When the hero levels up, all or some health should also return. If I level my hero from lvl 5 to lvl 6, I'd expect the health to go from 50% to 75% (or even 100%).
In the past this was the case, when the hero lvled up, he/she regained all his health.
I think this was changed to try to avoid hero bombing in early game.
I can understand why regaining all the health could not be ideal, but at least part. In the early game there are inactive's armies to get treasures from, adventures, robber camps. All of which really need your hero to have good to strong health because you've been unable to build a strong army up by that point. At least a little health benefit early game would be good!