Beyond Earth is a little weird in some ways when it comes to health. Most people I think would regard villages and small towns as healthy places to live, or at least healthier than big cities - indeed people even go to them for "retreats".
However, BE treats small cities as one of the unhealthiest places that exist, barring cities with manufacturies (and/or some strategic resources). This comes in the form of a flat unhealth per city and a (potential) health per population (eventually overcoming the flat unhealth). This means small "cities" are unhealthy, while big cities are (potentially) very healthy.
I find it weird that settling a new city automatically penalises you in non-diplomatic ways; not the creation of the settler/colonist (that makes sense), but the actual settling of the city. I guess this is because Civ doesn't have a great (or at least main-stream) way of moving resources between cities.
If you could move resources between cities more effectively this would allow you to incur an opportunity cost of developing a new city - i.e., you are not using those resources on already developed cities. This would allow you to take away the automatic health, science, and culture penalties. Indeed, you could even have small cities, 'village cities', that you decide not to develop but instead could be there to function as healthy retreats for the population of your big cities (and maybe culture).
Technically we can funnel production into energy, which we can then use to buy things in small cities (but not all things - not wonders, not even all non-wonders). Problem with this is two-fold; one, the efficiency of this is poor; two, you can only buy things in bulk (no rush-buy option).
We used to be able to 'funnel' food (magical food that comes out of nowhere) into new cities, but the trade-routes only allow magical food for the big city now.
As long as there is no production/food/(energy?) opportunity cost outside of creating the settler/colonist we need to have some penalty for settling new cities - Civ uses 'Health' or 'Happiness' for that. BE went with the model of: go tall for health, go wide for trade - i.e., try to balance health against trade by expanding at a sensible rate (or at least that is what I feel was meant to be the case). However, the balance didn't exist - trade was far too powerful and health meant very little, so you just flung out as wide as you could.
With the weakening of trade (by a lot) and the importance of health increasing (by a lot) the balance may now be there, or it may not be. If it is too much in favour of going tall for health (i.e., over the course of a game you only settle a few cities; usually settling a new city when you have a big enough health surplus to make it worth it - taking into account that staying above 35 health might be quite important now) then something like luxuries may need to be added back in (although I would much prefer a new idea).
