If you load a game with a damaged squad, it'll always revert to 1 man.  It's a bug.

Try going to https://www.joeuser.com/ and uploading to the forum system from there.  I had the same issue, but that url worked for some reason.

My squads heal and return to full strength but I usually swap them out periodically and put the injured ones in cities, taking out the cities' defending squad as a replacement.

I also put medkits on all my soldiers for extra health and regen and this seems to help more than anything.  Highly recommend it.