Your co-worker took what you said too literally. As you say, "bless you" in this context is actually short for "God bless you" which is a request for God to do the blessing rather than a blessing in and of itself. Perhaps if you reinserted "God" the next time someone sneezes around this guy...
The tradition of acknowledging a sneeze is spread worldwide, but not all of the international sayings are religious. The most famous secular response, and the one I use, is the German version "gesundheit". It literally wishes the sneezer "good health".
- SmartLX