It's still used. 'Bless you' is a normal, polite response when someone sneezes. You either say nothing at all or you say 'Bless you.' Note that there are no religious connotations at all in this usage - it's just what people say.

"Bless you" is still very common, but a lot of people in America use the German word "Gesundheit" instead. It doesn't have the same religious implications as "bless you" (it merely means "health"), so people who are not religious often prefer it. Some people in the southwestern part of the US use the Spanish word "salud," which also means "health."

Yep, it's very normal, or ''gazunteid" (a German word, I guess.. I'm not sure how to spell it) :)

Definitely don't copy millennials, ha ha!

Some do, it depends from region to region and the cultural and religious background! Generally, it is still considered polite and normal.