It’s easy enough to say that all wounds drop one level per Downtime phase. It’s equivalent to filling the Healing clock once per downtime. Players can always spend additional actions to heal faster.

I agree with your assessment that wounds fun to hand out, but the cost of removing them makes me think twice about doing so.

I don’t prepare plots, or encounters. Instead, I prepare a situation that the PCs are connected to, make sure the situation is unstable, and set things in motion. What happens next is entirely up to what the players do.

My general approach is to have about a dozen significant NPCs, split across three or more factions. Connect those NPCs with each other, using plenty of connections based on blood relationships and romantic/sexual relationships (parent/child, spouses, ex-lovers, that sort of thing).

Those NPCs all have something they want that they don’t have. That could be a physical thing, like a treasure, or it could be some status or position, or it could be personal like seduction, revenge, or approval. (One or two may want “to preserve the status quo”, but only one or two.) Then work out why the NPCs can’t just get what they want; ideally, they’ll need the PCs to help.

Finally, something happened just now that upset the status quo, meaning that now everyone has a great chance to get that thing they so desperately want.

Given that basic situation, the players then create characters that are connected to some or all of those NPCs and factions. Again, aim for connections of blood or sex. Some of your prep will change to take account of the players’ awesome ideas.

In play, have the NPCs pursue what they want. They may ask (or demand) the PCs help. NPC actions will change things, and the PCs and NPCs will react. Often, what an NPC wants will harm or disadvantage a PC or an NPC someone cares about. Changes will move across that relationship map. When you get to a quiet moment in the game, have some NPC take action towards their goal and see what happens.

Give the players dilemmas. Don’t give them “correct” choices to make. Do they defend the town, or head to the dungeon to retrieve the Sword of Magicness? (If they go, who’s at risk in the town? If they stay, who else will get the Sword and all the glory?) Once the Sword is in town, to they use it themselves or gift it to the local baron, in return for his soldiers to come help defend the town?

If you want to see something like this worked up in more detail for a small-ish situation, I strongly recommend Dungeons and Dilemmas for good guidance for creating and using situations like this.