Just putting it out there: Physical is an element.
And originally, Health was not the thing being protected. "Mental Integrity" was. The Mind Shield only served to block the mental assaults of Shadowlings and fellow Psys. In this context, the role and the capabilities of the Mind Shield can be better understood. The Shield was for the purpose of bolstering one's own mental defenses; however, they could not be strengthened beyond a person's normal limits in this regard.
Then, in TRPG2, Mental Integrity became Health, and the explanation had to be revised to another that (sorry, Craig) made slightly less sense. However, my suspicion is that all Gifted units have an existing psionic defense that prevents that unit from experiencing physical harm which can be strengthened by the training of his / her / its Psy Defense, and which is merely renewed by a Mind Shield.
The non-Gifted units are also given the Mind Shield, and on the non-Gifted units, the shield utilizes the strength and vital force of the person for staying up, and thus cannot exceed the normal limits of these. This is why Shielded units that may have broken bones or damaged organs appear to have no reduction in performance, despite their injuries; the Shielding of the unit keeps the life force and strength of the unit intact. Static Shields are always kinetic shields, and, by their nature, exceed normal defense limits. However, they can tie into neither the psionic defenses nor the vital force of units they are applied on past the normal limits, explaining why the Static Shielded units don't function at even higher levels than units at full health.
This explanation might be correct, but it also might be a load of ; it's 100% unauthorized and unofficial.