Yahtzee Croshaw said:
Extra Punctuation: Why Regenerating Health Sucks
Yahtzee thinks waiting a few seconds to be at full health is bad.
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The "luck" system is used pretty commonly in tabletop games to explain why a character can "survive" being hit with a bastard sword in the damned head. Your "hit points" actually represent your ability to avoid attacks, and successful attacks whittle away at that ability until you can be hit. Your "wound points" then take over to indicate how much physical damage you've received, and armor mitigates some of that.
On paper, it can be a mess... but in a game? So much easier to just keep that math behind the scenes. The problem? People like immediate feedback.
The animation shows a spurt of blood, and the sound effect says, "Oof!" You've been hit, and you know it. People like that little Pavlovian dinner bell that tells them it's time for their favorite endorphins.
I'm a fan of systems in which taking damage makes you less capable, so that you will have to devote your attention to either a) escape, or b) a race to finish off the opponent before he finishes you. You have to make in-the-moment tactical decisions, which only get more critical as you progress. But, as you've indicated, this can lead to the "downward spiral" in which the player is constantly asked to do more with less, and may end up frustrated... or just reloading every time they get scratched by the corner of a table or looked at funny.
Regardless, the key to any health management system is
scarcity. Maybe it's time that's short... maybe it's inventory space... maybe it's the number of consumables. Either way, the player has to feel the pinch somewhere--the sense that the failure state is rapidly approaching, or is just around the corner.
Time-regenerative health works against that in multiple ways. For one, you never run out of anything. It'd be one thing if your suit needed fuel to keep supplying you with the nano-bots that heal you over time... but I haven't seen that. You have unlimited use of the Fountain of Youth. Two, the time it takes is nearly always too short, meaning it can be used mid-combat, or between short bursts of combat. Three, you don't have to find or carry anything. There are no supplies to manage in any way and no choices to make.
There are many, many different ways to handle it, some of them almost completely opposite. As long as the system turns health into an important strategic resources for which the player has to make tactical decisions, you've got a good system. But regenerating health isn't a solution at all.