Without watched words regular expressions set it actually does that automatically. I had to add wildcards * to catch a word that was part of a username/longer word.
With the regular expressions you can do it with boundaries (\b). So \bsteam\b would only catch ‘steam’ and not ‘steamVR’ or ‘somethingsteam’.
I can replicate the partial substitution if I have watched words regular expressions set in the admin settings, so it may be worth a check?