This is a copy pasta since I posted this in another thread before the mod forum was created...
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I think it'd be cool to have a system that's a little more realistic...

Something like:

If your health is above 85% you heal at the rate of per second or minute or whatever. (Some bruises, scratches and cuts. Not a huge deal. Might wanna spiffy up before your date tonight after killing all them dragons.)
If your health is below 85%, but above 70%, you heal at the rate of <.5X> per second or minute or whatever. (You're looking like a dog chewed on you for a while, but other than the fact that you sorta feel like crap, a little breather will help out.)
If your health is below 70%, but above 50%, you heal at the rate of <.25X> per second or minute or whatever. (You've seen better days, but you'll make it, if that damn bandit would just die or go away or something.)
If your health is above 30%, but below 50%, you lose health at a rate of <.25X> per second or minute or whatever. (You're in bad shape, better break out the bandages or pee on your wounds or whatever survivalists do...)
If your health is above 15%, but below 30%, you lose health at the rate of <.5X> per second or minute or whatever. (You're getting pretty close to dying, better start working on stopping yourself from bleeding out. You got one foot in the grave.)
If your health is below 15%, you lose health at the rate of per second or minute or whatever. (You're busy dying, bleeding out or whatever with both legs in the grave...)

Also, if you're engaging in heavy activity (i.e. fighting, running, carrying heavy stuff, etc.) it should skew the rates towards the dying side... Health regen reduces or stops completely, depending. Or you start taking accelerated damage from your health status. And so on...