Yeah everyone's equipped with the best they can be and I've been leveling up my Arts.
Are you responding to your party's soul arts? When they call out for healing, melee, range, etc the icons on your bar that correspond to their request will flash, make sure you hit those to heal your party members. Also make sure to hit b when the QTE pops up. That will heal them and you.
If you're doing all that, then I'm not really sure what to tell you. If you lose three times in a row it will give you the option to reduce their level by 5 and you don't get penalized so there is no shame in doing that.