You are not overreacting for wanting the services offered without the egregious data harvesting requirement. However, that’s the level of service your employer pays for. Price of admission.
Attempting to fiddle with the device when it is clearly externally managed is a bad idea, especially now you have put the gears in motion for a return.
You are overreacting by thinking that they will obtain anything valuable or anything that can be leveraged from it, if returned now in the state you leave it.
Your employer has already shared plenty of information about you with the provider simply by enrolling you in whatever health plan this is. That horse has long since bolted and the barn door is swinging in the wind.
The device data will add nothing useful to what they have already, unless you actually use it.
I assume the app is internet dependent & any self-sourced device using the app would just give up data regardless, or that the app would not function if you successfully castrated it.
In your position, the only way forward while keeping your scruples is to either convince the provider to give you the item without the bullshit, or seek alternative options.
Arstechnica is a Condé Nast fluff piece machine.
Hackernews not so bad, but still owned by YC. They are investors in Reddit and seeded a lot of other tech startups.