Quit PhD and reapply for another PhD?
There are no ethical concerns here. It is fine to quit and reapply. Given a medical history it is unlikely that you will suffer academic consequences. So, relax on that score. 

However there are two things you should also consider. 

First, you have an advisor who has views about your likely success. Work with them now so that you have an accurate picture of your probable success in your current program. You seem to think the future is dim there, but it may be overly pessimistic. They may be able to work with you on a good completion. 

Second, if your health issues are continuing, you will need to convince a new program that you can be a success there in spite of them. If they come back to affect your performance you could wind up in the same place, but a worse situation, in a few years. 

If the medical condition is actually caused or affected by stress, then you should, in addition, find ways to deal with that issue.