Ovinomancer
No flips for you!
Horror has almost nothing to do with level in D&D, unless your horror is making players scared their characters may die. Move the stakes to something else -- where the fear isn't your death -- any the level/resource issue is moot. This does mean D&D is terrible at Alien style horror.
That said, I think D&D is terrible at horror because it lacks the kind of mechanics that enable the kind of narrative structure that works best for horror. The pass/fail resolution mechanic combined with the entire ability check system being aimed at resolving concrete, small actions means that you're far to granular in resolution to deal with many horror tropes. D&D is great for exploring a dungeon, but not so good at existential or body horror tropes.
That said, I think D&D is terrible at horror because it lacks the kind of mechanics that enable the kind of narrative structure that works best for horror. The pass/fail resolution mechanic combined with the entire ability check system being aimed at resolving concrete, small actions means that you're far to granular in resolution to deal with many horror tropes. D&D is great for exploring a dungeon, but not so good at existential or body horror tropes.