Abstract: Population aging has brought great challenge to China’s endowment insurance system. As people getting old, their need for health care and nursing care will rise. According to the experience of developed countries, the rising tendency of the prices of the demands of the elder people is faster than that of the prices of other goods and services. Through analyzing the relationship between the prices of medical products and health care expenditures, the change range of the health care expenditures resulted from the price changes of medical products has been found. On the basis of a comparative analysis between the pension and the expenditure of the principal part of the pension, it is found that the growth of the expenditure of the major urban retirees exceeds the growth of the pension itself, which suggests that absolute purchasing power of pension is shrinking year by year. In order to improve the purchasing power of urban employee pension, it is necessary to perfect the pension adjustment mechanism and stabilize the price formation mechanism of pharmaceuticals and medical care services.

Key words: basic pension; purchasing power; health care expenditure; price of medical products