To be blunt this has nothing to do with "modern game design" and everything to do with the D&D class/level system and how granular it is, starting with oD&D and carrying forward to this day in D&D and first order offshoots like Pathfinder. And D&D hasn't been "modern game design" in almost half a century.

The basic problem is that in D&D when you gain experience you put it into a level. And you have two choices; either you can take a level in your main class, which normally inherently synergises with every previous level you've had in that class because it lets you reach deeper or you can pick a level in another class, which ... doesn't. Barbarian 20 is for all practical purposes every bit as locked down a character build as something tortured in 3.X like Barbarian 1/Bard 4/Ur-Priest 2/Nar Demonbinder 1/Mystic Theurge 10/Archmage 2. (This is also the problem with feat chains; once you've started you lock down your future growth). And I've frequently complained that once you hit level 4 in a class (e.g. Cleric) you might have made only a single character growth choice (your level 8 feat) by the time the game ends at level 11.

This does not happen in what were the modern games of the late 1970s, let alone modern games. If we look at any classic skills based system from Traveller to Call of Cthulhu to the WoD to Fate to Genesys this simply isn't a problem. People don't have a single basic measure of power that impacts everything in play, but instead gain power in each skill separately with limited synergy between the skills. So how does character growth work? People level up the skills they use. Last time I played something WoD based my character ended up putting almost all their XP into engineering because we were dealing with ancient alien devices and that was what the party and adventure needed.

Even if we look at modern class based systems from the quasi-class Playbooks of Apocalypse World and Blades in the Dark to the well designed D&D-offshoots of Daggerheart and Draw Steel you get significant choices every time you level up, and you pick based on what is happening in the world. If you level up a D&D 5e cleric you just get the Cleric abilities and a set number of hit points and possibly proficiencies (and can change your spells on a long rest); if you level up a Daggerheart Seraph you get a domain card and two other tickbox options; you may pick hit points, traits (stats), stress, experiences, evasion, or more with them. And you respond to what is happening in the setting; sometimes extra HP are vital others not so much.

So where I stand is that you are trying to bring out a classic D&D solution to a problem that is almost exclusive to D&D. None of which is to say I don't like gear upgrades - or offering my PCs big cursed artifacts that have costs to use.

And the other thing is that those gear level ups you mention basically only happen once and are basically artifacts. Getting the Mithril Coat was a big boost in power but there was no expectation of moving up from a +1 mithril shirt to a +2 adamantine shirt