Before one achieves status, there is value for the airline. After achieving status, there is value for the customer. So, the question is where to set this limit, so that people keep flying to try and achieve this status, but don't earn it so fast as to be a burden on the airline.

I'm sure if they offered lifetime Gold at 5 million miles, that probably wouldn't be considered very good value.

I think a more sophisticated approach would be to have a decay rate for miles that are earned, instead of them resetting to 0 after 12 months. One wouldn't have status benefits indefinitely then, but at least past loyalty would receive some recognition.