From reading the comments it seems that people like to be able to see the health of other players, but everyone agrees that all players should have an equal chance in a fight.
I would just like to clarify, with option 1, we will add a setting so that you can turn it off if you wish.
I just want to pose an alternative option, which addresses lots of concerns which has been bought up. What if we make it so that health indicators (both from the server, and from any client mods) are invisible by default, util you engage in combat. This means that if you're already fighting someone, you continue to see their health for 10 seconds, but if you are looking at them from a distance and determining if you should clean them, you can't see their health until you hit them. This means that engaging in combat remains a risk, but also encourages a player to finish killing the other player, rather than both people running away when both get low on health.