First, the author of that Ascensus piece says that she is a "QKA" and a "CIP". A QKA is a certified 401(k) plan administrator. A CIP is a Charter Insurance Professional. The CIP has little or nothing to do with tax. A QKA is good for running a qualified retirement plan - but an HSA is neither insurance nor a retirement plan.
This is probably why she writes things like "IRS guidance is unclear, but it appears that HSA owners who" and "The rules for dealing with HSA excess contributions and their reporting are likely to be less familiar to custodian and trustee organizations than the IRA excess contribution rules, but the principles are sufficiently similar." In other words, to some extent, she is relying of the similarity of IRAs and HSAs to give advice.
Indeed, HSAs and IRAs are to some extent similar - but that's as far as it goes. For example, in some cases a non-deductible IRA contribution can still be contributed to an IRA, it just isn't deductible. (i.e. creates "cost" or "basis" in the IRA). For HSAs, there is no such thing - either the contribution is deductible or it's not, and if not, it's in excess.
Please note that her article was not aimed at taxpayers, but at people who have "HSA clients" (i.e., employers and consultants like herself). So careful reading is called for.
I do not see anywhere where she says that a distribution for qualified medical expenses would cure (eliminate) the excess carried over from a previous year. The closest she comes is "IRS guidance is unclear, but it appears that HSA owners who remove excess contributions after their tax filing deadlines and do not use them for qualified medical expenses may also be subject to the additional 20 percent penalty tax (unless an exception applies)." The previous sentence about distribution not for qualified medical expenses is simply saying that any distribution not for qualified medical expenses - whether to cure a prior year excess or not - is taxable in the year you receive it.
However, on page 1 of the form 8889 instructions, it is abundantly clear that the taxpayer will be hit with a 20% penalty - the IRS says, "However, any part of a distribution not used to pay qualified medical expenses is includible in gross income and is subject to an additional 20% tax unless an exception applies." The exceptions are for things like you became disabled or died or turned 65.
In any case, I do not see that she alleges that a distribution for qualified medical expenses would cure a prior year excess. Let me know if you find that other link.
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