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.

Hope the old grand­fathered mem­bers like Mike Dar­win (who pre­dicted this, in the Fe­bru­ary and March 1988 is­sues of Cry­on­ics) can af­ford that.

On a part­ing note, I read some­where that CI’s low prices have rarely risen. I won­der what their pro­jec­tions look like...