept pace with inflation, so another increase will be necessary soon.
Whenever Alcor has increased cryopreservation minimums, it has traditionally only required new members to meet new minimum funding requirements. Existing members were “grandfathered,” and allowed to remain members even if their cryopreservation funding fell below new minimums. This was and is believed to be important for members who due to age or disability become uninsurable, and would otherwise have to leave Alcor after many years of supporting the organization.
...The sustainability of this has been questioned on numerous occasions. In 1991, Ben Best and others expressed concerns about grandfathering in a series of articles and letters in Cryonics magazine (2,3,4). Ideas for addressing the inflation problem were sought (5), but none were implemented. There was renewed public concern in 2009 when Charles Platt published an article about inflation and cryonics funding in Cryonics magazine (6), followed by a critical article on CryoNet in 2010 that accused Alcor of negligently ignoring the grandfathering problem (7,8). That same year Rob Freitas published a detailed quantitative analysis of Alcor finances based on publicly available information, and concluded that grandfathering was a serious long-term problem (9,10). Ralph Merkle subsequently published an article on cryopreservation funding that outlined 14 possible options for addressing the grandfathering problem (11). In 2011, the Alcor Board of Directors undertook its own quantitative analysis of grandfathering using internal data. The results of that analysis are below.
As of August, 2011, 944 members were signed up in expectation of Alcor performing cryopreservations costing $142.6 million as measured by 2011 funding minimums. 533 members were signed up for whole body cryopreservation, and 411 members were signed up for neuropreservation. The total cryopreservation funding of those members was $122.2 million, a funding shortfall of $19.4 million. This net $19.4 million shortfall consists of the total underfunding ($32.6 million due to 641 under-minimum funded members) adjusted for the total over-minimum funding ($13.2 million due to 229 over-minimum funded members). Most of this over-minimum funding was from 173 members signed up for neuropreservation with $9.7 million in funding greater than minimum.
...In 2011, as a group, neuropreservation members were not underfunded. Underfunding is a much more serious problem for whole body members. 444 whole body members were underfunded with underfunding totaling $27 million. The problem is worsened by the fact that Alcor has failed to increase whole body minimums sufficiently to keep pace with inflation over the past two decades, so another increase in whole body minimums is necessary soon.
Ordinary inflation of 3% per year will increase the $142.6 million 2011 cost of cryopreservation procedures for Alcor’s 944 members by $4.3 million per year. This is an unfunded liability that will grow for decades until underfunded members are cryopreserved. (Most Alcor members are middle-aged as seen in Fig. 4.) The effects of this are already being felt. Actuarial analysis indicates that Alcor in 2011 can expect 9 cases per year, of which 7 will be underfunded by a total of $380,000. This would be offset by an expected $70,000 per year from cases with above-minimum funding, still leaving an expected case funding deficit of $310,000 per year. This annual deficit will grow with time.
...The effects of this can be insidious because in absence of careful monitoring, chronic underfunding of the Patient Care Trust (PCT) might not become obvious for years. For example, by 2010 Alcor was drawing on the PCT at a rate of 5% per year to pay the costs of maintaining its patients in cryopreservation. The PCT draw grew to this unsustainable percentage because underfunded cases led to the PCT principal not being as large as it should have been. The draw only retreated to 2.5% in 2011 after an unforeseen bequest fortuitously doubled the value of the PCT in late 2010.
What to do?
Option 6: Increase Membership Dues to Cover Grandfathering
In his 2010 econometric analysis of Alcor finances (10), Rob Freitas calculated that dues and CMS fees would have to be increased to $1500 - $1850 per year for every Alcor member to sustain the practice of grandfathering. This is likely unaffordable for most present Alcor members. Such a practice might even worsen the underfunding problem by disincentivizing members from providing any more funding than minimum at time of signup. Indeed, most members would need the savings in insurance premiums to pay such high membership dues.
...Option 10: Establish an Underfunding Reserve Account Funded by Underfunding Charges
After extensive consideration and study, the Alcor board and management believes this is the best idea so far for coping with cryonics cost inflation. An Underfunding Reserve Account would be established. Whenever an underfunded cryopreservation was performed, the Underfunding Reserve would be drawn upon as necessary to pay the PCT, CMS fund, and Operations accounts the amounts they require according to current minimums.
The Underfunding Reserve Account would be funded by annual charges to members proportional to the extent of their underfunding. In the first year of implementation, the charge would be 0.33% of the member underfunding amount (e.g. $165 for a member underfunded by $50,000). The charge would escalate to 0.67% in the second year, and finally to 1% of the underfunding amount in the third year and thereafter. If by the third year no members changed their funding or cryopreservation method, charges collected from all underfunded members would generate $320,000 per year. This would be a sufficient contribution to the Underfunding Reserve Account to cover the actuarial expectation of underfunded case expenses for the present time. In the longer term, it is hoped that this charge would be an incentive for members to increase their funding with inflation if they are able to do so, and for new members to plan funding according to life expectancy.
On a parting note, I read somewhere that CI’s low prices have rarely risen. I wonder what their projections look like...