The tailwinds of Australia's ageing demographics are clear when you look at the projections for the expected number of people above 65 and 85 over the next couple of decades.
This is a good opportunity for any investor willing to take a long-term buy and hold approach with companies expected to benefit from the rise of the elderly.
Two of those companies are likely to be private hospital operators Healthscope Ltd (ASX: HSO) and Ramsay Health Care Limited (ASX: RHC).
Healthscope has a market capitalisation of $3.85 billion and Ramsay has a market capitalisation of $14.15 billion. I think there is plenty of scope for both to grow substantially over the years to come for the following reasons:
Expansion plans
Healthscope and Ramsay both have impressive plans for growth with large brownfield and greenfield projects.
For example, Healthscope is expected to complete its Northern Beaches Hospital in FY19, which will add 450 beds to Healthscope's total.
Considering the large rise of the elderly over the coming years, as well as the general population growth, all the extra capacity should be readily taken up.
There is also the possibility of further expansion through acquisition. Ramsay has utilised this strategy superbly to expand into the UK and France, making it one of the top five hospital operators in the world.
Public health budget constraints
Governments around the world are going to struggle to maintain the current level of care, as healthcare costs rise substantially over time.
This is very likely to make a number of patients turn to the private system through choice or perhaps future government measures. High earners are already encouraged to get private health insurance with additional tax if they aren't covered privately.
Lower costs
Somewhat surprisingly, the private sector is able to deliver the construction of hospitals at a much more affordable price compared to public hospitals.
The government may decide to utilise private operators even more in the future if the public construction costs can't be brought down.
Risk
The key risk to Ramsay and Healthscope will be funding. The government, patients and private health insurers all want costs to be controlled, so management will have to tread carefully in the years ahead to make sure they aren't too expensive.
Foolish takeaway
Ramsay is currently trading at 27x FY17's estimated earnings with a grossed-up dividend yield of 2.55%. Healthscope is trading at 21x FY17's estimated earnings with an unfranked dividend yield of 3.33%.
Healthscope is clearly trading cheaper, however I think Ramsay's global operations and growth of earnings justifies the premium. Having said that, I think Healthscope is trading at slightly better value than Ramsay.
I think both Ramsay and Healthscope are worthy of a place in any Foolish portfolio and would be good long-term buys at today's prices.