Hmm, that's odd. We're using the stock Apple material kit, which does in theory follow that setting automatically. As far as I can tell it works as intended on my device--it does remain a little transparent, as do Apple's native apps, but it cranks the blur. Please let me know if this is the behavior you see or if it is genuinely bugged (compact post mode is a good way to check this--normally a thumbnail will just color the first fifth of the tab bar, and in low transparency mode it'll pretty much bleed to the whole thing).
We also have a setting in Accessibility to entirely disable translucent insets, which might give you the behavior you want.