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Health levels are a mechanic commonly used in larp combat systems, particularly in theatre-style games. The system is used in Mind's Eye Theatre games.
Each character has a number of health levels, which are typically named in order of increasing severity e.g. OK, bruised, wounded, crippled, dead. Being damaged in combat inflicts one or more "levels" of damage. The difference from a hit point system is that each level inflicts some mechanical disadvantage - for example, not being able to use abilities or initiate combat.
A similar, non-heirachical system is Health status.