Well, if you are going to redo the Morale system, I've a few suggestions.
I'd say that ground forces have 3 non-physical stats. These stats are Morale, Cohesion and Training.
Morale would have a linear connection with casualties; although more severe losses will cause more severe morale loss, the real threat to morale is slow attrition. Likewise, although inflicting losses on enemy forces raises morale, it does not raise it as much as taking the same losses does in damage. Units in Support and Rear Echelon positions take worse morale hits when engaged and recover less when inflicting losses. Units that have been engaged in combat during a construction increment do not recover morale. This would encourage players to cycle forces, but the time spent should be something reasonable. Morale normally doesn't exceed the Formation's maximum value, but a properly skilled CO can increase the cap and/or recovery as currently in the rules.
It should be noted that, during WW2, the Americans reckoned a soldier could remain on station for nearly 3 months at a time, while the British cycled their troops every 12 to 14 days, giving them 4 days of leave.
Cohesion would have an exponential connection with casualties; constantly bleeding a few troops every combat round will slowly decrease Cohesion, taking a large number of casualties for the formation all at once drastically impacts its Cohesion and ability to provide a united front. Likewise is the loss of an HQ unit in the formation or the CO due to a combat injury something that can cause potentially heavy hits to Cohesion, but if they've got non-generic COs under them the hit is less (on the presumption that the chain of command keeps going), while the loss of an HQ has limited effect as long as it's not the last HQ. Having more than 1 HQ in the formation is a boost for Cohesion, if one with strongly diminishing returns, as is a commander with the right skills.
Generally speaking a military unit can cope quite well with the slow loss of troops; it's something they train and prepare for because losses are inevitable in war. Losing command and coordination, as would happen if the HQ of the unit is lost or a large chunk of its personnel is killed in a short amount of time is far more devastating.Putting down Cohesion as an explicit value does mean that you can get an idea how likely it is a given unit is going to falter and enable an enemy Breakthrough. High Cohesion also translates into having a high chance of performing a Breakthrough though.
Training would take the place of the current Morale value. I would say it's much more stratified than the current system, with the levels of Conscript, Green, Trained, Regular, Veteran and Elite. GFTF's on a planet can be instructed to train formations to a certain standard, which impacts the time and wealth it takes to train. Minerals is independent and only cares for the end equipment. Conscript troops train quickly and cheaply but take severe maluses to Morale and Cohesion, Trained troops have standard Morale and Cohesion, and Elites have high Morale and Cohesion but take a long time and are expensive to train and maintain. A CO with the proper skills can get even the worst Conscript unit up to Elite eventually, but that will take a lot of time of money in comparison to just selecting Elite training in the GFTF.
Training is something that's accumulated not unlike the way crew skill levels are. And like with crew skill levels, it's something that's averaged between all members of the unit. You can absolutely shove Green troops into an Elite formation, it just means the unit becomes on the average less skilled and may lose a level of Training depending on how much the unit is expanded from current size, but likewise can you shove some Elite or Veteran troops into a much less skilled unit as a cadre to stiffen them up a bit.
I deliberately picked some tresholds so as to let you pick a few values for each level instead of having to insert a calculation system that can get... odd as skill point values become more extreme.
I've got more ideas for the ground combat system, although I'll admit I'd basically shamelessly plunder Paradox grand strategy games for ideas.