Does armor really have diminishing returns?

I've heard some people claim this, but this simply isn't true.

Every point of armor gives you 1% more effective health against physical damage. People claim that because the damage reduction it gives slowly decreases as armor increases, it gives diminishing returns, and that health gives linear returns.

However, you can't compare the two like that. Let's say you had 1000 health. Getting 100 armor and 1000 health would make no difference against physical damage, ignoring armor pen. Getting 100 armor would always increase your effective health by 1000, the same as health. 200 armor would increase it by 2000, same as getting 2000 health (this is all physical damage, ignoring armor pen).

Now if you looked at HP as "damage reduction", getting 1000 bonus health from 1000 base health for a total of 2000 is equivalent to 50% damage reduction. Getting 2000 bonus health (or bonus 2*base hp) would equate 67% reduction. Sound familiar? It should, because that's how much 200 armor would give you. This is all assuming that incoming damage is physical, without armor pen or %HP shred.

Of course, this doesn't mean stacking either of these is effective.