1. Don't have death penalties, they are a terrible idea.

2. Simply have the player with LA gain 2 levels at certain levels, where the rest of the party only gains 1 level. Do this because as time goes on, LA abilities are less important than class abilities. So while a Half-Dragon Fighter 1 might be as or more powerful than a Warmage 5, a Warmage 10 is vastly superior to a Half-Dragon Fighter 6. So just use LA Buyoff, except just remove the LA at the level it says you can use Buyoff, don't charge XP for doing it, so the player essentially gains 2 levels at once instead of the normal 1.