What I am running into is when I change the EpisodeID, only the ObjectiveAssessment table data changes in the Merge Fields that I have used in the letter (located on a separate layout), but not the SubjectiveHistory fields.
Which is perfectly consistent with the current design of your relationships. The link between Demographics and SubjectiveHistory is by Patient ID so changing the Episode ID (I'd name that field in demographics "selectedEpisondeID" BTW to make it's function more obvious.) will not change how it links to data in SubjectivHistory.
But you are not limited to a single Tutorial: What are Table Occurrences? box for each table. You can use the duplicate button (two green plus signs) to make a new occurrence of SubjectiveHistory and link it to ObjectiveAssessment by EpisodeID. Your merge fields can then be replaced with merge fields that refer to fields from this new occurrence of SubjectiveHistory instead of the current occurrence.