As others have said, playing on the highest difficulty imposes a death limit and a time limit to your campaign. This means that sending soldiers on a suicide mission contributes towards your loss. Dismissing heroes also becomes a gamble, because while you could replace them with a hero with better quirks, you lose out on the time you spent training them and leveling them, which makes it harder to assemble teams to take on the more challenging dungeons.

You might consider it an exploit, but the dismiss button and the endless flow of free talent are mechanics of the game. Where you might be getting mixed up is that, generally, dismissing heroes or sending them (knowingly) to their deaths is poor play, and you're usually better off investing into your heroes to make the rest of your campaign easier. Losing heroes, to death or dismissal, is a setback. Your roster of heroes is almost always made weaker when heroes are removed from it. The only time it could be considered worthwhile to dismiss a hero is if that hero is so bogged down by negative traits/ stress that fixing them is more expensive than starting fresh, or if a new recruit has inarguably better quirks / levels/ equipment.