Is this suppose to be the way it is?
Yes, check the "higher performance" to enable the dedicated graphics all the time, even for low level graphics the integrated graphics can handle.
In other words "higher performance" turns off graphic switching, eats more battery life.
"Better battery life" enables graphics switching, using the CPU and the dedicated graphics as needed.
However if you do graphics heavy stuff while on battery, then it switches to the dedicated graphics and there is no "better battery life" obviously.