I do not think there is any such thing as "how it's intended to work"
The rules are the result of the designers trying to bring together a bunch* of different things that they expect to come up in gameplay, and provide some rules just because people want rules, but also provide ample ambiguity and calls to DM's adjudication because people
also want freedom to override the rules.
Playing the game in practice always ends up a lot easier than trying to "fix" hiding rules, and I think you know that very well since you are someone who actually plays and DMs a lot! But of course that doesn't mean that you can't have some fun discussing or brainstorming rules reworking
*Just to give an idea, you could separate two different
purposes for hiding: defense (avoiding a possibly hostile encounter, or escaping one) and offense (increasing the effectiveness of your attacks). In my experience, most problematic discussions are created by players who want to use hiding for the offensive purpose. If you base your reworking of rules on the separation between the two purposes, it might help finding two different but relatively easy solutions, instead of one single but impossibly complicated solution for both.