Cryonics, March 2013
by Max More
- Why do Alcor members have to pay membership dues?
- What are they used for?
- Why do I also have to pay CMS (Comprehensive Member Standby) fees?
- Why can’t we run the organization using income from doing cryopreservations and abolish dues?
- Can’t we just cut our costs?
- How will dues change in the future?
These are questions I hear frequently. Our current level of membership dues is frequently cited as a reason for members — especially those with reduced incomes — to cancel their memberships. (Many of these indicate that it’s not increases in dues that are the main problem; it’s the loss of a job or drop in income. Most of these individuals tell us they intend to return once their financial situation improves.) Alcor’s growth rate has declined over many years, but has slowed to a distressingly low rate in the last few years. It’s entirely plausible that part of this is due to the cost of membership dues.
When I took over as Alcor’s president at the start of 2011, I knew I would face a difficult situation. Just one year earlier, dues were increased from $398 to $478. (Including annual CMS fees of $120 this resulted in an increase from $518 to $598 per year.) That was the first dues increase in eight years. Just one year later, on January 1, 2011 (my first day as president) dues were raised again from $478 to $620 — an increase of 30%. (Including CMS fees — which increased 50% from $120 to $180, this resulted in an increase from $658 to $800 per year.)
The yearly cost of membership from 2002 to 2012 rose quite a bit, especially when you include CMS fees. No CMS fund existed in 2002. That meant that members did not get a standby unless they paid for it at the time they needed it. The universal CMS fee has enabled Alcor to provide everyone with a standby, but it has added to the total yearly cost of membership. The recent large jumps in dues may leave members with the impression that dues have risen more rapidly than is actually the case on average. To put the longer-term increases in context, excluding CMS fees, here are the numbers:
From 1986 to 2013, membership dues rose from $200 to $620, which is 4.28% per year. (This is higher than general inflation, but only marginally.)
Looking at the last 18 years, from 1995 to 2013, dues went from $398 to $620, which is 3.07% per year. (Medical inflation exceeded 10% annually in the 1990s, and 6% over the last few years.)
Why so high and why the increases?
Clearly, dues have risen significantly. But let’s put the rise in the context of overall inflation. When dues were increased by 10% back in 2002, that increase lagged the CPI increase of 16% over the same period. In other words, dues were not raised enough to keep up with the general rise in prices. When that lag is allowed to build up over years, the adjustment becomes more painful. Almost a decade went by before dues were again adjusted. Even as recently as 2010, Alcor’s dues were only $30 a year greater than they were in 1992 after adjusting for inflation. Only at the start of 2011 did the rise in dues finally move significantly above the rate of inflation.
Apart from catching up with inflation, the one-two punch of 2010 and 2011 were necessary to enable Alcor to tackle its structural deficit. (By “structural deficit” I mean a deficit when irregular and unpredictable revenue from bequests, donations, grants, and cases is excluded. Alcor has shown an apparent budget surplus over the last two years, but still has a structural deficit.) Since a substantial grant was expiring after three years, a deficit of $400,000 was projected if no action were taken.
Over years and decades, some of Alcor’s expenses rose substantially. Employee expenses account for a large part of overall expenses. Those expenses rose significantly over the years as Alcor transitioned away from a volunteer-based to a professional organization (starting very modestly in the 1980s) and found itself paying more market-based salaries. I do not expect this increase to continue. On the contrary, if we can grow our organization, I believe that we are at a point where economies of scale can be reaped: we could double or triple our membership without coming even close to doubling or tripling staff costs. But the painful dues increases of recent years have reflected the reality of catching up with inflation and with realistic employee costs rather than unsustainable volunteerism.
Quite a few members do not pay the full $800 per year. They pay significantly less if they are family members, students, or members of 20 years or more. This will not be much comfort if you pay the full amount. You may be grumbling at the cost even if you understand the need to catch up with inflation and to tackle budget deficits. Even so, consider that this amount is a less-daunting $67 per month. On a still shorter-term basis, your last, best chance to beat death is setting you back $2.19 per day in dues. That’s a little more than a tall cup of coffee at Starbucks (and quite a bit less than a short latte).
This is significant for some members; for others, it may be more the rapid recent increases rather than the actual cost which are problematic. Considered as a daily or weekly amount, the cost of membership may seem quite modest. But the success of cryonics for any particular individual is highly uncertain, while the current cost is real and obvious. Even if — for most members and many potential members — the cost is quite manageable when considered objectively, willingness to pay is based on perceptions of costs and benefits, not necessarily on objective facts.
At current levels, it’s seems clear to me that dues cannot increase (beyond pacing inflation) without reducing membership retention and growth. So, my remarks about the (objective) modest-for-many costs of cryonics should not be taken to suggest that I am in the least dismissing concerns about rising costs, or that I am not doing all in my power to address those concerns. I have no doubt that the current level of dues is resulting in lost members and is making it harder to attract new ones. Growth is important to deepen our resources — so we can defend ourselves against attacks, do more research, and ensure the continued existence and resilience of the organization.
Why not pay for operating expenses from Cryopreservation Fund income?
Doesn’t it make sense to pay operations out of the income from the service of providing a cryopreservation and longterm care? After all, Alcor isn’t like a club where you pay monthly or yearly dues in exchange for specific services.
Membership dues have never been sufficient to cover all of Alcor’s recurring costs, so we have relied on other sources of income, including donations and bequests. But let’s restrict ourselves solely to considering what it would take to replace membership dues. Membership dues will bring in an estimated $453,000 in 2012 (that’s after allowing for bad debt). So that’s the amount that would have to be generated from case income.
Given Alcor’s existing membership base and the distribution of ages and life expectancies, we expect about eight cryopreservation cases per year. The actual number varies wildly: Not long ago, we had 12; in 2012 we had only three. Suppose all cases were not only fully funded but each cryopreservation fund averaged $40,000 above current minimums. If we continue the practice of distributing half of these funds to the PCT and half to operations, those eight cases would generate 8 x $20,000 = $160,000 for operations. We would need to have almost 23 cases per year, funded $40,000 above minimums, to replace membership dues.
This is very much an approximation. On one hand, we might reduce the estimated number of annual cases needed to eliminate dues because most cases funded exactly at the minimum should produce a modest gain for operations. However, this varies by case and is not always true. On the other hand, the 50/50 split between PCT and operations is only a default. We use that rule when a member does not specify the distribution of funds above the minimum. Most of those who do specify a distribution give it all to the PCT, or some to research, with very little to going to operations. This would have to change in order for over-minimum funding to have a major impact on dues. The actual number of cases per year required to reach the “dues-replacement level” might therefore be 23, or 40, or any other number, depending on assumptions about over-minimum funding and distribution of that funding.
By the time our membership has grown enough to reach the dues-replacement level, expenses would probably have risen (although I expect costs to rise considerably less than proportional to membership size from this point on). So the dues-replacement level would then be higher than on the assumption of fixed operating costs.
The problem should be obvious. Even if all members provided cryopreservation funds $40,000 over minimums, we would need at least three times as many cases as we can reasonably expect today in order to generate sufficient revenue to replace membership dues. Compounding the challenge, most Alcor members today are funded at levels below current minimums. These cases are likely to drain operating funds.
But this is not an all-or-nothing matter. I would like to see us move gradually in the direction of funding operations more from cryopreservations and less from membership dues. This will take time and growth and major improvements in funding of cryopreservations. We could shift funding much faster in that direction if we received major bequests, especially if some went to the Endowment Fund and some to the Operational Reserve Fund. The uncertainty of bequests and of operational income from cases is why these are excluded from calculations of the structural deficit. As membership grows, we should be able to gradually make allowance for these more irregular forms of income, recognizing their contribution to the structural budget and thereby having a downward effect on membership dues.
How will dues change in the future?
Let us separate out the likely trajectory of (a) basic membership dues from (b) membership dues as they may be for any particular individual if we adopt an Underfunding Plan in which members with below-minimum cryopreservation funds pay additional dues to partly compensate. (That would only happen if they did not raise their funding to current minimums or, in the case of whole body members, refused to be switched to neuro member status, and who do not qualify for the Hardship Fund.) I will consider here only the plausible direction of membership dues for members funded at current minimums or higher.
All other factors being equal, dues will depend mainly on costs and growth rates. As I mentioned earlier, I believe we have reached a point where further membership growth will allow us to reap economies of scale: We can increase membership with a less than proportional increase in operating expenses. Posited economies of scale are not mere wishful thinking: Consider that, say we grow our membership by 100%: while we might need some additional help in some areas, we would not need to hire a second president, or a second finance director, and so on. Only in 2012 did we introduce Associate Membership, an option that is essentially costless and yet which could generate significant income if we can grow this category into the hundreds or higher. At the same time, future increases in employee costs should closely track overall increases in compensation throughout the economy (tracking a combination of inflation and productivity gains), with little or no need for catch-up increases.
In addition, we have been and will continue to take measures to control and reduce costs where possible. For instance, I eliminated one full time position; it may be possible to reduce employee costs further; we are renegotiating contracts and licensing arrangements; requiring that all new ongoing expenses be compensated by cuts in other areas (until structural budget balance is achieved); and have insulated the building to save several thousand dollars annually. We are also benefiting from Life Extension’s generous support in covering the production and distribution of Cryonics magazine.
These core factors strongly suggest that if we can grow membership, we should be able to hold down membership dues. If growth is slow, while inflation continues to average around 3% annually, we may only be able to prevent further rises. If growth is stronger, reduction in dues becomes feasible.
Currently, the 2% draw from the Endowment Fund adds about $70,000 to operating funds. If we can grow the Endowment Fund, that 2% draw will grow. Suppose we were fortunate enough to receive a $10 million infusion. That would generate an additional $200,000 annually. That would be equivalent to 44% of the income expected from membership dues for 2012. Even after eliminating the structural deficit, that would allow a significant reduction in dues. We cannot know the amounts involved, but we should work toward building the Endowment Fund over time. This will help keep a lid on — and perhaps reduce — membership dues.
Here’s another possibility: Suppose our wealthier members recognize the benefits of improving retention and growth in number of members, and contribute to a fund specifically intended to subsidize dues over a period of time (perhaps ten years). The idea would be to use the fund provided to cut dues so as to accelerate membership growth, to reach a point where the additional members would more than replace that fund income (and allow us to reap economies of scale).
We have already noted another factor that could allow us to progressively reduce membership dues — and possibly one day eliminate them altogether: An increase in bequests and over-minimum funding of cryopreservations, some part of which is directed to operations. We are currently thinking about one step in this direction: The possibility of reducing or waiving CMS fees for sufficiently well-funded members. This may turn out not to be feasible, but it’s a possibility we are pondering.
To those members who have been with us for many years, let me point out that we have recently introduced a new discount ($186 reduction per year) for individuals who have been members for 20 years or longer. This is intended to reward members who support Alcor over the long haul, and to show that they will not face ever-rising dues. I will be proposing further discounts for members of 25 years’ and 30 years’ standing.
Finally, I understand that my grounded optimism about future dues may not greatly comfort those of you who are struggling today. You may have lost your job, or retired, and been forced to take a lower-paying job in this difficult economy. Whatever you do, if you are struggling, talk to us. We work with members as best we can. If you’ve fallen far behind in paying dues and you never respond to our communications, eventually your membership will be cancelled. Talk to us, show willingness to work with us, and we can figure something out.
My thanks to Bonnie Magee for suggestions that improved this article.