From what I can tell, if you close the app while a short is playing, you’ll be dumped back into shorts when opening the app again. I’ve made it a point to always go back to the home tab before closing the app, which seems to avoid the issue.

I assume their goal is to make YouTube feel like TikTok, for those who want that.

Personally, I think there should be a setting so I can pick which page the app opens up to. I’d like it to open up to my Watch Later list, or subscriptions.

Agreed. Unfortunately control over the home page is a long fought battle over a decade long with youtube increasingly dis-incentivising subscriptions and long term viewership.

This seems like it would be a nice perk for Premium subscribers. Since I pay a flat rate and don't see adds, I would imagine my increased watch time only increases YouTube's cost, while not bringing in any additional revenue. I also read that Premium customers are more profitable than free-tier ad watchers. If this is all true, I would think the priority would be keeping Premium users happy, and providing more incentives to join Premium. Allowing Premium users to configure their home screen seems like an easy win. In keeps existing Premium users happy, gives another compelling reason to sign up, and doesn't really cost them anything... it might even save them money.

Am I missing something about the Premium business model?

I'd actually support that as well. But I suppose if you allow users to decrease watch time it'll lower the value-prop of premium and risk increased cancellations.