I think that works perfectly.
Do you also adjust how much damage a monster can deal based on power level or is it all the same?
What happens when some players choose to up their HP after advancing a level and others don't? Does that create an imbalance? I'd imagine that the characters with the increased HP would be so much more durable.
As written, a player can at most lose 2 HP on a “Disaster” result of a skill die roll. They can lose more if using the “Fickle Rolling” table (AKA using magic) and if the GM determines that the spell is powerful enough to incur an HP loss of more than 2.
The HP loss is irrespective of what the players are up against. This means the GM should only include injury as a risk for a skill die roll if it is reasonable for a player to lose 2 HP from that action. For example a player rolling a skill die for picking a lock doesn’t risk injury because the keyhole/door can’t feasibly cause the player to lose 2 HP, unless the door is trapped! If it is trapped, you would want to include that possibility when telling your player the risks involved in the roll.
Despite all that I’ve said, the game rules are meant to be bent and shaped how you want. If you and your players agree that big, boss monsters should cause players to lose more HP, then go for it!
As for HP increases, the idea is for those who do not take the HP increase on level up will become more likely to succeed at a skill over those who do take the HP increase. It’s a trade off between durability and success chance. In practice I am not sure if this trade off works well or not! I still need to do more playtesting (me and my friends trying out the game).
No worries, happy to answer any questions you may have!
As written an HP increase via advancement gives a player 3 additional HP. This is represented by the fact that their HP thresholds change. For the first HP increase, their maximum HP (AKA the "Intact" HP threshold) goes from 6 to 9. The threshold for "Injured" goes from 4 to 6. Finally, the threshold for "Fading" goes from 2 to 3. This is the +3/+2/+1 you refer to. On subsequent HP increases, the same pattern applies (next would be 12 for Intact, 8 for Injured, 4 for Fading).
Again, this may or may not be changed in the future for balancing purposes, further playtesting on my part needs to be done to see if this system operates in the way that I want. Also, if a group decides they want to change this system for their game they are highly encouraged to do so! Play the game how you and your friends want to!