For the benefit of others, this appears to be by design.

By default, your application is bound to the old runtime, even though
the merge modules get updated (so you can't distribute the old runtime
unless you saved a copy of the merge modules before you updated).

However, if you define _BIND_TO_CURRENT_VCLIBS_VERSION=1 when
compiling your code, then the automatically generated manifest will
bind to the updated runtime.  You have to define this from the project
options and you have to define it for all the runtime dependencies
used by your application in order for everything to be bound only to
the new runtime.

Otherwise you must use the policy MSM and the new MSM to install the
new runtime and redirect users of the old runtime to the new one.  Of
course, that might break some applications that depended on the
behavior of the old one compared to the new one... but if you use the
vcredist_x86.exe, its going to install the policy MSM anyway it seems.
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