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Design decision. You're playing as the leader of the elected party in government. If Obama had lost the presidency he can't suddenly become the Republican candidate. And if you didn't motivation to win your election what reason would you have to care about domestic approval rates?

AI regions that loose elections do remain democracies under the new ruling party.

Yes, winning elections is more challenging as of Update 3. If you hold over the word "Democracy" in the state department it now has a Tooltip with the date for your next election so you can keep that in mind during gameplay.