Matt Madore figured out if you right click on the step in the word doc, -> Package Shell Object Object -> Properties. It will create a temporary copy in %TEMP%. You can then copy and save someplace else and have a regular STEP file.
Also, the flag "/UseLicenseMode=true" is what is in my shortcut, but my license is floating (not on a server but a local floating license that uses the license manager). If you have a subscription license, i wonder if removing this flag would resolve it.
But it seems like extracting the files once with the properties method, copying out of TEMP and importing to SC as needed seems to be the best workflow.