I don't get it, how are you penalized? If you have an award ticket the ticket is always refundable. If you want to upgrade you can always use the value of your current ticket against a new ticket. The fact that the buy up offer is bad doesn't mean you are penalized in any way. The only way for someone to get that buy up offer is to have a ticket already. You're right that it generally doesn't make sense to buy the seat upgrade if a cancel and purchase is cheaper.

There's no penalties, and the value of your ticket is not negative.