Health / Medical Care (as described
here) is more or less finished now.
(It is uploaded SVN and will be available to community with next release.)
There are still a few English texts missing for Pedia.
(They will be created within the next weeks.)
Schmiddie even already created aweseome Achievments.

(Needless to say, that I love the other graphics he created for this feature as well.)
More Detailled Explanation:
1. Health / City Health
Huge City Population generates
negative Health every round.
Medical Doctors can generate
positive Health every round (in Medical Buildings).
Both factors are
summed up / stored to
City Health.
(Which can rise or fall to a
maximum/minimum value of
+10 / -25)
2. Effects
City Health will directly affect:
- Productivity of the city
- Population Growth of the city (food growht threshold)
- Healing rate of troops stationed in that city
3. Balancing
All formulas can be balanced in XML.
Negative Health:
Population < 12 --> no negative Health from Pop
Population = 12 --> -1 negative Health from Pop
Population = 15 --> -2 negative Health from Pop
...
Positive Health:
Simply depends on
1) Level of the Medical Building
2) Amount of Workers employed as "Healers"
3) Healers being Specialists (Renowned Doctor) or not
Generally current balancing has been made in a way that gigantic cities with good growth and productivity are possible if you simply take a little care of supplying medical care.
If you don't, productivity and growth will suffer ...
4. Other Aspects
A) If there is no negative Health or positive Health generated, City Health will balance back to 0 again.
So heavily ill cities are also able to recover back to normal by themselves.
On the other hand, you cannot simply build up huge City, then move your Medics to another city and hope that health will stay that high.
B) AI will not get any problems with this feature.
It is not affected by negative Health from Population but if its cities get big enough, it will try to build Medical Buildings and employ Medics to increase City Health.
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Actually the feature is not that difficult to understand, once you try it out.

It is quite easy to figure out how many medical doctors you will need to keep your cities healthy.
Edit:
Positive (upper max value) City Health has been limitted to
10. (And thus the additional positive effects on productivity, birthrate, heal rate +10%)
(Explanation above has been adjusted.)
Edit 2:
Threshold for City Population before negatively affecting City Health has been increased to
12.
(Explanation above has been adjusted.)