"Is this true, or are they trying to avoid making a correction?" - Even if the HSA custodian is allowed to do this, they are notoriously reluctant to make changes after the due date of the return. Even though the fact that they placed excess contributions for two tax years on the same 1099-SA was an error on their part, they are very unlikely to correct it. This means that you just have to do the best you can in case anyone ever asks about what happened.
If you are going to do things right, you will want to do this:
1. Amend your 2021 return. You will note that you have excess contributions but do NOT say that you will withdraw the excess. TurboTax will add the excess to Other Income (correct), and TurboTax will carry over the excess to 2022, creating a 6% excise on the rollover.
2. Figure out the numbers as best you can that should have been on the 1099-SA withdrawing your excess contributions for 2021. Place the excess amount (for 2021) in box 1, and '1' in box 3. This will be made-up because you don't have and will never have the actual 1099-SA. We are going to treat this amount not as excess contributions but as a distribution not for medical expenses. This amount will be added to Other Income and will be dinged 20%, but it will cut off any ongoing carryover of the excess.
3. On your 2022 return, you will show excess HSA contributions. Withdraw the excess if you can.
Now you are going to have to do some independent thinking. I don't know how much you have in cash in your HSA (possibly none). Once there are no dollars left in your HSA, there is no longer an excise penalty on the rollover of excess contributions from previous years. This is because the 6% penalty is actually 6% of the smaller of the amount in your HSA on December 31 or the rollover amount.
Obviously, once you have reduced the dollars in your HSA to zero, your excise tax (penalty) also goes to zero, and since you will never again be able to contribute to your HSA, the penalty will never again be greater than zero. So your independent project is to take your actual numbers and calculate when your HSA goes to zero. Once that happens, you have no incentive to fix the excess rollover problem. This could happen as soon as your 2022 tax return - I think you should amend your 2021 tax return in any case.
If you think about it, anyone who starts Medicare with an excess carryover will eventually face this situation. To my knowledge, the IRS has not addressed this situation of rollovers that generate $0 penalties, but you shouldn't pay what you don't owe.
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