In Normal mode, my idea is that if you die, you lose a level, but not paragon level.
So let's say you're level 14 and you die, you'll revive your character just as you already do but you'll start at 13.
If you're level 60 paragon 20, you'll revive at level 59 paragon 20.
The reason this might work is because you temporarily lose all access to your level 60 and above items, but within an hour or so you can work back to level 60.
The beauty of it is that the penalty is relatively severe, but comparatively you're not losing a lot of time to the player. For example, some people might complain that they don't have enough time to gain a whole other level, but my argument in reply is that if you're level 60 paragon 15 (or whatever), you're already clearly playing the game and can easily get to 60 again.
You don't lose gear, you don't even lose nephalem valor. You only lose a level, which temporarily allows the player to not use level 60 gear.
I can understand a lot of players think that's really harsh, but coming from a HC background I have to say; I don't have a lot of sympathy for you, haha. Anyway though, I'm not trying to be mean, I just think that might be a good alternative. It's harsh enough to discourage dying and to allow more meaningful gameplay, but not so harsh as to significantly set the player back.
I know you're going to flame, so get on with it...