Ann, thank you for helping me out on this just to confirm that I am doing the same as you..
I import the video clip into Photoshop convert it to a smart object then perform a shadow highlight adjustment and save as a psd in the same folder as the video file.
I drag the psd into premiere and when prompted I select merge all layers
I drag the psd to timeline and attempt to scrub through the “psd video file” but I see just a still from the video not scrubbing video
Is this the process you tried and you do see scrubbing video ?
Jon, yes It is definitely a smart object I just tried with a second video clip and repeated the process but still just seeing a “still” in premiere