The only semi viable thing I could do along these lines would be to have the character's face get bloodier or something with the more damage he/she takes. For reasons long and annoying, the equipment texture colors being changed would be ridiculous to pull off and I have to simply discount. The only two other areas that don't get covered by equipment are the face and the feet. Having either glow to indicate health just sounds a bit weird to me. The other problem is that the face of characters is actually quite rarely ever seen unless you're actively focusing on it while following the party in free cam mode. I do agree however that the current health bar solution is suboptimal, especially considering that I still haven't implemented mana tracking in conjunction with health tracking. Adding a mana bar to 2/4 party members would just overload the current clutter situation. I'll keep brainstorming the issue though, I know something different needs to happen.
how large can the party get? more importantly, is it easy to lose a member off screen or have the party very far away whist you are doing something else and can not see the tiny health bar as it is rendered in 3d world space (I think I remember one of you older gifs showing this exact scene).
I guess there are several options and I notice that you are shying away from a fixed on screen UI one way could be only show a "health" bar when a member is at critical. So lets say at 100%, nothing is shown. At 50% a voxel Heart/bar/whatever appears above their head as a warning. This starts to slowly get chipped away from top to bottom until it reaches 0%. Its basically remapping the bar from 0-100 to 0-50 but it might help clean up most of the party if they're relatively healthy (above 50%) which hopefully is most of the time.
whatever solution you end up with though, I think the health bars need to function as intended and do its job i.e. clearly tell the player that health is low and needs replenishing. If it fails at that job, either its too cluttered to see or it was off-screen/behind a tree... then the current implementation isn't doing the job