If the basic logic of the DSM is flawed, it should be abandoned. Instead, psychiatrists should move towards a system that looks at an individual’s mental experiences in context, alongside their unique developmental vulnerabilities and strengths, as the main source for analysing and responding to their distress. Diagnosis would no longer name a disorder but map what kinds of support, relationships and learning processes are most likely to help a person regain agency, coherence and a sense of future.
Because if it’s “really disruptive” then a person might need support to be able to function well enough to, e.g., keep a roof over their head. Insurance companies require a label in order to pay out for that support, so there it is. If you’re grieving for 2 weeks plus 1 day, but still able to function, no one is going to arbitrarily slap a diagnosis on you.
Fwiw, “disordered” doesn’t necessarily mean abnormal in the context of mental health, it really just means causing problems (or, “really disruptive”). Indeed, it’s normal to grieve for more than 2 weeks, but our broader society is geared toward extracting profit from you, not toward making sure you can work through your emotions, so mental health professionals are often stuck with just trying to facilitate the least-bad outcomes. Also, as you said, sometimes the changes are just to appease insurers; the system is dumb, so sometimes you have to do nonsensical things in order to make it help people like it should.
As for narcolepsy/etc., yeah … As a mental health professional, I am also befuddled. I suppose a psychiatrist with appropriate training could diagnose and treat that, but normally it would be a sleep specialist.
Tl;Dr: the healthcare system itself doesn’t make sense, so we do things that don’t make sense in order to make it work for patients.