Private health insurance exchanges are beginning to reshape the group market.

A novelty only a few years ago, the exchanges are growing rapidly as employers look for a middle ground between the extreme of unsustainable costs at one end and no coverage at the other end, especially for their Medicare-eligible retirees.

“Employers want to give choices while gaining control over costs,” said Maureen Scholl, CEO for exchanges at Aon Hewitt in Lincolnshire, Ill.

At the same time, exchanges, which handle plan enrollment and communications, remove from employers much of the administrative burden associated with offering health care plans.

“Ask any human resources director what their biggest headache is, and they will say administering a health care benefits plan,” said John Connor, founder of Transition Assist, a Norwell, Mass.-based exchange. “If they can find a partner, like an exchange, that takes administrative responsibility off their plate but not at the expense of quality, then HR has a sustainable path,” he added.

For retirees, exchanges mean access to a much wider range of health care plans compared with what their former employers offered.

“Exchanges provide more choices, and help employers and employees manage costs,” Ms. Scholl said.

“There is a lot of win-win. There is a win for employers and a win for participants,” said Bruce Richards, a partner and chief actuary in the Richmond, Va., office of Mercer L.L.C.

Given those positives, it isn't surprising that private health insurance exchanges are rapidly growing. For example, Bryce Williams, founder of Extend Health, a San Mateo, Calif.-based exchange, says the exchange has doubled over the last two years to more than 250 employer clients.

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“Employers can offer quality benefits at less cost,” said Mr. Williams, who also is managing director for exchange solutions at Towers Watson & Co., which in 2012 acquired then-privately held Extend Health.

Other exchanges also report significant growth. For example, since 2010, Aon Hewitt's exchange for Medicare-eligible retirees — Aon Hewitt Navigators — has seen enrollment in plans offered through the exchange leap to 200,000 from just 30,000.

And more growth is certain as exchange providers tap new markets. For example, Aon Hewitt now offers a second exchange in which employees can choose from various health care plans, including consumer-driven plans, offered by different participating insurers.

More than 100,000 employees — including U.S. employees of Aon Hewitt parent company Aon P.L.C., Hoffman Estates, Ill.-based retailer Sears Holdings Corp. and Orlando, Fla.-based chain Darden Restaurants Inc. — have chosen plans through the exchange, with much more growth to come.

“There is keen interest in this marketplace,” Ms. Scholl said.

In addition, for fall 2013 enrollment, Xerox Corp. is launching an insurance exchange designed by Xerox unit Buck Consultants L.L.C. for Medicare-eligible retirees.

The new exchange, which joins an existing exchange that offers coverage for Medicare-eligible retirees, is designed for employers with at least 3,000 employees, said Sherri Bockhorst, a Buck Consultants principal in St. Louis.

“At launch, we expect to have over about 200,000 enrollees,” Ms. Bockhorst said.

And last month, Mercer and Connextions Inc., an Orlando, Fla.-based unit of health services company Optum, announced that they are launching an exchange called myCustomHealth that will offer coverage from a variety of insurers to Medicare-eligible retirees.

“We have a good number of discussions under way with employers,” said Mercer's Mr. Richards.