I do something exactly like what the parent said, and my own view.
The question isn't about figuring out junior or senior. Its about the candidate being able to think thru a problem. They don't even necessarily have to be good at articulating their thought, I just want to see how (and if at all) they are splitting open the problem, walking thru it, figuring it out and then converging on something that (at least to them) feels like a reasonable solution.
If they get stuck, I am happy to help them out, without disrupting them or deviating them. If they go down a wrong rabbit hole, I may ask a leading question that helps them realize the issue and gets them back on track.
The bar isn't being set higher. Its just that there are a LOT of people interviewing (in my experience) unfortunately, who seem to be unable to model problems in their head, model how their code would work (mentally model the execution of the code), and reason things out. They have frequently coasted on blind copy paste from stackoverflow/help/tutorials. A huge fraction.
I also have been coding for a LONG time (older than you), and in the early days, this sort of conversation didn't have to be explicitly asked for, it happened naturally, like in every interview (where I was the one being interviewed) - cause you present me with a problem, and I can't help but be nerd-sniped by it.
People who were candidates for tech jobs were there only cause they actually went into it with a bit of love/passion/skill.
But then it became a large industry, and most people who went into it were not 'hackers (problem solvers)' at all. They just liked the great pay. They may even be intelligent, but a lot were not capable as independent code owners. Still useful for basic crud with the right frameworks/etc. So thriving in enterprise applications, java/c# mega-platform/mega-framework domains.